KSwiss Inc. saw both net sales and net earnings for the fourth quarter and fiscal year ended December 31 drop in the double-digits. More worrying is the heavy decreases in worldwide futures orders at year-end. Net earnings and net earnings per diluted share for the fourth quarter of 2007 dropped 94.4% to $596,000, or 2 cents per diluted share, compared with $10.7 million, or 30 cents per diluted share, in the prior-year period. Net earnings and net earnings per diluted share for the year decreased 49.2% to $39.1 million, or $1.10 per diluted share, compared with $76.9 million, or $2.17 per diluted share, for the prior-year period.
For the fourth quarter of 2007, total worldwide revenues decreased 16.7% to $78.2 million from $93.8 million in the prior-year period. Domestic revenues decreased 34.6% to $34.3 million, and international revenues increased 6.1% to $43.9 million. Total worldwide revenues for 2007 decreased 19.9% to $410.4 million compared with $501.1 million in 2006. Domestic revenues decreased 36.5% to $202.4 million, while international revenues increased 14.0% to $208.1 million.
Futures Orders
Worldwide futures orders with start ship dates from January through June 2008 decreased 12.5% to $147.8 million at December 31, 2007, compared with $168.9 million at December 31, 2006. Domestic futures orders decreased 39.5% to $50.8 million from $84.0 million the previous year. International futures orders increased 14.3% to $97.0 million from $84.9 million the previous year.
Stock Repurchase Program
At December 31, 2007, there remains authorization to repurchase approximately 4,061,000 shares under the company's existing stock repurchase program. Since August 1996, KSwiss has purchased a total of 25.3 million shares of Class A Common Stock for a total expenditure of $164.6 million.
Earnings Guidance
KSwiss also issued guidance for the first quarter of 2008 and full-year 2008. The company expects revenues for the first quarter of 2008 to be approximately $95 million to $105 million and earnings per diluted share to be in the range of 18 cents to 28 cents. The company expects full-year revenues to be approximately $310 million to $340 million and expects to report full-year earnings per diluted share of approximately 10 cents to 35 cents.
The company's estimates for the first quarter of 2008 and full-year 2008 reflect a significant decline in domestic revenues; substantial investments in product development and marketing for the KSwiss brand; continued expansion of international operations; and continued investment in the Royal Elastics brand. The estimates are based upon the following assumptions: gross margins will be approximately 47%; SG&A will not rise above $43 million for the first quarter of 2008 and $152 million for the full-year 2008; customer order cancellations will be moderate; and the company's growth initiatives with respect to Royal Elastics will not exceed a net loss of 6 cents per share for the full year.
Steven Nichols, chairman of the board and president, stated, “The fourth quarter was fairly indicative of the environment in which we are operating and the long-term plan we are executing to re-establish positive trends in our domestic business and maintain momentum internationally. As expected, we invested heavily in our premium sports branding efforts, while conservatively managing our balance sheet. We have a long road ahead of us to prove to retailers and customers that KSwiss is a fresh and exciting premium sports brand once again, but we remain committed to get there.”
KSwiss Inc. Consolidated Statements of Earnings (In thousands, except earnings per share data)
| |||||||||||||
Three Months Ended | Year Ended | ||||||||||||
December 31, | December 31, | ||||||||||||
| (Unaudited) | |||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
| Revenues | $ | 78,167 | $ | 93,833 | $ | 410,432 | $ | 501,148 | |||||
| Cost of goods sold | 40,972 | 51,246 | 220,573 | 263,935 | |||||||||
| Gross profit | 37,195 | 42,587 | 189,859 | 237,213 | |||||||||
| Selling, general and administrative expenses | 40,895 | 32,102 | 157,498 | 137,527 | |||||||||
| Operating profit (loss) | (3,700 | ) | 10,485 | 32,361 | 99,686 | ||||||||
| Other income | — | — | 5,232 | — | |||||||||
| Interest income, net | 2,418 | 2,073 | 9,594 | 7,005 | |||||||||
| Earnings before income taxes | (1,282 | ) | 12,558 | 47,187 | 106,691 | ||||||||
| Income tax expense (benefit) | (1,878 | ) | 1,888 | 8,114 | 29,827 | ||||||||
| Net earnings | $ | 596 | $ | 10,670 | $ | 39,073 | $ | 76,864 | |||||
| Basic earnings per share | $ | 0.02 | $ | 0.31 | $ | 1.13 | $ | 2.23 | |||||
| Diluted earnings per share | $ | 0.02 | $ | 0.30 | $ | 1.10 | $ | 2.17 | |||||
| Weighted average number of shares outstanding | |||||||||||||
