K-Swiss Inc. posted another down quarter in Q4 and finished the year with revenues less than half what they were in 2004. The company expects to stop the bleeding on the revenue line in 2010, forecasting a a flat business for the year as its focus on performance starts to pay off in the back half of the year. The first quarter is expected to see a decline, but Q2 is forecast flat and growth is expected to return in the third quarter.
Fourth quarter revenues fell 21.4% to $42 million, with Domestic revenues decreasing 31.8% to $18.1 million and International revenues down 11.2% to $23.9 million. The Q4 at-once business was 64% of sales in Q4 versus 33% of sales in the prior-year period, mainly due to the disposal of slower-moving inventories. For the K-Swiss brand, average wholesale price per pair decreased to $24.14 in Q4 versus $24.36 in Q4 2008. Volume of footwear sold was 1.4 million pairs versus 2 million.
In the quarter, Lifestyle revenues slumped 34%, Performance (tennis, running and training) grew 4%. Other revenues (apparel and Palladium) surged 98% on a small base. In the period, Lifestyle represented 67% of sales; Performance, 19%; and Other, 14%.
The biggest sellers for the quarter in Lifestyle were the Classic, which sold 158,000 pairs and decreased 8.4% year-over-year. Top models included Lozan II, 62,000 pair; Mohr, 51,000 pair; and Albury II, 42,000 pair. The top performance seller was ST329, with 51,000 pair.
Internationally, European sales were down 10% with an 18% decrease in backlog at year-end. Sales in the Asian region were up 9% in the quarter with a 13% increase in backlog. Europe accounted for 31% of revenues and Asia, 21%.
KSWS posted a loss of $12.5 million, or 36 cents a share, in the quarter, which was down slightly from a loss of $13.7 million, or 39 cents a share, in the prior-year period. The latest period included a pre-tax impairment charge of $4.8 million, or 13 cents, related to the write-down of goodwill related to the trademarks of Palladium. Gross margins improved to 36.5% of sales from 24% of sales in the prior-year quarter. SG&A increased to 65.9% of sales from 55.3% of sales in Q4 2008.
Worldwide futures at year-end through June decreased 12.6% to $80.9 million. Domestic futures were down 6.6% to $29.6 million and International futures were off 15.7% to $51.3 million. Management also cautioned that it had seen a post year-end decline in Q2 backlog. At the close of the year, Q2 delivery backlog was up 14% but it was down about 8% as of last week. As a result, K-Swiss expects flat Q2 sales.
Overall, K-Swiss expects a flat 2010 versus 2009 with gains in the back half. Gross margin is expected to increase to 40% from 35.8% in 2009 due to lower closeouts. SG&A is expected to rise to $135 million to $140 million due to increased marketing expenditures.
On a conference call with analysts, Steven Nichols, chairman, president and CEO, said the company will continue to focus on tightly controlling overhead costs, inventory, distribution, as well as investing even more in new running and tennis technologies and sponsorships.
The advertising and marketing investment for 2010 is expected to reach an all-time high as a percentage of revenues for us as well as well above our investment in 2009 as we look to reposition the K-Swiss brand as the California Sports Company, commented Nichols.
Marketing investments will include TV spots that will run for weeks on ESPN networks, Fox Sports, MTV, MTV 2, Comedy Central, and some syndication. Featuring triathletes, tennis players, skaters, and Californians warming up and competing in sunny California, the ads end with the text, Designed in California.
Nichols also said a re-designed K-Swiss.com will go live in April featuring better integration of the news of K-Swiss athletes, events, products, and social media conversation.
Regarding tennis, the inside cover of the April issue of Tennis and Smash magazines will be a two-page ad featuring Bob and Mike Bryan, who won the Doubles Championship at the Australian open. Sam Querrey, the number two American tennis player, is also a K-Swiss athlete.
In running, K-Swiss upgraded to presenting sponsor of the LA Marathon in addition to being the official footwear and apparel brand. Other marketing efforts include a special insertion in the inside cover of the April Runners World; a spring promotion for its Tubes collection with 24-Hour Fitness Centers; a Tubes Train for Summer program with high school athletes launching in four major cities; increasing its sponsorship of Ironman events to 32 this year from 16 in 2009; and a co-branded Ironman footwear and apparel collection.
