Oakley announced results of its fourth quarter and full year ended December 31, 2003. Q4 net sales increased 18.1% to $121.6 million, compared with $102.9 million in the Q4 of 2002. Net income for the fourth quarter totaled $3.2 million, or $0.05 per diluted share, compared with $0.5 million, or $0.01 per diluted share, in last year's Q4, which included a European restructuring charge of $1.8 million after-tax, or $0.02 per diluted share.
Full year 2003 net sales surpassed $500 million for the first time in the company's history, reaching a record $521.5 million, up 6.5 percent from $489.6 million in 2002. Net income totaled $38.2 million, or $0.56 per diluted share, compared to $40.6 million, or $0.59 per diluted share, in 2002, including the restructuring charge.
“We achieved significant milestones in 2003 that reinforce our commitment to Oakley's category and distribution diversification strategy,” commented Jim Jannard, Chairman and Chief Executive Officer. “Each of the weapons in our Oakley brand arsenal is focused on a key growth opportunity for 2004.”
Oakley's Chief Operating Officer Link Newcomb commented, “In the fourth quarter, successful holiday retail programs spurred our sunglass sales to their first year-over-year growth in several quarters. This provided an encouraging end to a year in which sunglass unit volumes declined over 10 percent and our new introductions never achieved the momentum we expected. Despite those challenges, by utilizing strong cost discipline we achieved full year earnings in line with our $0.55-$0.60 per share guidance provided in January 2003.”
“Newer categories provided solid sales growth as our apparel and prescription eyewear lines finished their strongest year ever on an upswing. Our footwear business continues to be a tale of two seasons characterized by strong sales of our spring sandal and golf lines contrasted with fall lines that have not yet achieved traction, especially in domestic markets. However, our S.I. Assault Boot and Shoe provided an encouraging sign in the second half of 2003 which we hope to extend into 2004.”
“Oakley's retail expansion efforts continued on plan during the year. We now operate more than 100 U.S. retail locations, including 27 Oakley stores and 76 Iacon sunglass specialty stores, which accounted for nearly 13 percent of our fourth quarter sales and are expected to continue to increase their contribution to net sales.”
Newcomb concluded, “We enter 2004 with a great line-up of new products and guarded optimism that in a more responsive retail environment, we will prevail.”
U.S. net sales, excluding the company's retail store operations, increased 6.7 percent in the fourth quarter, to $38.6 million, compared with $36.1 million last year. Sales to the company's diverse specialty account base and other domestic sales excluding Sunglass Hut increased 6.1 percent, to $32.0 million. U.S. net sales to Sunglass Hut, the company's largest customer, increased 9.8 percent, to $6.5 million, as an Oakley holiday front-door presentation, combined with a strong exclusive product offering, generated favorable consumer response.
Oakley's fourth quarter international net sales increased 17.5 percent (including a 15.5 percent benefit from the weakening U.S. dollar) to $67.3 million, compared with $57.3 million last year. Europe, Latin America and South Africa each achieved double-digit sales growth. Positive growth was seen in all regions except Southeast Asia, where transition to new distribution adversely impacted sales.
Sales through Oakley's U.S. retail store operations reached $15.7 million during the fourth quarter, compared to $9.5 million in the fourth quarter of 2002, an increase of 65.8 percent. During the fourth quarter, the company opened in the U.S. three new Oakley retail stores and seven new Iacon stores. At December 31, 2003, the company operated a total of 103 U.S. retail stores, compared with 78 at December 31, 2002. In addition, in December the company opened its first licensed O Store(r), located in Santiago Chile, making it the sixth international Oakley retail location.
Fourth quarter gross sales totaled $129.6 million. Sunglass gross sales increased 9.6 percent in the fourth quarter, to $63.5 million, marking the first year over year increase in five quarters. The growth was driven largely by a 7.5 percent increase in the average sunglass selling price combined with a 1.9 percent increase in unit shipments compared to the fourth quarter of 2002. Global net sales to the retail group of Luxottica, which includes Sunglass Hut and OPSM locations worldwide, increased 15.5 percent to $9.1 million during the quarter.
Combined fourth quarter gross sales of the company's newer categories — apparel, prescription eyewear, footwear and watches — grew 28.9 percent, to $38.7 million, and accounted for 29.9 percent of total fourth quarter gross sales. Apparel and prescription eyewear were the strongest contributors during the quarter.
Fourth quarter gross margins improved to 53.3 percent compared with 53.0 percent in last year's comparable period. This increase reflects improving margins in the newer categories and the positive effect of a weaker U.S. dollar on the company's international operations. Together, these more than offset the negative effects of a slightly lower mix of sunglass sales and higher inventory adjustments relative to the comparable period. Operating expenses improved to 49.1 percent of net sales in the quarter, down from 51.9 percent the prior year, which included $2.8 million in restructuring charges, as selling and design costs increased at a rate slower than net sales.
The company's order backlog as of December 31, 2003 was $51.9 million, up 21.5 percent compared with $42.7 million at the same time last year. Included in this backlog are orders for the company's footwear and apparel lines, which totaled $43.8 million at December 31, 2003, up 22.0 percent compared with $35.9 million at the same time last year.
The company generated more than $70 million of cash from operations during 2003, resulting in a cash balance of $49.2 million at December 31, 2003 compared with $22.2 million one year ago. A portion of the operating cash was used to fund $30.7 million in capital expenditures during the year and to pay the company's first-ever annual dividend totaling $9.5 million, or $0.14 per share, in October. The company's consolidated inventory totaled $98.7 million at December 31, 2003, compared with $104.5 million at September 30, 2003 and $87.0 million at December 31, 2002. This inventory reflects the expanded company-owned retail operations and increased apparel and footwear inventory to support the new spring releases. Accounts receivable declined to $78.0 million at December 31, 2003, compared with $96.4 million at September 30, 2003 and $68.1 million at December 31, 2002. Accounts receivable days sales outstanding (DSO) improved to 59 at December 31, 2003, compared with 61 at December 31, 2002.
Total 2003 net sales increased 6.5 percent to a record $521.5 million, driven by a 12.3 percent increase in international net sales to $264.5 million. Domestic net sales increased 1.2 percent to $257.1 million, including a 63.1 percent increase in Oakley's retail store sales to $53.2 million. International and U.S. net sales in 2002 were $235.5 million and $254.0 million, respectively.
Gross sales totaled $560.6 million for 2003. Sunglass gross sales decreased 6.0 percent to $310.4 million for the year, compared with $330.2 million in 2002, due in part to a weaker domestic economy and wet weather patterns in key markets during the peak sunglass selling season. The average sunglass selling price increased 5.4 percent, due in large part to favorable foreign currency exchange rates and a higher contribution from Oakley retail store operations, but was more than offset by a 10.8 percent decline in unit shipments. Global net sales to Luxottica decreased 21.4 percent, to $46.9 million, compared with $59.7 million in 2002.
Combined full year gross sales of the company's apparel, prescription eyewear, footwear and watches grew 23.4 percent to $165.1 million and accounted for 29.4 percent of full year gross sales, compared with 25.3 percent of full year 2002 gross sales.
Gross sales of apparel and apparel accessories increased 34.2 percent for the full year, from $56.6 million in 2002 to $76.0 million in 2003, with the largest components being fleece, lifestyle and outerwear products, together with substantial sales of the company's accessories line.
Prescription eyewear gross sales increased 24.6 percent for the full year to $42.7 million, compared with $34.3 million in 2002. Approximately 78 percent of the company's prescription eyewear sales were generated by the prescription eyewear frame line, which now consists of 23 styles. The company's prescription lenses accounted for the remaining 22 percent of prescription eyewear sales. The lens line includes single vision and progressive designs in a wide variety of options, including polarized, Iridium(r) and 19 lens colors.
Footwear gross sales grew 17.0 percent for the full year, to $36.5 million, compared with $31.2 million in 2002. The company's spring assortment of sandals and golf shoes continued to build on the momentum of the prior year's success. While second half footwear sales increased modestly over 2002's disappointing sales, they did not achieve the company's original expectations. Consumer versions of Oakley's military boot and shoe styles have generated sales of $2.5 million since their April 2003 introduction and the company plans to build on that success in future seasons with the launch of additional industrial/military styles.
Watch gross sales decreased 14.7 percent for the full year to $9.9 million, compared with $11.6 million in 2002 as the company realigned its product development and sales efforts to focus on premium analog watch designs and distribution. The company achieved strong sales of the new GMT watch and continued strength of the Detonator(tm), Crush(tm) 2.0 and Crush(tm) 2.5 analog product lines.
Goggle gross sales grew 30.2 percent for the full year, to $36.2 million up from $27.8 million in 2002, driven by continued momentum of the Wisdom(r) goggle line and increased military sales.
Gross margins were 56.5 percent in 2003, compared with 56.7 percent in the prior year. Lower sunglass gross margins were caused by unfavorable manufacturing volume variances. Non-eyewear categories, which carry lower gross margins, represented a greater proportion of sales compared to the prior year. These factors were partially offset by the weak U.S. dollar and improved apparel, footwear and watch gross margins. Operating expenses for 2003 totaled 45.0 percent of net sales, compared with 43.6 percent in 2002 as selling and G&A expenses grew at a faster pace than net sales.
The European restructuring announced in the fourth quarter of 2002, which resulted in a $1.8 million after-tax charge recorded in that quarter, was completed during the fourth quarter of 2003 with no revisions to the charge recorded.
The economies and retail environments in many of Oakley's key global markets have generally improved from year-ago levels, but continue to provide a challenging backdrop against which to forecast. The company's sunglass sales rely heavily on “at-once” orders from retailers to replenish inventory sold to consumers. As a result, sudden, unexpected changes in the relative strength of the retail environment complicate management's attempts to accurately assess future order and sales trends. In addition, a large proportion of the company's new sunglass products are introduced during the first half of each year, making it difficult to forecast actual consumer acceptance of these new products in the absence of comparable sales history. Because Oakley is an integrated manufacturer of its sunglass products, a small variance in sunglass sales volume has a relatively large impact on gross margins and net income due to the fixed-cost nature of the company's manufacturing operations.
The company's guidance for 2004 calls for full-year net sales growth of approximately 10 percent. This guidance assumes a low-single digit increase in sunglass sales, combined with a 15 to 20 percent increase in the company's newer category net sales. It also reflects management's current plans to continue the expansion of its own retail locations at a pace similar to that of 2003. The company expects earnings per share to increase approximately 15 percent in 2004, at the high end of the 10-15 percent range provided four months ago. The improved earnings outlook is based on greater benefit from the weak U.S. dollar, management's continued focus on improving margins and controlling operating expense growth, and increased management confidence resulting from sales trends observed during the fourth quarter of 2003. In addition, based on various international and state tax planning initiatives, the company expects its tax rate for 2004 to be 34.0 percent, down slightly from the 35.0 percent rate in 2003.
(Financial Tables Follow)
OAKLEY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)Three Months Ended Twelve Months Ended
December 31, December 31,
——————- ——————-
2003 2002 2003 2002
——– ——– ——– ——–
Net sales $121,555 $102,923 $521,549 $489,552
Cost of goods sold 56,729 48,367 226,846 211,962
——– ——– ——– ——–
Gross profit 64,826 54,556 294,703 277,590Operating expenses:
Research and
development 3,575 3,807 14,308 16,016
Selling 35,475 33,204 142,365 126,995
Shipping and
warehousing 5,071 4,335 19,077 18,083
General and
administrative 15,554 12,083 58,918 52,335
——– ——– ——– ——–
Total
operating
expenses 59,675 53,429 234,668 213,429——– ——– ——– ——–
Operating income 5,151 1,127 60,035 64,161Interest expense,
net 166 378 1,272 1,643
——– ——– ——– ——–
Income before
provision for
income taxes 4,985 749 58,763 62,518
Provision for
income taxes 1,745 262 20,567 21,881
——– ——– ——– ——–
Net income $ 3,240 $ 487 $ 38,196 $ 40,637
======== ======== ======== ========Basic net income
per share $ 0.05 $ 0.01 $ 0.56 $ 0.59
Basic weighted
average shares 67,935 68,459 68,006 68,732Diluted net income
per share $ 0.05 $ 0.01 $ 0.56 $ 0.59
Diluted weighted
average shares 68,465 68,620 68,282 69,333Three Months Ended Twelve Months Ended
December 31, December 31,
———————- ———————-
2003 2002 2003 2002
——— ——— ——— ———
Other Operating Data: (dollars in thousands)Sunglasses:
Units 835,375 819,521 4,199,916 4,707,822
Gross sales $ 63,454 $ 57,894 $ 310,410 $ 330,154Net sales:
Domestic $ 54,263 $ 45,601 $ 257,050 $ 254,024
International $ 67,292 $ 57,322 $ 264,499 $ 235,528Backlog $ 51,941 $ 42,692
December 31, December 31,
2003 2002
————- ————-
Selected Balance Sheet Data:(in thousands)
Cash and cash equivalents $49,211 $22,248
Accounts receivable less
allowance for doubtful accounts 77,989 68,116
Inventories 98,691 87,007
Accounts payable, accrued
liabilities and income tax
payable 76,696 54,147
Total debt 28,701 30,757
