Oakley first quarter net sales increased 10.2%, to $141.8 million, a first quarter record, compared with $128.6 million in the first quarter of 2004. Net income for the first quarter totaled $7.4 million, or $0.11 per diluted share, compared with net income of $4.2 million, or $0.06 per diluted share, earned in the first quarter of 2004.
Oakley Chief Operating Officer Link Newcomb commented, “Our strong first quarter results were fueled by solid sales growth in our newer categories, including the successful international launch of OAKLEY THUMP(tm) and the release of our new spring line of apparel and accessories. The quarter also benefited from additional sales of combat eyewear to the U.S. military and solid expense control.
“We approach the key sunglass selling season anticipating the launch of several outstanding new styles reflecting a new fashion design language that we believe will broaden the appeal of our sunglass product line. In addition, the second half of the year will feature the launch of RAZRWire(tm) — the world's first Bluetooth-enabled sunglass — developed jointly by Oakley and Motorola.”
Newcomb concluded, “Based on our strong first quarter results and the expectations for our planned introductions, we now expect full year 2005 net sales growth near the upper end of our previously issued guidance of 10 to 15 percent and earnings growth in the high end of an increased range of 15 to 20 percent over 2004.”
Total first quarter U.S. net sales increased 8.8% to $67.0 million from $61.6 million during the same period last year. U.S. net sales, excluding the company's retail store operations, totaled $49.0 million, compared with $47.8 million in last year's comparable quarter. First quarter net sales at Oakley's retail locations increased 30.5% to $18.0 million and included a double-digit increase in comparable-store sales. At the end of the first quarter, the company operated 37 O Store(tm) locations, including one new store opened during the quarter, and 84 Iacon sunglass specialty stores, including one new store opened during the quarter. The company also announced today in a separate press release that its Iacon subsidiary had acquired five additional retail locations from one seller. At the end of last year's first quarter, the company operated 28 O Stores(tm) and 78 Iacon locations.
First quarter international net sales increased 11.5% to $74.8 million, compared with $67.1 million in last year's comparable period. Net sales grew in every region, fueled by the international launch of OAKLEY THUMP(tm) during the quarter. Double-digit increases occurred in Japan, Latin America, Asia, Canada and South Pacific. The weaker U.S. dollar accounted for 4.0 percentage points of international net sales growth.
Worldwide sunglass gross sales increased 7.5% in the first quarter to $68.7 million from $64.0 million in last year's first quarter. Sunglass unit shipments increased 4.8% worldwide, reflecting the introduction of new sunglass styles and increased sales to the U.S. military, offset by slight declines in older sunglass styles. The average selling price increased 2.6%, driven by the effect of a weak U.S. dollar on international sales, the strength of Oakley's retail store operations, a higher sales contribution from polarized styles that carry higher price points and a modest U.S. price increase on sunglasses which took effect January 1, 2005.
Combined first quarter gross sales of the company's newer categories, consisting of apparel, prescription eyewear, electronics, footwear and watches, grew 16.1% to a record $60.6 million. These sales accounted for 40.4% of total first quarter gross sales and were driven by the international launch of OAKLEY THUMP(tm) together with the successful spring release of the company's apparel and accessories lines.
The company's first quarter gross margin increased to 54.7% compared to 52.6% in last year's comparable period due to improved gross margins from the company's newer categories, the positive effect of a weaker U.S. dollar on the company's international operations, and the U.S. sunglass price increase. These positive factors were partially offset by a lower mix of sunglass and prescription eyewear sales, higher sales returns and increased inventory reserves.
First quarter operating expenses totaled $66.5 million, up 9.2% from last year's first quarter, and improved to 46.9% of net sales, compared with 47.4% of net sales in the comparable prior year quarter. The tax rate for the quarter was 34.0%, equal to last year's first quarter.
The company's order backlog as of March 31, 2005 was a record $85.6 million, up 12.6% compared with $76.0 million at the same time last year. Prebook orders from retailers for the company's fall apparel and footwear lines totaled $38.5 million at March 31, 2005, up 8.8% compared with $35.4 million at the same time last year.
Consolidated inventory totaled $121.0 million at March 31, 2005, compared with $115.1 million at December 31, 2004 and $104.3 million at March 31, 2004, reflecting increased inventory in apparel, eyewear and electronics to support their growth and expanded company-owned retail store operations. Accounts receivable totaled $95.1 million at March 31, 2005, compared with $102.8 million at December 31, 2004 and $88.0 million at March 31, 2004. Accounts receivable days sales outstanding (DSO) improved to 60 at March 31, 2005 compared with 62 at March 31, 2004.
2005 Guidance
The economies and retail environments in many of Oakley's key global markets, coupled with the company's heavy reliance on “at-once” orders from retailers to replenish sunglass inventory sold to consumers, provides a challenging backdrop against which to forecast. 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. The company believes that its new electronics category and increased sales to the U.S. military will be significant contributors to its 2005 performance. However, Oakley's relative inexperience in the electronics market, public acceptance of new products and variables relating to military procurement all contribute to the difficulty in accurately forecasting future performance. Finally, 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 revised guidance for 2005 calls for full-year net sales growth toward the top end of its previous guidance of 10 to 15%. This revised guidance assumes a high single-digit increase in sunglass sales, combined with an approximate 20 to 25% increase in the company's newer category sales. It also reflects management's current plans to continue the expansion of its own retail locations at an accelerated pace compared to that of 2004. The company expects its tax rate for 2005 to be approximately 34%. Accordingly, the company now expects full year earnings growth over 2004 to be in the high end of an increased range of 15 to 20%.
OAKLEY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data, unaudited)
Three Months Ended
March 31,
2005 2004
Net sales $ 141,795 $ 128,636
Cost of goods sold 64,168 60,922
Gross profit 77,627 67,714
Operating expenses:
Research and development 3,932 3,706
Selling 41,128 37,112
Shipping and warehousing 4,289 4,356
General and administrative 17,193 15,788
Total operating expenses 66,542 60,962
Operating income 11,085 6,752
Interest (income) expense, net (59) 353
Income before provision for income taxes 11,144 6,399
Provision for income taxes 3,789 2,176
Net income $ 7,355 $ 4,223
Basic net income per share $ 0.11 $ 0.06
Basic weighted average shares 67,712 68,093
Diluted net income per share $ 0.11 $ 0.06
Diluted weighted average shares 68,581 69,008
