Oakley, Inc. announced that net sales for the second quarter ended June 30, 2005 increased 10.8% to a quarterly record $170.5 million from $153.8 million for the year-ago quarter. Net income for the second quarter grew 27.3% to $20.3 million, or 30 cents per diluted share, compared with net income of $16.0 million, or 23 cents per diluted share, earned in the second quarter of 2004.

“Our strong second quarter results were highlighted by our new sunglass styles, including CROSSHAIR, WHISKER, BOTTLECAP, GASCAN, and RIDDLE, which generated second quarter sales 65.6% higher than last year's new sunglass introductions did in the comparable period,” commented Oakley chief operating officer Link Newcomb. “Strong, double-digit comparable store sales, together with new store openings, fueled a 38.6% increase in sales at the company's growing base of retail stores.

“Each of our international markets posted double-digit net sales increases, with the exception of a modest decline in Europe. Our apparel and accessories, prescription eyewear, and OAKLEY THUMP contributed to solid newer category sales growth during the second quarter. Gross margins improved across virtually all product categories and these increases in sales and gross margins led to a robust 27.3% net income increase.

“We have great momentum at the halfway point of 2005 and look forward to the second-half delivery of our expanded apparel and accessories line, fall prescription frame collection, continued contribution from new sunglass releases and the launch of RAZRWIRE – the world's first Bluetooth-enabled sunglass developed jointly by Oakley and Motorola.'”

Newcomb concluded, “We now expect earnings per share growth at the higher end of an increased range of 25% to 30% over 2004 and continue to expect full year 2005 net sales growth in the upper end of our previously issued guidance of 10% to 15%.”

Second Quarter Financial Analysis

Total second quarter U.S. net sales increased 14.5% to a record $96.4 million from $84.2 million during the same period last year. U.S. net sales, excluding the company's retail store operations, totaled $70.4 million, compared with $65.4 million in last year's comparable quarter, an increase of 7.6%. Second quarter net sales at Oakley's retail locations increased 38.6 percent to $26.0 million and included a strong double-digit increase in comparable-store sales. At the end of the second quarter, the company operated 39 U.S. O Store(tm) locations, including two new stores opened during the quarter, and 92 Iacon sunglass specialty stores, including nine new stores opened or acquired during the quarter. At the end of last year's second quarter, the company operated 30 O Stores(tm) and 81 Iacon locations.

Second quarter international net sales increased 6.3% to $74.1 million, compared with $69.7 million in last year's comparable period, with the weaker U.S. dollar contributing 4.6 percentage points of that growth. Japan, Latin America, Asia, Canada and the South Pacific regions each experienced double-digit increases in net sales, partially offset by a modest sales decline in Europe, the company's largest international market.

Worldwide sunglass gross sales increased 1.3% in the second quarter to $111.6 million from $110.2 million in last year's second quarter. Sunglass unit shipments decreased 0.5% worldwide, reflecting sales declines in older sunglass styles nearly offset by strong sales of new sunglass styles and increased sales to the U.S. military. The average sunglass selling price increased 1.8% compared with last year's second quarter.

Combined second quarter gross sales of the company's newer categories, consisting of apparel and accessories, prescription eyewear, electronics, footwear and watches, grew 24.7% to $50.0 million. These sales accounted for 26.9% of total second quarter gross sales and were driven by strong increases in the company's spring apparel and accessories lines and prescription eyewear, together with the benefit of OAKLEY THUMP, the world's first fully integrated, digital audio eyewear.

The company's second quarter gross margin increased to 59.5% compared to 57.6% in last year's comparable period due to improved gross margins from each of the company's newer categories, including a positive mix benefit from the addition of the company's new electronics products; higher gross margins on new 2005 sunglass introductions relative to 2004 sunglass introductions; positive manufacturing variances and efficiencies, including lower eyewear raw materials costs; the positive effect of a weaker U.S. dollar on the company's international operations; and the U.S. sunglass price increase which took effect January 1, 2005. These positive factors were partially offset by the effect of the increased contribution from the company's retail stores, which have slightly lower gross margins with the inclusion of occupancy costs.

Second quarter operating expenses totaled $71.7 million, up 11.7% from last year's second quarter, and represented 42.0% of net sales, compared with 41.7% of net sales in the comparable quarter. The tax rate for the second quarter was 31.5%, reflecting the benefit of an income tax refund related to amended prior period California state income tax returns. The company expects a tax rate of approximately 34% on its income for the remainder of 2005.

The company's order backlog as of June 30, 2005 was $82.1 million, up 10.3% compared with $74.4 million at the same time last year. The backlog reflects significant incremental new orders for electronics products, significant increases in sunglass and goggles orders and a modest increase in apparel orders, partially offset by a decline in footwear orders. The increase in sunglass backlog was achieved despite a $1.3 million decline in sunglass backorders compared with one year ago, reflecting better execution by the company in delivering new sunglass styles this year.

Consolidated inventory totaled $134.3 million at June 30, 2005, compared with $115.1 million at December 31, 2004 and $109.5 million at June 30, 2004, primarily reflecting increased apparel and accessories inventories in support of upcoming fall season shipments, higher apparel closeout inventories, higher eyewear raw materials levels to support anticipated production volumes, incremental inventory of the company's new electronics products and the company's expanded retail store operations. Accounts receivable totaled $94.7 million at June 30, 2005, compared with $102.8 million at December 31, 2004 and $90.8 million at June 30, 2004. Accounts receivable days sales outstanding (DSO) improved to 51 at June 30, 2005 compared with 54 at June 30, 2004.

2005 Guidance

The company's revised guidance for 2005 projects full year earnings growth over 2004 to be in the high end of an increased range of 25% to 30%, up from previous guidance of 15% to 20% growth announced on April 20, and full-year net sales growth at the upper end of its previous guidance of 10% to 15%. This net sales guidance assumes a mid to high single-digit increase in sunglass sales combined with an approximate 20 to 25 percent increase in the company's newer category sales for the year and also reflects management's current plans to continue expanding its retail locations.

Stock Repurchase Program

During the second quarter of 2005, the company purchased a total of 456,400 shares of its common stock at an average price of $13.81. These purchases completed a previously authorized $20 million stock repurchase program and commenced repurchases under a new $20 million repurchase authorization approved by the company's board of directors on March 15, 2005, leaving $14.4 million available for future repurchases. The company intends to continue repurchasing shares under the current repurchase program subject to market conditions.

                           OAKLEY, INC.
                   CONSOLIDATED STATEMENTS OF INCOME
            (in thousands except per share data, unaudited)

                            Three Months Ended     Six Months Ended
                                  June 30,              June 30,
                            -------------------   -------------------
                              2005       2004       2005       2004
                            --------   --------   --------   --------
 Net sales                  $170,475   $153,826   $312,269   $282,462
 Cost of goods sold           69,073     65,244    133,240    126,166
                            --------   --------   --------   --------
  Gross profit               101,402     88,582    179,029
                                                              156,296

 Operating expenses:
  Research and development     4,655      3,864      8,588      7,570
  Selling                     43,944     39,851     85,072     76,963
  Shipping and warehousing     4,380      4,277      8,669      8,632
  General and
   administrative             18,683     16,157     35,875     31,946
                            --------   --------   --------   --------
    Total operating
     expenses                 71,662     64,149    138,204    125,111

                            --------   --------   --------   --------
 Operating income             29,740     24,433     40,825     31,185

 Interest expense, net            83        247         24        600
                            --------   --------   --------   --------
 Income before provision
  for income taxes            29,657     24,186     40,801     30,585
 Provision for income taxes    9,336      8,223     13,125     10,399
                            --------   --------   --------   --------
 Net income                 $ 20,321   $ 15,963   $ 27,676   $ 20,186
                            ========   ========   ========   ========

 Basic net income
  per share                 $   0.30   $   0.23   $   0.41   $   0.30
 Basic weighted average
  shares                      67,592     68,397     67,671     68,256

 Diluted net income
  per share                 $   0.30   $   0.23   $   0.40   $   0.29
 Diluted weighted average
  shares                      68,658     69,160     68,630     69,093