Oakley, Inc. announced net sales for the quarter increased 9.9 percent to a third quarter record $145.0 million, compared with last year's third quarter net sales of $131.9 million. Net income for the third quarter totaled $13.5 million, or $0.20 per diluted share, a 10.3 percent increase from net income of $12.3 million, or $0.18 per diluted share, in last year's comparable period.
Oakley Chief Operating Officer Link Newcomb commented, “During the third quarter of 2003, Oakley surpassed $500 million in trailing-12-month net sales for the first time. Sales
from newer categories and Oakley retail stores recorded
robust growth of 31.9 percent and 75.9 percent, respectively,
offsetting an unexpected 9.6 percent decline in sunglass
sales and contributing to improved gross margins. We also
demonstrated solid expense management across the company,
allowing us to achieve operating margins of 14.6 percent,
equal to last year's third quarter, in spite of the decline
in sunglass volumes. Taken together, these factors resulted
in our return to quarterly earnings growth for the first
time in the past nine quarters and demonstrate the long-term
importance of our initiatives to diversify our product mix
and distribution.''
Newcomb continued, “Sunglass sales declined during the third
quarter as many of our sunglass styles struggled to achieve
the momentum we anticipated. Many U.S. retailers, including
Sunglass Hut, entered the third quarter with higher inventory
levels than planned due to the disruption in the early summer
selling season caused by poor spring weather. As a result,
retailers relied on their beginning-of-quarter inventory
to satisfy a greater portion of an increasing consumer demand
at retail and postponed reorders until much later in the
quarter than we originally anticipated.''
“International sunglass sales were also weaker than expected
in southern European markets, where we continued to experience
strong competition from fashion brands; in Japan, where
the retail environment continued to be soft; and in the
South Pacific region, where an acquisition involving our
two largest customers caused what we believe to be a temporary
disruption.''
“In our retail store operations, the improved retail environment
in the U.S., coupled with the addition of 14 new O Stores(tm)
and 12 new Iacon stores in the past year, led to net sales
growth of 75.9 percent and better-than expected operating
profits. On a trailing-12-month basis, net sales through
our own retail stores exceeded, for the first time, global
sales to Sunglass Hut, a satisfying milestone in our efforts
to diversify our distribution in a way that gives us more
control over our business opportunities and more direct
interaction with Oakley consumers. We have been very pleased
with our retail operations since their launch in 1999 and
continue to seek outstanding retail locations for additional
Iacon and Oakley stores.''
“Solid gains in apparel and footwear net sales, led by successful
new Fall seasonal product launches, drove our new categories
to quarterly gross sales in excess of $50 million for the
first time, totaling $50.6 million and accounting for 32.6
percent of third quarter gross sales, compared with $38.4
million and 26.9 percent in last year's third quarter. We
also achieved improved gross margins from footwear and apparel
thanks to better production sourcing and product line planning,
the weak U.S. dollar and sound inventory management.''
“Addressing our 2003 full year guidance, based on lower-than-expected
sunglass sales growth for the full year, partially offset
by sustained increases in gross margins and continued expense
management, we now expect full-year 2003 earnings to finish
in the lower end of our previous range of $0.55 to $0.60
per diluted share. Despite that slightly reduced near-term
outlook, the strength of the Oakley brand and the continued
success we achieved in 2003 diversifying our product line
and distribution channels, while improving margins and controlling
expenses, provide a solid foundation as we begin to look
ahead to 2004.''
Preliminary Fiscal 2004 Guidance
Uncertainties surrounding the sustainability of the current
economic recovery and their impact on the retail environment
in Oakley's key global markets continue to provide a difficult
backdrop against which to forecast financial results. Because
the company's sunglass sales rely heavily on “at-once'' orders
from retailers to replenish inventory sold to consumers,
an inconsistent retail environment complicates management's
attempts to predict future sales trends.
The company's preliminary guidance for 2004 calls for full-year
net sales growth of approximately ten 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. Earnings per share are
expected to grow 10 to 15 percent in 2004, based on improving
gross margins, which are expected to benefit from the current
weak U.S. dollar to a greater degree than in 2003, and management's
continued focus on controlling operating expense growth.
Third Quarter Financial Analysis
Worldwide sunglass gross sales decreased 9.6 percent in
the third quarter, to $77.7 million compared with $86.0
million in last year's third quarter, including a 31.1 percent
decline in global sales to Sunglass Hut and disappointing
sales of the company's new 2003 sunglass models. Sunglass
unit shipments declined 16.8 percent worldwide. This unit
decline was partially offset by an 8.6 percent increase
in average selling prices compared with the third quarter
of 2002 due to the strength of Oakley's retail operations,
the benefit of a weak U.S. dollar on international sales,
and a higher sales contribution from higher-priced polarized
versions of various styles. Combined third quarter gross
sales of the company's apparel, prescription eyewear, footwear
and watch categories grew 31.9 percent, to $50.6 million,
and accounted for 32.6 percent of total third quarter gross
sales. Sales of the company's goggles grew 49.4 percent
on the strength of newer styles and better third quarter
fulfillment in 2003 compared to 2002.
Total third quarter U.S. net sales increased 9.1 percent
to $70.3 million from $64.4 million last year. U.S. net
sales excluding the company's retail store operations totaled
$55.3 million, compared with $55.9 million in the comparable
quarter of 2002, as a significant decline in sunglass sales
was offset by increased sales of newer categories and goggles.
Third quarter net sales at Oakley's retail stores exceeded
management's expectations, increasing 75.9 percent to $15.0
million, driven by strong comparable store sales across
multiple product categories and the addition of a total
of 26 new retail locations compared to the third quarter
of 2002. At the end of the third quarter, the company operated
24 O Store(tm) locations, including four new stores opened
during the quarter, and 69 Iacon stores, including four
new stores opened in the quarter. At the end of last year's
third quarter, the company operated ten O Stores(tm) and
57 Iacon locations. The company expects to end 2003 with
27 O Stores(tm), a full year increase of 13 stores, and
75 Iacon locations, a full year increase of 11 stores.
Oakley's international net sales increased $7.2 million,
or 10.6 percent, to $74.7 million in the third quarter,
compared with $67.5 million in last year's comparable period.
The weaker U.S. dollar accounted for 7.9 percentage points
of this growth. The company's operations in Europe, Latin
America, Japan, and South Africa each reported double-digit
sales growth, while Asia reported five percent growth and
sales in Canada were flat. The company experienced an 11
percent sales decline in the South Pacific region, primarily
due to a reduction in orders from Sunglass Hut and OPSM
as they began to integrate their operations following OPSM's
recent acquisition by Luxottica Group SpA (NYSE:LUX – News).
Third quarter gross margins increased to 56.9 percent compared
with 56.3 percent in last year's comparable period, due
to improved gross margins from the company's new categories
and the positive effect of a weaker U.S. dollar on the company's
international operations. These positive factors were partially
offset by a lower mix of sunglass sales and reduced sunglass
margins due to lower production volumes. Third quarter operating
expenses totaled $61.4 million, up 11.5 percent from last
year's third quarter, and represented 42.3 percent of net
sales, compared with 41.7 percent of net sales in the prior
year. The increase was primarily due to higher foreign operating
expenses resulting from a weaker U.S. dollar and higher
selling expenses related to the company's expanded retail
operations.
The company's order backlog as of September 30, 2003 was
$56.1 million, a decrease of 3.6 percent from $58.2 million
at the same time last year. The decrease in backlog reflects
a one-month shift, from September in 2002 to October this
year, in the timing of receipt of large holiday product
orders from Sunglass Hut; lower goggle orders compared with
last year caused by an unintended delay in the 2002 release
of the Wisdom(tm) goggle; and a decrease in orders from
large U.S. department store customers which were establishing
beginning inventory levels at Oakley concept shops launched
in the fourth quarter of 2002. These decreases in backlog
were partially offset by significant increases in global
orders for the company's apparel products.
Consolidated inventory totaled $104.5 million at September
30, 2003, compared with $103.7 million at June 30, 2003
and $85.9 million at September 30, 2002. The increase from
year-ago levels reflects the larger number of Oakley retail
stores; combined footwear, apparel and goggle inventories
which increased at a rate below that of their combined year-over-year
sales growth; and a modest increase in sunglass inventories.
Accounts receivable days sales outstanding (DSO) stood at
61 at September 30, 2003, compared with 58 at September
30, 2002, as a result of a larger contribution from the
newer categories that generally carry longer terms.
Stock Repurchase Program and Establishment of Annual Dividend
On September 10, 2002, the company's Board of Directors
authorized the repurchase of up to $20 million of the company's
stock, to occur from time to time as market conditions warrant.
Since then, the company has repurchased 829,600 shares for
$8.6 million at an average share price of $10.37. During
the third quarter of 2003, the company repurchased 75,000
shares for approximately $797,171 at an average share price
of $10.63. The company intends to continue to make repurchases
under the share repurchase program as market conditions
warrant.
On August 12, 2003, Oakley's Board of Directors initiated
an annual dividend policy and declared the Company's initial
regular annual cash dividend of $0.14 per share, payable
October 31, 2003, to shareholders of record at the close
of business on October 15, 2003. Any future dividends are
at the discretion of Oakley's Board of Directors.
About Oakley, Inc.
OAKLEY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data, unaudited)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
------------------ ------------------
2003 2002 2003 2002
-------- -------- -------- --------
Net sales $144,963 $131,913 $399,994 $386,629
Cost of goods sold 62,472 57,629 170,117 163,595
-------- -------- -------- --------
Gross profit 82,491 74,284 229,877 223,034
Operating expenses:
Research and development 3,643 4,397 10,733 12,209
Selling 38,039 32,049 106,890 93,791
Shipping and warehousing 4,855 4,770 14,006 13,748
General and administrative 14,826 13,796 43,364 40,252
-------- -------- -------- --------
Total operating
expenses 61,363 55,012 174,993 160,000
-------- -------- -------- --------
Operating income 21,128 19,272 54,884 63,034
Interest expense, net 334 421 1,106 1,265
-------- -------- -------- --------
Income before
provision for income taxes 20,794 18,851 53,778 61,769
Provision for income taxes 7,278 6,597 18,822 21,619
-------- -------- -------- --------
Net income $ 13,516 $ 12,254 $ 34,956 $ 40,150
======== ======== ======== ========
Basic net income per share $ 0.20 $ 0.18 $ 0.51 $ 0.58
Basic weighted average
shares 67,929 68,728 68,030 68,824
Diluted net income per
share $ 0.20 $ 0.18 $ 0.51 $ 0.58
