Oakley Sees A Bright Summer Leading to an Electronic Holiday…

Oakley, Inc. posted a strong second quarter over last year, with record sales beating street estimates and gross margin improvements from better product margins helping to bolster the bottom line. New product offerings from the company showed remarkable sell-through, prompting COO Link Newcomb to comment in a conference call that OO is “optimistic about improving trends in [its] core business.” Oakley’s owned-retail also had a record quarter, while the company begins to play in the electronics game in a bigger way.

Part of management’s optimism no doubt stems from the outstanding performance of their new offerings at retail in sharp contrast to last year when new products failed to capture the consumer’s attention. New sunglass releases saw a 65.6% jump in sales over the new products offered last year, and represented 28% of total sunglass sales, leaving little doubt as to the validity of Oakley’s optimism looking forward. Though the Half-Jacket is still Oakley’s best-selling model, three of the new models released this quarter were among the best-selling styles overall.

One analyst pointed to another new product catalyzing Oakley sales, claiming goggle sales were up over 40%, contributing nearly 40% to the sales increase for the quarter. Management were mum on the specifics, but would admit that the release of the CrowBarMX, a goggle designed for motocross, did help to create “very strong goggle sales” in a quarter which usually is very slow for goggle sales when snow is only found in the southern hemisphere.

The Newer Category segment, which includes Thump and the soon to be released RAZRWire, also saw large gains during the second quarter. Sales for the segment improved 25% to $50 million. This performance gain was attributed to the launch of the 512 megabyte Thump, the solid growth in Apparel, and double-digit increases in Prescription Eyewear. The only declines in the Newer Category business came in Watches and Footwear which saw “small declines.”

On the International side of the business, Oakley saw double-digit gains in nearly all reporting regions, with Latin America (viz Brazil) leading the charge, but Europe came in “modestly below the prior year.”

Hoping to halt the slide in Europe, or at least to build up some U.K. business, Oakley did open a new flagship O Store in Covent Garden, London in June, helping to increase its owned-retail footprint across the pond. As a whole, Oakley’s owned-retail segment followed the rest of the pack, posting a record 27% of total domestic business. OO saw double-digit comparable store sales gains at both O Stores and at Iacon.

Oakley product at Sunglass Hut had “strong sales…achieved on much lower Oakley inventory levels.” Sales to Hut were down 15% to $16 million as Sunglass Hut converts from large up-front orders to more fill-ins.

In fact, total worldwide sales to retail were down 14% to $19.3 million for the quarter, a decrease seen as a positive by OO management, being a result of better inventory management.

Looking ahead, management expects yearly earnings growth to be in the 25% to 30% range, up from previous outlook for a 15% to 20% gain, on sales growth in the upper 10% to 15% range. Third quarter sales are expected to shine with the release of RAZRWire and the establishment of product released this quarter, while Q4 gets a boost from the release of Thump II, which is seen as more fashion oriented than the original Thump. Oakley expects to continue improving gross margin through the year as the company realizes benefits from higher sunglass margins and changes to the product mix. On the store front, Oakley expects to open 10 to 15 O Stores and 20 Iacon stores.

In other Oakley news, the lawsuit filed against Kaenon for five models of Kaenon product which infringed upon three Oakley XYZ patents regarding minimization of prismatic distortion through eyewear lenses was settled. No monetary details were given, but Kaenon agreed not to infringe on Oakley’s XYZ patent claims in the future and acknowledged the high quality and innovative technology of Oakley's XYZ optics products in the correction of prismatic distortion.

>>> When Manny Ramirez trotted his Thumps out to left field for the Red Sox a couple of weeks ago, SEW was left to wonder if we’ll soon see ball players on their cell phone-enabled RAZRWires and at what point Commissioner Selig will step in to put an end to players getting call-a-friend advice on the next pitch. Yet another asterisk for the rule books…