Oakley seems to be adjusting to the sunglass markets move to more fashion-oriented eyewear while at the same time boosting the bottom line through its multi-channel distribution strategy. While most production issues with Oakley sunglasses seem to have been solved, the company is still losing some sales through its prescription eyewear channel because it is unable to meet demand in certain styles.
The company was able to recover from the anti-climactic launch of its Thump through the consumer electronics channel. The Thump was the first in a series of products to integrate electronics into eyewear, and Oakleys exclusive U.S. distributor for them, Circuit City, did not report much success. However, Oakley has reported solid sales results of the Thump through its Iacon and O-Store retail chains. Oakley plans to solve the problem by shifting some inventory from Circuit City to Sunglass Hut, which will begin to carry the product in the second quarter.
Even though this initial launch through Circuit City did not meet expectations for either company, Oakley management still has not given up on the consumer electronics channel and will continue to look for retail partners in this area.
Total first quarter U.S. net sales increased 8.8% to $67.0 million from $61.6 million during the same period last year.
Oakley's owned-retail comps were up in double-digits. The company operated 37 O Store locations at quarter-end, including one new store opened during the period, and 84 Iacon sunglass specialty stores, which also had one new store open in Q1. OO expects to open 10-15 new O-Stores and has recently acquired 5 new Optica retail locations through Iacon, bringing the total new store plan to 15 Iacon stores in 2005.
Oakleys Internet and catalog sales are also adding to the top-line with a 58% sales increase and “continued strong profitability.”
Sunglass unit shipments increased 4.8%. This increase was due to sales to the U.S. military. Exclude combat eyewear from the equation and sunglass sales show a “slight decrease.”
Oakley saw the most growth from its golf and lifestyle product lines, including denim and fleece sales. Spring apparel is also showing positive signs. Oakleys COO, Link Newcomb told analysts that the apparel door count is currently flat, but these retailers are carrying a broader selection of product.
Mr. Newcomb did not give specific guidance for the second quarter, but did say he expects Q2 earnings to trail all other quarters. For the full year, OO expects “high single digit” sunglass sales growth with “modest single digit comps” at the Iacon stores and “double digit comps” at the O-Stores.
