Oakley is known for making quality sunglasses for serious athletes.
Oakley is also known for making sunglasses with $100-$300 price tags, which has hurt the Foothill Ranch company in this soft economy where consumers are looking to save a buck.
The outlook for its high-priced sunglasses is so murky, Oakley will not predict sales for the first quarter, something most public companies routinely do.
That hesitation, combined with a dismal fourth quarter where sunglasses sales grew a mere 1 percent, and profits plunged 85 percent, has the company’s stock hovering near a 52-week low. Oakley’s dependence on its sunglass business, which comprises approximately 67 percent of sales, and the possibility of continued weak consumer spending because of the uncertainty surrounding Iraq, has contributed to the uneasiness.
“We do not expect to see the company generate significant earnings growth until either it weans its dependence off its sunglass business and/or the economic climate improves,” analyst Jennifer Black of Wells Fargo Securities said in a research report.
Oakley cant do much about the economy, but it has been diversifying its business for several years, using its design prowess to create distinctive clothing, watches, shoes and prescription glasses. Like its sunglasses, the products are popular with serious athletes and others who dont mind paying more for quality and technical innovation.
Jumping into the new product areas has not been easy — especially because Oakley has chosen to keep control of the products rather than licensing the Oakley name to a company with more expertise. In addition to adding sales and design staffs, Oakley has had to adjust to longer lead times to fill orders. While Oakley can fill sunglass orders the next day, it takes four months to meet shoe orders and five to six months for clothes.
Oakley also learned the hard way that it was too expensive to manufacture shoes itself, and in 1999 recorded a $12.6 million charge to restructure the shoe operation, shifting manufacturing to South Korea.
Watches, clothes, prescription glasses and shoes combined now account for about 27 percent of sales. Clothes — everything from golf shorts and jeans to ski jackets and snowboard pants — show particular promise, with sales growing 49 percent in 2002 to $57 million.
The success of Oakley clothes was helped by the 2002 launch of 39 Oakley “concept shops” within several department stores. The concept shops, with Oakley fixtures and racks, carry Oakley clothes, shoes, sunglasses and other products. They have been so successful, a total of 88 will be opened by midyear in stores such as Macy’s, Marshall Field’s and Parisian, a division of Saks Inc.
While clothing sales boomed, shoe sales last year by comparison were disappointing. Oakley’s athletic-looking sandals proved popular, but an unusual basketball line flopped, causing sales to rise only 4 percent to $31 million.
Sales of new product categories are again expected to grow much faster than sunglass sales in 2003. Oakley predicts sunglasses will grow in the low single digits, while new product sales will rise 30 percent to 35 percent.
Although clothes and most other new products are performing well, sunglasses, which have a higher profit margin, remain the company’s bread and butter. While sales of older sunglass styles lagged last year, new lines performed above plan, making the company believe that the problem is the economy, not the product.
So, in addition to cutting $5 million in expenses — nearly half from marketing and advertising — Oakley plans to stick to its mission of making well-designed, quality goods, Chief Executive Jim Jannard said.
“In Oakley’s 27-year history, Ive learned that the best way to manage a company through difficult economic periods is to focus on the things we do best and position ourselves for the eventual recovery,” he said in a statement.
The company believes total sales will grow 15 percent this year to $560 million, with most of the improvement coming in the second half of the year. Analyst Mitch Kummetz of Wedbush Morgan Securities isnt so sure.
