In spite of initial reports coming out of Circuit City that Oakley’s ‘Thump’ sunglass/MP-3 player was seeing slow sell through, Oakley managed to pull off a very impressive fourth quarter. Oakley Q4 net sales increased 24.5% to $153.0 million, compared with $122.9 million in 2003. Net income for the fourth quarter totaled $10.0 million, or 15 cents per diluted share, a 213% increase compared with $3.2 million, or 5 cents per diluted share last year.
U.S. net sales, excluding the company’s retail store operations, increased 57.6% in Q4, to $62.1 million, compared with $39.4 million last year.

The reports concerning Circuit City’s sell through of the product were not off the mark. OO management said that a “very significant” portion of the product allocated for the big box retailer had to be redirected to Oakley’s own retail stores and small independent retailers. When all was said and done, ‘Thump’ sales contributed roughly $20 million to Oakley’s top-line.

Circuit City’s exclusivity deal on the ‘Thump’ product ends in March. During a conference call with analysts Oakley’s COO, Link Newcomb, said that OO has been talking with other electronics retailers in the U.S. and internationally.

Newcomb also said he feels the slow sales at CC were caused by “…a function of the level of service that is common in the big-box environment. The difference in service at the point of sale, I think, was one of the reasons.”

Nonetheless, Oakley will be continuing its development of the electronics category. The company recently inked a deal with Motorola to develop a line of Bluetooth-enabled eyewear. The first product to come out of this collaboration will be the ‘Razorwire,’ an aluminum-framed model which will allow wearers to send and receive calls while up-to 30 feet away from their Bluetooth-compatible phone. The product will sell through existing distribution channels as well as new consumer electronics and cell-phone retail channels.

Oakley’s second major initiative for 2005 is its first foray into multi-branded distribution. In September OO inked an exclusive licensing agreement with Fox Racing, a major brand in the motocross and mountain bike markets, to produce sunglasses and goggles. Oakley and Fox will collaborate in marketing. Distribution will be aimed at motocross, surf, skate, and snow retailers. It is interesting that, in spite of Fox’s presence in the mountain bike market, OO has not mentioned bicycle retailers as a distribution channel.

Military and government sales accounted for $27.1 million in sunglass sales for the full-year. Excluding these sales, OO experienced a “small decline” in sunglass units-sold, and a “small increase” in dollars-sold due to higher ASP’s.

For the fourth quarter, overall sunglass sales increased 5.9% in unit-volume and “just under” 10% in dollars-sold due to a 3.7% increase in average selling prices.

Apparel and accessories continue to be strong categories for the Oakley brand with combined sales growth of 14% for the fourth quarter. Apparel is Oakley’s “largest and fastest growing” newer category with $95 million in business annually. OO said that the category is strongest in the back-half of the year with higher priced outerwear sales boosting the numbers. The brand is seeing the most success in apparel through sporting goods and action sports distribution channels.

Oakley’s retail operations continue to push the top-line higher; the company plans on accelerating its growth plans with 10-15 new O-Stores and Icon stores for a total of 20-30 new retail locations in 2005. Comp sales for the quarter were said to be up in the “strong double digits” with O-Stores leading the way. Annually, comps increased 9% at Icon and 16% at O-Stores.

Oakley management is anticipating 10% to 15% top-line growth for 2005 with newer category sales, which includes electronics, experiencing 15% to 20% sales increases. Gross margin should improve due to exchange rates and better product mix. Also, the company said that operating margin would improve if the higher end of sales guidance is met.

>>> Perhaps there is a lesson here in delivering new innovation and technology to your current account base instead of new channels of distribution. Consumers buy Oakley for sunglasses first and the addition of the MP3 player is an additional user benefit. Not the other way around…