Orange 21 Fends Off Legal Action as it Moves to Build Global Sales Model…

Orange 21, Inc. last week followed up on their previous report of preliminary results for the 2004 fiscal year, providing much more detail to their overall business for the year and specific results for the fourth quarter. The company is also battling a number of legal issues as they enter their first full year as a public company, dealing with a patent infringement cease and desist letter from Oakley on one end and a growing number of class-action lawyers jumping on the bandwagon to file suits naming the company, its directors, and certain officers in a securities action on the other.

The law firms are apparently still fishing for a lead plaintiff and are starting to issue press releases attacking each other.

ORNG reported that net sales increased 24.6% to $9.5 million in the fourth quarter of 2004, compared to $7.7 million in the year-ago period. The company posted net income of approximately $722,000, or 13 cents per diluted share, in Q4 versus a net loss of approximately $110,000, or a loss of two cents per diluted share, in Q4 last year.
Gross margin jumped 470 basis points to 51.8% of sales in Q4 versus 47.1% in Q4 last year, due to a slightly higher mix of sunglass sales in the total mix, while GM for the year also benefited from higher average selling prices and FX rate benefits.

For the year, U.S. sales increased 20% and represented 74% of total sales, while the International business increased 31% to 26% of sales. Sales in Canada represented approximately 40% of the International increase. Europe grew roughly 42% in 2004 and was responsible for 6.6% of full year revenues. Approximately 9% of the International sales increase was attributable to a weaker U.S dollar.

Sunglasses represented about 59% of sales, while goggles contributed roughly 32% of sales and apparel/accessories represented the balance, or 9% of sales.

Sunglass unit shipments increased 12% and ASP rose 11% for the year. Goggle unit shipments increased 14%, accompanied by a 3% increase in ASP.

Excluding the potential impact of legal costs from the Oakley and class action issues, management said they were comfortable with the previously-stated 2005 guidance that sees earnings growing in the 63% to 88% range, or a range of 26 cents to 30 cents per diluted share, on sales growth between 25% and 30%, or $42 million to $44 million.

Orange 21 sees expanding sales in a number of ways. First, they see International as a primary focus for growing the Spy Optics brand. They have started the process to go direct in their sales efforts in Italy and France, a strategy that has already paid nice dividends in Canada.

Secondly, Orange 21 plans to add 400 to 500 more retail doors in 2005 on top of the 1,000 or so doors added in 2004. But they see the real opportunity for growth coming from real estate capture, a process that will be enhanced through both POP and people.

The company will roll out larger POP displays that hold roughly double the number of sunglass units. On the people side, the company will add more direct reps to its sales mix, increasing the number to 21 from the current 16 direct reps, while still maintaining a total number of roughly 50 reps in the field. Today, the direct reps account for about 64% of U.S. sales and are expected to account for 75% of sales in 2005.

Management said the strategy has served them well in California, which currently accounts for 51% of domestic revenues.

Orange 21 Fends Off Legal Action as it Moves to Build Global Sales Model…

Orange 21, Inc. last week followed up on their previous report of preliminary results for the 2004 fiscal year, providing much more detail to their overall business for the year and specific results for the fourth quarter. The company is also battling a number of legal issues as they enter their first full year as a public company, dealing with a patent infringement cease and desist letter from Oakley on one end and a growing number of class-action lawyers jumping on the bandwagon to file suits naming the company, its directors, and certain officers in a securities action on the other.

The law firms are apparently still fishing for a lead plaintiff and are starting to issue press releases attacking each other.

ORNG reported that net sales increased 24.6% to $9.5 million in the fourth quarter of 2004, compared to $7.7 million in the year-ago period. The company posted net income of approximately $722,000, or 13 cents per diluted share, in Q4 versus a net loss of approximately $110,000, or a loss of two cents per diluted share, in Q4 last year.

Gross margin jumped 470 basis points to 51.8% of sales in Q4 versus 47.1% in Q4 last year, due to a slightly higher mix of sunglass sales in the total mix, while GM for the year also benefited from higher average selling prices and FX rate benefits.

For the year, U.S. sales increased 20% and represented 74% of total sales, while the International business increased 31% to 26% of sales. Sales in Canada represented approximately 40% of the International increase. Europe grew roughly 42% in 2004 and was responsible for 6.6% of full year revenues. Approximately 9% of the International sales increase was attributable to a weaker U.S dollar.

Sunglasses represented about 59% of sales, while goggles contributed roughly 32% of sales and apparel/accessories represented the balance, or 9% of sales.

Sunglass unit shipments increased 12% and ASP rose 11% for the year. Goggle unit shipments increased 14%, accompanied by a 3% increase in ASP.

Excluding the potential impact of legal costs from the Oakley and class action issues, management said they were comfortable with the previously-stated 2005 guidance that sees earnings growing in the 63% to 88% range, or a range of 26 cents to 30 cents per diluted share, on sales growth between 25% and 30%, or $42 million to $44 million.

Orange 21 sees expanding sales in a number of ways. First, they see International as a primary focus for growing the Spy Optics brand. They have started the process to go direct in their sales efforts in Italy and France, a strategy that has already paid nice dividends in Canada.

Secondly, Orange 21 plans to add 400 to 500 more retail doors in 2005 on top of the 1,000 or so doors added in 2004. But they see the real opportunity for growth coming from real estate capture, a process that will be enhanced through both POP and people.

The company will roll out larger POP displays that hold roughly double the number of sunglass units. On the people side, the company will add more direct reps to its sales mix, increasing the number to 21 from the current 16 direct reps, while still maintaining a total number of roughly 50 reps in the field. Today, the direct reps account for about 64% of U.S. sales and are expected to account for 75% of sales in 2005.

Management said the strategy has served them well in California, which currently accounts for 51% of domestic revenues.

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