Orange 21 Inc., which develops eyewear for the action sports, motorsports, snow sports and lifestyle markets and owns the Spy Optic brand, reported fourth quarter sales increased 1.0% to $9.0 million from $8.9 million in the prior-year period.
Gross margins improved 610 basis points to 41.2% of sales in the fourth quarter compared to 35.1% in the 2009 fourth quarter. Operating margins jumped 990 basis points to 57.8% of sales, resulting in a wider loss for the period. The net loss was $1.5 million, or a loss of 27 cents per diluted share, in the 2010 fourth quarter, more than 40% higher than the net loss of $1.2 million, or 11 cents per diluted share, in the prior-year quarter.
Full year revenues rose 2.3% to $35.0 million for the year ended Dec. 31, 2010 from $34.2 million a year ago, but the company said its net loss widened to $4.6 million from $3.4 million as it sold its Italian eyewear manufacturing business for a loss and incurred higher costs licensing two new brands.
CEO Stone Douglass said the loss reflected the company’s decision to divest its manufacturing operations to focus on being more of a brand company that would be easier for investors to understand. He disclosed that the company had just hired Michael Marckx, chairman of the board for the Surfrider Foundation, as vice president of marketing.
The company attributed the increased sales to sales of O’Neill, Margaritaville and Melodies by MJB eyewear lines, which have been licensed in the last two years. Orange 21 also made progress increasing sales to certain key accounts, including Zumiez, and increased focus on closeout sales early in the year.
The bigger loss reflected a $1.4 million loss on the Dec. 31, 2010 sale of 90% of its stake in its Italian manufacturing operation LEM and $1.2 million in additional direct operating expenses related to the addition of the Margaritaville and Melodies by MJB eyewear brands. Adding the brands caused sales and marketing expenses to rise 26% to $9.3 million, including $500,000 in royalty fees, the cost of hiring addition staff and a $200,000 increase in travel expenses related to fall launches.
Orange 21 also invested in a fleet of RVs that will hit the road in November to exhibit at events and visit dealers across North America. R&D expenses rose 34% to $1.5 million as the company developed product for brand launches, including the first line of Spy co-branded helmets scheduled to hit stores this fall.
Full year gross margins soared 800 basis points to 48.0% of sales due to a $3 million decline in overhead, lower reserves for slow-moving and obsolete inventory and the decline of the euro against the dollar, which lowered the cost of product purchased from LEM. Offsetting these improvements were higher return rates in the U.S., higher discounts from close-out sales and higher air freight costs incurred to rush goggle deliveries.
Going forward, the company is building a new organization to sell Spy’s sunglass and prescription products into the optical retail channel.
