This summary is based on the second quarter fiscal 2008 earnings call conducted by K-Swiss Inc. (KSWS) on July 31, 2008.
Management:
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Chairman, President and CEO: Steven Nichols
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CFO: George Powlick
Key Investors Issues
- Revenues were $85.2 million, down 17% from $102.5 million in 2007
- Earnings were $26.4 million or 75 cents a share, up 244% from $7.67 million or 22 cents a share in the prior year.
- Total worldwide futures orders backlog decreased 32% to $104.1 million.
Half Year Highlights:
- Net earnings were $33.5 million or 95 cents per share, up 30.4% from $25.7 million or 72 cents a share in 2007.
- Total worldwide revenues decreased 16.4% to $188.1 million compared with $225 million in the prior year.
Second Quarter Highlights
Revenues were above the high end of the range at $85.2 million, which still represented a 17% decrease from $102.5 million in the prior year quarter on an 18% decrease in the volume of footwear sold.
- At-Once business was 26%, which was above the 3% to 18% anticipated compared with 21% a year ago.
- Earnings were $26.4 million or 75 cents per diluted share, from $7.67 million or 22 cents a share in the prior year including a gain of $30 million or 52 cents per diluted share related to the favorable settlement of litigation with Payless.
- For the K-Swiss brand the average wholesale price per pair increased slightly to $27.59 compared with $27.58 in the prior-year period.
- The volume of footwear sold was 2.9 million pairs compared with 2.6 million pairs in 2007.
Overall gross profit margin as a percentage of revenues was 43%, compared with 43.8% in the prior-year period and expectation of 46% with the lower margin due to product mix.
- SG&A measured as a percentage of revenues was 41.5% compared with 35.4% a year ago and in terms of dollars slightly lower than the $37 million projected for the quarter.
– The balance sheet improved significantly with working capital reaching $382.7 million, compared with $342.1 million a year ago.
- Accounts receivable were $52.3 million or 55 days sales outstanding compared with 49 days the previous year.
Inventories were up 5% compared with June 30, 2007, and the firm ended with approximately $296 million or $8.49 per share in cash on the balance sheet.
- Total worldwide futures orders backlog decreased 32% to $104.1 million and the domestic backlog decreased 51% while the international backlog was down 14%.
- The total backlog is comprised of a 29% decrease in the third quarter 2008 futures orders to $68.9 million and a 39% decrease in fourth quarter 2008 futures orders to $35.3 million.
Operational Highlights:
- The period continued to leverage the new global brand campaign of the tagline ""Keep It Pure"" featuring the ath-lebrities.
- The campaign featured the Life Style and Performance footwear and ran in sports, fashion and lifestyle magazines as well as on TV during the NCAA tourney and on select MTV programming.
- Additionally, the firm invested more in online efforts which is an important media for the target consumer.
K-Swiss sponsored two triathlon events in April in Miami and in China where it had K-Swiss athletes winning top spots.
- It now has a dozen world-class tri-athletes wearing and winning in K-Swiss from head to toe and excited about the upcoming ironman races in Kona.
- It is getting its shoes placed in specialty running stores for the first time, providing the authenticity and credibility in the running market and paves the way for new breakthrough concepts in 2009.
- Tennis is part of the K-Swiss DNA and continues to be a focus of the marketing as well as the footwear and apparel efforts.
The international business posted a slight bump in revenues, but backlog was down 14%, and revenues have continued to decline.
- Europe sales were down 2% with a 17% decrease in backlog.
- Europe accounted for 40% of the worldwide revenues, up from 34% a year ago.
- Sales in the Asian region were up 25% and the firm posted a 16% decrease in backlog.
- Sales to the Foot Locker Group was 7% of worldwide sales, compared with 12% a year earlier.
