This summary is based on the third quarter fiscal 2008 earnings call conducted by K-Swiss Inc. (KSWS) on November 5, 2008.
Management:
Chairman, President and CEO: Steven Nichols
CFO: George Powlick
Key Investor Issues:
- Third quarter revenues dipped 10.7% from year ago quarter to $95.8 million.
- The total worldwide future orders backlog dipped 29.1% to $102.8 million as at end of September.
- The management anticipates Q4 revenues in the range of $45 million to $60 million.
- Full year 2008 EPS forecast of 60 cents to 85 cents.
Third Quarter Financial Highlights:
The breakdown of sales by product category for the third quarter of 2008 is defined below.
- Performance 11%, Sports Style 73%, other 16%.
- The performance revenues gained 4% when compared with the prior year period.
- The category includes all genders of tennis, running and training.
Sports Style revenues were down 22% when compared with the prior year period.
- The category includes all genders of nonperformance footwear.
- The biggest seller in the quarter in Sports Style were the Classics, which sold 352,000 pair and was up 3% from the prior year period, and Lozan II with 149,000 pair.
Other revenues put on 110% when compared with the prior year period.
- This category includes apparel, Royal Elastics and Palladium.
- Excluding Palladium, the other revenue category was down 38% on a 48% decline of Royal Elastic and a 31% increase in apparel.
Sports marketing and showcasing performance portfolio continues to be a strong focus for K-Swiss.
- During the third quarter, many of the athletes had great victories on national television.
- Marty Fish, the company’s top male tennis player made it to the quarter finals in the U.S. Open.
- David Brittan, the top junior male player made it to the finals of the U.S. Open.
- Vera Zvonareva, the highest ranking singles player in the history of K-Swiss won a bronze medal in the Beijing Olympics and Anna Tunnicliffe, the company’s top laser sailor won a gold medal in Beijing as well.
- Additionally, K-Swiss continues to be a brand that is a leader in the triathlon space.
- During the third quarter, the company’s athletes participated in podium in several full and half Iron Man, Olympic and sprint distances.
- The company sponsored the Malibu triathlon as well as the Iron Man World Championship in Kona.
- The events helped cement commitment to the sport of triathlon and the company will launch a new 2009 running shoe, the K-ONA, which was very successful in Kona in October.
Fiscal 2009 Key Initiatives:
- To re-introduce and reignite the Iconic Classic style as it defines the K-Swiss brand.
- This will be done with a compelling advertising campaign that is relevant to both a nostalgic consumer as well as younger consumers.
- The second initiative is continuing to be a leading tennis brand with world class athletes and product.
- The management promised continued K-Swiss tennis players wearing and winning in K-Swiss at grand slams.
- The tennis business in 2008 reportedly posted excellent increases and is expected to continue to grow.
- The last initiative is to establish K-Swiss as a player in the running category.
- In 2008 with the inroads in triathlon and placement in specialty running, the company made significant progress.
- Looking ahead to 2009, the company has a customized concept in running called My Sole Technology that is revolutionary.
Third quarter revenues were significantly above the projected range at $95.8 million.
- The exceptional levels were due to sales from Palladium which were not included in the second quarter guidance and better than expected sales in the U.S. from primarily close out product.
- However, the company was still 10.7% below the prior year quarter and down 12.9% in the volume of footwear sold.
- At-Once business for the quarter was 25%, not including Palladium and this compares with the -6% to 16% anticipated and 11% At-Once a year ago.
The company reported a loss of $100,000 or zero cents per share.
- This translates to a loss of 3 cents per share excluding Palladium, which was near the top end of the projected range for the quarter.
