This summary is based on the first quarter fiscal 2007 earnings call conducted by K-Swiss Inc. (KSWS) on April 26, 2007.
Key Investors Issues
- Earnings per share fell to 51 cents compared with 70 cents in prior year.
- Quarterly revenue fell 18.3% over the previous year.
- The average wholesale price per pair grew to $27.63 versus $26.47 in last year.
- For 2007, the firm expects revenues of $415 million to $440 million and EPS of $1.20 to $1.55.
First Quarter Fiscal 2007 Financial Highlights
Net earnings for the quarter were $17,997,000 or 51 cents per diluted share, compared with $24,910,000 or 70 cents per share, in the prior-year period.
The company is at the high end of its projected range of 41 cents to 51 cents in earnings per diluted share, primarily due to marketing expenses being deferred from first quarter to later quarters.
For the first quarter of 2007, total worldwide revenues decreased 18.3% to $122,568,000, compared with $149,984,000 in the prior-year period.
The revenues were slightly below the midpoint of the firm’s projected range. The 18% revenue decrease in the first quarter was the result of a 20% decrees in the volume of footwear sold, offset by a 5% increase in average wholesale price per pair. Revenues were within the previously issued guidance range of $120 million to $130 million. At-once business was 10% in the quarter compared to 16% in the prior-year period.
Domestic revenues decreased 39.7% to $62,383,000 in the first quarter, and international revenues increased 29.2% to $60,185,000.
The breakdown of sales by product categories for the first quarter 2007 was as follows. Classics was 58%; Children’s was 18%; Training was 9%; Tennis was 10%; and Others were 5%. Classic category revenues were down 25% compared to the prior-year period. This category is segmented into regional Classics, which accounted for 41% of the first quarter revenues and was down 24% when compared to the prior-year period. The other class of category, which includes limited-editions, accounted for 17% of revenues, was down 27% in the quarter. The firm’s biggest seller for the 20th consecutive quarter was the Classic, which sold 376,000 pair and was down 52% from the prior-year period. The other top sellers were Lozan II with 283,000 pair and a limited edition shoe with 181,000 pair. Children’s category was down 14% for the quarter. The tennis business for the quarter was up 28%. Sales in training category were down 31%. Royal Elastics sales were up 39% for the quarter.
For the K-Swiss brand, the average wholesale price per pair increased to $27.63 for the first quarter compared with $26.47 in the prior-year period.
The volume of footwear sold was 4.2 million pairs in the first quarter compared with 5.4 million pairs in the first quarter of 2006. All categories were down compared with the prior year, with the exception of Tennis.
- Overall gross profit margin as a percentage of revenue was 47% in the first quarter compared with 46.4% in the prior year period.
- SG&A measured as a percentage of revenues was 30% compared to 23% a year ago.
- The stock-option expense for the quarter was $579,000.
- The operating margins for the first quarter was 16.9% compared with 23.5% in the prior-year period.
- The tax rate for the quarter was 21.3%, compared with 31.7% for the prior-year period, principally due to international profits becoming greater percentage of total profit compared to last year, and an increase in tax-exempt interest income.
- As of March 31, 2007, the firm’s working capital reached $337 million from $288 million a year ago.
- Accounts receivable were $60 million, or 44 days sales outstanding compared to 49 days in the previous year.
- The inventories were up 5.2% compared with March 31, 2006.
- K-Swiss ended the quarter with approximately $265 million, or $7.64 per share in cash.
- The firm purchased 10,000 shares of Class-A common stock during the quarter for total expenditure of about $269,000. At the end of the quarter, the firm had approximately 4.66 million shares remaining in its current authorization.
International business was a big contributor this quarter.
Revenues were up 29% in the first quarter and backlog is up 16% at March 31, 2007. Europe sales were up 28% in the quarter, with 15% increase in backlog. Europe accounted for 34% of the firm’s worldwide revenues, up from 22% worldwide revenues in the year ago. Sales in the Asian region were up 32% in the quarter and posted a 19% increase in backlog. Asia is the company’s third largest region accounting for 9% of worldwide revenues in the quarter compared with 6% a year ago.
The company’s largest customer continues to be Foot Locker.
The sales for the Foot Locker group were 14% of first quarter worldwide sales, compared with 19% a year earlier. In first quarter sales, the Foot Locker were down 40%, the sales to all others were down 13%. Foot Locker represents approximately 15% of the firm’s backlog at March 31, 2007, compared with 17% a year early ago, a 30% decrease in the backlog while the backlog for all other customers is down 18%.
Royal Elastics operated a loss of 2 cents per share for the quarter compared with the loss of 3 cents per share a year ago.
The management expects that the investment in the Royal Elastics will continue in 2007 with a net loss per share expected to increase to about 11 cents.
