The weak business environment in Europe weighed on K-Swiss' order backlog at the end of 2010 with shipment dates from January through June 2011. International orders with delivery in the first quarter are down by 12.5 percent compared with last year for the U.S. company but are up by 6.0 percent for the second quarter thanks to buoyant orders from Asia. Overall international orders decreased by 7.1 perczxent to $47.69 million for the first half. In the meantime, domestic orders increased by 52.8 percent to $45.22 million for the first six months, boosting worldwide orders by 14.8 percent to $92.90 million.
Orders for the K-Swiss brand are up by 7.5 percent for the first quarter and by around 26 percent in the second quarter, while the backlog for the French brand Palladium is up by 8 percent in the first three months and up by 26 percent in the second quarter. Orders for Palladium are flat in France but doubled in other European countries and Asia.
The situation in Europe also dampened the group's fourth-quarter results. Revenues rose by 1.5 percent to $42.67 million. The company posted a 2.8 percent rise in domestic sales to $18.60 million and international revenues increased by 0.6 percent to $24.07 million. European sales slumped by 14 percent and the continent's contribution to total revenues dwindled to 26 percent from 31 percent. Asian revenues increased by 8 percent and the region's share in revenues edged up to 22 percent from 21 percent.
By category, lifestyle, which includes the company's non-performance shoes, represented 52 percent of sales. Performance, comprising tennis, running and training shoes, represented 26 percent, and other items, encompassing apparel and Palladium, 22 percent. Lifestyle revenues dropped by 22 percent in the fourth quarter as the group's classic white leather sneaker remains out of fashion. The classic collection sold 144,000 pairs in the quarter. The performance division boosted sales by 36 percent with the Tubes Run 100 model selling 85,000 pairs and the ST329 model 49,000 pairs. Other revenues surged by 62 percent.
K-Swiss' net loss in the fourth quarter widened to $20.64 million from $12.49 million, nearly twice the level forecast by financial analysts.
In the full year, revenues decreased by 9.9 percent to $216.99 million. Domestic revenues fell by 8.7 percent to $92.38 million and overseas slumped by 10.7 percent to $124.61 million. In the full year, the net loss surged to $68.21 million from $27.96 million. The company expects 2011 revenues to rise by 25-35 percent while gross margin will be approximately 39 percent, in line with the 39.2 percent booked in 2010. Selling, general and administrative expenses are expected to rise to $145-155 million from $142.5 million in 2010 to support the company's marketing initiatives. K-Swiss does not rule out higher spending depending on opportunities.
The company said it will continue to be loss-making this year partly because of its aggressive marketing policy. It estimates that it needs a top line in the excess of $350 million and to reduce marketing spending to around 8-10 percent of sales to book a profit. The company spent the equivalent of 26 percent of revenues in marketing in 2010 and will be spending 18-19 percent in 2011. The company has focused on expanding among small independent sports retailers as new stores open in the U.S. after a period of financial turmoil that pushed many shops into insolvency. Financial analysts believe that K-Swiss could post revenues close to $350 million as soon as 2012, when it could break even.
K-Swiss has abandoned its policy of manufacturing wholly in China. Over the past months, it has shifted production to Vietnam, Thailand and Indonesia and is aiming to have half of its production outside China by early 2012 as the Asian powerhouse faces higher costs and labor unrest.
