Rising labor costs have forced K2 to shift its production in China closer to the border of Vietnam. The company has seen a rise in energy costs of 3-5 percent as well, but has been able to absorb these costs thus far. Net income in the 1st quarter jumped by 57 percent to $3,642,000 on an increase in sales of 9 percent to $348.1 million. K2 was content with its performance in the period but will not raise its guidance because of a fear that rising gas prices may hurt its business in the American company’s domestic market.
In the team sports segment, which now includes paintball, sales increased by 22.5 percent to $132.5 million with all product categories showing growth. Operating income rose to $12.9 million as compared to $8.1 million in the year-ago period. An improved margin was due to the shift of baseball bat production to China. Currently, half of K2’s bats are made in China and half in the USA, but next year all of them will be manufactured in China.
Sales for the marine outdoor group rose by 9.5 percent to $123.1 million and operating income was up by $100,000 to $16.1 million. The improvement was due to strong sales of fishing tackle, antennas and ski vests, in addition to turnover from Hodgeman waders, which was acquired in the 2nd quarter of 2005. Shakespeare had flat results in the period but Stearns’ shipments grew by 29 percent. The 2nd quarter is expected to be better for Shakespeare.
Sales dropped by 13.4 percent to $56.1 million in the action sports division, which reported a loss of $10.9 million, as compared to a loss of $11.6 million in the year-ago quarter. Pre-season orders were flat in Europe and Japan, but up by 3-5 percent for the USA.
The apparel and footwear division’s sales grew by 10.6 percent to $36.4 million. The segment, which includes Earth Products, Ex Officio and Marmot, registered a loss of $1.8 million as compared to a gain of $900,000 in last year’s quarter. While noting that pre-season apparel sales increased by 10 percent, K2 upped its spending for R&D and marketing for its soft goods brands in the period. Footwear orders were slow in the period but the company expects them to pick up as the back-to-school season nears.
