For the second quarter ended June 30, K-Swiss reports a 34.8 percent drop in sales to $54.0 million. The net loss was $11.5 million, compared with a profit of $26.4 million last year. The results include a pre-tax non-operating loss of $2.6 million related to the completion of the acquisition of Palladium in June, and a pre-tax gain of $1.9 million form the sale of Royal Elastics in April. The quarterly gross margin plunged by 13.8 percentage points to 30.1 percent.
For the K-Swiss brand alone, the footwear volume delivered fell to 2.1 million pairs from 2.9 million pairs a year ago, and the average selling price was down to $23.15 per pair from $27.59. Sales of performance athletic styles, which accounted for 20 percent of the business, were off by 8 percent year-over-year; sales of lifestyle products, some 74 percent of total business, were down by 45 percent in the period. Classics’ sales increased by 4 percent to approximately 275,000 pairs. Other revenues, which include Palladium and apparel, were up by 368 percent.
Geographically, sales outside the United States dropped by 46.8 percent to $25.3 million, while domestic revenues were off by 18.7 percent to $28.7 million. Sales in Europe alone fell by 55 percent in dollar terms, and there was a 19 percent drop in orders. Europe’s share of total sales was just 28 percent for the period, down from 41 percent a year ago. Not counting Palladium, K-Swiss’ international business fell by 11 percent and order backlogs dropped by 41 percent. European sales would have decreased by 61 percent without this new brand in its portfolio, with a 43 percent drop in orders. Asian sales fell by 23 percent, with a 13 percent slump in orders.
Total orders at the end of the quarter were off by 30.6 percent to $70.6 million, with non-domestic orders down by 23.4 percent to $49.3 million and U.S. bookings down by 43.0 percent to $21.4 million. However, K-Swiss’ management is hopeful that the company can pull out of its doldrums with the re-launch of its original 1966 Classic, expanded distribution of its new Palladium brand and more widespread acceptance of its fledgling performance running business.
For the first sixth months of the year, K-Swiss saw a 29.4 percent drop in revenues to $128.1 million and a net loss of $12.6 million, against earnings of $33 million last year.
Besides the “new” original Classic, K-Swiss hopes to capture some industry bounce from Palladium, which had sales of $2.1 million in the last quarter, generating a net loss of $1.74 million. Brand store tests are under way in several large chains in the U.S.. If the launch is successful, the management estimates the brand’s distribution will quickly grow to 300 doors. Its order book is at $11.5 million through the end of the year.
Looking ahead, the company estimates its Ironman co-branded offerings and performance running shoes will likely begin distribution in larger big-box stores such as Dick’s in 2011. At that time, management estimates, a fourth-generation performance running shoe would be launched for distribution into the running specialty channel only.
K-Swiss says full-year revenues should be $215 million to $230 million with a net loss.
