K-Swiss’ net earnings for the quarter ended June 30 skyrocketed by 245.0 percent to $26.4 million because of the $30 million it won in a trademark settlement with Collective Brands. However, sales were down by 16.9 percent to $85.2 million, and orders fell by 32.4 percent to $104.2 million. This included a drop of 50.7 percent for U.S. orders and a decrease of 14.1 percent in orders outside the domestic market.
Sales were off by 32.7 percent in the USA and up by 0.5 percent in the rest of the world, thanks to the weak dollar. European sales were down by 2 percent, accounting for 40 percent of the global turnover, but European orders were off by 17 percent. The total number of pairs sold fell by 18 percent to 2.9 million, but the average price rose slightly to $27.59.
On July 1, K-Swiss bought a 57 percent equity interest in Palladium, as reported. K-Swiss’ management and says it sees many similarities between Palladium today and K-Swiss when the brand was acquired 22 years ago. Its classic canvas vulcanized boot, worn by the French Foreign Legion, is made with a process that is expensive and results in a product that is too heavy by today’s standards and doesn’t fit well. K-Swiss’s Classic tennis shoe had similar manufacturing deficiencies 22 years ago, and the plan with Palladium is to keep the boot’s look but rework the manufacturing process.
The company noted it bought the rights to the U.S. and Canadian distribution from a third party that made other models, and it will discontinue those products to concentrate on the Palladium classic boot. The third party will continue under a different brand name.
K-Swiss also said Royal Elastics was on the verge of making a profit, but if it didn’t by the end of the year, it would shut it down to concentrate on Palladium. The brand broke even in the first quarter but had a slight loss in the second one.
Meanwhile, its efforts to re-invigorate the K-Swiss brand have seen little success. “Free running” seems to have disappeared, but the company believes it is getting some traction in running specialty stores with its new MySole technology, which has removable midsoles to adapt to various running gaits. K-Swiss plans to make triathlon its hook in this market.
The company is still working on reconnecting its lifestyle business with teenagers. With U.S. orders falling and now overshadowed by falling international orders, it is launching a Remastered Classic next year. The sport style category still represents 83 percent of the company’s business, so it is clear that fixing this part is more significant than any of its other initiatives. For the full fiscal year, K-Swiss expects revenues of $300 million to $320 million.
