Oakley blames the extremely wet weather in all the critical areas of the USA through the end of June for a 9.1 percent decline in its unit shipments of sunglasses around the world in the 2nd quarter ended June 30, in spite of some good new product offerings and the fact that, unlike a year ago, they were ready to be delivered on time. Total US wholesale revenues fell by 17.9 percent to $63.1 million in the quarter, as compared to the same period a year ago, in spite of stronger sales of apparel and other products.
The picture was rosier yet far from excellent abroad. While Brazil performed better than expected, Oakley encountered some problems with its sunglasses and with its prescription eyewear in Southern Europe, particularly in the optical retail channel, due apparently to strong competition. Sales outside the USA grew by 13.0 percent in the latest quarter to $67.0 million, with double-digit sales increases in Europe, Canada, Japan, Latin America and South Africa, but they rose overall by only 1.4 percent in local currencies. Asia experienced a decline because of the SARS epidemic. All product categories expect watches showed growth in dollars outside the USA.
The company's global sunglass deliveries fell to 1,464,035 units in the quarter, but their average price rose, thanks largely to the weaker dollar. As a result total gross revenues from sunglasses were down by 7.6 percent only to $105,360,000. After discounts, net US sales of sunglasses were off by 10.5 percent to $76,835,000, while foreign sales were up by 12.9 percent to $67,006,000, after conversion into US dollars.
Oakley's sales to Sunglass Hut decreased by 29.0 percent in the USA and by 24.7 percent worldwide, but Luxottica points out that Sunglass Hut's sales of Oakley glasses were flat in the 2nd quarter and Oakley's management expects that its sunglass business with the chain, which amounted to $16.8 million in the USA during the quarter, will decline for the year in a similar proportion as with other US retailers.
Combined with the weaker dollar, sales increases in other product categories and in Oakley's rapidly growing network of company-owned stores in the USA helped to keep the company's overall revenues relatively steady at $143.8 million in the quarter, compared with $145.1 million in the year-ago period. However, sunglass orders are $9 million lower than they were one year ago, and while orders for snow goggles are strong and those for shoes and clothing are up 37 percent, the management has revised its sales expectations for the full year. Total sales should increase by only 10 percent instead of 15 percent for the year, with a slight drop in sunglass sales, but widespread cost-cutting should help Oakley to stick to reach the high end of a previously budgeted net income range of $37-41 million.
In the 2nd quarter, Oakley's net earnings dropped more than expected to $18,232,000 from the year-ago level of $22,334,000. The gross margin fell from 62.7 to 61.2 percent, in spite of better margins on new product categories, partly because of lower production volumes in sunglasses. Design and R&D expenses declined from 2.7 to 2.3 percent of sales, but advertising and promotion spending was increased. Total operating expenses were up, but they would have decreased if the dollar had remained steady and if no new investments had been made on new stores.
Oakley's own retail sales jumped by 54.8 percent in the latest quarter to $13.7 million, thanks to many new store openings. It now has a total of 20 O stores, which are very profitable, and 67 Iacon stores. The company plans to add 12 new O stores and between 10 and 15 new Iacon units in the USA this year.
Oakley is trying to capitalize now on the 5th consecutive victory of one of its best known icons, Lance Amstrong, in the Tour de France in its direct marketing efforts and with a new signature collection. The introduction of a new interchangeable lens technology should help boost its prescription eyewear business.