Oakley reports a turnover of $148.2 million for the 3rd quarter ended Sept. 30, up 2.2 percent, with net income down by 15.9 percent to $11.4 million. The gross margin fell by 10 basis points to 56.8 percent. Total revenues would have actually declined without the weakening dollar and without a 25.6 percent increase in sales at its directly owned stores in the USA, which now represent 12.7 percent of the turnover.
Wholesale sales in the USA rose by only 1.1 percent to $55.9 million. Sales outside the USA dropped by 1.7 percent in dollars to $73.4 percent, indicating a 7.9 percent decline in local currencies. In Europe, only a few markets are recording a certain growth such a Spain, where Copo Iglesias, a former ski champion, was appointed as country manager earlier this year, but the decline in Italy has been stabilized. Late deliveries of sunglasses contributed to the drop.
Scott Lewis, a fomer Rip Curl executive from Australia who formally took over the helm at Oakley Europe last August, wants to to re-establish the brand's equity in the action sports sector while developing more fashionable styles that are in tune with the young culture in the continent. He had been running Oakley's international sales since 2002.
Globally, the company saw strong sales in the latest quarter through its lifestyle, golf and sporting goods distribution channels, while department stores and bike distributors were down. The company also reached record quarterly sales to the US military, which went up by 50.5 percent.
Sunglass sales dropped by 10.7 percent in units due to weak sell-throughs at Sunglass Hut as well as reduced sales in Europe and the South Pacific region, but average selling prices were up 1.9 percent. Global sales to Luxottica Retail declined by 39.1 percent to $5.3 million, and the company is still in negotiations with Luxottica over their contract moving forward. US sales to Sunglass Hut fell by 44.4 percent to $3.5 million in the quarter, while sales through other US channels rose by 6.9 percent, including sales from the company's website and telesales, which increased by 2.9 percent.
According to Oakley, the decline in sales to Luxottica was partially due to a shift in business away from Luxottica's retail stores into the 110 retail stores owned by Oakley, as Sunglass Hut's customers are becoming more interested in its fashion-led products than in its sports eyewear. Oakley's Iacon chain just entered the Hawaiian market and it expects to add about 15 units next year to its 83 locations in the USA.
Oakley reports double-digit growth in apparel and prescription eyewear, a modest increase in watch sales, and a large expected decline in footwear. Production delays impacted negatively sales of new categories.
Despite the disappointing results of the latest quarter, the company is relying on its new ?Thump? sunglass/MP3 player and on increased military sales to meet its full-year 2004 sales forecast of $575-$85 million, although earnings will now most likely be at the bottom of the range for the previously anticipated range.
The two models of the Thump retail for €395 and €495, respectively.Countering reports that customers are balking at the high price of this odd and useful new gadget, Oakley said last week that the Thump generated the higher dollars sales at retail during the first ten days of any product launch in the company's history. They have exceeded the $1 million mark since their Nov. 20 launch through its own concept stores and through an American electronics retailer, Circuit City.
In Europe, Oakley has struck exclusive deals in Spain with the electronics departments of 67 El Corte Inglès stores, starting Nov. 20, and in the UK through the 14 Virgin Megastores in the country. Oakley is now beginning to make the product available through premium dealers and the 7 Virgin Megastores in the USA.
The management's preliminary guidance for 2005, which assumes a low-single digit increase in sunglass sales and a 25 percent increase in sales of new categories, calls for a sales increase of 10-15 percent. The total order backlog at the end of September was up 49 percent thanks to the Thump, increased orders for goggles and apparel and a one-month shift in deliveries to Sunglass Hut.