At $109,572,000, the sales score was better than expected in the 1st quarter ended March 31, notwithstanding a 24 percent fall in sales to Sunglass Hut International to $12 million in the period, as compared to one year ago. Excluding company-owned retail operations, which generated an extra $5.8 million in the quarter, Oakley's US sales rose by 13.5 percent to $52.4 million, and they would have increased by 29 percent without Sunglass Hut. Sales outside the USA resumed their growth after their unusual dip in the 4th quarter of 2001, and they rose by 9.4 percent to $51.4 million, with a 14.4 percent gain in local currencies.
Sales of sunglasses dropped by 3 percent in volume to 1,069,299 units, mainly because of Oakley's reduced business with Sunglass Hut, but they increased by 6.3 percent in revenues thanks to a 9.9 percent rise in average selling prices. Other product categories - shoes, apparel, prescription frames and watches ? instead generated 50.9 percent higher revenues of $32.9 million, accounting for 28.4 percent of total gross sales in the quarter.
Oakley continues to talk with Luxottica to try to improve its relationship with Sunglass Hut, which is now giving higher advance orders to replace a previous weekly stock replenishment system. In general, Oakley's management is expecting higher sales of sunglasses for the balance of this year, thanks in part to new product introductions, and it's now forecasting an overall sales increase of about 25 percent for the full year, albeit still driven by an increase of more than 40 percent for its new product categories.
Sales outside the USA were still soft in Latin America and in the Pacific region in the 1st quarter, but they should grow faster than US sales overall this year. In the USA, a boosting factor will be the opening of about 10 new Oakley stores and 18-20 new locations for the recently acquired Iacon chain of sunglass stores, which had 43 units at the end of 2001. Retailing could come to represent between 5 and 8 percent of Oakley's total sales this year, but the management stresses that the share taken by Oakley products in Iacon's stores has risen from 25 to only 29 percent after their takeover. Luxottica's various brands are about 50 percent of Sunglass Hut's sales.
Oakley is budgeting a 12.5 percent rise in net earnings per share this year, or a 23 percent increase before taxes, although gross margins are expected to decline by another percentage point or so. In the 1st quarter, the company's net profit was down sharply to $5,562,000 from $9,122,000 in the same period a year ago. The gross margin continued to fall to 52.6 percent in the quarter from 58 percent in the year-ago period, due not only to the lower profitability of footwear and apparel but also to higher sales discounts intended to eliminate excess inventory. The operating margin dropped from 14.8 to 8.4 percent, partly because of the new retail program and because of a major increase in R&D expenditures.
Many new products will be released soon in all the categories, including an innovative goggle and a new line of children's sunglasses. Oakley is also investing a lot on a new progressive lens program, supported by special lens processing facilities in the USA and Europe.