Oakley's operating income jumped by 243.2 percent to $9,733,000 in the 1st quarter, ended March 31, on sales that climbed by 31.3 percent to $199.2 million. The gross margin grew to 54.3 percent from 53.1 percent in the year-ago period, reflecting a higher price mix in the optical segment and the impact of increased manufacturing volumes. Net income rose to $5,743,000, compared with $1,907,000. The strong results reflect a successfully renewed focus on the company's optical products, organic growth in its retail chains and additional sales from acquisitions.
Excluding acquisitions and electronics, whose sales grew after being marked down, optics group revenues grew by 22 percent. Prescription frames sold better in all the regions, but no specific information was given about Oakley sunglasses. The turnover from goggles was up by 20 percent, despite unfavorable weather. The early Easter holiday helped fuel retail sales.
In total, optics sales climbed by 35.0 percent to $144.3 million, due in part to acquisitions. The combined turnover from apparel, footwear and accessories was up by 9.7 percent to $40.4 million, as higher sales of apparel and watches were offset by a modest decline for footwear. Other products, which include non-Oakley brands owned by the company and sold through its multi-brand Sunglass Icon and OSA retail stores, jumped by 80.3 percent to $14.5 million.
Sales outside of the USA grew by 28.5 percent to $90.7 million in the quarter, while domestic turnover increased by 33.8 percent to $108.4 million. In the Europe, Middle East and Africa (EMEA) region, optics sales increased by double digits, and there was also a ?moderate? rise in turnover for apparel, footwear and accessories. All categories grew by double digits in the Americas, while in the Asia Pacific region there was double-digit growth in optics and a ?significant? increase in revenues of apparel, footwear and accessories.
Wholesale turnover was up by 25.4 percent to $153.5 million. Retail sales in the USA rose by 55.7 percent to $45.7 million. As of March 31, the company had 64 Oakley branded stores in USA and 18 in other countries. This compares to 46 and 9, respectively, one year ago. The company expanded the Sunglass Icon chain to 124 doors from 108 at the same time last year. One Oliver Peoples store was added, giving the banner a total of three doors, and the Optical Shop of Aspen (OSA) continues to operate 20 doors. In addition, there are 13 Oakley stores, 12 Sunglass Icon doors and two Oliver Peoples locations operated by licensees.
Oakley still wants to achieve annual sales growth of at least 10 percent, with margins increasing, though various initiatives. One of them is taking place at the retail level. Oakley has converted 19 outlets to a new store layout aimed at making the eyewear more accessible to consumers' sight. In addition, the new store design features enhanced lighting and places greater emphasis on Oakley's ?Design your own Eyewear? section of customizable spectacles and sunglasses. It plans to implement this new format in another 10 stores during the 2nd and 3rd quarters.
Oakley said during a Lehman Brothers conference on April 1 that the ?Design you own Eyewear? section has been quite successful thus far. Here customers can pick the frame they want, the color, lens, etc. The eyewear is then either made for them in the O Store or, if resources are not available, the customized eyewear can be made within 24 hours at another lab and sent to the store.
In a separate conference call commenting on the first quarter results, the company told analysts that it has been particularly pleased with its fairly new offering of women's eyewear. According to Oakley, one ?testament? to this is that some customers were at first skeptical of the idea of sports eyewear for women, but are now asking why the company hasn't expanded the range further. Last March, Oakley launched three new styles for women: Behave, Speechless and Disobey. The company has been working to open new accounts where women shop, such as Lucy, an American retail chain that carries active apparel for women.
Other important initiatives will be the launch later this year of new athlete and artist-inspired models in the Square O collection and a marketing campaign to emphasize Oakley's polarized technology. There will be styles that are designed by renowned artists around the world, and a signature series within this collection that will bear the names of famous athletes. As part of a big marketing push , Oakley will send out more than one million copies of a 24-page booklet about its polarized eyewear.
To help reach consumers more broadly, Oakley is putting a 40-foot truck pulling a 30-ft trailer on the road across the USA. This promotion center on wheels will tour various events and allow consumers to get a first-hand look at Oakley's technology. One such promotional stunt will actually allow consumers to shoot a gun at competitors' eyewear to see what a bullet does to these products versus Oakley's.
The company wants to improve its presence in Asia, particularly in China and India, where Oakley sees significant potential. At the same time, the company has been working to improve the fit of its eyewear to Asian faces to better serve customers in Japan and China.