As it continued to integrate LEM, the Italian sunglass manufacturer it recently acquired, Orange 21 implemented several strategies in the 3rd quarter ended Sept. 30 to turn its overall business around. The company decided to cease producing a significant amount of under-performing SKUs, and has launched a program designed to eliminate excess inventory and better manage working capital.
Additionally, Orange 21 is reviewing internal cost structures with the goal of reducing overheads. Further goals include focusing sales activities on partners that offer the highest return on investment and minimizing capital outlays stemming from new accounts. All the way, Orange 21 will try to improve the efficiency and the operating structure of LEM.
In the 3rd quarter, the group's total sales improved by 5.2 percent to $11.4 million, but without LEM's contribution of $1.1million, turnover would have dropped by 5 percent. Shipments to Sunglass Hut were up by 8 percent, but were offset by a decline of 1 percent in shipments of goggles. The gross margin fell by 240 basis points to 48.5 percent, mainly due to lower margins at LEM, and due also to an increase in inventory reserves. This decline was partially offset by a solid gross margin for Spy Optics products. Orange 21 finished the quarter with an operating loss of $869,000, as compared to an operating income of $183,000 in the year-ago quarter.