In the 1st quarter ended March 31, the company's optics sales had strong growth of 12.3 percent to $107.0 million, underlining the recent announcement by Oakley's new management that it would shift its focus away from apparel and footwear and more to its core optical business.
Several factors played into the category's improved results - including strong sales from recently launched sunglasses, the $55.7 million acquisition of Oliver Peoples in February and strong sales of Oakley goggles as a result of publicity at the Winter Olympics. In the current period optics accounted for 71 percent of Oakley's revenues, as compared to 68 percent in the year-ago quarter. The company's footwear and apparel sales instead fell by 8.8 percent to $36.8 million, reflecting a realignment in sales channels and problems with deliveries and product assortment.
Oakley's total sales rose by 7.0 percent at $151.7 million, but the operating profit fell to $2,836,000 from $15,048,000. The gross margin dropped by 440 basis points to 53.2 percent due to a variety of factors including returns and mark-downs on electronics, poor margins for footwear, discounting and non-cash losses on foreign currency hedging. Without the latter, the gross margin would have fallen by 70 basis points to 54.0 percent of sales.
Geographically, domestic sales increased by 20.9 percent to $81.1 million, while sales outside the USA declined by 5.5 percent in dollars and by 1.9 percent in local currencies. Sales in the Europe, Middle East and Africa region (EMEA) fell slightly because of poor sales in electronics, footwear and apparel. Sales dropped for the same reason in the Asia Pacific region, but the decline was more modest in EMEA because of increased sales of sunglasses, including the new women's line. In total, sales outside of the USA declined to $70.6 million in the quarter.
At the end of the quarter Oakley had 180 total retail doors including two Oliver Peoples stores in the USA and 9 licensed O stores in various countries outside the USA, as compared to total of 134 outlets at the end of last year's quarter. In a new partnership with Transitions Optical, Oakley will offer sunglasses with photo-chromic non-prescription lenses combining Transitions' photo-chromic properties with the high definition and visual contrast, the optical purity and the impact resistance of Oakley's own lens materials. Automatically darkening with varying light conditions, these lenses will initially be available in two colors on six of Oakley's frames, with the script ?Activated by Transitions ?.?
Meanwhile, Oakley's 10-K report to the U.S. Securities & Exchange Commission for 2005 shows that its sales in Continental Europe declined by 0.5 percent last year to $93.7 million. While its global sunglass revenues increased by 7.1 percent to $336.8 million, sales of footwear were flat at $32.2 million and apparel and accessories were up by 15 percent to $109.4 million. Sales of sports goggles rose by 7.3 percent to $42.0 million, electronics advanced by 88 percent to $37.1 million and watches declined by 11.5 percent to $10.6 million. Prescription eyewear increased by 4.4 percent to $49.8 million..