Reporting on its quarterly financial performance ahead of a Feb. 28 shareholders' meeting that will decide on its proposed merger with the eyewear division of Carl Zeiss, SOLA International says its sales grew by 2.4 percent to $163.1 million for its 3rd fiscal quarter ended last Dec. 31, 2004, as compared to one year ago, leading to net income of $9,380,000 as compared to a net loss of $25,330,000. Adjusted net income rose to $10.4 million from $7.6 million, and the company generated $22.6 million in cash flow from operations, up from $21.6 million.
Quarterly revenues included sales of $63.5 million in North America, $65.7 million in Europe and $30.1 million in the rest of the world. In terms of local currencies, the group's total sales declined by 2.1 percent during the quarter. Sales in North America fell by 6.1 percent as higher sales by the company's growing network of prescription laboratories were offset by reduced demand from Wal-Mart. Sales in local currencies fell by 2.3 percent in Europe but rose by 6.3 percent in the rest of the world. European sales were negatively affected by the health reform in Germany, but lab sales increased and sales to the British eyewear chains were strong. SOLA Sunlens raised its own sales in Italy by $5.8 million and in Hong Kong by $1.7 million.
Gross margins were 39.7 percent, down from 40.7 percent in the year-ago, while operating expenses declined from 31.0 to 29.4 percent of sales. The company's planned reduction in manufacturing output ? as a result of lower sales to Wal-Mart and continued sales weakness in Germany ? temporarily raised SOLA's overall production costs. Operating income increased to $16,817,000 for the quarter from $15,401,000.
Net sales for the nine months ended Dec. 31 totaled $494.5 million, up for 4.8 percent, but they increased by only 0.6 percent on a constant currency basis. During the 9-month period, sales on a constant currency basis dropped by 2.6 percent in North America, but rose by 1.1 percent in Europe and by 6.5 percent in the rest of world. SOLA's operating income declined to $53,523,000 during the period, as compared to $55,856,000 a year earlier, but a net profit of $28,025,000 compared favorably with a net loss of $18,129,000.
SOLA plans to launch a new specialty lens product before the middle of 2005. During the latest quarter, SOLA bought out the 24 percent minority stake it didn't own in a joint venture in Guangzhou, China for $6.0 million. It also spent $2.6 million to buy the two prescription laboratories of Vision Systems in Georgia and Virginia, assuming an additional $1.2 million in debt. Furthermore, SOLA signed letters of intent for the acquisition of two prescription labs in North and Latin America for a total of $14.8 million, and these takeovers should be finalized during the present quarter.