LOS ANGELES–July 24, 2002–K2 Inc. (NYSE:KTO) today announced a 62 percent increase in second quarter 2002 diluted earnings per share, as compared with the same period of the prior year, on a 10 percent rise in sales.
Net sales for the second quarter increased 10 percent, to $157.2 million, compared with $143.1 million in the comparable 2001 period. Net income rose to $3.8 million as compared with $2.3 million a year ago. Diluted earnings per share increased 62 percent to $0.21, up from $0.13 in the prior year.
For the six months ended June 30, 2002, net sales totaled $304.7 million, down 3 percent from the $314.6 million reported in the same period in 2001. Net income, however, increased 41 percent, to $7.7 million as compared with $5.5 million a year ago. Diluted earnings per share increased 43 percent to $0.43, up from $0.30 in the prior year.
“The strength of our brands and growth of new products enabled us to report a 10 percent increase in sales in the second quarter of 2002,” said Richard M. Rodstein, K2’s President and Chief Executive Officer. “We announced higher earnings for the second consecutive quarter due to higher sales and to the success of our expense reduction initiatives. We also decreased our debt by $24.3 million as compared with the prior year. Sales for the quarter benefited primarily from a 30 percent increase in inline skate shipments and from a double digit percentage growth of fishing tackle and Stearns outdoor products sales. K2 bikes and Shakespeare monofilaments also posted higher sales. In a seasonally slow quarter, the company reported a modest decline in shipments of skis and snowboard products, as compared to the prior year, reflecting lower preseason orders.”
Rodstein continued, “Sales of K2 inline skates exceeded our expectations in the second quarter. K2 is positioned as the performance soft boot skate, and as a result we have benefited from a market that is consolidating around a handful of brands. Our patented product and strong brand have allowed K2 to attain a leading sell-through rate in the industry. We are further encouraged by an apparent decline in retail inventory levels.”
Rodstein added, “As was the case in the first quarter, results for the period continued to benefit from higher sales and earnings in both our Shakespeare domestic fishing tackle group and in our Stearns outdoor products business. Sales of Shakespeare fishing tackle once again benefited from a gain in market share, led by higher sales of new fishing reels, sales of Ugly Stik fishing rods and shipments of Shakespeare kits and combos, especially of our Warner Brothers licensed Scooby Doo kits and accessories. Stearns also reported an increase in sales, resulting from the popularity of our children’s flotation devices and new applications for the Navy. Revenues of K2 bikes also increased approximately 29 percent over the prior year’s period.”
The company said that industrial product sales increased during the quarter because of higher shipments of Shakespeare monofilament products offset somewhat by lower sales of recreational marine radio antennas.
The expense reduction program has been successfully implemented, resulting in a $1.1 million decrease in total expenses for the quarter despite increased variable expenses related to higher sales and accruals for bad debts. Gross profits as a percentage of sales declined to 28.8 percent from the 31.6 percent level in the same quarter last year. The Company’s aggressive inventory reduction program resulted in a reduction in both inventory levels and in its gross profit percentage. Interest expense declined $1.1 million due to both reduced borrowing levels and lower interest rates. In accordance with SFAS No. 142, effective on January 1, 2002, goodwill is no longer required to be amortized. Amortization of goodwill was $409,000, or $0.02 per diluted share, in the prior year’s quarter.
The company has also successfully continued to generate strong cash flow, and has repaid its debt by $39.4 million from the year-end primarily from a reduction of inventories of $25.4 million. As previously reported, beginning in the first quarter of 2002, the receivables and debt related to the Company’s new asset securitization program facility are reflected on K2’s balance sheet.
The following statements are based on management plans for the year and reflect assumptions as to numerous factors beyond K2’s control. These statements are forward-looking, and actual results may differ materially. Certain of the material uncertainties are more specifically referenced below.
In looking ahead, Mr. Rodstein said, “We are pleased with the results of the expense reduction measures we have implemented. In addition there are favorable trends in several parts of our business. Our domestic fishing tackle business continues to outperform the industry as a whole. We recently presented the new product line and received a favorable response from the dealers. Stearns has been delivering record results in its seasonally strongest half of the year and continues to experience positive retail sell-through of its products. Retail inventory levels of inline skates appear to be declining and K2 is continuing to benefit from its leading market position in a consolidating market. As previously reported, while it appears that preseason winter sports orders have declined industry wide from the prior year, reflecting poor North American and European snow conditions and a weak Japanese economy, we believe that we should benefit from the cost advantages from manufacturing winter sports products in China.”
Mr. Rodstein concluded, “The economic environment continues to be uncertain, and consumer confidence has been recently shaken by a series of developments in the stock market and its resulting volatility. Absent a downturn in consumer spending, we believe that the cost and expense reduction initiatives we have implemented and momentum in several of our product categories will continue to have a positive impact on our operating results.”
K2 Inc. is a leading designer, manufacturer and marketer of brand-name sporting goods, recreational and industrial products. The company’s sporting goods and recreational products include well-known names such as K2 and Olin alpine skis; K2, Ride and Morrow snowboards, boots and bindings; K2 inline skates; Stearns sports equipment; Shakespeare fishing tackle; K2 bikes; and Dana Design backpacks. K2’s other recreational products include Planet Earth apparel, Adio skateboard shoes and Hilton corporate casuals. K2’s industrial products include Shakespeare extruded monofilaments, marine antennas and composite light poles.