Oakley Net Income Jumps 67 Percent In First Quarter On 49 Percent Rise In Net Sales
FOOTHILL RANCH, Calif.–
Selected First Quarter Highlights:
— Net sales increase 49 percent to $93.8 million, a first quarter record.
— New product categories contribute 22 percent to first quarter sales on combined growth of over 200 percent.
— U.S. net sales increase 40 percent; international net sales grow 60 percent.
— Diluted earnings per share jump 63 percent, to $0.13 vs. $0.08.
Oakley, Inc. (NYSE:OO) announced record financial results for its first quarter ended March 31, 2001.
Net income for the first quarter totaled $9.1 million, or $0.13 per diluted share, a 67 percent increase over the comparable prior year period’s net income of $5.5 million, or $0.08 per diluted share.
Net sales for the quarter totaled $93.8 million, a first quarter record and 49 percent above the previous record $63.1 million achieved in the first quarter of 2000. U.S. net sales increased 40 percent to $46.9 million and international net sales increased 60 percent to $46.9 million, compared with $33.6 million and $29.4 million, respectively, in last year’s first quarter.
“Our momentum continued unabated in the first quarter,” said Oakley Chairman and Chief Executive Officer Jim Jannard. “We expanded our presence in each of the categories in which we now compete and believe they offer us the potential to grow to be a $1 billion brand. As always, the skeptics will be many. We welcome the challenge.”
Oakley Chief Operating Officer Link Newcomb commented, “Our outstanding first quarter results reveal many important indicators of our future growth opportunities. First, our sunglass business continued to grow at a very healthy 29 percent rate, much better than expectations, with strong product introductions of our technology-leading eyewear resulting in what we believe are continued market share gains. As planned, we successfully increased production capacities during the first quarter to fulfill more of the strong X Metal demand and are well positioned to support the upcoming launch of Penny(TM), the newest addition to our X Metal family. Sunglass average selling prices remained very strong as our product mix favored higher-priced products. Second, and even more exciting for the future of the Oakley brand, over $15 million in sales growth, or fully half of our year-over-year growth in the quarter, came from our new product categories — athletic footwear, apparel, watches and prescription eyewear. In total, new category revenues more than tripled to $21.8 million from $6.6 million and accounted for 22 percent of first quarter revenues compared with only 10 percent in last year’s first quarter. Third, international revenues of $46.9 million increased at their fastest rate in five years and equaled U.S. revenues during the quarter, providing a glimpse of things to come as we continue to capitalize on the strength of the Oakley brand worldwide.
“Our strong momentum in all categories is further reflected in our backlog which on March 31, 2001 stood at $52.8 million, the highest ever reported and 136 percent above the $22.4 million level of one year ago,” Newcomb continued. “The backlog increase is principally attributable to much higher futures orders from retailers for the company’s spring and fall footwear and apparel lines, together with strong sunglass orders for summer releases. Importantly, as the new categories which rely on advance bookings continue to gain penetration in their respective markets, our near-term visibility is improving.”
“Coming off of a very successful 2000, the first quarter of 2001 offered more proof that our diversification strategy is enjoying success across virtually all of our markets and channels and that the global power of the Oakley brand has only begun to be realized. With this outstanding first quarter performance, we now expect full year 2001 earnings per share to be $0.98, a 34 percent increase over 2000, including a $0.07 per share one-time benefit from a lower tax rate in 2001, as explained below,” Newcomb concluded.
First Quarter Financial Analysis
A 40 percent increase in first quarter U.S. net sales to $46.9 million was fueled by a 42 percent increase in sales to Sunglass Hut, the company’s largest customer, coupled with a 38 percent increase in sales to the company’s diverse base of specialty retail accounts.
Oakley’s international business achieved its twelfth consecutive quarterly record with net sales increasing 60 percent to $46.9 million, equaling the company’s U.S. revenues. The increase (72 percent on a constant dollar basis) was driven by continued strength in all key markets, with the most significant increases in Europe, Asia, Latin America and Canada.
As a result of outstanding sales of the company’s new footwear and apparel products, which carry lower gross margins than the company’s sunglass products, first quarter gross margins were 58.0 percent compared with 61.9 percent in last year’s first quarter. A stronger U.S. dollar in key international markets also contributed to lower gross margins. Operating expenses were 43.2 percent of net sales in the quarter, down from 47.7 percent last year, as the company leveraged its expense base over higher net sales. Operating margins improved to 14.8 percent of net sales, compared with 14.2 percent in the prior year period.
The company’s consolidated inventory increased to $74.2 million at March 31, 2001, compared with $62.0 million at December 31, 2000. This inventory increase supports the growth in sales and backlog resulting from the rapid international and new category expansion as well as the company’s expanded sunglass offerings.
Tax Rate for the Year 2001
As a result of a one-time tax benefit associated with the company’s foreign operations, the effective tax rate for the first quarter was 30 percent, down from 35 percent for the previous year, resulting in a benefit of $0.01 per share in the quarter. The company expects the tax rate for the full year 2001 to be 30 percent. To effect this tax benefit, additional year 2000 taxes of $14.5 million were paid during the first quarter of 2001, thereby increasing the company’s total debt. This tax payment, together with additional tax savings of $6 to $7 million, will be recovered through reduced 2001 tax payments beginning in April 2001 and continuing through April 2002. The company intends to utilize the cash generated from this tax benefit to fund future share repurchases or other alternatives designed to enhance shareholder value.
Stock Repurchase Program
As announced on December 11, 2000, the company’s board of directors authorized a $20 million stock repurchase program to occur from time to time as market conditions warrant. In the first quarter 2001, the company repurchased 50,000 shares for $800,000 at an average share price of approximately $16.00. Since December 1999, under this plan and a previous authorization of $20 million, which was completed in May 2000, the company has repurchased 3,102,000 shares for $32.5 million, at an average price of $10.48 per share. As of March 26, 2001, the company had 68,614,255 outstanding shares of common stock.
About Oakley, Inc.
Oakley: a world brand, driven to ignite the imagination through the fusion of art and science. Building on its legacy of innovative, market-leading, premium sunglasses, the company also offers an expanding line of premium performance footwear, apparel, accessories, watches and prescription eyewear to consumers in more than 70 countries. Trailing-12-month revenues through March 31, 2001 totaled $394.2 million and generated net income of $54.7 million — a 13.9 percent net margin. Oakley, Inc. press releases, SEC filings and the company’s Annual Report are available at no charge through the company’s Web site at www.oakley.com.