Oakley Posts Record Third Quarter

FOOTHILL RANCH, Calif.–(BUSINESS WIRE)–Oct. 18, 2000– Oakley Inc. (NYSE:OO) Wednesday announced record financial results for its third quarter, which ended Sept. 30, 2000.

Net sales for the quarter totaled a record $107.0 million, a 51 percent increase over the $70.8 million achieved in the third quarter of 1999 and the second consecutive quarter in which net sales have exceeded $100 million. Net income for the third quarter totaled $17.4 million, or $0.25 per diluted share, a 69 percent increase over the comparable period’s net income of $10.3 million, or $0.15 per diluted share.

U.S. net sales totaled $55.0 million and international net sales totaled $52.0 million, increases of 47 percent and 55 percent, respectively.

“These outstanding third quarter financial results highlight the strength of our market-leading sunglass line and the increasing contribution of the new product categories introduced during the past few years,” said Oakley Chairman and Chief Executive Officer Jim Jannard.

“Importantly, and most satisfying personally, was achieving profitability in our footwear business for the full quarter on sales of $4.3 million. It is a beginning, and a base from which we intend to grow gradually and thoughtfully to firmly establish the Oakley brand in this large, global category.”

“Oakley’s outstanding sales and earnings increases were driven by the momentum of several sunglass products, including the updated Wire(R) styles, the Twenty(TM) and the Eye Jacket(R) 2.0 all of which launched this year,” said Oakley Chief Operating Officer Link Newcomb.

“Additionally, continued strong sales of Juliet(TM) and the entire X Metal(R) family, the Minute(TM), the New Straight Jacket(R) and an expanding line of polarized styles also contributed. X Metal(R) models generated significant same-period sales growth more than tripling 1999’s levels.

“In response, although we have substantially increased our X Metal manufacturing capacity, we continue to chase demand and have plans to further increase capacity to support new X Metal styles scheduled for 2001 introduction.”

“Third quarter net sales also reflect significant growth from the company’s newer product categories, with fall introductions in footwear, apparel and performance watches sharply exceeding the company’s plan and prior year sales levels,” continued Newcomb.

“We also saw substantial growth in snow goggle sales, with improved customer fulfillment relative to the past couple of years. Additionally, substantial growth in our prescription eyewear sales bodes well for the planned introduction of exclusive prescription frames early next year.”

“Our outstanding Sunglass Hut sales growth, up 79 percent on a global basis, reflects Oakley’s brand strength, successful joint efforts to capitalize on several marketing opportunities and improvements in product flow to meet high summer retail demand,” added Newcomb.

“The acquisition of our Australian distributor last November has also proved to be an outstanding success, with South Pacific sales nearly tripling 1999’s levels, boosted by the 2000 Sydney Olympic games.”

“The success of our product diversification strategy, outstanding new product introductions with improved fulfillment, gains from taking control of our distribution base in all key markets and powerful financial leverage have allowed us to capitalize on competitive market opportunities and strong consumer demand,” Newcomb concluded.

“In summary, the Oakley brand demonstrated its strength this quarter across all of our markets, channels and product categories, and we will continue to develop the brand’s full potential as we move into 2001.”

Third Quarter Financial Analysis

The 47 percent increase in third quarter U.S. net sales reflects the company’s third consecutive quarter of growth in excess of 40 percent in the specialty account base outside of Sunglass Hut. Sales to Sunglass Hut, the company’s largest customer, totaled $15.8 million in the United States, an outstanding 63 percent increase.

Oakley’s international business achieved its 10th consecutive record quarter exceeding $50 million in revenue for the first time, beating the previous record quarter by 32 percent. International sales increased 55 percent (68 percent on a constant dollar basis) driven by continued strength in all key markets, including Europe, Australia, Japan, Canada, Southeast Asia and Latin America.

Gross margins in the third quarter were 60.8 percent compared with 62.3 percent in last year’s comparable period with the decline due in large part to the strength of the U.S. dollar in Europe and Australia, the company’s two largest international markets.

Operating expenses declined from 39.4 percent of net sales to 35.1 percent in the quarter, and operating margins for the quarter improved to 25.8 percent compared with 22.9 percent in the prior year period as a result of successful cost controls and positive operating expense leverage on higher sales volumes.

The company’s order backlog as of Sept. 30, 2000 was $35.7 million compared with $14.2 million at the same time last year. The company attributes the increase to substantial outstanding orders for X Metal products, together with strong future orders from retailers for apparel, ski goggles and the footwear line.

The company noted that because the second and third quarters contain the important summer sunglass season in most markets, the bulk of new eyewear product introductions are timed to capitalize on that seasonal demand. As a result, sunglass sales volumes in the fourth quarter of 2000 and first quarter of 2001 are expected to be more dependent on reorders of existing sunglass styles.

Throughout 2001, as the company begins to anniversary the outstanding sunglass growth rates experienced over the past four quarters, sunglass sales growth rates are likely to moderate. Overall sales increases are therefore expected to become more dependent on sales from the company’s new footwear, apparel, watch and prescription eyewear categories.