Oakley Inc. (NYSE:OO) Wednesday announced financial results for its first quarter ended March 31, 2000.
Net income for the first quarter totaled $5.5 million, or $0.08 per diluted share, a 293 percent increase over the $1.4 million, or $0.02 per diluted share, reported in last year’s first quarter. Net sales totaled $63.1 million in the first quarter, a record and an increase of 30 percent over net sales of $48.7 million for the comparable period.
Net sales in the United States increased 18 percent in the quarter to $33.6 million, compared with $28.5 million for the same period last year. International net sales increased 46 percent, to $29.4 million, compared with $20.2 million in last year’s first quarter.
“We are extremely proud of our first-quarter results which reflect a continuation of 1999’s strong momentum,” said Oakley chairman and chief executive officer Jim Jannard. “Our team’s successful execution of new product releases, coupled with the benefits of our strategic advertising campaign, positions us to capitalize on the upcoming summer season.”
“Oakley eyewear continues to be the primary driver of revenue growth. We anticipate the launch of our new fall footwear line from which we expect to see positive contributions in the second half of 2000,” concluded Jannard. “Our outlook for the future combined with strong cash flow performance motivated us to complete all but $1 million of our $20 million share repurchase program.”
Oakley Chief Operating Officer Link Newcomb added, “Oakley’s outstanding sales and earnings increases were driven by the success of several eyewear products introduced since March 1999 including the new Straight Jacket(TM), OO(TM) line and MX O Frame(R) goggle.
“Additionally, our Minutes(TM), X Metal(R) models and polarized styles all experienced major same-period sales growth, collectively up more than 94 percent over 1999. Our order backlog stands at more than $22 million compared to just under $6 million at the same time last year.
“This exceptional 275 percent increase is directly attributable to very positive reactions by retailers to our fall apparel, ski goggles and footwear, along with our efforts to secure fall orders earlier than last year.”
“Our prescription eyewear business reported a 184 percent sales increase over last year’s same period. The company has aggressive plans to grow this portion of its business, one that is a natural leveraging of Oakley’s powerful brand and technology position in the eyewear industry,” continued Newcomb.
“New Rx doors are being added at a rate of more than 100 per month, along with increased penetration in the existing base of approximately 7,500 optical doors. In addition, to increase consumer awareness, our new advertising campaigns highlight the `prescription- ready’ nature of all Oakley eyewear products.”
“A 46 percent increase in international sales during the quarter marks the eighth consecutive quarter of record sales,” added Newcomb. “Despite a strong U.S. dollar, Oakley products continue to generate high levels of consumer demand resulting in increased global penetration. Favorable weather conditions throughout Europe also contributed to this outstanding international performance.”
“While we remain very optimistic about new sunglass styles scheduled for launch this summer, we would encourage investors to anticipate more moderate sunglass sales growth rates, in the U.S. and internationally, in the coming quarters.
“The company’s restructured footwear operation lost only $164,000 this quarter compared to a loss of $1.0 million, or $0.01 per diluted share in last year’s first quarter, adding to our optimism that we will become profitable in footwear during the second half of 2000.
“The expanded fall 2000 footwear line, scheduled to begin appearing at retail in July 2000, is receiving enthusiastic response from a growing number of retail partners around the world, as reflected by our order backlog.”
Fiirst Quarter Financial Analysis
The 18 percent increase in first quarter U.S. net sales over the previous year’s comparable period resulted primarily from a 45 percent increase in sales to the company`s broad specialty store account base. In addition, the company generated approximately $1.0 million of Internet and telesales revenues in the United States, virtually equal to results from the fourth quarter of 1999.
These increases were offset partially by a 20 percent decrease in sales to Sunglass Hut, the company’s largest customer, as they more closely managed inventory levels in preparation for the key summer retail season.
The 46 percent increase in international sales during the first quarter was driven by significant increases in continental Europe, United Kingdom, Australia, South Africa, Japan and the rest of Asia. Outstanding sunglass momentum supported by successful new products and strong seasonal shipments of goggles in key winter markets also combined to drive this improved performance.
Gross margins in the first quarter were 61.9 percent, compared with 58.8 percent in last year’s first quarter. This increase reflects the financial benefits of increased sales volumes during what is normally the company’s seasonally smallest quarter, resulting in better utilization of its fixed-cost infrastructure and generating positive earnings leverage relative to last year.
Operating margins for the quarter improved to 14.2 percent, compared with 5.7 percent in the prior year period as a result of the improved gross margin and positive operating expense leverage on higher sales volumes.
In December 1999, Oakley’s board of directors authorized the repurchase of up to $20 million of the company’s common stock on the open market. Through April 18, 2000, the company had repurchased 2,196,900 shares at a cost of approximately $19.1 million. As of April 18, 2000, there were approximately 68,483,000 shares of the company’s common stock outstanding.
Improved balance sheet performance generated approximately $4.0 million of operating cash flow during the quarter. The company’s consolidated inventory grew at a rate consistent with sales growth and totaled $40.8 million at March 31, 2000, compared with $35.1 million at Dec. 31, 1999, and $31.6 million at March 31, 1999.
The company expects inventory levels to increase moderately during its second quarter ending June 30, 2000 in order to ensure satisfactory fulfillment of retailers’ summer eyewear orders and as shipments of new footwear products are received from contract manufacturing partners and prepared for shipment to retailers beginning in July 2000.
In other news, Oakley’s board officially accepted the resignation of board member and former Vice Chairman Mike Parnell effective immediately. On Feb. 15, Parnell resigned as vice chairman in order to concentrate his efforts toward the Nephrogenic Diabetes Insipidus Foundation (NDIF — www.ndif.org) which was founded in 1991. Parnell’s two sons are affected by this rare kidney disorder.
Parnell had been a board member since 1986 and served in numerous executive capacities with the company since 1983, including chief executive officer from 1986 to September 1997. Under the terms of a separate two-year agreement, Parnell will continue to consult with the company on strategic issues.