Selected Second Quarter Highlights
Net sales increased 31.2 percent to a record $131.2 million.
Sunglass sales increased 22.3 percent.
New category sales from footwear, apparel, prescription eyewear and watch products grew 103.9 percent.
International net sales grew 54.0 percent; U.S. net sales increased 16.4 percent.
FOOTHILL RANCH, Calif.–Oakley, Inc. (NYSE:OO) today announced record financial results for its second quarter ended June 30, 2001. Net income for the quarter totaled a record $23.6 million, or $0.34 per diluted share, a 27.6 percent increase over net income of $18.5 million, or $0.27 per diluted share, in last year’s second quarter.Net sales for the quarter totaled $131.2 million, also a record and 31.2 percent above the $100.0 million achieved in the second quarter of 2000. International net sales increased 54.0 percent to $60.6 million and U.S. net sales increased 16.4 percent to $70.6 million, compared with $39.3 million and $60.7 million, respectively, in last year’s second quarter.”The Oakley brand is a rare blend of technical substance, sport, lifestyle and luxury,” said Oakley Chairman and Chief Executive Officer Jim Jannard. “As strong as this quarter was, we still believe we are only beginning to realize the ultimate potential of the six principal product categories in which we compete.”
Oakley Chief Operating Officer Link Newcomb commented, “Oakley’s outstanding second quarter results were led by our international markets, which generated two-thirds of our year-over-year growth. Despite a strong U.S. dollar, Europe grew 48.4 percent and represented more that half of our international sales. The region’s growth reflects the positive results of our efforts over the past year to reorganize and refocus our sales and marketing teams around specific key country markets. Sales in Japan and the rest of Asia were also very strong during the quarter, up 88.1 percent, as our brand continues to experience increasing demand in these markets across all categories.”
“Sales in our new product categories more than doubled to $21.9 million from $10.8 million in last year’s second quarter, reflecting the continued success of our product diversification strategy,” Newcomb continued. “Our sunglass business continued to grow at a very healthy 22.3 percent rate, much better than expectations again this quarter, with unit growth increasing 12.8 percent and the average selling price increasing 8.4 percent, fueled once again by strong sales of our technology-leading styles. We were also pleased by the continued strong performance of our prescription business which benefited from the successful establishment of our on-site lens finishing laboratory.”
“Oakley’s continued momentum is reflected in the June 30, 2001 backlog of approximately $52.4 million, a 25.4 percent increase over $41.8 million one year ago,” Newcomb continued. “Included in this growth is a 141.5 percent increase in pre-booked fall footwear and apparel products, partially offset by reduced X-Metal eyewear backorders as the company’s X-Metal production capacity has been expanded to better meet demand.”
Newcomb concluded, “With the momentum demonstrated in the second quarter, we now expect full year 2001 earnings per share to be $0.99, a 35.6 percent increase over 2000, including a one-time benefit of $0.07 per share from a lower tax rate in 2001, explained below.”
Second Quarter Financial AnalysisOakley’s international net sales increased 54.0 percent (64.3 percent on a constant dollar basis) to a record $60.6 million, a thirteenth consecutive quarterly record, and represented 46.2 percent of total sales in the quarter. Compared to the same period last year, net sales growth was strong in all major markets, with the highest increases in Europe, Japan and the rest of Asia and Latin America.
Second quarter U.S. net sales increased 16.4 percent to $70.6 million, fueled primarily by a 26.4 percent increase in sales to the company’s diverse base of specialty retail accounts, partially offset by sales to Sunglass Hut, the company’s largest sunglass customer, which were equal to last year’s second-quarter, in line with expectations. U.S. net sales to Sunglass Hut increased 12.4 percent through the first half of 2001.
Worldwide sales of sunglasses grew 22.3 percent in the second quarter with several sunglass styles contributing significantly to the growth. Sales of the Square Wire(R) 2.0 and the Twenty(TM) showed substantial increases, while combined sales of the X-Metal(R) family increased 80.0 percent. Sales of prescription products were the biggest contributor to new category sales, more than doubling over the prior year, benefiting from the successful launch in spring 2001 of the company’s line of exclusive ophthalmic frames.
Gross margins in the quarter were 64.2 percent, compared with 66.7 percent in last year’s second quarter, due to greater contribution from the company’s new footwear and apparel products which carry lower gross margins than sunglass products, and a shift in the mix of sunglass sales toward more complex, multi-layered lens products with higher production costs.
Operating expenses were 37.7 percent of sales, compared with 37.6 percent in the prior year as leverage in selling and general and administrative expenses was offset by higher design and shipping costs associated with the new categories. Selling expenses reflect increased advertising as part of the company’s strategic effort to increase brand awareness and drive demand. General and administrative expenses increased primarily due to the increased personnel and infrastructure necessary to support the growth in business. Operating income increased 19.1 percent, to $34.7 million compared with $29.2 million in last year’s second quarter. As a result of the lower gross margins, operating margins for the quarter were 26.5 percent of sales compared with 29.2 percent in the prior year period.
The company’s consolidated inventory totaled $78.4 million at June 30, 2001, compared with $74.2 million at March 31, 2001 and $51.6 million at June 30, 2000. This inventory supports the 41.7 percent growth in trailing-12-month sales as well as the growth in international markets, pre-booked fall season products and the company’s expanded sunglass offerings. To support growth in the Japanese market, the company established earlier this year a new distribution center in Japan which accounted for a substantial portion of the sequential inventory increase.
Tax Rate for 2001
As a result of a one-time tax benefit associated with the company’s foreign operations, the effective tax rate for the second quarter was 30 percent, down from 35 percent for the previous year. The company expects the full year 2001 tax rate to be 30 percent.
Stock Repurchase ProgramOn 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, of which $7.5 million is still available for purchase. In the second quarter 2001, the company did not repurchase any additional shares. Under this plan and a previous authorization of $20 million in December 1999, 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.