Net Income Increases 22 Percent
LOS ANGELES–(BUSINESS WIRE)–April 25, 2002–K2 Inc. (NYSE:KTO) today announced a 22 percent increase in first quarter net income, as compared with the same period of the prior year, reflecting the impact of its expense reduction activities as previously announced and record sales and earnings of its fishing tackle and water sports businesses. Net sales for the first quarter totaled $148.7 million, compared with $173.2 million in the comparable 2001 period. Net income was $3.8 million, or $0.21 per diluted share, as compared with $3.2 million, or $0.17 per diluted share a year ago.
“We are pleased with the 22 percent increase in net income, especially in light of the $24 million decrease in net sales for the period. The decline in sales was due almost entirely to lower sales of inline skates and scooters resulting from an industry-wide reduction,” said Richard M. Rodstein, K2’s President and Chief Executive Officer.
“Skate sales were consistent with our expectations, reflecting the last quarter of a year long industry decline that first occurred in the second quarter of 2001. We are encouraged by the performance of inline skates at retail since many of our retailers are reporting increased sales for the category and continued strong performance by K2 in particular. The combination of stabilized sales levels and the successful restructuring of our inline skate operations enabled one of our historically strongest performers to return to profitability in the first quarter, despite the decline in sales.”
Rodstein added, “Results for the period benefited from record sales and earnings in both our Shakespeare fishing tackle group in the key domestic market and in our Stearns outdoor sporting goods products business. Sales of our domestic Shakespeare fishing tackle business benefited from a gain in market share, led by higher sales of our Pflueger brand of fishing reels and sales of Shakespeare kits and combos, especially of our Warner Brothers licensed kits and accessories. We are also benefiting from an increase in sales at Stearns, mainly from children’s flotation devices, new outdoor water products and other military applications.”
Rodstein continued, “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 unfavorable snow conditions. Cost reduction initiatives, however, resulted in improved operating results for the quarter. Revenues of K2 bikes also increased approximately 14 percent over the prior year’s period.”
The company said industrial sales fell during the quarter because of the continued slowdown and consolidation in the paperweaving industry, offset somewhat by increased sales of composite light poles sold to utilities and by higher sales of monofilaments for international markets and other industrial applications.
The successful implementation of the expense reduction program resulted in an $8.1 million decrease in total expenses for the quarter. Gross profit as a percentage of sales was comparable with the prior year’s quarter at 29.2 percent. Reduced costs associated with the China manufacturing facility were offset by increased sales of reduced margin inline skates. Interest expense declined $.7 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 $410,000, or $0.02 per diluted share, in the prior year. The company has also successfully continued to generate strong cash flow and reduced debt by $5.6 million from year-end.
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, “Despite the continuing difficult economic environment and concerns over the weather, we are encouraged by several trends throughout the company. The domestic fishing tackle business continues to be a very positive story based on the strength of the brand and strong product offerings. The favorable trend of customer orders however could be mitigated by unfavorable weather conditions such as the drought in key parts of the country. Order trends at Stearns water products, reflecting the leadership position of our flotation products and the success of new product introductions, continue to be positive.
“Based on retail sales of inline skates during 2002, it appears that sales levels in the industry have stabilized and retail inventory levels are declining. If such trends continue and we successfully sustain our expense reduction initiatives, then our skate business will be positioned for improved year over year results beginning in the second quarter. We believe that preseason orders in the winter sports industry have declined overall from the prior year, reflecting poor snow conditions in North America and Europe and weak economic conditions in the Japanese market. While we have had a positive response to our new ski, snowboard and snowboard binding collection, retailers have displayed caution in ordering for the upcoming season and our preseason orders have declined from prior year levels. We believe however, that an improved mix of higher margin products sold, the cost advantages from manufacturing winter sports products in China and the reduction in overhead expenses should result in a continuation in the positive trend in earnings of the winter sports businesses. Within our industrial group, sales appear steady at current levels. Finally, the company should continue to benefit from expense reduction initiatives implemented in 2001. While we are confronted with uncertainty, we continue to be confident in our cost and expense reduction efforts and in the momentum we display in several of our sporting goods categories, which should provide the company with the opportunities to report strong earnings growth in 2002.”
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.
This news release includes forward-looking statements. The company cautions that these statements are qualified by important factors that could cause actual results to differ materially from those in forward-looking statements, including, but not limited to, economic conditions, foreign exchange fluctuations, product demand, consumer spending, retailers’ purchasing patterns, competitive pricing and products, success of cost and expense reduction measures, success of shifting manufacturing offshore, weather conditions, seasonality, and other risks described in the company’s 2001 Annual Report on Form 10-K filed with the Securities and Exchange Commission.