Oakley Reports Record First Quarter Net Sales

FOOTHILL RANCH, Calif., Apr 17, 2002 — Selected First Quarter Highlights:

Net sales increase 16.8 percent to $109.6 million, a first quarter record.

Diluted EPS equals $0.08 vs. prior guidance of $0.05 and $0.13 last year.

New product categories grow 50.9 percent, contribute 28.4 percent to Q1 gross sales.

Total U.S. net sales increase 24.1 percent; international net sales grow 9.4 percent.

2002 earnings guidance increased to $0.81 per diluted share, from prior guidance of $0.77 to $0.80 and actual 2001 earnings of $0.72 per diluted share.Oakley Inc. (NYSE:OO) today announced financial results for its first quarter ended March 31, 2002.

Net sales for the quarter increased 16.8 percent to $109.6 million, a first quarter record, compared with last year’s net sales of $93.8 million. U.S. net sales excluding Oakley’s retail store operations increased 13.5 percent to $52.4 million from $46.1 million; net sales from retail store operations were $5.8 million in the quarter, up from $0.7 million last year.Total U.S. net sales increased 24.1 percent in the first quarter to $58.2 million from $46.9 million. International net sales increased 9.4 percent to $51.4 million compared with $47 million in last year’s first quarter.Net income for the first quarter totaled $5.6 million, or $0.08 per diluted share, compared with net income of $9.1 million, or $0.13 per diluted share, in last year’s comparable period, which included a benefit of $0.01 per share from a reduced tax rate.”Oakley performed strongly in the first quarter as key markets around the world continued their steady recovery from shocks experienced in the second half of 2001,” said Oakley chairman and chief executive officer Jim Jannard. “Consumer demand for Oakley products remains strong and our combination of innovative products and selective distribution is well-tuned to meet that demand.”

Oakley chief operating officer Link Newcomb commented: “Our record first quarter revenues reflect our leadership as a sunglass brand worldwide in an improving retail environment, together with the continued momentum of our product and distribution diversification strategies.

“First, our sunglass business grew at a 6.3 percent rate driven by a 9.9 percent increase in average selling prices. As planned, we successfully increased production capacities during the first quarter to fulfill more of the strong demand for Switch(TM) and resolved other production constraints that had affected our business late last year.

“Second, international net sales of $51.4 million established renewed growth after the temporary decline caused by the events of last fall. Finally, continuing a trend that began one year ago, more than half of our year-over-year sales growth in the quarter came from new product categories — athletic footwear, apparel, watches and prescription eyewear.

“In total, new category gross sales grew 50.9 percent to $32.9 million from $21.8 million and accounted for 28.4 percent of first quarter gross sales compared with 22.1 percent in last year’s first quarter.”

“Our backlog on March 31, 2002 was $59.1 million, the highest ever reported and 11.9 percent above the $52.8 million level of one year ago,” Newcomb continued.

“The backlog reflects higher eyewear orders, largely attributable to a change in Sunglass Hut’s ordering patterns resulting in more advance orders for sunglass products compared to weekly replenishment orders of a year ago, and higher futures orders from retailers for the company’s spring and summer footwear and apparel lines, partially offset by lower futures orders for fall footwear and apparel products.

“Coming off of a very challenging second half of 2001, the first quarter of 2002 offered more proof that our innovations continue to fuel the global power of the Oakley brand.”

Newcomb concluded: “We now expect full year 2002 net sales growth approaching 25 percent, the high-end of our previous range and earnings per diluted share of $0.81, representing a 12.5 percent increase from $0.72 per diluted share in 2001, which included a $0.06 per share one-time benefit from a lower tax rate. Excluding the 2001 tax rate benefit, our current 2002 earnings per share guidance represents growth of 23 percent.”

First Quarter Financial Analysis

A 13.5 percent increase in first quarter U.S. net sales to $52.4 million (excluding sales from Oakley’s retail store operations) reflected a 29.1 percent increase in net sales to the company’s diverse base of specialty retail accounts, including a 33.1 percent increase in net sales to Oakley Premium Dealers, and through other domestic channels.

This increase was partially offset by a 24.4 percent decrease in U.S. net sales to Sunglass Hut, the company’s largest customer, which accounted for 19.5 percent of first quarter U.S. net sales compared with 29.2 percent in last year’s first quarter, reflecting the transition to the new 3-year agreement between the companies signed in December 2001.

Shipments to Sunglass Hut were discontinued during the third quarter of 2001 and resumed in late December 2001. First quarter net sales through Oakley’s retail stores, including sales through the Iacon stores acquired Oct. 31, 2001, and the five new Oakley retail stores opened during the past 12 months, reached $5.8 million, compared with $0.7 million in the first quarter of 2001. During the quarter, the company opened two new Iacon stores, bringing the total to 45, and one new Oakley store, bringing the total to seven.

Oakley’s international net sales increased 9.4 percent (14.4 percent on a constant dollar basis) to $51.4 million. The increase reflected the steady recovery of business in several major markets, especially those highly dependent on leisure travel activity, partially offset by declines in the South Pacific region and South America.

First quarter gross margins were 52.6 percent compared with 58 percent in last year’s first quarter, reflecting a higher contribution from footwear and apparel products which carry lower gross margins than the company’s eyewear products, coupled with higher sales discounts and successful efforts to reduce inventory levels of prior season close-out products at reduced margins. Operating expenses were 44.2 percent of net sales in the quarter, compared with 43.2 percent last year. Operating margins were 8.4 percent compared with 14.8 percent in the prior year period.

The company’s consolidated inventory totaled $78.5 million at March 31, 2002, compared with $77.3 million at Dec. 31, 2001 and $74.2 million at March 31, 2001.

Tax Rate Returns to 35 Percent

The company’s tax rate returned to 35 percent in the first quarter, where it is expected to remain throughout 2002. In 2001, a one-time tax benefit associated with the company’s foreign operations reduced the effective tax rate to 30 percent in the first quarter and to 29 percent for the full year, resulting in a benefit of $0.01 per share and $0.06 per share, respectively.

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, 2002 totaled $445 million and generated net income of $46.8 million — a 10.5 percent net margin.

Oakley news releases, SEC filings and the company’s Annual Report are available at no charge through the company’s Web site at www.oakley.com.