Vans Reports Second Quarter Sales and Earnings

SANTA FE SPRINGS, Calif.–(BUSINESS WIRE)–Dec. 19, 2001–Vans, Inc. (Nasdaq: VANS) today announced financial results for the second quarter of fiscal 2002 ended December 1, 2001. Net sales for the quarter were $68.3 million versus $74.5 million last year with net income of $0.5 million versus $3.2 million and diluted earnings per share of $0.03 versus $0.21, in line with consensus estimates. For the first six months of fiscal 2002, sales were $186.4 million versus $175.1 million last year, net income was 11.9 million, versus $10.7 million, and diluted earnings per share was $0.64 compared to $0.72.

“While we were able to achieve our revised earnings projections for the quarter, the business climate remains challenging in the near-term,” said Gary H. Schoenfeld, President and Chief Executive Officer. “As a result of the very different retail environment of the past three months, we expect our results for the next two quarters to lag behind last year.(a) Looking ahead to June and the beginning of fiscal 2003, we are optimistic about our prospects and the ability to regain our previous momentum.”

For the second quarter, total U.S. sales, including sales through Vans’ U.S. retail stores, were $49.2 million, versus $53.4 million for the same period a year ago. Sales through the Company’s U.S. retail stores decreased 6.3% to $23.1 million in the second quarter of fiscal 2002, from $24.7 million for the same period a year ago. Comparable store sales for the second quarter declined 8.9% versus the same period last year. U.S. wholesale sales in the second quarter were 26.1 million, versus $28.7 million a year ago. Total international sales were $19.1 million, down 9.5% from $21.1 million a year ago.

Mr. Schoenfeld continued, “The slowdown in consumer spending has adversely affected our retail and wholesale businesses. Having achieved twenty-seven consecutive quarters of comp store gains, we had a decline of almost 9% in the second quarter with our 95 California-based stores experiencing double-digit decreases in contrast to a positive mid-single digit increase for the rest of our stores. Our at-once business with the larger, family footwear chains was also particularly soft with the biggest bright spot being a better than 50% growth in our business with core skate and surf shops. Our international business was generally in line with what we had previously indicated, with particular strength in England and Japan offsetting sales below plan in Canada and South America.”

Gross margins for the quarter increased 520 basis points to 48.7% vs. 43.5% a year ago driven by changes in channel mix, along with better first margins and improved inventory management. Inventory decreased $7.2 million to $55.3 million from $62.5 million year-over-year. The Company’s balance sheet remains strong with $53.8 million in cash and shareholders’ equity of $210.4 million.

“Although we are experiencing more promotional pressure as we have entered this holiday season, which is the beginning of our third quarter, we were very pleased with the continued growth in gross margins in the second quarter along with our fourth consecutive quarter of year over year decline in total inventory, even with the addition of 16 more retail stores compared to last year,” Mr. Schoenfeld said.

Operating expenses during the quarter increased to $31.9 million from $26.8 million, due principally to the Company’s retail expansion over the past 12 months and negative leverage as a result of comp store declines since September 11.

Mr. Schoenfeld continued, “The combination of lower than expected sales and margin pressure in our retail stores and an especially promotional retail environment as a whole has prompted us to revise our guidance for the balance of the fiscal year. While we are still bullish about the future growth of the VANS brand and our potential to increase our share of the $15 billion athletic footwear market, near term we have adopted a more defensive strategy to combat these issues and are implementing a number of cost cutting and efficiency programs in addition to our continued focus on tight inventory management.

The Company now expects third quarter sales and diluted earnings per share to range from $85 million to $87 million and $0.02 to $0.04, respectively, and flat to modestly profitable earnings for the fourth quarter.(a)

Mr. Schoenfeld added, “From a micro perspective, we expect our 2003 back-to-school product to be the best in the Company’s history; our athletes, the skateparks, the VANS Triple Crown(TM) Series, the VANS Warped Tour(R) and this spring’s release of Dogtown and Z-Boys should further build upon the awareness and connection to our brand; our retail comparisons obviously get easier next year and we expect to have approximately 15 more full price stores and five more skateparks in operation; and we should further realize the full benefits of our expense control initiatives as we begin this next fiscal year.”

“On a macro level as we look to fiscal 2003, we expect the ripple effects of recent events and the subsequent impact on sales, margins and inventories to have largely worked themselves out and consumer confidence to return to more normalized levels.(a) Given our lower base in fiscal 2002, one of our goals for fiscal 2003 will be to achieve earnings growth that exceeds our historic target of 20%, and we anticipate being able to give more specific guidance for fiscal 2003 at the time of our third quarter release in March.”

Mr. Schoenfeld concluded, “Core sports, and the associated lifestyle, continue to expand and we believe Vans’ leadership position continues to strengthen.(a) Our strategy is to continue to make an emotional connection with kids on a number of different levels ranging from products and retail stores, to athletes and skateparks, to events and video games and other forms of entertainment. Our breadth and depth of reach provides us with a unique platform to further our recognition as one of the premiere sports and lifestyle companies for the youth market and the ability to continue to build upon the successes we had achieved prior to last September.”(a)

Vans, Inc. is a leading branded lifestyle company for the youth market. Vans reaches its 10 to 24 year-old target consumers through the sponsorship of Core Sports,(TM) such as skateboarding, snowboarding, surfing and wakeboarding, and through major entertainment events and venues, such as the VANS Triple Crown(TM) Series, the VANS Warped Tour,(R) the VANS World Amateur Skateboarding Championships, 10 large-scale VANS skateparks, and the VANS High Cascade Snowboard Camp,(R) located on Mt. Hood. The Company operates 155 retail stores in the U.S. and Europe, and designs, markets and distributes active-casual footwear, clothing and accessories, performance footwear for Core Sports, (TM) snowboard boots, step-in snowboard boot bindings, and outerwear worldwide. Vans’ Internet address is