Selected Third Quarter 2007 Highlights
--------------------------------------
-- Net sales increased 25 percent over Q3 2006 to $264 million
-- Optics net sales increased 29 percent over Q3 2006 to $192 million
-- Apparel, footwear and accessories (AFA) net sales increased 13
percent over Q3 2006 to $52 million
-- U.S. retail net sales increased 35 percent over Q3 2006 to $63
million
-- Net income increased 37 percent over Q3 2006 to $24 million, or
$0.34 per diluted share
FOOTHILL RANCH, Calif., Oct. 18, 2007 (PRIME NEWSWIRE) -- Oakley, Inc. (NYSE:OO) today announced financial results for its third quarter ended September 30, 2007. Oakley generated third quarter net sales of $263.8 million, an increase of 25.5 percent from $210.2 million in the same period of 2006. Net income for the third quarter totaled $23.7 million, or $0.34 per diluted share, which includes an approximate $0.02 per diluted share impact of transaction costs related to the company's previously announced merger agreement with Luxottica Group S.p.A. (NYSE:LUX) (MTA:LUX). Net income for the third quarter of 2006 was $17.3 million, or $0.25 per diluted share.
"This marks our fifth consecutive quarter of significant double digit optics growth with strength across all product types, sales channels and geographies," said Oakley Chief Executive Officer Scott Olivet. "The fact that we saw strength across our 2007 sport performance, Square O lifestyle, and women's collections is a strong indicator that Oakley's philosophy of 'innovations wrapped in art' is resonating with a wide range of consumers."
"Our efforts to connect more deeply with each of our consumers also saw significant progress," continued Olivet. "The expansion of the Oakley Custom eyewear program, launch of an exclusive Icon grab-bag series for core action sport accounts, initiation of our artist collaboration series, and release of the Livestrong RADAR(tm) and FLAK JACKET(tm) styles, are just a few of the successful initiatives allowing individuals to address their performance needs and express their individuality within the Oakley brand."
Olivet concluded, "We believe that consumers want to become more involved with Oakley as they learn more about the brand, our design and technology leadership, our athletes and collaborators, and our culture. Our 2007 efforts, including highly integrated product launches and marketing campaigns, the introduction of our Rolling O Lab, increased training for our dealers, and an expanding retail base to tell our story, are driving solid results and setting a strong foundation for future growth."
Product Category Net Sales
Third quarter optics net sales totaled $192.2 million, up 29.1 percent from $148.8 million in the same period of 2006. This growth was driven by significant double-digit increases in sunglasses, prescription eyewear, and goggles. Third quarter AFA net sales totaled $52.2 million, up 12.8 percent from $46.3 million in the prior year. AFA growth included significant contributions from apparel and footwear, and a double-digit increase in watch sales.
Third quarter net sales of other products, which represent non-Oakley owned brands sold through the company's multi-branded Bright Eyes, Sunglass Icon, and The Optical Shop of Aspen (OSA) retail stores, increased 28.7 percent to $19.4 million from $15.1 million during the same period last year.
Segment Net Sales
Global third quarter net sales to wholesale customers were $200.5 million, a 22.7 percent increase over $163.4 million in the same period of 2006.
Third quarter net sales to U.S. wholesale customers totaled $85.6 million, up 22.4 percent from $69.9 million in the prior year, and were driven by significant double-digit optics growth offset by a moderate decrease in AFA sales.
Oakley's third quarter U.S. retail net sales increased 35.2 percent to $63.3 million, compared with $46.8 million in the same period of 2006. U.S. retail sales were driven by strong positive comparable store sales growth, contribution of new Oakley and Sunglass Icon stores added during the last twelve months, and increased Internet sales.
Geographic Net Sales
Third quarter U.S. net sales (wholesale and retail) totaled $148.9 million, an increase of 27.5 percent from $116.7 million in the prior year's same period.
Third quarter net sales in the company's international business were $114.9 million, a 22.9 percent increase from net sales of $93.5 million in the same period of 2006. A weaker U.S. dollar relative to foreign currencies increased reported international net sales by 6.1 percent. The company's Americas region saw significant double-digit optics and AFA growth; EMEA (Europe, Middle East and Africa) generated a significant increase in net optics sales and a slight increase in net AFA sales; and Asia-Pacific had significant double-digit increases in optics and a strong increase in net AFA sales.
Gross Margin, Operating Expenses, Tax Rate
Reported third quarter gross profit as a percentage of net sales was 55.5 percent compared with 53.8 percent in the third quarter of 2006. Third quarter non-GAAP gross margin was 55.5 percent compared to 54.0 percent in the same period of 2006. The increased non-GAAP gross margin versus the comparable prior year quarter is primarily due to increased gross margins from Oakley sunglasses and prescription eyewear. Non-GAAP gross margin excludes footwear restructuring charges and losses from changes in fair value of foreign currency derivatives recorded in accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), which together totaled $474,000 on a pre-tax basis for the third quarter of 2006; no similar charges or losses were recorded in the third quarter of 2007. A reconciliation of non-GAAP gross margin to GAAP gross profit as a percentage of net sales is included in the accompanying financial tables.
Third quarter operating expenses totaled $105.7 million, representing 40.1 percent of net sales, compared to $87.0 million, or 41.4 percent of net sales in the same period of 2006. Research and development expenses increased $0.9 million and represented 2.7 percent of net sales compared to 3.0 percent of sales in the same period of 2006. Selling expenses increased $10.5 million due primarily to increased advertising and marketing activities, and represented 23.3 percent of net sales compared to 24.2 percent of sales in the same period of 2006. Shipping and warehousing expenses increased $0.6 million and represented 2.3 percent of net sales compared to 2.6 percent of sales in the same period of 2006. General and administrative expenses increased by $6.7 million and represented 11.7 percent of net sales compared to 11.6 percent of sales in the same period of 2006. General and administrative expenses increased due to acquisitions completed in the last year, the impact of transaction costs associated with the company's merger agreement with Luxottica Group S.p.A., and increased compensation expense.
The company's effective tax rate increased to 37.4 percent in the third quarter compared to 32.8 percent in the third quarter of 2006. The increased tax rate is due to certain transaction costs related to the company's previously announced merger agreement not being deductible for income tax purposes.
Balance Sheet Highlights
Accounts receivable, less allowances, totaled $140.8 million at September 30, 2007, compared to $115.8 million at September 30, 2006.
The company's consolidated inventory totaled $208.1 million at September 30, 2007 compared to $154.1 million at September 30, 2006. The increase in inventory is due to the impact of acquisitions and new retail stores, increased eyewear inventory to support higher sales volume, and increased apparel inventories.
Conference Call Information
As indicated in a press release that was issued on October 11, the company will conduct a conference call today at 1:30 p.m. PDT. Interested investors can hear a simultaneous Webcast at http://investor.oakley.com. A telephonic replay of the call will be available Thursday, October 18, through midnight October 25, 2007 and can be accessed from the United States and Canada at 888-266-2081 and from international locations at 703-925-2533; pass code: 1030724.
About Oakley, Inc.
Oakley is a global leader in sport performance optics including premium sunglasses, goggles, and prescription eyewear. Headquartered in Southern California, the company's optics brand portfolio includes Dragon, Eye Safety Systems, Fox Racing, Mosley Tribes, Oliver Peoples, and Paul Smith Spectacles. In addition to its global wholesale business, the company operates retail chains including Bright Eyes, Oakley Stores, Sunglass Icon, and The Optical Shop of Aspen. The company also offers a wide selection of Oakley-branded apparel, footwear, watches and accessories. Additional information is available at www.oakley.com.
The Oakley, Inc. logo is available at http://www.primenewswire.com/newsroom/prs/?pkgid=1533
Non-GAAP Measures
This press release includes disclosure of "non-GAAP gross margin," which is a non-GAAP financial measure. The Company provides this non-GAAP measure as a supplement to financial results based on GAAP. Non-GAAP gross margin differs from the most comparable GAAP measure, gross profit as a percentage of net sales, by excluding footwear restructuring charges and the impact of changes in the fair value of foreign currency derivatives not designated as cash flow hedges. A detailed reconciliation of non-GAAP gross margin to gross profit as a percentage of net sales is set forth in the table below. Investors are encouraged to review this reconciliation.
The footwear restructuring charges include provisions for estimated sales returns and markdown allowances (included in net sales) and write-downs of inventories and footwear-specific tooling, displays and equipment (included in cost of goods sold). Changes in the fair value of foreign currency derivatives not designated as cash flow hedges are included in cost of goods sold. Such changes (gains or losses) are recorded based upon the impact of changes in foreign currency exchange rates on the value of the foreign currency derivatives that we have purchased as part of our program to mitigate risks due to fluctuations in currency exchange rates.
The Company presents non-GAAP gross margin to provide additional insight into its underlying operating results. The Company believes that excluding the non-cash gains and losses from changes in the fair value of these foreign currency derivatives, and the impact of the footwear restructuring charges, provides meaningful and useful information regarding the underlying trends in product margins based on actual production costs. Non-GAAP gross margin also enhances comparisons of the Company's results of operations with historical periods. The Company uses non-GAAP gross margin in reviewing product margins, making product pricing decisions, and analyzing product category profitability.
Non-GAAP gross margin has certain limitations because it does not reflect all of the costs associated with the operation of the Company's business as determined in accordance with GAAP. Moreover, the Company's non-GAAP gross margin may be different from similarly titled non-GAAP measures used by other companies, which may not provide investors a comparable view of the Company's performance in relation to other companies in the same industry. Investors should consider non-GAAP gross margin in addition to, and not as a substitute for, or superior to, gross profit as a percentage of net sales determined in accordance with GAAP. The Company seeks to compensate for the limitations of non-GAAP gross margin by providing descriptions of the reconciling items and a reconciliation of non-GAAP gross margin to the most directly comparable GAAP measure so that investors can appropriately incorporate non-GAAP gross margin and its limitations into their analyses. For complete information on the footwear restructuring charges and changes in the fair value of foreign currency derivatives not designated as cash flow hedges, please see the Company's financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" that will be included in the periodic report the Company expects to file with the SEC with respect to the financial periods discussed herein.
Safe Harbor Disclaimer
Certain statements in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are made pursuant to the "safe harbor" created by those sections. All statements in this press release, other than those that are purely historical, are forward-looking statements. Forward-looking statements typically are identified by the use of terms such as "expect," "believe," "plan," "intend," "seek," "anticipate," "outlook," "estimate," "assume," "project," "target," "could," "will," "should," "may," and "continue," as well as variations of such words and similar expressions, although some forward-looking statements are expressed differently. Forward-looking statements in this press release include, without limitation, statements regarding product, retail and brand initiatives, marketing efforts, upcoming product releases, operational improvements, on-time apparel deliveries, responsiveness to retailers and consumers and the ability to drive consistent, profitable growth. The company's expectations, beliefs, anticipations, objectives, intentions, plans and strategies regarding the future are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results, and actual events that occur, to differ materially from results contemplated by the forward-looking statement. These risks and uncertainties include, but are not limited to, the highly competitive markets for our products and our ability to develop innovative new products and introduce them in a timely manner; consumer acceptance of our new products and our ability to respond to changing consumer preferences; order and demand uncertainty; our ability to attract and retain qualified personnel; intellectual property infringement claims by others and our ability to protect our intellectual property; our dependence on key suppliers for materials we use in our products, including lens blanks; our ability to successfully integrate acquired businesses into our operations; our dependence on athletes and personalities for the endorsement of our products; risks associated with our international operations, including foreign currency exchange rate fluctuations and the impact of quotas, tariffs, or other restrictions on the importation or exportation of our products; and risks associated with our previously announced merger agreement, including resolution of outstanding or future litigation, differences between actual fees and our estimates, and other unanticipated developments. Risks and uncertainties that could cause our actual results to differ from those set forth in any forward-looking statement are discussed in more detail under "Risk Factors," "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the company's Annual Report on Form 10-K for the year ended December 31, 2006, as well as similar disclosures in the company's subsequent SEC filings. Forward-looking statements contained in this press release are made only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
OAKLEY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2007 2006 2007 2006
--------- --------- --------- ---------
Net sales $ 263,789 $ 210,219 $ 726,115 $ 565,501
Cost of goods sold 117,284 97,120 319,895 257,164
--------- --------- --------- ---------
Gross profit 146,505 113,099 406,220 308,337
Operating expenses:
Research and development 7,140 6,281 19,791 17,298
Selling 61,520 50,975 187,981 150,718
Shipping and warehousing 6,044 5,448 16,881 15,359
General and administrative 30,972 24,318 93,639 67,996
--------- --------- --------- ---------
Total operating expenses 105,676 87,022 318,292 251,371
--------- --------- --------- ---------
Operating income 40,829 26,077 87,928 56,966
Interest expense, net 2,990 263 8,150 724
--------- --------- --------- ---------
Income before provision
for income taxes 37,839 25,814 79,778 56,242
Provision for income taxes 14,143 8,472 28,887 19,122
--------- --------- --------- ---------
Net income $ 23,696 $ 17,342 $ 50,891 $ 37,120
========= ========= ========= =========
Diluted net income
per share $ 0.34 $ 0.25 $ 0.73 $ 0.54
Diluted weighted
average shares 70,304 68,827 69,908 69,017
OAKLEY, INC.
SELECTED BALANCE SHEET DATA
(Unaudited, in thousands)
September 30, December 31, September 30,
2007 2006 2006
--------- --------- ---------
Cash and cash equivalents $ 53,677 $ 31,313 $ 30,715
Accounts receivable, net 140,835 109,168 115,826
Inventories 208,056 155,377 154,095
Accounts payable, accrued
liabilities and income
tax payable 122,455 107,519 96,711
Dividend payable -- -- 11,001
Total debt 205,038 46,848 41,615
OAKLEY, INC.
OTHER OPERATING DATA
(Unaudited, in thousands)
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
2007 2006 2007 2006
--------- --------- --------- ---------
Net Sales by
Product Category
------------------
Optics $ 192,165 $ 148,836 $ 543,978 $ 414,198
Apparel, Footwear
and Accessories 52,240 46,323 129,135 113,647
Other 19,384 15,060 53,002 37,656
--------- --------- --------- ---------
Total $ 263,789 $ 210,219 $ 726,115 $ 565,501
========= ========= ========= =========
Net Sales by Segment
--------------------
U.S. Retail $ 63,305 $ 46,823 $ 171,137 $ 121,583
Wholesale 200,484 163,396 554,978 443,918
--------- --------- --------- ---------
Total $ 263,789 $ 210,219 $ 726,115 $ 565,501
========= ========= ========= =========
Net Sales by Geography
----------------------
United States $ 148,891 $ 116,742 $ 415,615 $ 317,660
International 114,898 93,477 310,500 247,841
--------- --------- --------- ---------
Total $ 263,789 $ 210,219 $ 726,115 $ 565,501
========= ========= ========= =========
OAKLEY, INC.
RETAIL STORES
(Unaudited, number of stores open at end of period)
September 30, September 30,
2007 2006
-------------------------------
Oakley Stores
U.S. 75 58
International 22 10
Sunglass Icon 128 115
Oliver Peoples 3 2
The Optical Shop of Aspen 21 18
Bright Eyes 32 --
-------------------------------
Total 281 203
===============================
As of September 30, 2007, an additional 12 Oakley Stores, 12 Sunglass Icon stores, two Oliver Peoples and 109 Bright Eyes retail locations were operated by licensees and/or franchisees.
OAKLEY, INC.
RECONCILIATION OF NON-GAAP GROSS MARGIN TO
GAAP GROSS PROFIT AS A PERCENT OF NET SALES
(Unaudited, dollars in thousands)
Change in fair
value of Calculation
Reported Footwear foreign of non-
under restructuring currency GAAP gross
GAAP expenses derivatives margin (1)
-------- ----------- ----------- ---------
(dollars in thousands)
Three months ended
September 30, 2007
------------------
Net sales $263,789 $ -- $ -- $263,789
Cost of goods sold 117,284 -- -- 117,284
-------- -------- -------- ---------
Gross profit 146,505 -- -- 146,505
Gross profit as
a % of net sales 55.5%
Non-GAAP gross
margin % 55.5%
Three months ended
September 30, 2006
------------------
Net sales $210,219 $ (22) $ -- $210,241
Cost of goods sold 97,120 157 295 96,668
-------- -------- -------- ---------
Gross profit 113,099 (179) (295) 113,573
Gross profit as
a % of net sales 53.8%
Non-GAAP gross
margin % 54.0%
Nine months ended
September 30, 2007
------------------
Net sales $726,115 $ -- $ -- $726,115
Cost of goods sold 319,895 -- -- 319,895
-------- -------- -------- ---------
Gross profit 406,220 -- -- 406,220
Gross profit as
a % of net sales 55.9%
Non-GAAP gross
margin % 55.9%
Nine months ended
September 30, 2006
------------------
Net sales $ 565,501 $ (1,847) $ -- $567,348
Cost of goods sold 257,164 1,490 3,702 251,972
-------- -------- -------- ---------
Gross profit 308,337 (3,337) (3,702) 315,376
Gross profit as
a % of net sales 54.5%
Non-GAAP gross
margin % 55.6%
(1) Non-GAAP gross margin is calculated by subtracting change in fair
value of foreign currency derivatives and footwear restructuring
expenses from amounts reported under GAAP.