Oakley Second Quarter Net Sales Increase 29 Percent to $263 Million

Oakley, Inc. (NYSE:OO) today announced financial results for its second quarter ended June 30, 2007. Oakley generated second quarter net sales of $263.2 million, an increase of 29.3 percent from $203.6 million in the same period of 2006. Net income for the second quarter totaled $21.5 million, or $0.31 per diluted share, which includes an approximate $0.03 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 second quarter of 2006 was $17.9 million, or $0.26 per diluted share.

Foothill Ranch, Calif. (PRWEB) July 23, 2007 -- Oakley, Inc. (NYSE:OO) today announced financial results for its second quarter ended June 30, 2007. Oakley (http://Oakley.com) generated second quarter net sales of $263.2 million, an increase of 29.3 percent from $203.6 million in the same period of 2006. Net income for the second quarter totaled $21.5 million, or $0.31 per diluted share, which includes an approximate $0.03 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 second quarter of 2006 was $17.9 million, or $0.26 per diluted share.

"Our optics strategies continue to drive results and, in the second quarter, we continued to see strong growth rates across all geographies and channels" said Oakley, Inc. Chief Executive Officer Scott Olivet. "Our premium sports performance styles RADAR™ (http://oakley.com/radar) and FLAK JACKET™ (http://oakley.com/flakjacket), which are currently showcased in the Tour de France, are clearly being well received by athletes at every level of competition as well as sports-inspired consumers.

Consistent with Oakley's history, these new styles are once again redefining performance, fit, convenience, and style on the fields of athletic competition around the world."

"Our polarized product, including the recently launched NANOWIRE™ (http://oakley.com/pd/4854), continues to gain share as more consumers learn about Oakley's unbeatable polarized technology and see first-hand the benefits of our new HYDROPHOBIC™ coatings," continued Olivet. "Additionally, the integrated launches of our women's (http://oakley.com/women) and Square O (http://oakley.com/category/985) collections have driven strong early results and the Oakley custom eyewear program continues to become a more important part of our business in Oakley retail locations."

Olivet concluded, "We are pleased with the quarterly results, but more importantly, we continue to make great progress against our goals of strengthening our brands, building solid business platforms capable of delivering sustainable and profitable growth, and delivering results consistently."

Product Category Net Sales

Second quarter optics net sales totaled $207.5 million, up 30.9 percent from $158.5 million in the same period of 2006. This growth was driven by significant double-digit increases in sunglasses, prescription eyewear, and goggles. The company's second quarter sales had significant double-digit organic optics growth augmented by incremental sales from Eye Safety Systems (ESS) and Bright Eyes. Second quarter AFA net sales totaled $36.5 million, up 19.6 percent from $30.5 million in the prior year. AFA growth included significant double-digit contributions from footwear and watches, and a double-digit increase in apparel sales.

Second quarter net sales of other products, which consist of 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 31.3 percent to $19.1 million from $14.6 million during the same period last year.

Segment Net Sales

Global second quarter net sales to wholesale customers were $201.0 million, a 27.1 percent increase over $158.2 million in the same period of 2006.

Second quarter net sales to U.S. wholesale customers totaled $96.1 million, up 29.2 percent from $74.4 million in the prior year, driven by significant double-digit optics growth and a moderate increase in AFA sales.

Oakley's second quarter U.S. retail net sales increased 36.8 percent to $62.2 million, compared with $45.4 million in the same period of 2006. U.S. retail sales were driven by 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

Second quarter U.S. net sales (wholesale and retail) totaled $158.3 million, an increase of 32.1 percent from $119.9 million in the prior year's same period.

Second quarter net sales in the company's international business were $104.9 million, a 25.2 percent increase from net sales of $83.7 million in the same period of 2006. A weaker U.S. dollar relative to foreign currencies increased reported international net sales by 5.1 percent. The company's Americas region saw significant double-digit optics and AFA growth; EMEA (Europe, Middle East and Africa) generated a significant double-digit increase in optics sales and a slight increase in AFA sales; and Asia Pacific had significant double-digit increases in optics and AFA net sales.

Gross Margin, Operating Expenses, Tax Rate

Reported second quarter gross profit as a percentage of net sales was 57.6 percent compared with 56.3 percent in the second quarter of 2006. Second quarter non-GAAP gross margin was 57.6 percent compared to 58.4 percent in the same period of 2006. The decreased non-GAAP gross margin versus the comparable prior year quarter is primarily due to increased inventory charges in the current quarter and the addition of Bright Eyes and ESS, which generate lower gross margins. These factors were partially offset by increased gross margins on 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 $5.4 million on a pre-tax basis for the second quarter of 2006; no similar charges or losses were recorded in the second 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.

Second quarter operating expenses totaled $114.3 million, representing 43.4 percent of net sales, compared to $86.6 million, or 42.5 percent of net sales in the same period of 2006. Research and development, and shipping and warehousing expenses decreased as a percentage of net sales. Selling expenses increased $16.2 million or 30.3 percent from the same period of 2006; over $2.0 million of this increase was due to planned shift of advertising and marketing efforts from the first quarter into the second quarter. General and administrative expenses increased by $10.6 million, or 48.3 percent, from the same period of 2006 partially due to the impact of transaction costs associated with the company's merger agreement with Luxottica Group S.p.A. General and administrative expenses also increased due to acquisitions completed in the last year as well as increased compensation expense.

The company's tax rate increased to 37.6 percent in the second quarter compared to 35.0 percent in the second 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 $129.8 million at June 30, 2007, compared to $103.4 million at June 30, 2006.

The company's consolidated inventory totaled $196.1 million at June 30, 2007 compared to $145.7 million at June 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.

2007 Guidance

As a result of strong sales growth in the second quarter, the company increased its 2007 net sales guidance to a range of $930 to $960 million, or approximately 22-26 percent over 2006 net sales of $762 million. This is an increase over its previous net sales guidance of 18-22 percent growth. The company did not change its 2007 net income guidance of $0.95 to $0.98 per diluted share, but noted that this EPS range now includes the expected impact of continuing transaction costs related to the company's previously announced merger agreement. This guidance excludes any impact from changes in tax benefits recognized under Financial Accounting Standards Board Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48), substantial changes in currency exchange rates, or significant changes in estimated transaction costs related to the company's previously announced merger agreement.

Conference Call Information

As indicated in a press release that was issued on July 12, 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, July 19, through midnight July 26, 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: 1030723. Additionally, the conference call will be available on the company's http://investor.oakley.com Web site under News and Events until July 19, 2008.

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.

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