Oakley Reports Record Annual Sales Of $762 Million

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In 2006, optics and retail initiatives drove significant double-digit growth. Oakley generated record net sales of $761.9 million, an increase of 17.5 percent from $648.1 million in the prior year.

Oakley, Inc. (NYSE:OO) today reported its preliminary unaudited results for the year ended December 31, 2006. Oakley generated record net sales of $761.9 million, an increase of 17.5 percent from $648.1 million in the prior year.

2006 net income was $44.8 million, or $0.65 per diluted share, including footwear restructuring charges of $2.0 million net of tax, or $0.03 per diluted share, consistent with the company's guidance of $0.68 per diluted share given at various times throughout the year.

"2006 was a year of strategic re-alignment for Oakley. We concentrated our efforts on five key strategies announced at the beginning of the year - focus on optics, enhance brand development, restructure footwear, re-align apparel and expand our retail platforms," said Oakley, Inc. Chief Executive Officer Scott Olivet. "The early results have been promising as evidenced by solid sales growth across all geographies and key products, highlighted by an immediate acceleration in our optics growth."

"With the footwear restructuring complete, we will continue to focus on optics growth, solidifying our brand development efforts, re-aligning our apparel business, and expanding the retail platform," continued Olivet. "Additionally, we will increase our attention on greater international penetration and operational excellence, with a priority on acquisition integration and consumer/retailer customer service enhancements."

Olivet concluded, "We believe that these strategies, along with the brand and product portfolio effect we are seeing with the addition of Oliver Peoples, retail expansion with The Optical Shop of Aspen (OSA) acquisition, and broadening of our military business with the acquisition of Eye Safety Systems, position Oakley, Inc. for sustained, profitable growth in 2007 and beyond."

Product Category Net Sales
2006 net optics sales totaled $552.9 million, up 18.9 percent from $465.1 million in the prior year. This growth was driven by significant double-digit increases in prescription eyewear, sunglasses, and goggles as well as incremental sales from the 2006 Oliver Peoples and OSA acquisitions. These increases were partially offset by an expected, large decline in electronics sales. 2006 net sales of apparel, footwear and accessories (AFA) totaled $156.7 million, up 5.6 percent from $148.5 million in the prior year. AFA growth was tempered by the company's previously announced footwear restructuring and apparel re-alignment.

2006 net sales of other brands, which consist of non-Oakley products sold through the company's multi-branded Sunglass Icon and OSA retail stores, increased 50.9 percent to $52.2 million from $34.6 million and were driven significantly by the acquisition of OSA.

Segment Net Sales
Total 2006 net sales to worldwide wholesale customers were $590.6 million, an 11.7 percent increase from $528.9 million in 2005.
2006 net sales to U.S. wholesale customers totaled $252.6 million, up 12.9 percent from $223.6 million in the prior year, driven by a favorable impact of Oakley-branded sunglass growth and the Oliver Peoples acquisition, offset by decreased electronics sales and shipments to the company's government customers.

Oakley's 2006 U.S. retail net sales, which for reporting purposes include the company's e-commerce and telesales business, increased 43.7 percent to $171.3 million, compared with $119.2 million in 2005. The retail sales growth included a moderate increase in comparable store sales; contribution of 45 new Oakley and Sunglass Icon stores added during the last twelve months; incremental sales from the company's OSA and Oliver Peoples acquisitions; and a significant double-digit increase in e-commerce and telesales volume.

Geographic Net Sales
2006 U.S. net sales (wholesale and retail) totaled $423.9 million, an increase of 23.6 percent from $342.8 million in the prior year.
2006 net sales in the company's international business were $338.0 million, a 10.7 percent increase from net sales of $305.3 million in 2005. A weaker U.S. dollar relative to foreign currencies increased reported international net sales growth by one percentage point. During the year, the company's Americas regions saw significant double-digit optics and AFA growth; EMEA (Europe, Middle East and Africa) experienced a significant optics sales increase, offset by a modest decline in AFA growth; and, Asia Pacific had a modest increase in optics sales, partially offset by a slight decline in AFA net sales.

Gross Margin, Operating Expenses, Tax Rate
Reported 2006 gross profit as a percentage of net sales was 54.2 percent compared with 57.2 percent in 2005. Non-GAAP gross margin, as defined below, for 2006 was 55.0 percent compared to 55.2 percent for 2005. The decrease in non-GAAP gross margin versus the prior year reflects increased sales returns and markdowns, increased inventory write-downs, and increased disposal of end-of-line products. These factors were partially offset by improved sales mix towards the optics category, which generates relatively higher gross profit as a percentage of net sales, the addition of Oliver Peoples and OSA, and the favorable impact of increased manufacturing volume.

Non-GAAP gross margin for 2006 excludes footwear restructuring charges and losses from changes in fair value of foreign currency derivatives recorded in accordance with SFAS 133, which totaled $2.3 million and $4.3 million respectively, on a pre-tax basis, for the year. Non-GAAP gross margin for 2005 excludes a $13.0 million gain due to changes in fair value of foreign currency derivatives recorded in accordance with SFAS 133. A reconciliation of non-GAAP gross margin to GAAP gross profit as a percentage of sales is included in the accompanying financial data.

2006 operating expenses totaled $342.9 million, representing 45.0 percent of net sales, compared to $281.4 million, or 43.4 percent of net sales, in 2005. The year over year increase in operating expenses included costs associated with the addition of Oliver Peoples and OSA; increased variable selling costs associated with higher sales volumes; new Oakley, Sunglass Icon and OSA retail locations; higher compensation expense, including the filling of senior staff positions and a $2.3 million increase in stock-based compensation expense, reflecting the implementation of SFAS 123(R); and increased professional fees.

On an annual basis, the company's tax rate for 2006 was 34.5 percent versus 33.7 percent in 2005, which benefited from a significant tax refund from prior periods.

Balance Sheet Highlights
Accounts receivable, less allowances, totaled $109.2 at December 31, 2006, compared with $99.4 million at December 31, 2005.

The company's consolidated inventory totaled $155.4 million at December 31, 2006 compared with $119.0 million at December 31, 2005.

This increase was largely driven by the acquisitions of Oliver Peoples and OSA, and the addition of 45 new Oakley and Sunglass Icon stores during the last twelve months.

Stock Repurchase Program
There is approximately $23.3 million available under the stock repurchase plans approved by the company's Board of Directors. During 2006, the company repurchased 657,100 shares at an average price of $15.75 per share.

About Oakley, Inc.
Oakley is a worldwide leader in 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 worldwide wholesale business, the company operates retail locations including Oakley Stores, The Optical Shop of Aspen, and Sunglass Icon, the second largest sunglass specialty chain in the United States. The company also offers a wide selection of Oakley-branded apparel, footwear, watches and accessories. Additional information is available at http://oakley.com.

Safe Harbor Disclaimer
This press release contains certain statements of a forward-looking nature. Such statements are made pursuant to the "forward-looking statements" and "safe harbor" provisions within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include, but are not limited to growth and strategies, future operating and financial results, financial expectations and current business indicators and are typically identified by the use of terms such as "look," "may," "should," "might," "believe," "plan," "expect," "anticipate," "estimate" and similar words, although some forward-looking statements may be expressed differently. The accuracy of such statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including but not limited to: risks related to the sale of new sunglass and electronics product introductions; execution of anticipated restructuring and realignment of product categories; the company's ability to integrate and operate acquisitions; the company's ability to manage rapid growth; new and existing channel inventory management risks related to the limited visibility of future sunglass orders associated with the company's "at once" production and fulfillment business model; the ability to identify qualified manufacturing partners; the ability to coordinate product development and production processes with those partners; the ability of those manufacturing partners and the company's internal production operations to increase production volumes on raw materials and finished goods in a timely fashion in response to increasing demand and enable the company to achieve timely delivery of finished goods to its customers; the ability to provide adequate fixturing to existing and future retail customers to meet anticipated needs and schedules; the dependence on optics sales to Luxottica Group S.p.A, which, as a major competitor, could materially alter or terminate its relationship with the company; the company's ability to expand and grow its distribution channels and its own retail operations; the ability of the company to integrate licensing arrangements without adversely affecting operations and the success of such initiatives. These and additional factors are detailed in our filings with the Securities and Exchange Commission, including the Risk Factors contained in the company's Form 10-K for the year ended December 31, 2005 and as updated in the company's quarterly filings on Form 10-Q. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The company is under no obligation, and expressly disclaims any obligation, to update or alter this forward-looking information.


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