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Thursday, Mar 28, 2024

CORPORATE FOCUS—K-Swiss Inc

After stumbling this past year in its athletic shoe sales, Westlake Village-based K-Swiss Inc. is back in the game. Over the past six months, the shoemaker’s stock, which hit a low of $10 a share in March, has worked its way back up into the $25 range. And the company’s third-quarter results show that, while revenues are down from record-breaking 1999, this will be one of the best years in the company’s 35-year history. Net income for the third quarter ended Sept. 30 was $6.3 million (59 cents per diluted share), compared with net income of $9.3 million (80 cents per diluted share) in the like period a year ago. Revenues were $60 million vs. $80 million. The company beat analysts’ consensus estimate of 46 cents. “Our business is down significantly from last year,” said Chairman and President Steve Nichols. “But we’re in the process of having our second-best year in the history of our company.” While recent stock action suggests that K-Swiss is on the mend, the company’s shoe sales were down in all categories for the third quarter, continuing a trend that started this year. The company’s Classic line dropped 29 percent in the third quarter, the children’s shoe line 25 percent, its Tennis line 40 percent and apparel 38 percent. Nichols blamed some of the slowdown on a shakeout in the retail marketplace for athletic shoes. Some of the chain stores where K-Swiss shoes were sold have been closed down, making the shoemaker’s products available in fewer stores across the country, he said. Some of the newer shoe models also have struggled for sales in 2000, compared with the previous year. “We had some incredibly well-accepted shoes in 1999,” Nichols said. “We lost a little steam (so far this year).” Retail orders have been down throughout 2000. But the downward trend is starting to level off. The company’s orders from retailers for delivery in the first quarter of 2001 are down just 11 percent from orders for first-quarter 2000 delivery, the lowest in the past five quarters. Orders for delivery in the fourth quarter of 2000 were down 37 percent from the like period a year ago. Analysts believe the troubles of the last year are beginning to turn around, however. Of the four analysts polled by Zack’s Investment Research, two rate the stock a “moderate buy” and two a “hold.” John Shanley, senior vice president with First Securities Van Kasper, has a $30 price target on the company’s stock and upgraded it to a “buy” from “accumulate” in early October. “Athletic footwear will continue to be strong through the spring,” Shanley said. The change in the company’s outlook is all about fashion. The K-Swiss Classic line, which accounts for 65 percent of sales, goes in and out of style every few years with the youth crowd. Retailers reported stronger-than-expected sales in the fall back-to-school season and are again expecting positive Classic-line sales in the spring, Shanley said. The athletic shoe market in general is having a strong year after suffering for the last couple of years, Shanley said. Foot Action reported a 10-percent increase in same-store sales for the 2000 back-to-school season, the busiest time of year for shoe sales. While the renewed consumer interest in athletic shoes helps, K-Swiss is also broadening its array of shoe offerings. The company introduced a new “Training” line, geared at weight trainers, runners and other athletes in training. The shoes sold in limited quantities at the Foot Locker and Foot Action chains during the back-to-school season, and both chains have ordered larger quantities for the spring, Shanley said. Nichols said orders for the shoe have more than doubled since the beginning of the year. The Training line accounted for just 6 percent of total sales in the third quarter, but Nichols said the company believes it has a strong growth potential and plans to grow the line over the next three years. K-Swiss is also expanding its base in Europe, where it has sold tennis shoes for the last five years. In the last five months, it has been selling its Classic line of athletic shoes at Foot Locker in Europe and other chains, on a limited run. The company is hoping for the same kind of success it has had in the United States. In the U.S. market, the Tennis line accounts for just 10 percent of K-Swiss sales, while the Classic line accounts for 65 percent of sales.

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