After a Long and Disappointing 1999, Oakley Has Jim Jannard Back in Charge
At last week’s shareholder meeting at Oakley Inc.’s gray hilltop bunker, the company’s band of mad-scientist inventors unveiled a new museum that chronicles the evolution of the 25-year-old manufacturer.
Showcasing nearly three decades of inventions, the museum is a tribute to the company’s founder, chairman and chief executive, Jim Jannard. Over the years, Jannard has defied convention to build an eyewear and accessories business with $258 million in sales last year from one that started with a motorcycle handlebar grip.
Jannard’s inventions include wraparound motorcycle goggles, ski goggles, and, in 1984, the first pair of futuristic sunglasses called Eye Shades. In the late 1990s, the Oakley brand was carried over to apparel, expensive watches and most recently the unusual footwear that sent Oakley’s stock price stumbling.
But the museum, which sits behind the company’s indoor amphitheater, is not so much about the company’s history as it is a subtle way of reminding skeptics that Oakley continues to grow against all odds.
And now, after one of the company’s toughest years, Oakley has regrouped its troops and is back on track in its quest to become a $1 billion lifestyle brand.
The past 12 months have been both a blessing and a curse for Jannard.
Five months after hiring former Gatorade marketing executive William Schmidt as its new CEO last year, Schmidt resigned and left with a $800,000-plus severance package in October. Schmidt and Jannard had clashed over the future direction of the company: Schmidt sided with Wall Street and wanted to pull the plug on the money-losing footwear effort; Jannard flatly refused to drop the line.
So Jannard took the reins as CEO. And now Oakley is firing on all its cylinders. The product has grown across all categories, international business is growing and profits are up.
“It seems clear that (Jannard) has re-energized and re-dedicated himself to the business,” said Dawn E. Stoner, an analyst at Deutsche Banc Alex Brown in San Francisco. “They drifted along when he was not fully committed and that definitely gets communicated to the rest of the company. He’s a unique figure and a key factor in terms of how they are doing right now. He has excited the entire company about prospects. They are in a really creative mode right now and, given their business, that is critical to success.”
Even the oft-maligned Oakley footwear unit, which ate up profits last year, marched into stores this month with an expanded line that is expected to kick up better sales and maybe even a profit this year.
When Jannard took over in October, the company’s stock was down to about 6. He convinced the board to reactivate a $20 million stock repurchase program in December, of which $19.2 million has been spent. The stock has gained since, and last week was trading above 10.
The company’s stock price hit an all-time low of around 5 in the fourth quarter after disappointing sales of the new footwear products that led to an $8.2 million restructuring charge. The company’s earnings fell 17.8% last year to $19.8 million and operating costs grew 11.1% to $116.1 million.
During the first quarter ended March 31, total sales were up 30% to $63.1 million, with earnings of $5.5 million. The company last week projected second-quarter earnings of $14 million, up 37% year-to-year, on revenue of $90 million, a 25% increase. The news sent its stock price up 17% to 11 1/4, close to its 52-week high of 12 7/16 hit last month.
One often-overlooked dynamic is that Oakley’s global sales are outpacing its more established U.S. business. International sales spiked 22% last year to $116 million, accounting for 46% of the company’s total sales. In comparison, U.S. sales were up 3.8% last year to $141.8 million.
During the first quarter ended March 31, international sales grew 46% to $29.4 million.
The momentum continues to build overseas in part because Oakley is reclaiming ownership of its overseas distribution, including rights in New Zealand, Australia and Austria. Oakley is better able to represent its products and control the integrity of the brand and as a result sales have improved dramatically in those countries, analyst Stoner said.
“They are more of a lifestyle brand overseas, whereas domestically they are known as an optical resource,” said Stoner, explaining that the apparel and footwear lines are bigger international sellers.
Additionally, Oakley is expanding its online e-commerce capabilities to its international customers.
A redesigned Web site has racked up sales of $1 million for both the fourth quarter in 1999 and the first quarter of 2000.
Although sunglasses sales represent the bulk of Oakley’s revenue, plans are to expand its other categories such as prescription eyewear, apparel, watches and footwear.
“You can’t advance by staying in one lane, a quick look down the track shows the race is just beginning,” Jannard said in a letter to shareholders in the 1999 annual report.
Oakley is finally shedding its “ultra-athlete-only brand” for one more globally recognized, said analyst Eric Beder of Ladenburg, Thalmann & Co. Inc. in New York.
Oakley released an expanded line of footwear last week. It plans to release a lower-end watch in September and a larger apparel line in August. Next year, the company plans to launch its first line of frames specifically designed for prescription eyeglasses.
Two years ago, Oakley took a stab at the footwear business and lost money on every shoe it sold.
The line of spacey athletic shoes was manufactured at the company’s headquarters and sold under the names O Shoe, Shoe Two and Shoe Three, selling for $125, $90 and $99 respectively.
Oakley’s spent about $8.2 million to build the business, but two-year sales were $5.6 million.
The company, which launched seven new models this month with multiple color choices, expects it will be profitable later this year in part because it cut manufacturing costs in half by shifting it from OC to Asia. The styling is toned down and has more mass appeal, but it remains a niche product, Stoner said.
“Footwear was not initially well-received, but we are done scaring people for a while,” said Oakley spokesman Lance Allega. “We plan to let this engine roll forward in full gear.”
The push includes a summer advertising campaign in Rolling Stone and Spin magazines, followed by additional placements in Men’s Journal, Blaze and Outside this fall. More new models are planned for spring 2001. The shoes are sold in larger chains stores this year such as Athlete’s Foot, Finish Line, Foot Locker, R.E.I., and possibly Nordstrom in the U.S.; and internationally at Sport Chek in Canada; City Beach in Australia; Olympia Sports in France; and EuroPalace-Matchpoint in Spain.
“We expect good things from both footwear and apparel this fall,” Stoner added.
Additionally, the company’s watches,the Time Bomb, Icon and Icon Small,were out of reach for most consumers when they debuted in 1998 selling for $1,200 to $1,500, although the line has been profitable since its inception. Oakley will launch a new $180 digital sports watch in September to target a new customer.
Oakley’s apparel line, which has been another strong area for profit, will grow from the current 30 styles to 90 styles in the fall.
During the past year, Oakley doubled its prescription eyeglasses sales to $6 million and it plans to expand that division globally.
Also, Oakley’s X-Metal model sunglasses are contributing to higher sales in its core business, and the company rolled out a new sunglasses style this month exclusively for its top vendor Sunglasses Hut that features six models tinted with a new coating. There also are two new sunglasses models set to launch in July. The new Water Jacket model is an extension of the company’s earlier Racing Jacket frames. A second is the Eye Jacket 2.0.
