Held up by the weather and his work on new inventions, Oakley Inc. Chief Executive Jim Jannard joined his company’s third-quarter results announcement last week by phone from his private island in Washington.
Nonetheless, Jannard said results for Oakley’s latest quarter were the strongest since 1995, the year the company went public. He also said it is no accident that Oakely has done so well this year.
“We planned for it,” said Jannard, who bought $1 million worth of Oakley stock back in December. “We believed in our plan and we backed up our belief with personal and company repurchase programs.”
Oakley reported a second consecutive strong quarter last week, with net income up 69% to $17.4 million on sales that surged 51% to $107 million, compared to a year ago. The company also did $1.7 million in online sales during the third quarter.
Jannard’s Bet
On a sequential basis, Oakley sales grew by $7 million from the second quarter, but its net income was down by $1.2 million. In an industry that expects a 4% growth in retail sales this year, Oakley’s year-to-date sales growth is 40% to $270 million with nearly 90% growth in net income to $41.3 million.
Jannard’s purchase of 200,000 shares at around 5 back in December appears to have been a well-placed bet. Oakleys share price has nearly quadrupled this year, trading at around 19 last week.
Link Newcomb, Oakley’s chief operating officer, said third-quarter sales were driven by new sunglasses, athletes donning Oakley gear at the Summer Olympics, continued popularity of the company’s X Metal frames and increased advertising and marketing. Stepped up order fulfillment meant Oakley products have gained more shelf space in stores, he said.
“Other brands are not up to the task,” he boasted.
Four years ago, Oakley set out to expand beyond sunglasses into apparel, accessories, wristwatches and footwear. After losing money on every shoe sold last year, year-to-date shoe sales, led by the company’s Flesh model, have tripled from last year’s $2.1 million to $6.8 million this year,including $4.3 million in the third quarter.
Oakley made several changes to its footwear division this year including the addition of more colors, styles and the shift of manufacturing from OC to Asia. After an initial 10-store test program launched in June, the Ventor Group Inc.’s Footlocker chain said it plans to offer Oakley shoes in nearly 150 stores by November. Overall the footwear is sold in some 2,700 stores worldwide.
“Every single product category is now profitable and while we have room left to improve them, our gross margins still range from 60% to 70%,” Jannard said. “2001 will mark the first year that the majority of our growth will happen outside of eyewear. The summer movies, the Olympics coverage, coupled with a strong presence in almost every sport from nearly every country, makes it clear we truly have achieved world brand status.”
The company’s performance coincides with Jannard’s return to the chief executive’s chair a year ago. The company’s founder stepped in last year after former Gatorade marketing executive William Schmidt resigned as CEO. The two 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.
A few months ago, Jannard told Oakley shareholders at its annual meeting that it was “great to be back in the saddle again.” Dressed in a black trench coat, orange Oakley shoes and a beret, Jannard drew applause from the crowd when he removed his hat to show off the company’s latest invention: a pair of sunglasses whose arms reach over the head. The OVERTHETOP shades later made their public debut in September at the Olympics in Australia.
The company outfitted more than 500 athletes in Australia with Oakley products, including U.S. cyclist Lance Armstrong and Australian swimmer Michael Klim. Oakley also paid cash bonuses to those athletes wearing its products who won medals. There were 56 medals in all earned by those wearing Oakley products. Another boost for Oakley this year came from its purchase last year of the distribution rights for Australia and New Zealand, good timing since the Olympics helped boost sales there dramatically, company officials said.
Jennifer Black, an analyst at First Security Van Casper in Portland, Ore., said Oakley’s diversification has played a big roll in its growth this year. Next year’s launch of prescription eyewear, a sandal and the recent digital wristwatch are likely to further Oakley’s growth and its bid to become a global brand, she said.
“They have an incredible amount of momentum and I don’t see it stopping,” she said.
Next year, the company plans to launch a 15-piece line of prescription eyeglasses featuring X Metal and “O” matter materials, three styles of golf shoes with changeable cleats and wristwatches for women, according to Oakley President Colin Badin
New Models, Movie Tie
In the third quarter, Sunglasses sales were driven by new models such as the updated Wire styles, the Twenty and the Eye Jacket, as well as continued strong sales of its X Metal line of sunglasses made popular this year by Tom Cruise in the “M:1-2,” the sequel to “Mission: Impossible.”
And Oakley continues to get its products placed on actors on the big screen. The company is said to be in talks with producers for three more movies: 2002’s “Spider-Man,” a snowboard film and a science fiction movie.
Additionally, sales of higher-end sunglasses such as the X Metal group helped boost growth with the average selling price up 12.7% from the same quarter a year ago, company officials said.
According to statistics being released next month by the Sunglass Association of America and Jobson Research, U.S. retail sunglasses sales are expected to be up 4% this year to $2.194 billion based on projections of 111 million pairs sold.
“This year’s 4% growth is the highest in several years,” said Henry Lane, a member of the association and president of San Louis Obispo-based Dioptics. “In 1997 and 1998, Oakley was having problems because of retail sluggishness. Sales were generally flat, but now we haven’t seen a 4% increase since 1994 and 1995.”
Although more money is spent on sunglasses, 88.6% of the pairs sold this year are in the under $30 category.
Oakley products fall in the pricey $30-plus sunglasses category. The association says these high-end products accounts for 54.2% of all U.S. sunglasses sales, with 15.5% in the $76 to $100 range, 20.6% in the $101 to $150 range and 5.9% in the over $150 range. Oakley’s top sellers this year are the X Metal family of frames that sell for $249.99 for the X Metal Romeo and Juliet models and $274.99 for the X Metal Mars model.
The company reported last week that it has unfulfilled orders this quarter totaling $34 million including $10 million in orders for the X Metal category. n
