Analysts Play Wait-and-See with K-Swiss

LOS ANGELES — Analysts last week were still uncertain whether K-Swiss Inc. would be able to reap the rewards of its investments in performance footwear, after the company reported a loss for its third quarter.

“They’re planting seeds,” said Jeff Van Sinderen, senior analyst at B. Riley & Co. “Those seeds are starting to grow, but they’re growing slowly. It can take a while for plants to grow before you can harvest the fruit, and that’s how you have to look at K-Swiss. … Time will tell how this strategy will play out. There’s a lot of foundation-building to be done when you’re building a volume business from performance.”

Likewise, Christopher Svezia, an analyst at Susquehanna Financial Group, said it is too soon to predict how the company’s strategy will play out, but he commended the K-Swiss executives for their efforts.

“They realize they can’t come out of this [down period as the old] K-Swiss,” he said. “It’s going to take time for them to find the ground to build that business. 2010 is going to be a year of investments and a drain on their cash, [but] they have the cash, so they can take the time to make these investments. They don’t have the best track record historically [at building new initiatives], but I have to hand it to them for what they’re trying to do.”

For the quarter ended Sept. 30, the company reported a net loss of $2.9 million, or 8 cents a diluted share, compared with a profit of $1.1 million, or 3 cents, for the third quarter of 2008.

Revenues during the period declined nearly 24 percent to $70.6 million, from $92.6 million for the year-ago quarter. Domestic sales declined 33 percent to $24 million, while international business slipped 18 percent to $46.6 million.

Analysts surveyed by Yahoo Finance had expected a loss of 20 cents a share on sales of $60 million.

Futures orders with ship dates from October through March 2010 declined 32 percent to $68 million, down from $100.1 million for the year-ago period. Domestic futures fell 37 percent to $23.1 million, while international futures declined 29 percent to $44.9 million.

“The third-quarter results were consistent with our strategy and are evident in the decision to leave our full-year estimates relatively unchanged,” K-Swiss Chairman and President Steven Nichols said during a conference call with investors and analysts. “We’re on target with running, [and seeing] some encouraging sell-throughs. The same can be said for Palladium. We have tightened control of distribution of this brand, and the customers are trying these shoes and reporting good sell-throughs as well. We have a long way to go and will, of course, take it slow and steady, but we like what we see so far.”

The company said it now expects to report a loss of 70 cents to 80 cents for the full year on sales of $230 million to $240 million.

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