“[The third quarter] wasn’t good, it was just less bad,” said Sam Poser, an analyst at Sterne Agee. “Progress is being made, but one should not count their chickens before they hatch.”
Jeff Van Sinderen, an analyst at B. Riley & Co. was more optimistic.
“We’re encouraged. [In the third quarter] they controlled expenses very tightly, they’ve done a good job liquidating excess inventory, sales and gross margin were a little better than expected and they lost substantially less than we were looking for,” he said.
In a conference call with analysts, Steven Nichols, chairman, president and CEO of K-Swiss, said, “We’re in the best shape we’ve been in for three years, and you could see we’re real serious about getting back to profitability. The bottom line is … things are looking better, Asia is absolutely profitable and Europe is surely at breakeven or a little above. Lifestyle futures orders [are up more than] 20 percent. We feel very good that we might have turned the corner.”
Nichols added, “With all that said, our phone is ringing off the hook with people calling us. They want to talk to us [about selling the company] … [but] I honestly believe there are two options next year: one, tremendous cost containment and laser-beam focusing on Classics around the world; and two, Palladium is the wild card with futures [now up] 37 percent, [so it] could just burst loose and go nuts.”
The firm is focused on increasing points of distribution for Palladium and exploring getting product into Famous Footwear.
“We are in about 550 retail doors with Palladium. If we successfully went into Famous Footwear, that’s 1,200 doors. If we went into other national chains, which we really haven’t done yet, [that’s many more than] the 500 doors we are in,” said Nichols. “And once we do that, then we could do what many other companies, from Nike and Adidas to other shoe companies, have done and it’s sell with some legitimate product differentiation, in all different channels. … That will be the next big, big step.”
The firm also is developing a differentiated Palladium line for Macy’s, which operates more than 800 doors. “If Macy’s loves it, that could be tremendously good for the business,” said Poser.
K-Swiss narrowed its loss in the third quarter to $1.9 million, or 5 cents a share, compared with a loss of $15.4 million, or 43 cents, in the same period a year ago, causing its shares to soar 35.5 percent to $3.09 last Thursday. Total revenues decreased 16 percent to $67.6 million.
Selling, general and administrative expenses declined nearly 40 percent to $25.8 million. Worldwide futures orders were also down, slipping 8.6 percent to $70 million as of the end of the period, dragged down by domestic futures orders, which decreased 18.6 percent. International futures orders fell 3.3 percent.