LOS ANGELES — K-Swiss is turning its attention to its core business after announcing the sale of its Royal Elastics brand to a private investment firm and posting a first-quarter loss.
B. Riley & Co. analyst Jeff Van Sinderen told Footwear News the results were not surprising given K-Swiss’ earlier statements, but added that the company has the time and finances to stage a turnaround. “It’s just going to be a process, but they’ve got a tremendous amount of cash,” he said. “They’ve got the time to rebuild their business comfortably in a calculated, conservative way while being innovative.”
New product launches could help, noted Van Sinderen. “They are planting the seeds to build a performance running and performance tennis business, to launch the Remastered Classic,” he said. “It really has to do with repositioning the brand as more of a performance brand.”
For the quarter ended March 31, K-Swiss reported a net loss of $1.1 million, or 3 cents a diluted share, compared with earnings of $7.1 million, or 20 cents, in the year-ago period.
Revenues during the quarter declined nearly 25 percent to $74 million, versus $98.4 million in the first quarter of 2008. Domestic and international revenues fell by 25 percent and 24 percent, respectively.
Futures orders were also down. Orders with ship dates from April through September decreased 41 percent to $73.7 million, compared with $125.6 million for the same time last year.
For the full year, the company said it expects to report a loss of 60 cents to 90 cents a share on sales of $200 million to $230 million.
“Our goal for 2009 remains unchanged,” Steven Nichols, chairman, president and CEO, said during a conference call with investors and analysts. “We will focus on minimizing our net loss, reducing inventory levels and making the right investments in our brand for the long term.”
The company announced on May 4 it had sold the Royal Elastics brand to REH, an investment group headed by the label’s former product design director, John Bondoc.
Bondoc was not available for comment at press time.
While terms of the deal were not disclosed, the company said the sale includes worldwide rights to the Royal Elastics brand, certain existing inventory and other assets. According to the company, the deal will result in a bottom-line gain of $1.4 million, or 4 cents a diluted share, during the second quarter.
“Right now, we need to focus our company, and we’re going to do that with K-Swiss and with Palladium,” EVP David Nichols told FN. “We’re going to focus our efforts, and we think we also found a good home for Royal Elastics.”
Van Sinderen said the sale makes sense and should help the company focus its core business. “They just didn’t need to be in the Royal Elastics business,” he said. “They need to rebuild the K-Swiss business. I think it was smart. Overall, I view it as a positive.”