K-Swiss’ Back-To-Black Plan

To restore profitability, K-Swiss Inc. is focused on slashing expenses, liquidating inventory and returning to its roots with the launch of Clean Classics.

Speaking to analysts on a call, Chairman, President and CEO Steven Nichols said, “We didn’t pass the test with flying colors. Our grades are a bit mixed and it appears we have more work to do.”

The firm plans to reduce selling, general and administrative expenses by $30 million to $25 million in 2012.

“Expenses in total will be viciously attacked,” said Nichols, adding, “We absolutely have too much [inventory] and we will begin liquidating it, and that will have absolute negative impact on our margins.”

Inventories, consisting mostly of excess running product, were up 70 percent to $93.7 million year over year, but they should be in the range of $50 million, management admitted.

Sterne Agee analyst Sam Poser said he believes “inventory will be haunting for some time to come. K-Swiss will remain challenged to gain the necessary shelf space. We do not share management’s optimism as to the future success of its new initiatives.”

Initiatives to drive top line growth next year also include launching three versions of the Clean Classic shoe with price points between $50 and $70.

“The variations of the Clean Classic will be the number one focus going forward. And those would be for deliveries starting in June of 2012. And we will have a variety of products, some that will go to the volume channel, some that will be restricted to more upscale retailers. So, it will be probably the biggest launch we’ve ever had,” said Nichols.

Pointing to other brands that have relaunched their classic styles, like Adidas, he added, “We [are returning] to our heritage and not entering an area where companies have been ahead of us for many years. This shoe is so clearly a K-Swiss shoe [so] we’re making the bet that it will not require the large expenditure that Tubes and Blades took to convince people we’re doing something new.”

K-Swiss narrowed its loss in the third quarter, but still fell short of expectations, sending its share price down 30 percent in trading Thursday.

Net loss totaled $15.4 million, or 43 cents a share, compared with a loss of $28.3 million, or 80 cents, in the same period a year ago. Total revenue grew 31 percent to $80.5 million, from $61.5 million a year ago.

Domestic revenues increased 21 percent to $32.7 million, but domestic futures slid 24 percent.

International was a bright spot, with revenues advancing 39 percent to $47.8 million, and futures orders upping 11 percent.

The company expects full-year revenues to be approximately $260 million, which would represent a 20 percent increase from 2010 levels, but needs to get up to about $300 million in 2012 to break even, said Powlick.

K-Swiss ended the quarter with $37.4 million in cash and cash equivalents and no significant long-term debt.

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