Challenged K-Swiss Tries Another Direction

NEW YORK — After another difficult quarter, K-Swiss Inc. is cutting costs, slashing inventories and banking on some new casual product to rebuild the brand and drive sales going forward.

The new lines consist of the Clean Classic, in leather, which retails for $65; and the Laguna, which is vulcanized and, according to management, resembles the Converse All-Star and retails for $50. Analysts said the jury is still out on how well the strategy will work.

“This is almost like starting from scratch for them. They believe they have a much better chance of success with a casual product, which was its claim to fame in its heyday,” said Jeff Van Sinderen, analyst at B. Riley & Co. “The regular Clean Classic is doing well in independents, but it just started in family footwear channels. So as of now, there’s no way to tell [how well it’ll really do]. Plus, back-to-school has had a slow start.”

On a call last week, analysts, who believe there is both value and interest in the acquisition of the K-Swiss and Palladium brands as separate entities, questioned if exploring strategic alternatives was on the table in the face of continued losses.

Steven Nichols, chairman and CEO of the Westlake Village, Calif.-based firm, responded, “It’s very interesting, the rumors. It is the company’s policy not to comment on market rumors.”

He then added, “The Clean Classic … has great promise. Our single-largest shipment of Lagunas will be going to Foot Locker, [but] we will not know until later in August how that goes. We are outselling the fourth quarter, [and while] it’s very early in the first-quarter selling cycle, for the first time our domestic futures are up. And it’s almost exclusively on the back of Clean Classic and Laguna.”

Nichols added the Clean Classic is being positioned as a fun lifestyle shoe. “If the [style] does very well [in January], we will get great notice for February and March. If it just muddles along, we will … reduce expenses and begin to market the shoe very, very aggressively.”

A bright spot for the firm is the Palladium brand, whose backlog had risen 3.9 percent to $21.5 million as of June 30. “We just opened our second store in Hong Kong. Sales per square foot [in the first one] have been off the charts,” said Nichols. “We have a good shot for the three U.S. stores to be profitable by the end of this year. Amsterdam should be profitable this year.”

For the period ended June 30, K-Swiss lost $11.6 million, or 33 cents a share, compared with a loss of $20 million, or 56 cents, the same period a year ago. Revenues decreased 31.5 percent to $44.8 million, from $65.3 million.

Analysts were expecting a loss of 23 cents a share on revenue of $46.2 million, as polled by Yahoo Finance.

Domestic sales slipped 42.1 percent to $18.7 million, while international sales fell 20.9 percent to $26 million. Domestic futures orders decreased 41.8 percent to $21.5 million, and international futures orders slid 7.8 percent to $48.8 million.

The firm expects full-year revenue to be between $215 million and $220 million.

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