Press Release:
WESTLAKE VILLAGE, Calif.–(BUSINESS WIRE)– K•Swiss Inc. (NASDAQ:KSWS – News) today announced results for the third quarter ended September 30, 2010. The sale of Royal Elastics on April 30, 2009, is accounted for as a discontinued operation in the Company’s financial results and is excluded from futures orders data for the prior-year periods.
Financial Results
Net loss for the third quarter of 2010 was $28,334,000, or $0.80 per diluted share, compared with a net loss of $2,884,000, or $0.08 per diluted share, for the prior-year period. Results for the third quarter of 2010 include a $20,222,000 valuation allowance taken against the Company’s U.S. deferred tax assets (see separate discussion below), resulting in income tax expense of $13,993,000 in the third quarter compared with an income tax benefit of $1,581,000 in the prior-year period.
Net loss for the nine months ended September 30, 2010, was $47,577,000, or $1.35 per diluted share, compared with a net loss of $15,474,000, or $0.44 per diluted share, for the nine months ended September 30, 2009. Results for the nine-month 2010 period include the valuation allowance noted above, resulting in income tax expense for the period of $8,152,000 compared with an income tax benefit of $5,058,000 in the prior-year period.
Results for the nine-month 2009 period also includes a pre-tax non-operating loss of $2,616,000, or $0.08 per diluted share (after tax), from the acquisition of the remaining interest in Palladium SAS in June 2009, and a pre-tax gain of $1,367,000, or $0.03 per diluted share (after tax), from the sale of Royal Elastics in April 2009.
For the third quarter of 2010, total worldwide revenues decreased 12.8% to $61,621,000 compared with $70,633,000 in the prior-year period. Domestic revenues increased 13.2% to $27,142,000 in the third quarter, and international revenues decreased 26.1% to $34,479,000 for the same period. Total worldwide revenues for the first nine months of 2010 decreased 12.3% to $174,322,000 compared with $198,709,000 in the first nine months of 2009. Domestic revenues decreased 11.2% to $73,786,000 in the first nine months of 2010, and international revenues decreased 13.0% to $100,536,000.
Futures Orders
Worldwide futures orders with start ship dates from October 2010 through March 2011 increased 17.5% to $79,915,000 at September 30, 2010. Domestic futures orders increased 50.9% to $34,894,000 at September 30, 2010, from $23,121,000 the previous year. International futures orders increased 0.3% to $45,021,000 at September 30, 2010, from $44,875,000 the previous year.
Valuation Allowance on Deferred Tax Assets
K•Swiss has previously disclosed that should it be unable to substantiate evidence for realizing the benefit of the Company’s deferred tax assets in the second half of 2010, it might be required to establish a reserve against these deferred tax assets. The Company has concluded that it cannot prove that it is “more likely than not” that the Company’s U.S. deferred tax assets will be realized in the future and, therefore, the Company recognized a tax valuation allowance of $20,222,000 against the U.S. deferred tax assets in the third quarter of 2010.
Steven Nichols, Chairman of the Board and President, stated, “While the results over the last couple of years have been dismal, there are an increasing number of ‘green shoots’ of promise that Spring will in fact come in 2011. Our domestic futures orders are up 50% and positive worldwide, which could be an acknowledgement that our three years of investing in innovative product and brand positioning might pay off.”
2010 Guidance
For 2010, the Company expects full year consolidated revenues to be 5% to 10% less than 2009.
Consolidated gross margin is expected to be approximately 41% compared with 35.8% in 2009 due to expected lower closeout sales during 2010 compared with 2009.
Selling, general & administrative expenses are expected to be $138 million to $144 million due to increased marketing expenditures. These expenditures will be continually evaluated and could change over time, including the possibility of even greater marketing expenditures depending on available branding opportunities.
The tax rate is projected to be approximately 16%, compared with a previous expectation of a tax benefit rate of 25%.
Investor Conference Call and Web Simulcast
K•Swiss will conduct a conference call on its third quarter 2010 results today, at 11:00 a.m. ET. The number to call for this interactive teleconference is (212) 231-2902. A replay of this conference call will be available until November 11, 2010, by dialing (402) 977-9140 and entering the passcode, 21464003.
The Company will also provide an online Web simulcast and rebroadcast of this conference call. The live broadcast of K•Swiss’ quarterly conference call will be available online at www.streetevents.com and www.earnings.com today, beginning at 11:00 a.m. ET. The online replay will follow shortly after the call and continue through November 11, 2010.
Founded more than forty years ago in Van Nuys, California, K•Swiss introduced the first all-leather tennis shoe, the K•Swiss “Classic” in 1966. Since its inception, K•Swiss has rooted itself in California Sport with an aim to be the most inspiring and innovative sports brand in the market. Today the Company offers performance and lifestyle footwear and apparel for several categories under its California Sports umbrella including Tennis Heritage, California Fit (Running, Triathlon and Fitness) and California Youth. K•Swiss also designs, develops and markets footwear under the Palladium brand and owns the FORM Athletics brand. For more information about K•Swiss, visit www.kswiss.com.
