Spy CEO on Q1 results

Spy Inc. reported earnings last week, and we followed up with President Michael Marckx and asked him some questions about the results.

 

The company reported a 22% increase in net sales to $8.1 million, including increases in sales of its core Spy brand, and a wider net loss of $2.6 million.

 

What’s driving the Spy sales increases and which categories are really working?

Fortunately, I think the answer is many things. I would be worried if it were one product or one category.

 

This past year we had tremendous growth in our goggle business. We expect to continue that, especially if Mother Nature cooperates.

 

We’ve launched into two new arenas: Optical and Performance. These new categories bring incremental growth. The rate at which we are opening new doors is exciting to us, and as more retailers start doing well with us, the fire spreads.

 

Spy CEO Michael Marckx

This is evident in Canada where our business is really opening up, and here in Southern California where the brand is lighting up even though it’s a very mature market.

 

The great news for us is that we have a number of new styles that are performing very well, which is indicative of the new vitality we have as a brand.

 

Our new Crosstown Collection is the most exciting part of the new SPY brand offering, because we have worked internally to create a collection that is hip, different and positions us in a more aspirational way.

 

New styles we have that are working are:

 

· Bowery ­- not huge numbers, but a key stylish piece to see significant sell through with.

 

· Helm – first time in 3-plus years we¹ve seen this kind of energy around a new style.

 

· McCoy – ­good success with the Dale Earnhardt JR 88 Collection as a whole.

 

· Farrah – first women¹s piece to sell out and sell through since Cleo.

 

· Black Ice – a new collection that has done well this past quarter.

 

We also have seen some of our steady performers like Logan and Dirty Mo have an upturn in sales, which we believe is a testament to the renewed vitality of the brand.

 

There are other important factors we consider in our continued success:

 

· Sales programs–we are creating better programs that work for our key retailers and we are much more interested in working with them to create lasting relationships.

 

· Flexibility to work with retailers with differing needs–we are more flexible now, ready to come up with creative solutions in all areas of the business.

 

· Product availability- we have done a much better job in our purchasing and planning, as well as creating products that we know will sell. This is in contrast to creating things with outside vendors that everyone hopes will sell.

 

Our staff and team are much more on the pulse and in tune with the business and it translates into a product offering that has much less risk in it and is much more on point with current trends.

 

See Page 2 for details about Spy’s net loss and what it means

 

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Why does Spy’s net loss continue to be bigger each quarter over prior year results?

The key point is that we have made an intentional decision to invest in the brand for future growth. This is in large part due to the malnourishment the brand went through for many years in marketing.

 

While we made great products we did not nurture the brand. We are currently edifying the brand for the long haul. This is in contrast to just removing all the issues the brand had and getting it to subsist at a break-even level indefinitely.

 

To us the timing is right, with virtually every other band pulling back and cutting things. This is the time for us to regain our rightful market share by pushing more, to grow our share by outdoing the other brands and to transcend our old business model to bring the unique SPY brand to new distribution channels and new consumers hungry for our unique point of view and product offering.

 

With this in mind, it takes a fair bit more money to launch into new categories, and to do it effectively. We aren’t dabbling. We are endeavoring to delight the core of the market with a

freshness it hasn’t felt in a long time AND we are committed to going after the Optical and Performance (Outdoor) markets because we know demand for our brand exits there.

 

Our aim is to have the brand supported by a greater level of sales and marketing investment to grow the business in these new areas while reinvigorating the brand in areas we are already doing well.

 

Our cash flow from an operations basis was only negative $400,000 due to working capital management and non-cash expenses to offset the loss.

 

Our year-over-year marketing and sales went up by $800,000 to support our new categories. In essence, we could have had positive cash flow from operations had we decided to keep sales and marketing in tact, but again this would have been short term thinking.

 

Our strategy is to continue to invest and reinvest the margin from incremental sales back in the business to create a much more valuable brand in the long run; for our stakeholders, staff, team riders and especially retail partners.