K-Swiss Inc. (KSWS) Q1 2010 Earnings Call May 6, 2010 11:00 AM EST Executives Steven Nichols – Chairman, President, and CEO George Powlick – CFO David Nichols – EVP Analysts Jeff Van Sinderen – B. Riley Sam Poser – Sterne, Agee Brad Hathaway – Jay Goldman Chris Svezia – Susquehanna Presentation Operator
Backlog as of any date represents orders scheduled to be shipped within the next six months. Backlog does not include orders scheduled to be shipped on or prior to the date of the determination of backlog. The mix of futures and at-once orders can vary significantly from quarter-to-quarter and year-to-year, and therefore futures are not necessarily indicative of revenues for the subsequent periods.Steven Nichols We started to year off as we expected with some momentum carried over from our marketing launches in the fourth quarter and earlier this year. We made quite a few announcements during the quarter that highlights where we are investing in growing the Palladium brand and extending the K-Swiss brand. We will continue to ramp up our investments during the year. This is a pivotal year to setup for success in 2011. We will speak more of these efforts in a moment. Let me first touch on our sales performance during the quarter. The breakdown of sales by product category for the first quarter of 2010 was as follows: performance 28%, lifestyle 52%, other 20%. Our performance revenues were up 2% when compared to the prior-year period. This category includes all genders of tennis, running, and training. Lifestyle revenues were down 28% when compared to the prior-year period. This category includes all genders of non-performance footwear. The biggest sellers for the quarter in lifestyle were the Classic, we sold 258,000 pair and increased 8% from the prior-year period; the Trifuno with 80,000 pair; the Albury II with 72,000 pair; and the Grande Court with 44,000. Top performance sellers were the ST329 with 75,000 pair and the Contesta II (ph) with 44,000 pair. Other revenues which included apparel and Palladium were up 34%, but on a small base. Overall, our domestic business was down 21% in the quarter and backlog was up 3%.
Our international business was down 4% in the first quarter and backlog was down 4%, as well at March 31 st, 2010. European sales were down 12% for the quarter with a 16% decrease in backlog. Europe accounted for 41% of our worldwide revenues compared with 42% a year-ago. Sales in Asia were up 22% in the quarter, but a 33% increase in backlog. Asia is our third largest reason, which accounted for 15% of worldwide revenues in the quarter compared with 11% a year-ago.You will note in our press release, we were notified in April that our contract manufacturer in Thailand has ceased operations. This is the only one of three we use in this capacity worldwide. And this particularly manufacturer was fulfilling orders for 700,000 pair, primarily vulcanized rubber soles and some cold cement. This production was primarily concentrated for Latin America and to a lesser extent Europe. We are working hard to replace this loss capacity, but it will likely take us some time to line it up. We have already experienced some cancellations due to our inability to deliver the primary canvas products and there is no guarantee that there won’t be more cancellations over the next two months. However, we hope these cancellations will be contained only to these orders which would represent the loss of approximately $5 million in revenues right across the second and third quarters. I would now like to turn the call over to David Nichols to discuss our product and marketing initiatives. David Nichols In March, we officially launched our positioning of the K-Swiss brands to the California Sports Company to consumers with a new marketing campaign. We think that our progressive, creative, and playful California attitude towards sports and lifestyle will connect with consumers around the world. We see the California Sports Company as the bridge that connects our California heritage in classics and tennis products, our performance in running and training efforts, and more youth driven California lifestyle products like skate that will continue to evolve. Read the rest of this transcript for free on seekingalpha.com