1988 Already Surpasses Last Year : L.A. Gear Posts Huge Increase in 2nd-Quarter Sales, Earnings
L.A. Gear Inc.’s athletic shoes probably wouldn’t impress your average National Basketball Assn. player. But then athletic shoes long ago ceased to be worn primarily for running and jumping.
For L.A. Gear, it was a matter of finding a way to pull away from the pack of manufacturers offering shoes to consumers for whom athletic shoes had become the casual shoe of choice.
The Los Angeles-based maker of shoes and women’s sports and casual clothes found its niche in appealing to fashion-conscious teen-age girls. It is a strategy that so far has paid off handsomely.
The fast-growing company Tuesday reported a whopping increase in its second-quarter sales and earnings, saying it earned $5.3 million in the quarter ended May 31, compared to $901,000 for the same period last year. Sales more than tripled to $55.3 million from $15.8 million, the company said.
Thus far this year, L.A. Gear said its sales and earnings have surpassed financial results for all of last year. In the first six months, of the year, the company said it had sales of $83.7 million and earnings of $7.1 million, compared to $23.4 million in sales and net income of $941,000 in the first half of last year. For all of 1987, the company reported a $4.4-million profit on sales of $70.6 million.
After the announcement, the company’s stock rose $2.75 to close at $33.625 in the over-the-counter market.
“We’ll probably do $200 million (in sales) this year,” said Chief Financial Officer Elliot Horowitz. “We’re coming into our biggest quarter right now.”
Aggressive Marketing Cited
The company is going into its “back-to-school” third quarter with a backlog of $75 million, up from $12.6 million at the end of the year-ago second quarter, said Robert Y. Greenberg, L.A. Gear’s chairman and president. He attributed the big sales and profit increases this year to aggressive marketing and advertising, as well as to an expansion of its line of shoes and greater market penetration.
L.A. Gear grew out of a company organized in 1979 to design and sell shoe skates. In 1983, the business shifted to promoting the L.A. Gear trademarks in marketing casual shoes and apparel. The company took off from sales of $10.7 million in 1985 when it introduced a line of women’s aerobic and leather athletic-style leisure shoes.
“I was watching the popularity of athletic shoes as casual shoes,” said Greenberg, a former jeans importer.
L.A. Gear’s success is keyed to “good advertising,” said Jonathan H. Ziegler, an analyst with Sutro & Co. of San Francisco. They merchandised Los Angeles and the Southern California casual life style, he said. “They took the idea of a Los Angeles style and ran with it,” he said.
John Horan, publisher of Sports Inc. in Yardley, Pa., also gave L.A. Gear credit for smart advertising. But “they’ve identified a niche-- the valley girl niche,” he added. L.A. Gear advertises heavily on cable television’s MTV, appealing to teen-age girls who have adopted a uniform of casual skirts, athletic shoes and socks, Horan said.
Volatile Market
“It’s sort of like women in Reeboks and business suits,” Horan said. “L.A. Gear hit the juniors with casual clothes and sneakers. It’s not a technical shoe that would impress Michael Jordan but a fashion shoe that’s got more look than technology. So far they have done a pretty good job of keeping that niche.”
The question in many people’s mind is whether they can keep on track, Huran said. The youth market “is a very volatile market. You can do very well one year. Then you can go very cold very quickly,” he said. The challenge for L.A. Gear is to successfully diversify, he added.
The company already has a line of basketball shoes and shoes for children and infants. Last year, the company got 39% of its sales from basketball shoes for men and boys. Additionally, Greenberg said the company will introduce a new line of men’s athletic shoes this summer “to complement its already strong position in the women’s market.”
But Horan said it will be difficult for the company to expand much more into men’s shoes. Nike, which appeals to men, has had difficulty attracting female customers, and Reeboks, while strong with women, hasn’t had much luck with men, he said.
Greenberg also said L.A. Gear will introduce a new line of jeans and apparel that it expects to have in retail stores in time for the Christmas season. The combination of jeans and athletic shoes may very well be a winner, Horan said.
Thus far, L.A. Gear has won some important battles in other arenas. Last summer, it won a court fight with Gear Inc., a New York-based licenser of children’s clothing and furniture, for the right to use the L.A. Gear trademark clothing and shoes.
It lost one patent dispute with Avia Group International Inc., but last December a federal court defeated Avia’s efforts to hold L.A. Gear liable for patent infringement in the design of the L.A. Gear basketball shoe. Greenberg said all related legal disputes have been settled.
