Shoemaker K-Swiss Sprints in First Stock Offer

Only days after Wall Street stomped all over the shares of L.A. Gear, a much smaller athletic-footwear concern, K-Swiss, Inc. in Pacoima, went public with a flourish.

K-Swiss sold 1.15 million Class A common shares for $17.50 each, then watched the stock zoom to $22.50 a share on heavy volume during its first day of over-the-counter trading June 5. The stock closed Monday at $23.25 a share.

The stock offering provided K-Swiss with $18 million in proceeds, which the company plans to use for repaying debt that totaled $20.7 million as of March 31.

The family trust of K-Swiss Chairman Steven Nichols also sold 182,561 of its Class A shares for $3.2 million.

K-Swiss’ stock got its rousing reception even though investors only days earlier had dumped the shares of L.A. Gear, a volatile stock that previously had run up sharply. In the week that ended June 1, L.A. Gear stock plunged nearly 40% after L.A. Gear predicted lower earnings for its fiscal second quarter, its first quarterly profit drop in three years.

Although K-Swiss went public, control of the company’s stock remains with management. K-Swiss’ officers and directors still own 92% of the company’s Class B shares, which have 10 times the voting power as the Class A stock just sold to the public.

As the prospectus noted, “Class B stockholders control the board of directors and are in a position to control the policies and operations of the company.”

K-Swiss was founded by two Swiss brothers in 1966, and for 20 years the company was a small maker of virtually one type of tennis shoe called the Classic. At the end of 1986, a group led by Nichols, a former executive of footwear maker Stride-Rite Corp., bought K-Swiss for $11 million.

Nichols and his team immediately changed K-Swiss’ marketing approach to include several other models of athletic shoes so that the company could better challenge industry giants such as L.A. Gear, Nike and Reebok.

The switch helped K-Swiss sell 2.7 million pairs of shoes last year, a 71% increase from the 1.6 million sold in 1988, according to the prospectus for K-Swiss’ stock offering. As a result, K-Swiss’ revenue jumped 72% last year to $69.4 million from $40.4 million in 1988. (By comparison, Reebok’s 1989 sales were $1.8 billion.)

Nonetheless, K-Swiss says it tries to keep its new designs on the conservative side and to not flood the market with new styles. That strategy helps its shoes stay popular longer and also cuts down on advertising and promotion costs, the prospectus said.

Nichols also shifted K-Swiss’ manufacturing to other countries to lower production expenses. Today, about 96% of K-Swiss’ shoes are made to its specifications by manufacturers in Taiwan, South Korea, Czechoslovakia and Mexico. K-Swiss itself has about 165 employees.

K-SWISS INC. AT A GLANCE

K-Swiss Inc. is an athletic footwear concern based in Pacoima, although last year about 96% of its shoes were made to K-Swiss’ specifications by foreign producers. Founded in 1966, K-Swiss went public last week with the sale of 1.45 million common shares priced at $17.50 per share.