1995-96: REVIEW AND OUTLOOK : Variflex Encounters Rough Skating

This time last year, Variflex Inc. in Moorpark was a company to watch, rushing to fill demand for its inexpensive in-line skates, the kind that parents would buy for kids with fast-growing feet.

Since then, the company has hit a few bumps on the sidewalk to success. Its stock price has plummeted, to about $7 a share on the Nasdaq from a high of $16.50 in February. Sales for the fiscal first quarter ended Oct. 31 tumbled from the comparable period last year by 26%, to $23.5 million.

Now the company, founded by a father and son who wanted to spend more time together, is scrambling to hold on to its share of the mass market while rushing to take advantage of the hot markets for snowboards and bike helmets. A big concern is that the company’s three key customers--Kmart, Target and Toys R Us, which account for 70% of the company’s revenue--headed into the holiday season with ample inventories and have suffered disappointing sales overall.

Further, a key part of Variflex’s strategy will fall into place later than planned: a foray into midpriced in-line skates, under the Static label, that Variflex hopes will steal thunder from industry leader Rollerblade Inc. of Minneapolis, whose skates cost $300 or more. Because of efforts to get the prices of those products down (to a high of $149 instead of $179), most won’t be shipped until February.

President Raymond H. “Jay” Losi II, 43, is trying to look on the bright side.

“In the mass market, we have not lost market share,” he said. “We have great new products for ’96. If we can keep our mass market share and grow our other businesses, I think we’ll be just fine.”

The company is beefing up in two areas--bike helmets and skateboards--that it hopes will make it better able to withstand the occasional spills of the in-line skate business. Its snowboards, new this year, are made in Huntington Beach, and Losi plans to lure customers by offering just-in-time shipments.

“We have state-of-the-art boards, as good as any made,” said Losi, who was surfing and skateboarding himself when he started the company. Unlike leading brands, they are sold with bindings and cost $299 to $349, as opposed to $400 to $500 for boards without bindings from competitors.

“The year before was such a huge year for us,” Losi said. “Things just skyrocketed. In the first quarter, things kind of got back to normal.”