Weak Demand Sends Oakley’s Shares Tumbling
Oakley Inc.’s shares tumbled to a new low on Thursday after the sunglass manufacturer warned that continued weak demand from its single largest retail customer would push fourth-quarter earnings far below analysts’ expectations.
The decline, Oakley’s third significant daily drop in recent months, sparked renewed speculation on the company’s ability to continually produce cutting-edge designs--and whether the market for stylish-but-expensive eyewear--is getting saturated.
Oakley fell to a new low of $10.625 in New York Stock Exchange trading Thursday before closing at $11.625, down $3.625 per share, or nearly 24%, in heavy trading.
Oakley executives blamed the fourth-quarter results, which are expected to fall below analysts’ estimates of 16 cents per share, on slack demand at Sunglass Hut International, the powerful retailer that typically drives a third or more of Oakley’s overall sales.
Oakley said it halted further shipments to Sunglass Hut for the remainder of the fourth quarter--which includes the crucial holiday shopping season--after the chain requested that shipments be delayed.
“We felt it was in our best interest not to force further shipments of product that they do not need,” Oakley Chief Financial Officer Link Newcomb said during a conference call. “But we are looking to restore our [Sunglass Hut] business plan in 1997.”
Oakley executives said that they will add about 200 new retail locations during 1997, but that they feel no need to dramatically lessen their company’s dependence upon Sunglass Hut’s extensive retail network.
The stock drop was the latest in a string of negative developments for Oakley, which wowed investors after its initial public stock offering in August 1995 at $23 a share. The stock subsequently rocketed to a record high of $54 before the company announced a 2-for-1 stock split.
In recent months, several competitors have been making a run at Oakley’s upscale niche in the $2.4-billion sunglasses market. Longtime sunglasses leader Bausch & Lomb Inc. is pumping marketing dollars into its Ray-Ban brand, and newcomer Nike is readying its own line of sports-oriented eyewear.
Oakley remains profitable, but executives said the company won’t match last year’s fourth-quarter results when it reported a $9.2 million profit on sales of $43 million.
Its fortunes--like those of many sunglasses companies--are tied to the success of Coral Gables, Fla.-based Sunglass Hut, which fell 87.5 cents to $7.375. The stock hit a high of $35.94 in March.
A fifth of Oakley’s 10,000 retail locations are Sunglass Hut stores, and each time the chain reports bad news, analysts said, sunglass company stocks get hammered.
It was the second quarter in a row that bad news from Sunglass Hut sent Oakley stock tumbling.
In October, Oakley stock fell 20% one day after Sunglass Hut announced that its third quarter results would be lower than expected. Days later, Oakley fell another 14% as nervous investors digested the company’s disappointing third-quarter results.
Wall Street also frowned Thursday on Gargoyles, a Kent, Wash.-based sunglasses company. The stock, which had reached an all-time high of $23.50 just months ago, fell $1 to $8.625.
“The industry is clearly lagging and justifiably so as investors had bought these as growth companies,” said Thomas A. Filandro, an analyst at Gerard Klauer Mattison.
Oakley executives on Thursday said that new designs now entering the distribution pipeline would pump up sales starting in the first quarter.
Oakley, which is best known for eyewear worn by athletes, is gathering its cadre of sports stars and celebrities in Irvine next week to preview the company’s new X Metal line, which is aimed at consumers for whom fashion, rather than sports activity, is a primary concern.
The new line of high-tech glasses will be rolled out relatively slowly--in part to build consumer demand, Oakley executives said, but also to help ensure quality control for the new line of high-tech glasses.
