Oakley Plans to Restructure Its Foundering Shoe Division

Oakley Inc. said Wednesday it will restructure its money-losing footwear business, turning to outside manufacturers to make its shoes.

The Foothill Ranch-based company, which is largely known for its sport-related sunglasses, ventured into the shoe business last year with an eye-catching $125 high-top that sold so poorly it has since been discontinued.

While Oakley initially insisted that it could turn a profit producing shoes at its own plant, the company is now looking to cut costs and said it will use manufacturers outside the United States.

The footwear division lost $2.3 million in the first half of fiscal 1999, the company said.

As a result of the restructuring, Oakley said it expects to record an after-tax charge of between $7 million and $10 million, or 10 cents to 14 cents a share, which could wipe out most of its quarterly profits. In the same quarter last year, Oakley made $3.43 million.

By next fall, Oakley expects to have seven shoe styles compared to the two it currently makes. The price tags will range from $60 to “slightly over” $100, the company said.

“We remain confident and enthusiastic about all our innovative new footwear, eye wear, apparel, accessory and wristwatch products planned for introduction throughout 2000,” Chief Executive Jim Jannard said in a statement.

In the current quarter, the company expects its footwear division to lose $706,000 to $1.4 million. By shifting the manufacturing, management hopes to trim that loss to less than $500,000 in the first half of next year, the company said.

Layoffs tied to the manufacturing change will be “very minimal,” said Ron Parham, who handles investor relations for the company. He declined to say how many people are employed in the shoe division but said most have already been shifted to other Oakley manufacturing areas.

Oakley also said Wednesday that overall net income in the third quarter rose 25% to $10.3 million, or 15 cents a share, from $8.2 million, or 12 cents a share, in the same period last year. Analysts had predicted earnings of 14 cents a share.

Sales rose 5.3% to a record $70.8 million, but sales in the United States dipped 3%. The company attributed the domestic slump to a 28% decline in sales to Sunglass Hut, its largest customer.

Sunglass Hut delayed shipment of some new Oakley sunglass models, choosing to first sell its older styles during the key summer season, Oakley said. Sales to other United States retailers rose 10%, the company said.

Oakley has been in the throes of change over the past few years, adding new products and switching chief executives. Earlier this month, Jannard took the chief executive post, replacing former Gatorade executive William Schmidt, who had been hired just six months earlier.

The company said Jannard took the position because he wanted to “strongly reconnect with the whole Oakley team” as its leader. It was the first time he held the post since he founded the company in 1975. Jannard became Oakley’s fourth chief executive since the company went public four years ago.

Oakley shares closed Wednesday at $6.50, down 50 cents, in New York Stock Exchange trading. The company announced its financial results and the changes in its footwear division after U.S. markets closed.

While shoe sales have been disappointing, they have continued to grow, Parham said, noting that sales in the third quarter totaled $1.4 million, up from just under $1 million a year ago.

The company is also hoping to boost shoe sales by selling footwear in more stores and by expanding its Internet sales. Oakley is currently redesigning its Web site to encourage online purchases, Parham said.

In addition, Oakley will expand its shoe-related magazine ad campaign next month.

By relying on outside manufacturing, Oakley can focus on the design of its shoes as it expands the product line, Parham said.