K-Swiss Says That 4th-Quarter Profit Won’t Meet Forecasts
K-Swiss Inc., a Westlake Village-based maker of athletic shoes, said Wednesday that fiscal fourth-quarter profit may fall as much as 27% below analysts’ estimates after some retailers canceled orders.
The news sent K-Swiss shares plunging $4.25, or 24%, to close at $13.25 on Nasdaq..
The company expects profit of 40 cents to 50 cents a share, below analysts’ average estimate of 55 cents, according to First Call/Thomson Financial. The company also expects sales of $49 million to $50 million. A year ago, it earned 32 cents a share on $40 million in revenue.
K-Swiss blamed the profit shortfall on order cancellations by financially troubled retailers. J.C. Penney Co., which is struggling to compete with discount and specialty chains, is cutting its sporting goods departments in half. Retailers such as Sports Authority Inc. have been cautious about adding inventory, and Just For Feet Inc. slashed prices to clear excess goods, analysts said.
“It looks like it will be the second half of fiscal 2000 before we see significant gains” in K-Swiss orders and sales, said analyst John Shanley of First Security Van Kasper.
The company expects to report earnings results Feb. 10.
Reserves that K-Swiss took in the fourth quarter to cover uncollectable accounts of some retailers weren’t big enough, Shanley said. Those retailers included Just For Feet, which filed for bankruptcy in November. Just For Feet was K-Swiss’ third-largest account last year after Venator Group Inc.’s Foot Locker and Champs stores and Footstar Inc.’s Footaction, analysts said.
Venator’s chains last year generated more than 25% of K-Swiss’ sales. No other U.S. customer accounted for more than 10% of revenue, according to the company’s annual report.
K-Swiss shares reached a high of $59.81 last May as it benefited from teenagers’ demand for niche athletic-shoe brands that have a “retro-clean” look.
The stock has since dropped as declining orders hurt sales and profit. K-Swiss warned in October that retailers had cut back on orders, sending its shares tumbling 29%.
K-Swiss said that as of Dec. 31, worldwide orders for delivery from January to June fell 25% to $105.7 million from $140.5 million. That includes a 26% decline in first-quarter orders and a 22% drop in second-quarter orders.
By region, U.S. orders fell 27% to $95.3 million from $131.5 million. International orders, however, rose 16% to $10.4 million from $9.01 million.
The company will be among athletic shoemakers that likely will see sales pick up by fall after retailers evaluate their stores, close unprofitable ones and restock locations that are doing well, said Bob McGee, editor of Sporting Goods Intelligence, an industry newsletter.
“Retailers are going door by door and looking at profitability,” McGee said. “Everybody’s saying, let’s just keep the profitable doors.”
McGee’s newsletter reported, without citing sources, that Footstar and the Athlete’s Foot chain are bidding to buy some of Just for Feet’s stores. Late last week, Footstar was believed to have made an offer to buy 112 superstores and 65 specialty stores, the publication said.
Birmingham, Ala.-based Just for Feet confirmed that it has bids from two companies but declined to name them, citing confidentiality agreements. It also declined further comment.
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Boom and Bust
Shares of athletic shoe maker K-Swiss had rocketed last year, along with its sales. But in recent months, demand for its products has faded. Monthly closes and latest for the stock:
Wednesday: $13.25,down $4.25
Source: Bloomberg News
