Oakley to Resume Sales Through Sunglass Hut

Oakley Inc., ending a costly feud, said Wednesday that it had signed a deal to resume sales of its trendy sunglasses through the Sunglass Hut International chain owned by rival Luxottica Group.

The Foothill Ranch company, which saw its sales evaporate at Sunglass Hut stores after Italy’s Luxottica purchased the chain in April, said Sunglass Hut once again will become Oakley’s biggest customer, boosting earnings and sales next year.

Oakley said it expects 2002 earnings to reach the high end of its previous forecast. The stock surged 16%, or $2.25 a share, to $16.30 on the New York Stock Exchange.

Analysts said the agreement underscores a sluggish economy that has depressed sales of luxury items.

T.K. MacKay, an analyst with Morningstar in Chicago, said the deal will benefit both companies. Oakley regains access to “shelf space” at Sunglass Hut, which accounted for about 20% of the sunglasses maker’s business before Luxottica snapped up the 1,900-store chain and began cutting back orders of Oakley products.

For Luxottica, the pact allows its Sunglass Hut chain to satisfy customers’ appetite for cutting-edge Oakley products. U.S.-listed shares of Luxottica rose $1.10, or 7%, to $16.98 on the NYSE, while its Italian shares rose 2% in Milan.

“I think they were in a lovers’ quarrel and decided to make up,” MacKay said. “Management at both companies realized they needed each other.”

Luxottica and Oakley executives declined to discuss the negotiations.

Oakley made no secret of the fact that its sales slumped after Sunglass Hut scaled back its orders. In the third quarter alone, Oakley’s sales to the retailer tumbled 91% from a year earlier, totaling only $1.9million. Oakley’s quarterly profit fell 17% to $14.4million as sales rose 6.5% to $114million.

Because the pact was reached late in the fourth quarter, it is not likely to boost Oakley’s results, which are expected to fall below estimates because of the weak retail environment.

Oakley now says it expects to earn 4 cents a share, down from previous estimates of 9 cents a share. Sales are expected to reach $85million, below the $90million that the company had anticipated.

But the company said the agreement should be a shot in the arm for next year’s sales and profit. Oakley now projects sales of $500million to $550million, at the high end of a forecast of $475million to $550million.

It estimates earnings of 77 cents to 85 cents, up from 70 cents to 85 cents.

Oakley’s deal with Luxottica, which took effect immediately, covers Sunglass Hut locations in the United States, Canada, Ireland and the United Kingdom--about 1,600 of the chain’s stores, Oakley spokesman Gar Jackson said.

The agreement has no effect on a recent Oakley lawsuit that accused Luxottica of selling knockoffs of some Oakley designs, Jackson said.

After losing Sunglass Hut sales, Oakley attempted to compensate by expanding its offerings at other chains, such as Foot Locker. The company also acquired Iacon Inc., a Scottsdale, Ariz.-based sunglasses retailer with 40 stores in malls.

Oakley will continue to look for new outlets for its products, said Link Newcomb, the company’s chief operating officer.