Oakley Trims Forecast Amid Waning Sales
Citing soft sales of its costly sunglasses, Oakley Inc. said Wednesday that revenue and earnings for the second half of this year probably won’t meet expectations--triggering a 25% drop in its share price.
Oakley’s announcement was viewed by some as another sign that shoppers are shying away from expensive discretionary items, although analysts were nonetheless taken aback by the revised forecast.
“It knocked us off our feet,” said Lehman Bros. analyst Eric Beder, who downgraded the stock from “buy” to “market perform.” “We talked to some of our largest holders and they couldn’t believe it.”
The stock closed at $9.70, down $3.25 on the New York Stock Exchange. It was the lowest closing price in more than two years.
The lower sales and earnings outlook was particularly surprising because it came just seven weeks after Oakley said it had recovered from problems that cropped up last year when its biggest customer, Sunglass Hut, slashed orders after being acquired by competitor Luxottica Group. Oakley and Luxottica have resolved their differences, so analysts were expecting brighter news this quarter.
But Oakley is operating in a more challenging retail environment, and the lower-than-expected sales of its trendy sunglasses may be evidence that consumers are opting to spend less. Though some Oakley shades sell for $65, other styles cost much more.
“Oakley’s products all fall in the consumer discretionary realm,” said Terrence Mackay, an analyst with Morningstar Inc. “With some of these sunglasses retailing at $200 or more, you can bet a lot of these consumers are going to take a pass on some of these products this season, simply because they’re uncomfortable spending that money.”
To cater to a more cautious consumer, Oakley may need to consider lowering prices, Mackay said.
Foothill Ranch-based Oakley said it expects earnings of about 16 cents a share for the third quarter ending Sept. 30, rather than the 27 cents anticipated in July. The company lowered its sales expectations by about 15% compared with earlier guidance and said sales probably would grow 10% to 12% to $125 million to $128 million. In last year’s third quarter, Oakley earned 21 cents a share on sales of $114 million.
Oakley also lowered its fourth-quarter outlook, based on current sales trends, and said earnings probably would be 10 cents a share on sales of $108 million to $110 million. Previously, Oakley predicted that fourth-quarter profit would be 16 cents a share on sales of about $129 million. In the final quarter of fiscal 2001, Oakley earned 5 cents a share on sales of $90.2 million.
Mackay also said Oakley must tread carefully as it continues to expand into its newer categories--which include shoes, watches and apparel--because the profit margins are lower on those products than on eyewear. The analyst said he still considers the stock too risky and would not recommend investing in it, despite Wednesday’s price decline.
But Chief Executive Jim Jannard, who has accumulated Oakley stock in the past, said in Wednesday’s statement that he is prepared to buy up to 2 million shares of the company’s stock to show his confidence in its long-term strategies.
“While we are certainly disappointed with current sales trends, we are confident that when overall consumer confidence and spending levels return to stronger levels, our revenue and earnings outlook will benefit accordingly,” the statement said.
