Outdoor financials: Deckers expects to beat lowered Q4 targets, plus Stride Rite, K2, Kellwood, Phoenix, Oakley, Big 5, Quiksilver, Forzani, Amer

Deckers expects to beat lowered Q4 targets
Deckers Outdoor Corp. (Nasdaq: DECK), the maker of Teva sandals and Ugg boots, projected sales and earnings in last year’s fourth quarter would beat its own forecast, driven by the recent popularity of Ugg boots.

Deckers said it would exceed the high end of its quarterly forecast, which called for earnings between $0.60 and $0.64 per share, on sales of $72 million to $75 million. It did not provide more specific guidance in a statement.

The company also affirmed its fiscal 2006 forecast projecting earnings at $2 to $2.15 per share, on sales between $255 million and $265 million.

Average analyst views are $0.63 per share for the fourth quarter, and $2.16 per share for the full year. Analysts expect $74.7 million in sales for the quarter and $248.4 million for the year.

Deckers warned in late October that fourth-quarter results would be well below the forecast it had given three months earlier, sending its stock down sharply. At the time, analysts had been expecting $0.84 per share in fourth-quarter earnings, and sales of $80 million.

The stock closed at $31.02 on the Nasdaq, up more than 80 percent from a 52-week low of $16.92 notched shortly after the October profit warning. Also, Lazard Capital upgraded Deckers from “hold” to “buy” on Jan. 11.

Saucony acquisition rocks Stride Right Q4
Stride Rite Corp. (NYSE: SRR) reported a fourth-quarter loss despite higher sales, hurt by charges related to its acquisition of Saucony. The company also forecast annual earnings would grow about 25 percent in 2006.

Last quarter, Stride Rite’s deficit was $3.1 million, or $0.08 per share, compared with net income of $51,000, or nil per share, the year before. Setting aside an acquisition-related inventory charge, the company would have turned a profit of $500,000, or $0.01 per share. Analysts had forecast a loss of $0.02 for the quarter.

Quarterly sales totaled $131.7 million, a 13 percent increase from $116.8 million a year earlier, but missed analysts’ average estimate of $146.4 million. Saucony, which includes the Hind brand, contributed $23.2 million to the sales total.

For the year, earnings slipped 4 percent to $24.6 million, or $0.66 per share, from $25.7 million, or $0.66, in 2004. Excluding charges, adjusted profit amounted to $28.6 million, or $0.77 per share.

Annual sales of $588.2 million grew 5 percent from $558.3 million in 2004, but came in below analysts’ target for $602.8 million in sales.

Inventories of $116.1 million were up 32 percent compared to the end of 2004. The company said the increase was due primarily to the addition of Saucony and included the inventory write-up as required by GAAP purchase accounting rules. Excluding Saucony, the 2005 year-end inventory balance increased 3 percent compared to last year.

Cash and cash equivalents were $33 million at the end of the fiscal year with $60 million in outstanding debt. The company borrowed $85 million in mid-September 2005 to fund the closing of the acquisition of Saucony.

David Chamberlain, chairman and CEO of Stride Rite, said in a statement: “With the purchase of Saucony, we added a highly-respected $150 million brand in performance running. We see growth opportunities for Saucony in running, international and children’s. We expect that 2006 will be a year of transition for Saucony as we set the platform for 2007.”

He added that with Saucony, the company will double its international business presence and add significantly to sales in Europe — “an area of focus for us.”

Looking forward, the company estimates this year’s earnings at $0.82 to $0.88 per share. That guidance accounts for stock option expenses of $0.05 per share; acquisition and inventory charges are projected at about $0.08 per share.

K2 gets boost on NYSE after brokerage thumbs-up
As SNEWS® reported last week, brokerage firm SunTrust Robinson Humphrey upgraded K2 Inc. (NYSE: KTO), which subsequently resulted in a 5.6 percent increase in its shares on the New York Stock Exchange. SunTrust said favorable winter weather across the country would benefit the company’s sales of skis, snowboards and other sporting gear.

“After a challenging 2005, we believe the outlook is improving,” SunTrust analyst William Chappell wrote in a client note. “Based on our research and industry reports, we believe the weather conditions over the past two months have been favorable, especially versus a dismal 2004-2005 ski season.”

The brokerage also noted that strong hotel bookings in Vail, Colo., bode well for K2’s winter sports business, which comprises 24 percent of revenue and up to 35 percent of its operating profit. Snowfall was also “extremely favorable” in ski areas in the Rockies, Northeast and Europe. The upcoming Winter Olympics will also boost the winter sports industry, particularly in Europe, by raising consumer awareness to winter sports, it added.

SunTrust said its stock upgrade wasn’t based on the fourth quarter’s expected results, which it said would likely reflect the brunt of the paintball slowdown, but on K2’s prospects for this year. The brokerage raised its opinion on K2 to “buy” from “neutral,” with a 12-month price target of $14.50.

Shares of K2 added 59 cents to $11.10 on the New York Stock Exchange, where it was among the biggest percentage gainers. K2 shares hit a 52-week high of $15 in February 2005. The stock lost 35 percent last year, SunTrust said.

Kellwood completes financials restatements, appoints VP
Amended filings by Kellwood (NYSE: KWD) reduced earnings for the 2003 and 2004 fiscal years, as well as the first quarter of 2005.

The restatement reduced earnings before income taxes in 2004 by $6.0 million ($3.8 million after tax) and in 2003 by $5.9 million ($3.7 million after tax). The restatement reduced earnings before income taxes for the fiscal 2005 first quarter by $1.0 million ($0.7 million after tax) and increased earnings before income taxes for the second quarter by $700,000 ($500,000 after tax).

The restated financial statements were filed to correct an accounting error related to the recording of freight, duty and agents’ commission costs that resulted in the understatement of cost of products sold and a cumulative overstatement of earnings before income taxes of $8.2 million ($5.2 million after tax). Also, the restatements reflect the effect of the correction of the under accrual of liabilities (previously deemed immaterial) related to a Death Benefits Program that had resulted in the understatement of selling, general and administrative expenses and a cumulative overstatement of earnings before income taxes of $3.9 million ($2.5 million after tax).

Kellwood management determined that the company did not maintain effective internal control over financial reporting and that a material weakness existed. It said it is taking steps to remediate these control deficiencies, which will be fully tested by year-end. The company’s Audit Committee concluded that the accounting error did not result from misconduct or intentional wrongdoing, and approved the restatements.

In other company news, Patrick Burns was named Kellwood’s vice president of strategic planning and new business development. He has an extensive background of over 20 years in marketing and general management in the apparel and consumer goods industry. Prior to this new post, Burns served as CEO of Kellwood’s Gerber Childrenswear division, and president of Kellwood Intimate Apparel. Before joining Kellwood in 2002, he spent 14 years with Sara Lee implementing long-range plans maximizing brand equity and sales growth.

Phoenix modifies Altama purchase terms
Phoenix Footwear Group (Amex: PXG) and its wholly-owned subsidiary, Altama Delta Corp., entered into an agreement with W. Whitlow Wyatt which modified the terms of the Stock Purchase Agreement. Phoenix acquired Altama in June 2004.

As a result of the agreement, the total price paid by Phoenix for Altama has been reduced by approximately $4.25 million. The reduction was funded by $1.6 million in cash previously due Wyatt held by Phoenix; 196,967 in Phoenix shares held in escrow and the termination of all future obligations under the stock purchase agreement, including a contingent earn-out covenant;and Wyatt’s consulting and non-competition agreements which totaled approximately $1.6 million.

Oakley names VP/managing director of European subsidiary
Oakley (NYSE:OO) has appointed Giuseppe Servidori as the company’s vice president and managing director of Oakley Europe, its wholly-owned subsidiary. Servidori brings more than 15 years of experience to his new role and will oversee the company’s European business operations including sales, marketing and operations.

Since November 2003, Servidori has served as senior vice president of Luxottica North America responsible for the sales, marketing, operations, product development and product distribution in the U.S., Canadian and South American markets. He has also held various other positions at Luxottica since 1995.

Sales for Big 5 flat in Q4
Net sales for Big 5 Sporting Goods (Nasdaq: BGFV) were basically flat for the 2005 fourth quarter — $217.1 million versus $217.6 million in 2004. Same-store sales increased 1.5 percent, representing Big 5’s 40th consecutive quarter of positive same store sales comparisons.

Big 5 said its results were impacted by unfavorable winter weather comparisons in California and the southwest, which were partially offset by favorable winter weather comparisons in the northwest. Sales of non-winter-related products were generally in line with its expectations for the quarter, it added.

For the 2005 year, net sales increased 3.8 percent to $812.1 million from $782.2 million for the corresponding 53-week fiscal year in 2004. On a comparable 52-week basis for both fiscal 2005 and 2004, net sales increased 5.7 percent and same store sales increased 2.4 percent.

Big 5 said the transition to its new distribution center in Riverside, Calif., is costing more than expected and anticipates costs to reduce fourth-quarter earnings per share by $0.06 from its guidance. The facility should be up and running by the end of the 2006 first quarter, but Big 5 said it will be devoting more labor resources than anticipated.

Big 5 added that it now expects earnings per diluted share for the fourth quarter of fiscal 2005 to be in the range of $0.32 to $0.35 versus previous guidance of $0.40 to $0.44 per diluted share.

Quiksilver says Q1 earnings on same page with analysts
Quiksilver, parent of Rossignol, said it expects its first-quarter results to meet analysts’ expectations of $0.18 per share earnings. In the year-ago period, the company earned 12 cents per share. Shares of Quiksilver rose $0.17 to close at $14.18 on the New York Stock Exchange.

Forzani holiday season reaps profit
The Forzani Group (TSX:FGL), doing business in Canada under the Sport Chek, Coast Mountain Sports, Sport Mart and National Sports retail banners, reported that total retail sales for the holiday season were up 21.1 percent over the prior year. Results were for the 10 weeks ended Jan. 8.

Exclusive of the impact of the current year addition of Nevada Bob’s and National Sports, retail system sales were up 12.4 percent. On a comparable store basis, retail system sales were up 9.6 percent. Comparable corporate stores sales increased 11.1 percent, with all banners up sharply, while franchise comparable store sales increased 7.1 percent. The corporate store increases were a combination of an increase of 12.0 percent in Sport Chek/Coast Mountain Sports locations and a 7.8 percent increase in Sport Mart stores.

Forzani said that corporate store margins continued the trend experienced in the third quarter, reflecting the positive results of the various initiatives undertaken in the corporate stores.

Amer Sports stock for staff ready to trade
Amer Sports released a statement saying that the stock options related to the year 2003 stock option arrangement for its key staff will be subject to trading on the Helsinki Stock Exchange main list as of Jan. 12.

The total number of stock options is 159,999. Each stock option entitles the holder of the stock option to subscribe for three shares of Amer Sports with an accounting par value of Euro 4 (USD $4.86) per share. The subscription price for stock options is Euro 12.63 (USD $15.34) per share. The share subscription period for stock options began on Jan. 1, 2006, and ends on Dec.31, 2008. As a result of the subscriptions, the number of shares of Amer Sports can increase by a maximum of 479,997 new shares and the share capital can increase by a maximum of Euro 1,919,988 (USD $2,332,382).
 
The other shareholder rights will begin once the increase in the share capital has been entered in the Finnish trade register, it added.

(Conversion of Euros into U.S. dollars is for information only, is not necessarily relative to earnings, and is based on the currency rate as of Jan. 11.)

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