K-Swiss has decided to sell Royal Elastics as part of a more wide-ranging program intended to cut costs and maximize margins. The buyer of the Australian brand is said to be the head designer of the line, a Canadian by the name of John Bondoc based in the Los Angeles area, who is backed by an unnamed investment group.
The disposal, which comprises the global rights to the Royal Elastics brand outside Australia and some inventories, should give K-Swiss a $1.4 million gain in the second quarter. Royal Elastics has been a drag on K-Swiss' results ever since the brand's acquisition by the American tennis shoe company in 2001. Royal Elastics, known for its laceless shoes, booked a loss of $1.7 million last year, and its turnover fell by 28 percent, down to $12.8 million, 27 percent of which was generated in the U.S.. In a further diversification, K-Swiss bought a 57 percent stake in Palladium one year ago from Consolidated Shoe Company.
In the first quarter ended last March 31, K-Swiss’ total sales decreased by 24.8 percent to $74.0 million, although $7.4 million of that came from the newly acquired Palladium. K-Swiss reported a loss of $1.1 million for the period, compared with income of $7.1 million last year, with a $58,000 loss at Palladium as its parent company invested in its launch in the U.S.
K-Swiss' performance sector fell by 11 percent compared with the prior year to $17.8 million; the sport style business decreased by 40 percent to $46.6 million; and other activities, which include Palladium, rose by 565 percent to $9.6 million.
Average sale prices fell to $23.84 from $28.65 and the gross margin declined by 8.5 percentage points to 38.2 percent on a weaker mix and more closeouts. The group sold a total of 2.6 million pairs in the quarter, down by 13.6 percent from a year ago.
Domestic revenues fell by 26.7 percent to $30.4 million, while those generated in the rest of the world declined by 24.3 percent to $43.7 million including Palladium, and by 37 percent excluding this French brand of casual footwear. European sales declined by 43 percent.
Futures orders were down by 41 percent to $73.7 million, including a 39 percent decline in orders in the U.S. to $28.3 million and a 43 percent decline in overseas orders to $454 million. They were off by 56 percent in Europe.
K-Swiss reduced guidance on weaker-than-expected sales in Europe, saying that full-year revenues will now be $200-230 million. Earlier, it had forecast revenues of $210-250 million.
A loss of $20.9-31.4 million is projected. The company said it would continue investing in Palladium’s U.S. entry and as well as developing its running, tennis and classic platforms. It also reiterated that it was not opening new channels of distribution despite its sales performance.