Oakley Reports Record Annual Sales of $762 Million
Optics and Retail Initiatives Drive Significant Double-Digit Growth
Selected 2006 Highlights

Net sales up 18 percent over 2005 to an annual record $762 million
Net optics sales up 19 percent over 2005 to annual record $553 million
U.S. retail net sales up 44 percent over 2005 to an annual record $171 million
Net income totaled $45 million or $0.65 per diluted share

FOOTHILL RANCH, Calif., Feb. 8, 2007 (PRIME NEWSWIRE) -- Oakley, Inc. (NYSE:OO) today reported its preliminary unaudited results for the year ended December 31, 2006. Oakley generated record net sales of $761.9 million, an increase of 17.5 percent from $648.1 million in the prior year.

2006 net income was $44.8 million, or $0.65 per diluted share, including footwear restructuring charges of $2.0 million net of tax, or $0.03 per diluted share, consistent with the company's guidance of $0.68 per diluted share given at various times throughout the year.

"2006 was a year of strategic re-alignment for Oakley. We concentrated our efforts on five key strategies announced at the beginning of the year -- focus on optics, enhance brand development, restructure footwear, re-align apparel and expand our retail platforms," said Oakley, Inc. Chief Executive Officer Scott Olivet. "The early results have been promising as evidenced by solid sales growth across all geographies and key products, highlighted by an immediate acceleration in our optics growth."

"With the footwear restructuring complete, we will continue to focus on optics growth, solidifying our brand development efforts, re-aligning our apparel business, and expanding the retail platform," continued Olivet. "Additionally, we will increase our attention on greater international penetration and operational excellence, with a priority on acquisition integration and consumer/retailer customer service enhancements."

Olivet concluded, "We believe that these strategies, along with the brand and product portfolio effect we are seeing with the addition of Oliver Peoples, retail expansion with The Optical Shop of Aspen (OSA) acquisition, and broadening of our military business with the acquisition of Eye Safety Systems, position Oakley, Inc. for sustained, profitable growth in 2007 and beyond."

Product Category Net Sales

2006 net optics sales totaled $552.9 million, up 18.9 percent from $465.1 million in the prior year. This growth was driven by significant double-digit increases in prescription eyewear, sunglasses, and goggles as well as incremental sales from the 2006 Oliver Peoples and OSA acquisitions. These increases were partially offset by an expected, large decline in electronics sales. 2006 net sales of apparel, footwear and accessories (AFA) totaled $156.7 million, up 5.6 percent from $148.5 million in the prior year. AFA growth was tempered by the company's previously announced footwear restructuring and apparel re-alignment.

2006 net sales of other brands, which consist of non-Oakley products sold through the company's multi-branded Sunglass Icon and OSA retail stores, increased 50.9 percent to $52.2 million from $34.6 million and were driven significantly by the acquisition of OSA.

Segment Net Sales

Total 2006 net sales to worldwide wholesale customers were $590.6 million, an 11.7 percent increase from $528.9 million in 2005.

2006 net sales to U.S. wholesale customers totaled $252.6 million, up 12.9 percent from $223.6 million in the prior year, driven by a favorable impact of Oakley-branded sunglass growth and the Oliver Peoples acquisition, offset by decreased electronics sales and shipments to the company's government customers.

Oakley's 2006 U.S. retail net sales, which for reporting purposes include the company's e-commerce and telesales business, increased 43.7 percent to $171.3 million, compared with $119.2 million in 2005. The retail sales growth included a moderate increase in comparable store sales; contribution of 45 new Oakley and Sunglass Icon stores added during the last twelve months; incremental sales from the company's OSA and Oliver Peoples acquisitions; and a significant double-digit increase in e-commerce and telesales volume.

Geographic Net Sales

2006 U.S. net sales (wholesale and retail) totaled $423.9 million, an increase of 23.6 percent from $342.8 million in the prior year.

2006 net sales in the company's international business were $338.0 million, a 10.7 percent increase from net sales of $305.3 million in 2005. A weaker U.S. dollar relative to foreign currencies increased reported international net sales growth by one percentage point. During the year, the company's Americas regions saw significant double-digit optics and AFA growth; EMEA (Europe, Middle East and Africa) experienced a significant optics sales increase, offset by a modest decline in AFA growth; and, Asia Pacific had a modest increase in optics sales, partially offset by a slight decline in AFA net sales.

Gross Margin, Operating Expenses, Tax Rate

Reported 2006 gross profit as a percentage of net sales was 54.2 percent compared with 57.2 percent in 2005. Non-GAAP gross margin, as defined below, for 2006 was 55.0 percent compared to 55.2 percent for 2005. The decrease in non-GAAP gross margin versus the prior year reflects increased sales returns and markdowns, increased inventory write-downs, and increased disposal of end-of-line products. These factors were partially offset by improved sales mix towards the optics category, which generates relatively higher gross profit as a percentage of net sales, the addition of Oliver Peoples and OSA, and the favorable impact of increased manufacturing volume.

Non-GAAP gross margin for 2006 excludes footwear restructuring charges and losses from changes in fair value of foreign currency derivatives recorded in accordance with SFAS 133, which totaled $2.3 million and $4.3 million respectively, on a pre-tax basis, for the year. Non-GAAP gross margin for 2005 excludes a $13.0 million gain due to changes in fair value of foreign currency derivatives recorded in accordance with SFAS 133. A reconciliation of non-GAAP gross margin to GAAP gross profit as a percentage of sales is included in the accompanying financial data.

2006 operating expenses totaled $342.9 million, representing 45.0 percent of net sales, compared to $281.4 million, or 43.4 percent of net sales, in 2005. The year over year increase in operating expenses included costs associated with the addition of Oliver Peoples and OSA; increased variable selling costs associated with higher sales volumes; new Oakley, Sunglass Icon and OSA retail locations; higher compensation expense, including the filling of senior staff positions and a $2.3 million increase in stock-based compensation expense, reflecting the implementation of SFAS 123(R); and increased professional fees.

On an annual basis, the company's tax rate for 2006 was 34.5 percent versus 33.7 percent in 2005, which benefited from a significant tax refund from prior periods.

Balance Sheet Highlights

Accounts receivable, less allowances, totaled $109.2 at December 31, 2006, compared with $99.4 million at December 31, 2005.

The company's consolidated inventory totaled $155.4 million at December 31, 2006 compared with $119.0 million at December 31, 2005. This increase was largely driven by the acquisitions of Oliver Peoples and OSA, and the addition of 45 new Oakley and Sunglass Icon stores during the last twelve months.

Stock Repurchase Program

There is approximately $23.3 million available under the stock repurchase plans approved by the company's Board of Directors. During 2006, the company repurchased 657,100 shares at an average price of $15.75 per share.

2007 Guidance

Early in 2006, the company stated that its long-term financial goals included double digit annual sales growth, along with EBITDA and EPS growing faster than sales.

The company expects 2007 net sales in the range of $900 million to $930 million, an increase of 18 to 22 percent over 2006 net sales of $762 million. The majority of this sales growth is expected to come from its optics products and retail platform. The company expects 2007 EPS to be in the range of $0.94 to $0.97 per diluted share, an increase of approximately 45 percent over 2006 EPS

Pretty cool. I'm glad I was able to contribute to their success.

ohhh... oke .. now i have a glue of how much people spent on oakley...
Am glad i help them, and i hope now they launch more outragous products.

Congrats to Oakley. I think this solidifies that going mainstream rather than being niche with crazy products will be their tactic for a long time to come. I noticed their stock have been going way up since December, and I think that trend will continue for the next little while if they continue to do what they're doing.

congrats. im glad to know that the brand im spending all my money on isnt in danger of going bankrupt :-)

Of course it's great for Oakley. Hopefully this profit will translate in even better products and better customer support.

It does beg another question though: do you think Oakley products are overpriced? I do get that comment alot when I tell people how much my sunglasses cost. And yes though they are the best sunglasses on the market, the cost to make them is probably tiny compared to their retail price. For example: I read an article where some Oakley manager said that their margin on a pair of shoes was over 40%! And that it was low compared to their margin on eyewear!

So what do you guys think: should Oakley lower it's prices?

Coupla things:

First, from what I've read, luxury Rx has extremely high margins anyway, and that's frames that are more expensive than Oakley.

Secondly, in an absolute sense Oakley may have a high markup, but in a relative sense I don't know if it is much different than other things. A McDonald's burger probably has a much higher proportional markup.

Thirdly, Oakley Canada has already changed their pricing in the last few years; I think it's been a good direction. If they lowered their prices hugely (like, halved them) we might buy more pairs, but our spending would be the same. Thus their profit would stay the same or decrease.

Don't get me wrong, I'm sure Oakley isn't losing money on their frames. We are paying a premium but it might not be as high as it initially appears. Or maybe I just drank the kool-aid.

Everything from the premium to luxury price level is overpriced, but that's what gives brands their image. I'm not sure Oakley would be where they are if they weren't seen as a premium-priced brand, so lowering their prices, even a little, wouldn't work on any level. I'd love it of course and gladly support it, but it wouldn't be in their best interests as a corporation.

Oak and Greg thanks for the reply and I'm sure you guys are right.

I think that Oakley needs to actually raise their prices. Their products are highly sought after, no matter the price. Look how popular Juliets are. Those things cost 300+ bucks and people snatch those up like candy.

Price doesn't seem to be an issue, and if it is, look at the Fives 3.0's. Those are dirt cheap in relation to most pairs of Oakley's and carry the good Oakley name and style at the same time. I've seen countless people walking around with them recently.


On a side note, I think this record year in sales can only mean one thing for Oakley. I think they finally have that cushion where they can start going outside of the box a little bit and start making some OTT items again. Here's hoping.

Well said Justin, well said. I hope that too. It doesn’t have to be like a lot but something that has a little more stock. Look at the flight deck, that thing is wicked. And I think every one was sold, and it is still in demand.

We can only have faith that there will be some release that is truly for purpose beyond reason.

I think people forget about R&D when talking about costs. I mean, 'liquid laser prototyping' doesn't sound cheap at all.

The material that makes the prototypes costs $2 grand a liter.

dannnnggggg..... holy smokes.. for real. And they still make profit... then def. they must be doing something very right.
thanks for the inside scoop

Keep in mind $762 mil is revenue not profit, they could do $762 mil in one fiscal year and still loose their but. It takes a ton o cash to compete in the global market place these days.

True. Anyone in here an accountant? I'd like to look at their annual report in detail and work out some ratios to see where they stand.

Well, the article above pretty much gives a good picture of where they stand. Some notables include:

"2006 net income was $44.8 million, or $0.65 per diluted share". Though I think the Net Income for 2005 was higher at something like $59M (or in the $50Ms anyway).

"This growth was driven by significant double-digit increases in prescription eyewear, sunglasses, and goggles"

"Reported 2006 gross profit as a percentage of net sales was 54.2 percent" (GAAP)

"2006 operating expenses totaled $342.9 million, representing 45.0 percent of net sales"

"Accounts receivable, less allowances, totaled $109.2 at December 31, 2006"

"2006 U.S. net sales (wholesale and retail) totaled $423.9 million, an increase of 23.6 percent"

"2006 net sales in the company's international business were $338.0 million, a 10.7 percent increase"

Yeah, thats awesome. I didn't get a chance to look through the whole thing to pick those out. Thanks for saving me the time. Those are some pretty impressive numbers.

How many companies did they snatch up last year? Oliver Peoples, that Ski Shop chain, and what else? I can hardly remember.

I couldn't even begin to tell you what they bought and when, since they've made several acquisitions in a relatively short timespan, but I can tell you the following from the presentation they put out a few weeks ago:

Retail:
Oakley stores
Sunglass Icon
Optical Shop of Aspen

"Portfolio of Optics Brands":
OP/Mosley Tribes
Paul Smith
Dragon
Fox

Anyone in here an accountant? I'd like to look at their annual report in detail and work out some ratios to see where they stand.

Here is the 8K in all its glory.
http://ccbn.10kwizard.com/xml/download.php?repo=tenk&ipage=4651035&format=PDF


.

I personally think they should just keep their prices the same. Cant really flex too much or brag if the prices arent what they are. If the juliets are like $150, thats not really worth the flapping of my mouth about how awesome Oakleys are :-D So my opinion is they should just maintain them prices (except if ur an o-reviewer lol) and just come out with new products often. Like more x metals for christs sake :-)