NEW YORK — Oakley Inc. and J. Jill Group Inc. now share an unflattering distinction — both firms reduced their fourth-quarter outlooks late last week and got beaten up on Wall Street because of it.
Soft sunglass sales at Oakley and a charge to restructure the firm’s European operations incited investors to drive down shares of the firm $2.17, or 17.7 percent, to $10.12 Friday on the New York Stock Exchange. The news was made public after the market closed on Thursday. The firm’s stock has over the last year traded as low as $8.87.
Shares of J. Jill lost more than a quarter of their value a day earlier, when it revealed that sales for the quarter were not reacting as expected to promotions and direct mailings. Its bet on sweaters also failed to pan out.
Foothill Ranch, Calif.-based Oakley is now looking for its fourth-quarter results to range from break-even to earnings of 1 cent a diluted share, translating to about 3 cents before restructuring charges. Oakley had previously predicted EPS of 10 cents.
The firm’s sales for the period are now expected to come in around $100 million. This makes for an 11 percent increase versus the year-ago period, but is 9 percent below prior projections.
"While we are receiving favorable spring footwear and apparel bookings and remain confident in our product diversification strategies over the long term, sunglass sales in the United States, Europe and South Pacific region have been softer than expected in the fourth quarter," said chief operating officer Link Newcomb.
Oakley gave several reasons for the weakness, but first and foremost blamed soft consumer spending and weak retail conditions that pulled down sales in its primary category.
Additionally, deliveries of summer sunglass introductions to retailers were delayed, resulting in fewer turns during the summer selling season and a decreased level of reorders going into the holidays. Foot Locker is also reducing the number of doors carrying Oakley sunglasses next year.
Newcomb added that his firm "underestimated the negative impact that Sunglass Hut’s return to our business may be having" on other retailers, compared with a year ago when Sunglass Hut was not purchasing Oakley products.Also, the firm’s board approved plans to restructure Oakley’s European operations with significant changes to the regional sales and distribution organization. Accordingly, relationships with several outside sales agents will be modified or terminated, while the firm’s warehousing and distribution functions in the region will be rationalized.
The region’s annual sales over the past five years have grown more than 130 percent to about $110 million and Newcomb said the restructuring would clear the way for future growth. "We expect payback in the form of increased European net sales and reduced operating expenses to be fully achieved within approximately 12 to 18 months." More immediately, the restructuring will effect a charge of about 2 to 3 cents a diluted share during the fourth quarter.
Wells Fargo Securities analyst Jennifer Black, in research notes, agreed that Oakley’s diversification strategy should eventually lessen the impact of the difficult sunglass business. Sunglasses represent about 70 percent of the firm’s sales, she said, while new product categories grew by 48 percent in the second quarter and 15.5 percent in the third.
"In the near term, as Oakley continues to be highly reliant on its sunglass business and as it moves out of Foot Locker, the company, once again, becomes more dependent on the Sunglass Hut chain.
"Although the new businesses are currently less profitable than the core sunglass business, we believe in time their contribution to both sales and margins should become more meaningful and should enable the company to weather the occasional trip in the sunglass business."
Black also said that Oakley was a potential buy-out candidate. "We would not be surprised to see the company’s chief executive officer, Jim Jannard, who now owns over 60 percent of the company, buy back the minority interest," she said.
Quincy, Mass.-based retailer J. Jill gave its fourth-quarter expectations a haircut. The firm is now looking for profits of 25 to 30 cents a diluted share for the period. This compared with Wall Street’s expectations of 42 cents a share and year-ago earnings of 37 cents.
On Thursday, shares of the firm lost 28.2 percent of their value, or $6.49 each. The stock slid 50 cents, or 3 percent, in Nasdaq trading Friday to close at $16.02. In the last 52 weeks, shares of the firm have sold for as low as $12."Unfortunately, sales for our historically predictable Best Seller catalog, which began to mail in early November, were significantly below plan," said president and chief executive Gordon Cooke, in a statement. "In addition, as a result of prior successes, we also increased our investment in our traditionally strong sweater classification, which ultimately ran against this year’s fashion trends and resulted in lost sales in both the direct and retail segments."
The company is now looking for quarterly sales of $102 million to $107.5 million, versus $91.7 million a year ago.
Cooke noted: "We recognize that we have some short-term issues to work through and we are dedicated to getting the business back on track." However, the holiday catalog, which was mailed after the Best Seller book outperformed expectations in its third drop and fiscal 2002 is still expected to finish with record sales and earnings.
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