The strength of its market-leading sunglass line and the increasing contribution of new product categories introduced during the past few years saw Oakley Inc (NYSE:OO) hit an "outstanding" third-quarter.

Net sales totaled a record $107.0 million, a 51 per cent increase over the $70.8 million achieved in the third quarter of 1999 and the second consecutive quarter in which net sales have exceeded $100 million. Net income for the third quarter totaled $17.4 million, or $0.25 per diluted share, a 69 per cent increase over the comparable period's net income of $10.3 million, or $0.15 per diluted share.

Said Oakley chairman and chief executive officer Jim Jannard: "Importantly, and most satisfying personally, was achieving profitability in our footwear business for the full quarter on sales of $4.3 million. It is a beginning, and a base from which we intend to grow gradually and thoughtfully to firmly establish the Oakley brand in this large, global category."

"Oakley's outstanding sales and earnings increases were driven by the momentum of several sunglass products, including the updated Wire styles, the Twenty and the Eye Jacket 2.0 all of which launched this year," said Oakley chief operating officer Link Newcomb.

"Additionally, continued strong sales of Juliet and the entire X Metal family, the Minute, the New Straight Jacket and an expanding line of polarized styles also contributed. X Metal models generated significant same-period sales growth more than tripling 1999's levels.

"In response, although we have substantially increased our X Metal manufacturing capacity, we continue to chase demand and have plans to further increase capacity to support new X Metal styles scheduled for 2001 introduction."

"Third quarter net sales also reflect significant growth from the company's newer product categories, with fall introductions in footwear, apparel and performance watches sharply exceeding the company's plan and prior year sales levels," continued Newcomb.

"Our outstanding Sunglass Hut sales growth, up 79 per cent on a global basis, reflects Oakley's brand strength, successful joint efforts to capitalize on several marketing opportunities and improvements in product flow to meet high summer retail demand," he added.

"The acquisition of our Australian distributor last November has also proved to be an outstanding success, with South Pacific sales nearly tripling 1999's levels, boosted by the 2000 Sydney Olympic games."

"The success of our product diversification strategy, outstanding new product introductions with improved fulfillment, gains from taking control of our distribution base in all key markets and powerful financial leverage have allowed us to capitalize on competitive market opportunities and strong consumer demand," Newcomb concluded.

Third Quarter Financial Analysis
The 47 per cent increase in third quarter US net sales reflects the company's third consecutive quarter of growth in excess of 40 per cent in the specialty account base outside of Sunglass Hut. Sales to Sunglass Hut, the company's largest customer, totaled $15.8 million in the United States, an outstanding 63 per cent increase.

Oakley's international business achieved its 10th consecutive record quarter exceeding $50 million in revenue for the first time, beating the previous record quarter by 32 per cent. International sales increased 55 per cent (68 per cent on a constant dollar basis) driven by continued strength in all key markets, including Europe, Australia, Japan, Canada, Southeast Asia and Latin America.

Gross margins in the third quarter were 60.8 per cent compared with 62.3 per cent in last year's comparable period with the decline due in large part to the strength of the US dollar in Europe and Australia, the company's two largest international markets.

Operating expenses declined from 39.4 per cent of net sales to 35.1 per cent in the quarter, and operating margins for the quarter improved to 25.8 per cent compared with 22.9 per cent in the prior year period as a result of successful cost controls and positive operating expense leverage on higher sales volumes.

The company's order backlog as of Sept 30, 2000 was $35.7 million compared with $14.2 million at the same time last year. The company attributes the increase to substantial outstanding orders for X Metal products, together with strong future orders from retailers for apparel, ski goggles and the footwear line.

The company noted that because the second and third quarters contain the important summer sunglass season in most markets, the bulk of new eyewear product introductions are timed to capitalize on that seasonal demand. As a result, sunglass sales volumes in the fourth quarter of 2000 and first quarter of 2001 are expected to be more dependent on reorders of existing sunglass styles.

Throughout 2001, as the company begins to anniversary the outstanding sunglass growth rates experienced over the past four quarters, sunglass sales growth rates are likely to moderate. Overall sales increases are therefore expected to become more dependent on sales from the company's new footwear, apparel, watch and prescription eyewear categories.

About Oakley Inc
Building on its legacy of innovative, market-leading, premium sunglasses, Oakley also offers an expanding line of premium performance footwear, apparel, accessories, watches and prescription eyewear to consumers in more than 70 countries.

(in thousands except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999

Net sales $ 107,044 $ 70,819 $ 270,143 $ 191,616
Cost of goods sold 41,912 26,692 99,192 72,032
Gross profit 65,132 44,127 170,951 119,584

Operating expenses:
Research and
development 2,121 1,737 5,891 4,682
Selling 23,768 17,600 65,842 52,541
Shipping and
warehousing 2,795 1,845 6,773 4,641
General and
administrative 8,858 6,707 26,693 21,829
Total operating
expenses 37,542 27,889 105,199 83,693

Operating income 27,590 16,238 65,752 35,891

Interest expense, net 762 346 2,110 1,497
Income before provision
for income taxes 26,828 15,892 63,642 34,394
Provision for income
taxes 9,390 5,570 22,275 12,045
Net income $ 17,438 $ 10,322 $ 41,367 $ 22,349

Basic net income
per share $ 0.25 $ 0.15 $ 0.60 $ 0.32
Basic weighted
average shares 68,636 70,678 69,007 70,678

Diluted net income
per share $ 0.25 $ 0.15 $ 0.60 $ 0.32
Diluted weighted
average shares 69,725 70,678 69,346 70,678


Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(dollars in thousands, unaudited)
Other Operating Data:

Units 1,323,861 989,942 3,851,966 3,101,657
Sales before
discounts (a) $ 78,891 $ 52,365 $ 220,332 $ 163,048

Net sales:
Domestic $ 54,968 $ 37,311 $ 149,283 $ 109,837
International $ 52,076 $ 33,508 $ 120,860 $ 81,779

Backlog (as of Sept. 30, 2000) -- $ 35,711 $ 14,203

(a) Does not reflect returns relating to defective product.

September 30, December 31, September 30,
2000 1999 1999
(unaudited) (unaudited)
Selected Balance Sheet Data: (dollars in thousands)

Cash and cash equivalents $ 8,279 $ 5,499 $ 10,572
Accounts receivable less
allowance for doubtful
accounts 58,693 39,113 41,999
Inventories 63,402 35,061 39,026
Accounts payable,
accrued liabilities
and income tax payable 50,516 32,942 34,405
Total debt 28,813 25,060 19,743