K-Swiss Stumbles Over Rising Costs For Labor, Gas

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K-Swiss Inc. is trying to keep up the pace with its running shoes, but it looks like it’s facing an uphill climb.

The stock price of the Westlake Village company has taken a trouncing, as the industry is being hit hard by rising raw material and labor costs and swelling gas and food prices.

The company looked like it had real promise when it made high-profile endorsement deals and announced new designs last year. That may still be the case, but the results haven’t yet materialized.

K-Swiss’ stock dropped 11 percent to $9.46 for the week ended June 8, making it one of the top 10 losers on the LABJ index. (See page 30.)

The company more than doubled its losses on rising revenue for the first quarter ended March 31, and sales of its classic white leather shoes are down. Meanwhile, it’s been heavily investing in marketing campaigns to build credibility for its new performance-based footwear, including its Tubes shoes, endorsed by celebrity trainer Jillian Michaels, and Blade-Light running shoes, designed to shave minutes of running times.

“The futures orders are up, they are spending a lot of money on marketing and the retailers are starting to tell us they are pleased with the new product,” said Sam Poser, managing director at Birmingham, Ala., investment banking firm Sterne Agee Group Inc., who follows the company and rates it a “buy.” “If back to school proves to be good, they are going to have a strong 2012. If back to school is not good, it’s going to be ugly.”

The company reported a net loss of $9.8 million for the first quarter of 2011, compared with a net loss of $4.7 million for the same period last year. Its earnings have been sliding since the recession, with a net loss of $27.9 million for 2009 and net loss of $68.2 million for last year.

But analysts still see a bright spot in K-Swiss’ future: Worldwide orders for future shipments of the company’s shoes, most significantly for its running, training, tennis and street wear shoes called Palladium, are up 45 percent.

Jeff Van Sinderen, a senior analyst at West L.A. investment banking firm B. Riley & Co. who follows K-Swiss and also rates it a “buy,” points to the future orders as an indication the company is on track.

“Their futures orders are up dramatically,” Van Sinderen said. “And it speaks to the fact that their business will grow.”

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