K-Swiss, Inc. (KSWS)

NetscribeConsGds (93.95) Submitted: 2/09/07 7:40 AM : Start Price: $33.47 KSWS Score: 34.80

K-Swiss engages in the design, development, and marketing of athletic footwear for sport, fitness activities, and casual wear in the United States and internationally. Offering its products under the brand names K-Swiss and Royal Elastics, the company markets its products directly, through independent sales representatives to specialty athletic footwear stores, pro shops, sporting good stores, and department stores, as well as through its website.

The athletic sport shoe market in the U.S. is worth $19 billion the world’s largest, forming about 47% of the global market. K-Swiss faces competition from players like Nike, Skechers USA and Stride Rite to name a few. As company primarily targets the age group of 14 and 24, innovating products is the key, since teens are more receptive to the changing environment. However, inadequate efforts in product development and marketing has led to over 2% decline in K-Swiss’s top line performance for nine months ended September 2006. The company derives about 67% of its revenues from its Classic Category, which has seen a significant volume declines owing to unanticipated cancellation of orders. Other categories like children and training have also shied away to deliver impressive growth.

Additionally, Foot Locker, one of the company’s major customers, seems to shift its business to other producers, as revenue contribution from Foot Locker has declined by about 6%. To add to the woes, company’s overall order book in the first and the second quarter of fiscal 2007 is heading south. Female customers are shifting their focus towards sandals and canvas, which is affecting company’s business, as their offerings in this line are meager.

On a positive side, company has made some interesting management changes by hiring people from Nike and Adidas to boost its international operations that have been doing well. However, domestic business that forms over 65% of the revenues has shown signs of slowing down and there are no strong initiatives to drive them forward. In the light of these facts, K-Swiss does not stimulate in the one-year time horizon.

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