K Swiss Inc: Growth Is Strong, But Is It Cheap Enough?

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K Swiss Inc: Growth Is Strong, But Is It Cheap Enough?

K-Swiss Inc.:

Company Introduction:

K Swiss Inc (NASDAQ:KSWS) designs, develops, and markets athletic footwear for sports, fitness activities, and casual wear. The Company sells its products in the United States through independent sales representatives, primarily to specialty athletic footwear stores, pro shops, sporting good stores, and department stores. K Swiss Inc (NASDAQ:KSWS) also sells its products through international distributors.

Sector Overview:

According to data provided by Lucintel, the global athletic foot ware industry, which has experienced growth over the last five years, is anticipated to continue its growth momentum with a CAGR of 5.0%; reaching US$ 51 billion by 2017. In the global athletic footwear retail industry, Asia Pacific region is forecasted to have the highest growth in the next five years. Increasing levels of household income in the lower-tier cities of the emerging Asian countries are among the factors likely to boost the sporting footwear market.

Factors that present significant challenges to the global foot ware industry include market sensitivity to seasonal conditions and frequent changes in consumer tastes resulting in higher purchasing power of customers.

Major sporting events such as the Olympics in Brazil in 2016 and the FIFA world cup scheduled for 2014 present significant opportunities for the sector players to cash in on.

Stock Performance:

The stock for K-Swiss Inc. has been trading at USD 3.15 as of 10th Jan’ 2012, resulting in total market capitalization of USD 112.16 million. Over the last 1 year, the stock has traded between a range of USD 2.20 and USD 4.59. Over the last three years the stock has registered an average volume of 216,944 shares.  The stock for K Swiss Inc (NASDAQ:KSWS) has been trading at a P/S ratio of 0.48 and a P/B ratio of 0.77.

Financial Analysis:

For 6MFY12, the total revenues of the Company decreased by 17.2%, compared to the corresponding period last year. The gross profit margin of the company was recorded at 34.9% for 6MFY12, compared to a gross profit margin of 37% recorded in 6MFY11. This was mainly a result of an increase in the level of closeout product as a percentage of revenues and a decrease in royalty income as a result of lower level of sales by one of the Company’s  significant licensees in 2012. On net profitability, the Company incurred a net loss for 6MFY12 of USD 18.34 million or USD 0.52 per diluted share, compared to a net loss of USD 29.9 million or USD 0.84 per diluted share for the corresponding period last year.

Future Outlook:

The 2014 FIFA world cup presents a great opportunity for the overall sporting foot wear sector and the company, as sales are expected to increase during 2013 in the run up to the world cup. However, continued net losses pose significant questions for the strategic success of the Company


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