UPDATE 3-Thai plant closure to hurt K-Swiss FY rev, shares fall

Thu May 6, 2010 1:32pm EDT

* Q1 loss/shr $0.13 vs est loss $0.14/shr

* Sees FY10 rev down 5 pct-10 pct vs FY09

* Thai plant closure to hurt Q2, Q3

* Says some orders cancelled due to plant closure

* Shares fall as much as 18 percent (Recasts; adds conference call details, analyst comment, updates share movement)

By Shradhha Sharma

BANGALORE, May 6 (Reuters) - K-Swiss Inc KSWS.O posted a narrower-than-expected quarterly loss, helped by strong sales in Asia, but the athletic-shoe maker's forecast weak 2010 revenue, hurt in part by the closure of a manufacturing facility in Thailand, sending its shares down as much as 18 percent.

The company has already experienced some order cancellations after one of its three contract manufacturers in Thailand filed for bankruptcy in April, and could see more cancellations in the next two months, K-Swiss said on a conference call with analysts. [ID:nWNAB7426] Earlier on Thursday, K-Swiss said that assuming it cannot fulfill previously scheduled orders from the operation, the company sees about $5.0 million in lost revenue in the second and third quarters.

A company official said K-Swiss' forecast of a 5 percent to 10 percent fall in 2010 revenue takes into account this revenue loss.

Shares of the company Westlake Village, California-based company fell to a low of $9.84, but recovered slightly and were trading down $2.09 at $9.95 Thursday afternoon on Nasdaq.

K-Swiss, which sells athletic, training, and children's shoes, apparel and accessories, said that on a year-over-year basis, it expects second- and third-quarter revenue to dip, and then pick up again in the fourth quarter.

As a result of the closure, K-Swiss said it will be unable to fulfill orders for about 700,000 pairs of shoes scheduled to be produced in the second and third quarters.

A majority of these pairs were being produced to fulfill orders for Latin America and to a lesser extent Europe, the company said.

RISING MARKETING SPEND

K-Swiss expects selling, general and administrative expenses to rise to between $143 million and $148 million in 2010, due to increased marketing expenditures.

"It's difficult to take marketing expense and find a return on investment... It's taking a lot to move the needle. They are spending quite a bit and getting small return for now," Susquehanna Financial analyst Christopher Svezia said.

He added that the company's backlog position was also not very favorable.

"A lot of other companies have put up huge backlog numbers to the upside, and these guys are just barely breaking through."

While backlog at the company's domestic segment was up 3 percent during the quarter, it was down 4 percent at its international unit.

Asia saw the highest uptick in backlog, with sales jumping 22 percent, and backlog rising 33 percent.

For the first quarter ending March 31, K-Swiss posted a net loss of 13 cents a share, wider than the loss of 3 cents a share, a year earlier. Revenue at the company slipped 11 percent to $65.9 million. [ID:nASA00BR8]

Analysts on average were looking for a loss of 14 cents a share, on revenue of $68.6 million, according to Thomson Reuters I/B/E/S. The shoe maker also expects 2010 gross margin to increase to about 43 percent, from 36 percent in 2009, due to fewer closeout sales in 2010. (Reporting by Shradhha Sharma in Bangalore, Editing by Anthony Kurian, Anne Pallivathuckal)

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