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PR: K2 Falls 30 Percent on Third-Quarter Earnings Warning
10/15/98
Los Angeles, Oct. 13,1998-- K2 Inc. shares fell 30 percent to a 52-week
low after the sporting goods company warned of lower-than-expected
third-quarter earnings because of poor sales of its expensive bicycles.
The Los Angeles-based maker of skis, snowboards, inline skates and other
sporting goods fell 4 5/16 to 9 7/8 in trading of 2.30 million shares,
more than 59 times the three-month daily average.
Excluding charges, the company sees earnings from continuing operations
of $1.5 million, or 9 cents a share, on sales of $130 million for the
quarter. It had been expected to earn 33 cents a share, based on a survey
of three analysts by First Call Corp.
K2, which had $647 million in revenue in 1997, said poor sales of its
high-end, full-suspension bicycles led it to cut prices, erasing margins.
K2 has struggled to sell top-end mountain bikes in the face of
competition from Cannondale and Trek, said Hayley Kissel, a Merrill Lynch
& Co. analyst.
``If you're an enthusiast and you want to spend $3,000 on a bike, then K2
isn't a brand you identify with,'' Kissel said. ``The demand for the K2
bike is stronger at the sub-$1,400 level.'' She cut her rating on the
stock to ``accumulate'' from ``buy.''
K2 said it would take a $14.5 million pretax charge to restructure its
bike business, implement a cost-cutting program in its winter clothing
and equipment business, and write-down inventory. The company plans to
sell new models of BMX bikes and cheaper mountain bikes.
Another problem K2 faces is the erosion of the market for ``aggressive''
in-line skates. Daredevil teens now favor skateboards, Kissel said.
Aggressive skates had accounted for 20 percent of K2's skate business.
In the year-earlier period, the company had earnings from continuing
operations of $2.9 million, or 18 cents, on sales of $121 million.
K2 also said it hired Salomon Smith Barney Inc. to help it sell its
Simplex building products unit. It will account for Simplex as a
discontinued operation.
The company expects the poor performance of its bicycle business to
affect earnings through the fourth quarter. Kissel lowered her estimate
for fourth quarter earnings to 12 cents from 46 cents.
K2 also plans to buy back as many as 1.7 million shares, or about 10
percent of the company's outstanding stock.
17:03:36 10/13/1998
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