K2 Inc. Reports Second Quarter Sales and Earnings
Edited by John Stouffer
(7-23-98)

(Press Release, July 22, 1998)—K2 Inc. (NYSE:KTO) recently reported net income of 8.1-million dollars, or 49 cents per diluted share for the second quarter ended June 30, 1998, as compared with net income of 8.7-million dollars, or 52 cents per diluted share a year ago.

Sales for the quarter increased to 181-million dollars from 171.5-million dollars in the prior year. Net income for the six months ended June 30, 1998, was 11.2-million dollars, or 68 cents per diluted share, as compared with 14.5- million dollars, or 87 cents per diluted share in the prior year. Sales for the first half increased to 354.1-million dollars from 343.1-million dollars a year ago.

Commenting on the second quarter results, Richard M. Rodstein, president and chief executive officer, said, "Sales of the sporting-goods and other recreational-products group increased 6.7 percent. The growth in the quarter was driven primarily by double-digit increases in shipments of snowboard products. We experienced strong demand for our high-performance boards and our popular Clicker step-in bindings and boots.

"Our Shakespeare fishing-tackle business, also contributing to the quarter's sales improvement, grew at a strong double-digit rate due to the introduction of new Shakespeare-branded products and continued gains in our core fishing-tackle products. Stearns benefited in the quarter as a result of customers' shifts in their ordering patterns for core products and growth in new product sales."

Rodstein continued: "Following a first-quarter decline from the year-ago period, sales of in-line skates rose moderately in the current quarter, primarily driven by the resumption of sales growth in the European markets. In the domestic market, although sales were comparable with the prior year, retailers continued to order cautiously, reflecting their desire to reduce inventory levels and more closely match inventory purchases with their rate of sale.

"K2 has been accelerating its product innovation with the recent introduction of its split frame in-line skates, children's skates and recreational ice skates. K2's lifestyle companies, Planet Earth skateboards and accessories and Katin surf apparel, continue to progress with the successful launch of technical skateboard shoes and ongoing development of K2 lifestyle apparel.

"Cautious buying after a disappointing retail ski season has resulted in an industry-wide decline in preseason orders," Rodstein added. "Shipments for the quarter of our K2 and Olin products were moderately impacted by this industry- wide condition.

"In our bicycle business, K2 aggressively broadened its products with the introduction of a new line of K2 BMX bikes and front-suspension-only mountain bikes, further refined its Smart suspension technology and expanded its line of hydration packs. As part of this new positioning, closeout sales of certain mountain bikes affected second quarter margins.

"In the industrial products group," Rodstein said, "sales rose 3.2 percent reflecting strong improvement in shipments of several monofilament lines and lower sales of building products."

Rodstein reported, "While overall sales improved, the company's gross profit as a percentage of sales declined. This was largely due to margin pressure from closeout of certain skate and bike inventories and higher manufacturing costs and competitive pricing pressures in certain segments of the industrial group."

Rodstein concluded, "As we previously stated, current uncertainties in our sporting-goods categories such as in-line skates, skis, and mountain bikes, indicate that sales and earnings in those categories may remain under pressure, and may result in possibly no overall growth for the full year. The K2 brand is strong and we continue to innovate with K2 products."

K2 Inc. is a leading designer, manufacturer, and marketer of brand-name sporting goods, recreational and industrial products.

The company's sporting-goods and recreational products include well-known names such as K2 and Olin Alpine skis, K2 snowboards, K2 Exotech, and K2 Endotech in-line skates, Stearns sports equipment, Shakespeare fishing tackle, K2 mountain bikes, Dana Design backpacks, K2 Outdoor backpacks, and Hilton Corporate Casuals. K2's industrial products include Thermo-ply residential insulative sheathing and, under the Shakespeare brand, extruded monofilaments, marine antennas, and composite-light and power-line poles.

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