K2 reports a 9.4 percent sales increase in 1Q

CARLSBAD, Calif.—Sales for K2 Inc.’s marine and outdoor segment, comprised of Shakespeare fishing tackle and monofilament and Stearns marine and outdoor products, generated sales of $123.1 million in the first quarter of 2006, an increase of 9.5 percent from the comparable quarter in 2005, the company reported in a release earlier this week.

For the first quarter of 2006, operating profits were $16.1 million, up slightly from $16.0 million in 2005. K2 said the sales rise was due to increased sales of fishing tackle, antennas, ski vests, and the addition of sales of Hodgman waders (acquired in the second quarter of 2005).

As a whole, K2 Inc. reported net sales for the first quarter ended March 31, of $348.1 million versus $318.3 million in the prior year, an increase of 9.4 percent. The increase in sales was due to increased sales in Team Sports and Marine and Outdoor segments offset by a decline in the Action Sports segment.

K2’s gross profit as a percentage of sales in the first quarter of 2006 stayed constant at 32.3 percent compared to the first quarter of 2005. K2’s operating profit, as a percentage of net sales for the first quarter of 2006 increased to 3.6 percent compared to 3.1 percent in the comparable 2005 period. The increase in operating margin for the quarter was due to decreased selling, general and administrative expenses as a percentage of sales in the Team Sports segment.

For the first quarter of 2006 consolidated selling, general and administrative expenses, as a percentage of consolidated net sales decreased to 28.7 percent compared to 29.2 percent of net sales for the first quarter of 2005.

“We generated outstanding performance in the first quarter, with significant sales growth in our seasonal product categories, and an improvement in our operating income as a percentage of sales of approximately 50 basis points over the same period in 2005,” said Richard Heckmann, chairman and CEO. “We are particularly proud of our Team Sports business, with sales growth of 22.4 percent compared to the first quarter of 2005, and an increase in operating income in the quarter to 9.7 percent of sales from 7.4 percent in the same period of 2005. The other major seasonal contributor to the quarter was Marine and Outdoor, which also generated strong sales growth due to continued product innovation and brand extensions.

“In addition, we would like to emphasize that consistent with our original forecast for 2006, we brought our total debt down more than $44 million from year end 2005 due to a combination of higher profitability and improved working capital management.”

Outlook for 2006
For fiscal year 2006, K2 forecasts 2006 sales in the range of $1.33 to $1.38 billion, GAAP diluted earnings per share in the range of $0.73 to $0.76 and Adjusted diluted earnings per share in the range of $0.82 to $0.86, in each case based on assumed fully diluted shares outstanding of 55.8 million.

For the same period, K2 said it forecasts GAAP basic earnings per share in the range of $0.78 to $0.83 and Adjusted basic earnings per share in the range of $0.90 to $0.95, in each case based on assumed basic shares outstanding of 47.1 million.

On a quarterly basis for 2006, K2 expects that seasonality in sales and earnings per share will be similar to the quarterly trends in 2005. For the first six months of 2006, K2 forecasts net sales in the range of $635 million to $650 million, and GAAP diluted earnings per share in the range of $0.08 to $0.10, and Adjusted diluted earnings per share in the range of $0.13 to $0.16, in each case based on assumed diluted shares outstanding of 47.9 million. 2006.

K2’s regular quarterly earnings conference call is archived on www.fulldisclosure.com.

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