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K-Swiss Slipping in U.S.

Brendan Mathews
July 27, 2006

K-Swiss (NYSE: KSWS  ) served up an ace with its second-quarter results. Earnings per share were $0.58, compared with Wall Street's estimate of $0.46. That's a 23% improvement on the second-quarter earnings last year, and the stock is up by more than 20% Thursday. However, I have not changed my original thesis. I am still bullish on the shoe company, but I'm looking for a better time to buy.

I like K-Swiss' ability to produce cash. Capital expenditures are light: The company hasn't spent more than $2 million a year since 1999. As a result, almost all of the cash from operations is free to be distributed to owners. In 2004, the company produced $88 million in owner earnings, and in 2005 it was $94 million. For a company with a market capitalization of less than $1 billion and almost $200 million in cash, that is terrific cash generation.

The problem is