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Revenues for Q3 climbed 15.6% to a record $173.4 million. Domestic sales increased 20.1%, while international operations contributed 11% growth. That's impressive, but brighter still are Oakley's U.S. O Store operations, for which revenues jumped 46.3%. With 44 stores currently in operation, Oakley will undoubtedly find its U.S. O outlets to be a productive area of future growth.
The quarter also heralded the release of Oakley's much-anticipated, Bluetooth-enabled RAZRWIRE line of shades, developed jointly with Motorola
Oakley did feel its gross margins tighten by 3.6 percentage points to their current level of 53.5%. Higher closeout sales were to blame, but the downturn was countered by improvement on an operational level. Despite lower gross margins, operating margins still managed to increase to 13% from 11.7% in the comparable period a year ago. As a result, net income climbed to $15 million, for a 31.6% increase.
With all of this double-digit growth, why are investors running for the exits? Oakley's declining backlog is a concern. It attributed the 15.4% backlog decrease in part to a new product launch last year and also to a shift in the timing of holiday orders. But it also added that higher eyewear orders would be offset by lower apparel orders.
It appears that the company expects a slower sales environment in 2006 beginning sooner rather than later. Despite the holiday launch of Thump 2 -- a digital-music-enabled eyewear product geared to take advantage of the MP3 madness sustained by Apple's
If a slower sales environment didn't cause investors to lose their appetite for Oakley's shares, then the fact that it didn't buy any of its own stock in the third quarter -- despite an authorized $14.4 million buyback purchase that was in place at the time -- was enough to get investors selling. If the stock isn't attractive enough for Oakley itself, should investors be buying? Right now, the sentiment is "no."
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Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.