In the third quarter, sporting goods equipment manufacturer K2 (NYSE:KTO) was being pelted by sagging paintball sales. But the stock caught air in recent trading -- it's up roughly 10%. Let's check out its latest results to see whether the company has graduated from the bunny slope of operational performance.
Sales for the fourth quarter came in above analyst expectations at $353.5 million, an increase of 4.3% from the year-ago period. But one can hardly characterize mid-single-digit revenue growth as big air. So what has the market so stoked over its recent performance?
The company continues to be dragged down by off-target paintball sales; revenues in this division declined 2.5% from the comparable period a year ago. Going into 2006, CEO Dick Heckman indicated in the conference call that the company has made the move to reduce personnel costs by $2.5 million by closing down two facilities, one in Mexico and the other in the U.S. The company projects that it will save an additional $3 million by the winter of 2006 once its factory in China becomes operational. Even more encouraging to shareholders, he asserted, "We lost over $1 million (from paintball sales) in the first quarter of '05. We will make money in paintball in the first quarter of '06."
Its Marmot and Ex Officio brands seem to be paying off dividends however, since apparel and footwear posted the strongest growth among its various product lines. Total sales in this unit were up 15.8% versus the year-ago period. Skate footwear and apparel, as well as outdoor clothing, were highlighted as strengths. Heckman stated that "Ex Officio's orders are up 25% so far this year," suggesting that another solid year is on tap for outdoor apparel.
After a tough couple of years, does 2006 offer any hope of a turnaround for shareholders? With profitability anticipated at its paintball division, along with an already dominant position in the ski equipment market, strong growth prospects from outdoor apparel, and the launch of a new Adio shoe featuring "The Flying Tomato," Shawn White, this may be the moment when K2 graduates from the bunny slope. While I would want to see a track record of solid performance before declaring this entrant a gold-medal winner, it still is worth watching to see what mojo it can muster.
More adrenaline-junkie Foolishness:
- Get an update on VF (NYSE:VFC) and other outdoor-specific brands in the latest Hiker's Guide to Investments.
- Does Quiksilver (NYSE:ZQK) still have that edge?
- Although it's losing traction, Wolverine World Wide (NYSE:WWW) may still be worth watching.
Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.
