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Sunglass Hut Is Looking Sharp

Eye wear: The shades retailer comes back strong from its troubles of two years ago.

June 04, 1998|JAMES F. PELTZ

Don't look now, but shades retailer Sunglass Hut International Inc. is making a glaring comeback.

Sunglass Hut, a shopping mall fixture with 2,070 outlets--including more than 100 in California--is sporting a strong rebound in sales growth and a stock that's nearly doubled in price this year.

The turnaround came after the Coral Gables, Fla.-based chain pared its swollen inventories of unsold merchandise, began closing unprofitable stores, cut operating costs, brought in new management and stepped up how quickly it launches new products.

All of which makes for a vast improvement from two years ago, when Sunglass Hut's sales and profit growth slowed dramatically, raising questions about the long-term health of the $3-billion (annual sales) U.S. market for sunglasses.

Indeed, Sunglass Hut's reversal also had rippled through the ranks of its manufacturing suppliers, led by Foothill Ranch, Calif.-based Oakley Inc., which counts Sunglass Hut as its largest customer and likewise saw its sales sag.

But on Wednesday, Sunglass Hut said its May same-store sales--sales at stores open at least a year, and the benchmark gauge of a retailer's fortunes--jumped 9.1% from a year earlier and are up a solid 5.2% so far this year.

Investors responded by lifting Sunglass Hut's stock 53 cents a share, to close at $12.50, on Nasdaq. The stock stood at $7 a year ago.

The May sales gain came after Sunglass Hut said profit in its fiscal first quarter ended May 2 surged to $3.8 million from only $292,000 a year earlier, on an 8% quarterly sales gain to $147 million.

For the full year ending next Jan. 31, Sunglass Hut is expected to earn 43 to 45 cents per diluted share, according to a consensus of analysts' estimates taken by IBES International. That gives the chain's stock a price-earnings multiple of 28 on this year's estimated profit.

The stocks and sales trends of Oakley and certain other sunglass makers, such as Bausch & Lomb Inc. (maker of Ray-Ban, Revo, Killer Loop and others) and the Italian producer Luxottica Group, are also up this year in tandem with the overall upswing in the market for trendy eye wear.

(Bausch & Lomb and Oakley are Sunglass Hut's two largest vendors, accounting for a combined 38% of the chain's merchandise.)

"This proves that if you have the right product, people will pay for it," said analyst Thomas Filandro of the investment firm Gerard Klauer Mattison & Co. in New York. He noted that Sunglass Hut's average sale has remained above $80.

Two years ago, though, Sunglass Hut didn't have the "right product." The chain griped about "a general lack of exciting" new styles from manufacturers for contributing to its problems.

But now, the chain seeks to avoid that problem by working with some sunglass makers to more quickly develop and market new products that grab shoppers' attention, and the effort is working, Filandro said.

"They are in the fashion business, period, and they cannot wait on the vendor community to create new products," he said. "They can't sit back and wait to see what Oakley produces. They have to dictate new fashions . . . and make a loud statement."

That's not quite the way Oakley sees it, though. Oakley spokeswoman Renee Law said "they don't develop products with us," although she said Sunglass Hut and Oakley have teamed up on certain marketing programs, such as a mail-order catalog, and that Oakley "is certainly encouraged with the initiatives Sunglass Hut has put in place."

Regardless, Sunglass Hut is better at exploiting new niches in the market, such as sunglasses designed for particular sports, said Kevin Lane, an analyst at Parker Financial Corp., a money management firm in Greenwich, Conn.

"Athletes from mountain biking to golf are fueling new sales," and increasingly "it is not uncommon for these consumers to have multiple glasses designed for specific sports," Lane said.

Sunglass Hut's new chief executive, John Watson, a former

marketing executive at Reebok International Ltd., was traveling and unavailable for comment Wednesday. But he recently attributed much of the chain's rebound to "new product offerings and improved in-store presentation."

Not all sunglass companies are bouncing back, however. Gargoyles Inc., a Kent, Wash.-based shades maker, continues to languish. Its stock went public at $16 nearly two years ago but has since plummeted to $1.75 a share.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Out of the Darkness

Shares of sunglasses retailer Sunglass Hut International have nearly doubled this year as the company's sales and earnings have rebounded sharply. Weekly closes and latest on Nasdaq:

Wednesday: $12.50

Source: Bloomberg News

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