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Tickers in this Article: KSWS, NKE, ADDYY
For the last few years K-Swiss Inc. (Nasdaq: KSWS) has seen declining sales, a falling stock price and lower earnings. The company's U.S. market position is on life support, yet, to management's credit, the company is still generating cash. Last year the company brought in a new product-and-marketing team, and it looks like things may be -- slowly -- turning around for the shoe manufacturer.

Latest Numbers aren't Great
In the first quarter of 2007, K-Swiss is still experiencing lower global sales of $122.6 million, down 18.3% from the previous year. U.S revenue decreased 39.7% to $62.4 million while European revenue increased 29.2% to $60.2 million. On the bright side, K-Swiss remained profitable with net earnings for this quarter of $18 million or 51 cents per share compared to $24.9 million or 70 cents per share in first quarter of 2006.

The future doesn't look great for K-Swiss. Global futures orders decreased 19.8% to $172.2 million compared to $214.7 million a year ago. Orders from Europe and the rest of the world were up 16.0% to $83.5 million, while U.S. orders were down 37.9% to $88.7 million. The company's turnaround has yet to materialize.

New Retail Strategy
In 2006, executive management brought in a new marketing and product development team to change the direction of the company. This team has been putting together a strategy to turn around the company. Management does not expect to see significant positive results from this strategy until the second quarter of 2008. Since stock prices often anticipate important changes in a company's fortunes, it's prudent to look at K-Swiss now to see when, if ever, it would be time to take a position.

Let's start with its marketing and retail strategy. The company focuses on the high-end market that has higher margins with an exciting product for males and females in the 16-to 25-year-old age group. This strategy is designed to distinguish it from other shoe companies such as Nike (NYSE: NKE) and Adidas (OTC: ADDYY).

Its marketing strategy seeks to improve the brand name of K-Swiss through market-specific, television and print ads.


Another element of the company's strategy is to position the company in the market through either stand-alone or store-within-a-store concept. The primary purpose of the stores is to support the upscale branding and marketing of the company. With stores open in Amsterdam, Taiwan, Japan, Mexico and France it is working to enhance its global presence. Expect stores to open in New York, Los Angeles and other key cities soon.

Product Cycle
On the all-important product side, the company developed an apparel line that could be a success. In test markets the company has seen four dollars of apparel sales for every three dollars of shoe sales. Assuming that this trend is transferable in all markets, this may give the company a means to increase it profits. However, there is a bit of a time lag. When rolling out new products, it takes up to 18 months for an idea to achieve any kind of result. K-Swiss is introducing new footwear products to wholesalers in the third quarter of 2007, so consumers will be able to buy these new products in the first quarter of 2008. All told, the company won't see results until the middle of 2008.

Conclusion
It looks like the turnaround is underway, though investors should not expect to see any real results in the performance of the company for at least another twelve months.

However, the company's stock will likely start moving up in about six months with anticipation of the future results. While still a bit early, KSWS is making many of the right moves to reverse the company's fortunes. For aggressive investors willing to risk being a little early, and who are confident on K-Swiss' future outlook, look to buy on dips in price over the next several months in anticipation of the changes that are starting to take place.

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