Hit #171 (Oakley)

Oakley (OO), the purveyor of stylish glasses (with MP3 players now), is being bought by Luxottica (LUX), the Italian house that owns, among other brands, Ray-Ban. The cash offer of $2.1 billion, translates to a price of $29.3/share which is a 86.27% gain over my average cost of $15.73/share.

I have owned Oakley for a while now, with the first buy at around $13.5 following an earnings miss a few years ago.

I don't own any Oakley products (I am still waiting for the glasses to carry satellite radio receivers!), but my few visits to the stores (see Yelp review) have been very informative. The glasses with mp3 player look and sound great. Wonder what is next! Oakley has been able to maintain an image as being different from the rest of the crowd, by promotion via lifestyle mags, by using cult icons and by never discounting merchandise.

Going into other similar plays, True Religion (TRLG), Deckers Outdoors (DECK) and Tiffany (TIF) are great targets. All of these are expensive currently, with Tiffany being the only one still worth buying. I would like to see a deeper pullback and/or large insider buys to get into True Religion and Deckers. Unlike fine jewelry from Tiffany, there is also the question of being able to continue commanding premium prices for jeans and Ugg boots. Just as with any fad, they may fade away in a flash.

Retailers like Sharper Image (SHRP) and Restoration Hardware (RSTO) also fall into a niche/premium category. Both are turnaround candidates, though they both seem sick as ever.

Sharper Image especially seems to be in a mess of its own making. The stores are small and packed like a garage. The staff seem to be completely uninterested in responding to questions, and this is from personal experience at more than a handful of locations. What Sharper Image needs is larger stores, with elegant and organized displays, and staff who know about the stuff on sale, and are geniunely intereted in giving demos. If they don't realize that, somebody else will, and make a bid for them, though at this point such a bid will not be very rewarding to investors and will not reflect the long-term value in the company.

Restoration Hardware fares better when it comes to both displaying their wares and having friendly, with room for improvement, staff. But somehow they don't seem to be able to do much to get out from the slump. The housing slowdown will not help them either.

One particular product company that should follow the Oakley model of having its own stores is iRobot (IRBT). Selling through other channels just doesn't do justice to their growing range of products, especially since buying them needs convincing casual customers, and that needs friendly/enthusiastic/knowledgeable people. Did I mention that Sharper Image doesn't fit the bill ?

I would recommend all the three, Sharper Image (SHRP), Restoration Hardware (RSTO) and iRobot (IRBT), especially iRobot, to patient investors.

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Previous hit - 1-800 Contacts (#170)