Amer Sports’ Q1 Boosted By DTC, China And Arc’teryx

Amer Sports’ operating earnings before charges rose 14 percent in the first quarter, boosted by robust growth across the company’s DTC channels and in China, as well as strong momentum for Arc’teryx, Precor and Sunto.

The gains came despite strong currency headwinds and sluggishness in footwear due to efforts to rationalize distribution for the Salomon brand as well as a flattish performance by Wilson.

In the quarter ended March 31, sales declined 6.1 percent to €623.8 million ($755 mm) but grew 1 percent on a currency-neutral basis. Companywide, direct-to-consumer (DTC) sales grew 17 percent  to €57 million ($69 mm) in sales. Owned retailer sales were up 16 percent with same-store sales ahead 8 percent; e-commerce sales grew 22 percent.

On a conference call with analysts, Amer Sports’ officials also pointed to its expansion in “modern sales channels” to 30 percent of sales as a contributor to its solid performance.

EBIT excluding non-recurring items expanded 13.8 percent to €40.4 million ($48.9 mm) from €35.5 million a year ago.

 “Following a year of significant transformation and restructuring, our focus in the quarter was on solidifying our margins through more attractive mix, higher quality distribution through sharper segmentation and reduced number of doors, and reduction of promotional sales especially in Footwear,” said Heikki Takala, president and CEO. “ As result, our margins and profit improved, and we can now focus on driving a more sustainable topline with a good pipeline of initiatives.”

Takala added, “The market continues to evolve rapidly, and we are embracing the changes proactively and with encouraging results. Whilst we make good progress and continue to accelerate in most areas, we also have more work to do to address the remaining areas of underperformance. As always, we maintain a long-term view guided by our sustainable growth model.”

Regionally, sales in the quarter were led by a 9 percent gain on a currency-neutral basis in Asia Pacific to €95.9 million ($116.0 mm). Reported revenues eased 0.1 percent. The gains were led by an increase in sales in China by 20 percent to €37.7 million ($45.6 mm), primarily driven by Arc’teryx

In the Americas, sales were down 1 percent on a currency-neutral basis to €244.3 million ($295.6 mm). Reported revenues were down 13.4 percent. In the EMEA region, sales were €283.6 million ($343.1 mm), up 1 percent on a currency-neutral basis and down 0.9 percent on a reported basis.

EBIT increased to €40.4 million ($48.9 mm) from €28.8 million. Increased sales in local currencies had a positive impact of approximately €3 million on EBIT while increased gross margin had a positive impact of approximately €16 million on EBIT. Operating expenses increased by approximately €3 million. Currencies and other income and expenses had a negative impact of approximately €11 million on EBIT. The year-ago period included a €6.7 million charge for a cost restructuring program initiated in August 2016.

The earnings gain was helped by an improvement in gross margin to 46.8 percent from 44.7 percent, driven by improvement in channel mix and higher share of full-price sales.

Also helping was a reduction in selling and marketing expenses to 28.3 percent of sales from 29.4 percent. R&D expenses were reduced 3.7 percent of sales from 4.0 percent while administrative and other expenses expanded to 8.6 percent from 7.4 percent.

Net earnings rose 40.5 percent to €24.6 million ($29.8 mm) from €17.5 million a year ago.

Among its major segments, Outdoor sales declined 3.4 percent to €381.2 million but grew 2 percent on a currency-neutral basis. Amer Sports said owned retail and e-commerce continued to perform well in the Outdoor segment.

Among specific categories, Footwear sales declined 5 percent on a currency-neutral basis to €141.1 million and were down 8.9 percent on a reported basis. The Footwear business continued to be impacted by the consolidation of Salomon’s global distribution footprint with a focus on reducing promotional sales.

Apparel sales grew 3 percent on a currency-neutral basis to €119.3 million, driven by Arc’teryx. Reported revenues were off 4.3 percent.

Winter Sports Equipment revenues (Atomic, Armada Skis) jumped 16 percent on a currency-neutral basis to €59.5 million in what’s a seasonally-small quarter for the category. Reported sales improved 12.1 percent.

Cycling revenues (Mavic, ENVE Composites) were down 15.1 percent to €32.1 million and gave back 12 percent on a currency-neutral basis, adversely impacted by lower OEM orders.

In Sports Instruments (Suunto, Sports Tracker), sales jumped 26 percent on a currency-neutral basis to €29.2 million. Reported revenues added 20.2 percent.

By region, the strongest growth for the Outdoor segment was seen in Asia Pacific, climbing 17 percent on a currency-neutral basis to €66.3 million and gaining 8.0 percent on a reported basis. The gains continued to be driven by China.

In the Americas, sales were down 6 percent on a currency-neutral basis to €83.3 million. In the Americas, U.S. grew single-digit whereas Latin America declined due to seasonal volatility. Reported sales in the Americas dropped 16.6 percent.

In the company’s largest market, EMEA, sales were up 1 percent on a currency-neutral basis to €231.6 million. Reported sales were down 0.8 percent.

EBIT before non-recurring items in the Outdoor segment grew 25.6 percent to €33.7 million. Increased sales in local currencies had a positive impact of approximately €3 million while increased gross margin had a positive impact of approximately €14 million on EBIT. Operating expenses increased by approximately €2 million. Other income and expenses and currencies had a negative impact of €8 million on EBIT.

In the Ball Sports segment (Wilson, DeMarini, Louisville Slugger), sales eased 1 percent on a currency-neutral basis to €164.2 million. Reported sales were down 11.2 percent.

Individual Ball Sports sales were down 4 percent on a currency-neutral basis to €77.8 million and gave back 11.1 percent on a reported basis. Team Sports sales grew 1 percent on a currency-neutral basis to €86.4 while dropping 11.4 percent on a reported basis.

By region, sales in the Americas for the Ball Sports segment were flat on a currency-neutral basis at €110.6 million and down 13.2 percent on a reported basis. EMEA sales slipped 1 percent on a currency-neutral basis to €35.6 million and gave back 2.2 percent on a reported basis. In the Asia Pacific zone, sales dropped 6 percent on a currency-neutral basis to €18.0 million and were down 15.1 percent on a reported basis.

Ball Sports’ EBIT declined 5.7 percent to €14.9 million. Decreased sales in local currencies had a negative impact of approximately €1 million and increased gross margin a positive impact of approximately €2 million on EBIT. Other income and expenses and currencies had a negative impact of approximately €2 million on EBIT.

In the Fitness segment (Precor), sales on a currency-neutral basis grew 4 percent to €78.4 million, driven by the Americas region. Reported sales dropped 7.2 percent.

By region for the Fitness segment, sales in the Americas expanded 6 percent on a currency-neutral basis to €50.4 million while sliding 8.2 percent on a reported basis. Sales in the EMEA region grew 2 percent currency-neutral to €16.4 million and were flat on a reported basis. Sales in the Asia Pacific sunk 4 percent on a currency-neutral basis to €11.6 million but grew 12.1 percent on a reported basis.

EBIT for the Fitness segment eroded to €100,000 from €700,000. Increased sales in local currencies had a positive impact of approximately €1 million on EBIT. Operating expenses increased by approximately €1 million. Other income and expenses and currencies had a negative impact of approximately €1 million on EBIT.

For 2018, Amer Sports’ net sales in local currencies, as well as EBIT excluding non-recurring items, are expected to increase from 2017. Due to ongoing wholesale market uncertainties, the quarterly growth and improvement are expected to be uneven. The company will prioritize sustainable, profitable growth, focusing on the company’s five strategic priorities (Apparel and Footwear, Direct to Consumer, China, US, and Connected Devices and Services) while continuing its consumer-led transformation.

Photo courtesy Arc’teryx