Amer Sports dispelled any concerns regarding transparency last week when management decided to include pro-forma Salomon results in last years numbers to provide a better apples-to-apples comparison for the total business performance. No doubt, comparisons to the heavy operating losses in the division last year helped show more upside to the bottom line this year. The company seems to be on-track to restructure the Salomon business by 2007, and appeared pleased with relatively strong first quarter results at the newly acquired division. Amer is also making progress in efforts to consolidate equipment and apparel sourcing infrastructures. It recently established a new subsidiary in Hong Kong as well as a new mainland China counterpart to handle sourcing and supply chain efficiencies and provide better risk management.
While Salomon contributed over 16 million ($19 mm) to the consolidated top-line growth, it was a major detractor to Amers bottom line. Without the Salomon business, Amer would have seen sales increase 5.9% to 294 million ($353.6 mm) and EBIT out-pace this by nearly a two-to-one margin, climbing 11.6% to 24.0 million ($28.9 mm). However, in spite of the considerable operating losses at Salomon, Amer has been able to make considerable improvement in the divisions EBIT in the short time since the acquisition. Within the Salomon business, all of the divisions seem to be gaining momentum with double-digit growth rates across the board. In fact, Amer management called out Salomon as its top Q1 performer.
Salomons business is typically stronger during the back half of the year and the company has historically posted EBIT losses during the first two quarters. Overall sales in the Salomon business unit increased 15% in and 12% in constant currency terms. Management said that the three-year turn-around plan designed to enhance the profitability of the segment is progressing in-line with expectations and the effects should be visible in 2007. In addition, the synergies between Salomons Winter Sports business and Atomic are progressing according to plan. Amer management described 2006 as a “turn-around year” for Salomon.
Salomon Apparel and Footwear sales jumped 17% to 50.8 million when measured in Euros and 12% in constant currency terms. Again favorable winter conditions late in the season helped to drive sales along with “ArcTeryx robust apparel offering.”
Mavic bicycle components sales increased 15% when reported in Euros to 29.1 million, or 13% in constant currency terms.
Sales of Salomon Winter Sports product increased 13% to 43.4 million when measured in Euros and 12% in constant currency terms. The primary driver of the category was cross country ski equipment coupled with favorable late-season conditions. Management said that they expect sales of Winter Sports equipment and apparel to grow in 2006, but provided no further details.
Atomic sales declined 11% in reported Euros and 13% in local currencies. Sales declined 13% in the Americas, 12% in EMEA (Europe, Middle East & Africa), and 26% in Asia. Part of the decline was due to the cancellation of Atomics Austrian distribution agreement with Asics. Excluding this impact, sales would have risen 8%. Management said that Atomic has shown strong pre-season performance to date.
Suunto sales fell 4% in Euros and declined 9% in local currencies. In the Americas, sales fell 19% while EMEA sales fell 3%. Asia Pacific sales increased 5%. The sales declines were primarily caused by a weaker market for diving suits and watersports apparel. The wrist-top computer market was said to be developing favorably, but the company was again plagued by a lack of Printed Circuit Boards due to a fire at their suppliers factory late last year. The unavailability of this key component caused deliveries to be delayed or cancelled during Q1. The problem should be fixed in Q2.
Wilson reported a 3% increase in sales when reported in Euros, but sales fell 3% in constant-currency terms primarily due to a 22% decline in Wilson Golf sales to 37.2 million. In local currencies, Wilson Golf sales fell 26%. Management said that golf sales fell short of objectives and this reduced earnings for the entire Wilson division by 7%. In December, the golf division was realigned to increase efficiency and lower costs, a move that is not yet visible in the results.
Strong performance in Wilsons Team Sports segment was able to partially offset the declining golf business. Team Sports reported an 18% sales increase to 75.3 million and an 8% increase in constant currency terms. Sales were primarily led by baseball equipment.
Racquet Sports sales increased 8% to 65.8 million compared to 61 million last year. In constant currency terms, sales increased 2%.
Precor sales increased 24% in reported Euro terms and 15% in constant currency terms. 82% of Precors sales were generated in the Americas with 12% from EMEA and 6% from Asia Pacific. Precors strategy to become a one-stop-shop and “deliver total product” to fitness clubs is gaining traction. The brand managed to out-perform overall market growth in sales to fitness clubs and is also seeing some positive momentum behind the demand for in-home elliptical trainers. The double-digit top-line growth more than double the divisions EBIT.
Amer is predicting that the momentum behind sales for sporting goods equipment will increase in 2006, driving the companys net sales up 4% to 1.80 billion, compared to 1.73 billion last year. EPS should be in the range of 90 Euro cents to 1.05 compared to EPS of 87 euro cents in 2005. The company also stated that substantial earnings improvements are expected in 2007 and 2008.
| Amer Sports | ||||
| First Quarter Pro Forma Results | ||||
| (in $ millionsa) | 2006a | 2005a | Changeb | Local Chgc |
| Group Sales | $501.9 | $505.3 | 8.4% | 3% |
| Americas | $265.0 | $255.1 | 13.4% | 3% |
| EMEA | $189.8 | $203.8 | 1.6% | 1% |
| Asia Pacific | $47.1 | $46.3 | 11.0% | 9% |
| Wilson | $214.4 | $226.1 | 3.5% | -3% |
| Salomon | $148.3 | $140.7 | 15.0% | 12% |
| Precor | $87.7 | $77.4 | 23.6% | 15% |
| Atomic | $28.5 | $34.8 | -10.6% | -13% |
| Suunto | $23.1 | $26.2 | -4.0% | -9% |
| Net Income | ($2.9) | ($6.6) | 52.0% | n/a |
| Diluted EPS | (36¢) | (92¢) | 57.1% | n/a |
| Inventoryd | ||||
