Fila Holdings Corp.’s earnings were down in the third quarter on lower margins. Sales grew modestly as declines for the Fila brand, including a sharp drop in the U.S., were offset by healthy gains for Acushnet, the parent of Titleist and Footjoy. Fila raised its sales outlook for the year but lowered its earnings guidance.

In the quarter ended September 30, sales rose 16.4 percent (2.6 percent on a currency-neutral basis) to Korean won 1,079,544 million ($815 mm) against KRW 927,065 million a year ago.

Sales of the Fila brand were up 1.4 percent (down 5.7 percent on a currency-neutral basis) to KRW 325,709 million from KRW 321,194 million.

Acushnet sales rose 24.4 percent (7.0 percent on a currency-neutral basis) to KRW 753,836 million from KRW 605,871 million. Fila Holdings owns a 50.9 percent stake in Acushnet.

Gross margins were down 80 basis points to 48.1 percent for 48.9 percent. Operating income was up 10.4 percent (down 6.2 percent on a currency-neutral basis) to KRW 121,804 million from KRW 110,311 million a year ago.

SG&A expense rose 16.1 percent in the third quarter on a reported basis (2.4 percent on a currency-neutral basis) although SG&A as a percent of sales was flat at 36.9 percent.

Fila brand’s operating income fell 54.6 percent (down 65.5 on a currency-neutral basis) to KRW 22,711 million from KRW 50,026 million. Acushnet’s operating profits were up 64.4 percent (43.0 percent on a currency-neutral basis) to KRW 99,092 million from KRW 60,264 million.

Net income grew 23.6 percent (3.7 percent on a currency-neutral basis) to KRW 93,846 million from KRW 75,924 million.

Fila USA’s were KRW 122,441 million, down 20.4 on a reported basis and 31.9 percent on a currency-neutral basis. Gross margin eroded to 22.7 percent from 30.5 percent a year ago. Operating profit was a loss of KRW 15,324 million against earnings of KRW 11,502 million a year ago. Net income was a loss of KRW 10,742 million against earnings of KRW 8,715 million a year ago.

Fila Korea segment sales were KRW 118,436 million against KRW 113,268 million, down 4.6 percent. Gross margin eroded to 53.8 percent from 59.1 percent a year ago. Operating profits improved to KRW 20,211 million compared to KRW 19,752 million, up 2.3 percent. Net income came to KRW 13,969 million against KRW 13,217 million, up 5 percent.

In the Acushnet segment, sales in U.S. dollars were up 7.0 percent to $558.2 million.

Operating profits jumped 44.8 percent to $76.0 million while net income was up 33.6 percent to $53.3 million. Adjusted EBITDA advanced 23.2 percent to $86.5 million.

Updated Outlook

  • Sales are expected to increase in the range of 5 percent to 10 percent (prior, negative 2 percent to plus 2 percent). Operating profits are expected to be down 10 percent to 5 percent (prior, negative 2 percent to positive 2 percent).
  • Fila USA’s sales are expected to be down 25 percent to 20 percent (same as previous guidance). Operating loss is expected to be between KRW 60 million and KRW 55 million (prior, KRW 45 billion to KRW 40 billion).
  • Fila Korea sales, excluding its design business (DSF), are expected to be down in the range of 8 percent to 3 percent (no change). Operating profit is expected to be in the range of negative KRW 50 million to negative KRW 45 million (prior, KRW 40 million to KRW 35 million).
  • Fila Korea sales, including the design business (DSF), are expected to be down 10 percent to 6 percent (no change). Operating profit was in the range of negative KRW 10 billion to negative KRW 4 billion (no change).
  • Global royalties are now expected to be in the range of 10 percent to 15 percent (prior, up 5 percent to 10 percent).
  • Acushnet sales are now expected to be up 4.2 percent at the midpoint (prior, up 3.6 percent at the midpoint). Operating earnings are expected to be 0.5 percent at the midpoint (prior, 2.0 percent at the midpoint).

Photo courtesy Fila