Descente Ltd. upped its profit outlook for fiscal 2016 after reporting the weak yen and a rebound in South Korea easily offset big declines in North America and Europe.
The Japanese sportswear company reported net sales reached ¥64.9 billion ($532 million) in the six months ended Sept. 30, up 13.7 percent from the same period in 2014. Gross margin slid 790 basis points to 47.5 percent, while SG&A rose 150 basis points to 49.5 percent. Still, operating income rose 38.5 percent to ¥5.08 billion ($42 million), ordinary income rose 34.5 percent to ¥5.26 billion ($43 million) and net profit attributable to shareholders rose 34.1 percent to ¥3.72 billion ($31 million).
Descente acquired 80 percent of the running gear brand Inov-8 in August in a bid to boost sales outside of Asia, where it designs, sources and distributes cycling, golf, outdoor, racquet, snow sports and volleyball gear under more than a dozen brands. It's licensed brands include Cutter & Buck, Le Coq Sportif, Marmot, Munsingwear and Umbro.
Descente's operating income in its native Japan nearly tripled to ¥783 million ($6.4 million) despite essentially flat sales of ¥27.2 billion ($223 million) thanks to a drop in product returns, which had spiked in the year earlier period in the wake of an increase in the country's sales tax. Sales of Descente and Le Coq Sportif brands were steady, while Cutter and Buck golf wear struggled and sales of Umbro declined. Marmot outdoor apparel also sold well.
In the rest of Asia, sales increased 26.6 percent to ¥37.7 billion ($309 million), lead by South Korea where Descente golf and outdoor collections, including a new training shoe, sold well. Le Coq Sportif also drove growth in South Korea, while Arena performed well in China and Le Coq Sportif in Hong Kong. Asian profits increased 34.3 percent to ¥4.54 million ($37 million).
In North America, where the company derived its revenue primarily from selling Descente ski wear to high-end specialty shops, losses rose 5.3 percent to ¥180 million (-$2 million) on ¥11 billion ($90 million) in sales, down from ¥60 million in the first half of fiscal 2015. Sales to Europe and the rest of the world declined 8.7 percent to ¥605 million ($5 million).
On a category basis, sales of Athletic Wear and related products increased 16.3 percent to ¥43.9 billion ($360 million) or 67.6 percent of sales, while sales of Golf gear rose 5.4 percent to ¥17.2 million ($141 million) and sales of Outdoor gear reached ¥3.78 billion ($31 million), up 26.0 percent from the first half of 2015.
Descente ended the quarter with cash and cash equivalents of ¥23.7 billion, up 22.8 percent and inventory valued at ¥22.5 billion, up 15.4 percent compared with Sept. 30, 2014.
While Descente still expects net sales for the fiscal year ending March 31, 2016 to grow by about 12 percent, it upped its forecast for operating income by 5 percent to ¥10.5 billion. Ordinary income and net income are now expected to reach ¥11.0 billion and ¥7.60 billion, up 4.8 and 4.1 percent respectively from its previous forecast.
