In a hastily arranged conference call with analysts last week, executives at Huffy Corporation lowered their guidance for the fiscal fourth quarter based on lagging November and flat October sales.
The company now expects sales for Q4 will be in the range of $120.0 million to $125.0 million, down 1% to 5% compared to last years Q4 sales of $126.1 million. The previous forecast was for sales to be in the $130 to $140 million range. Net income is now expected to be in the 18 cents to 20 cents per share range, down from the previously stated 44 cents to 48 cents.
HUF now sees full year earnings from continuing operations to be from 8 cents to 10 cents per share on sales between $438 million to $443 million, an increase of 17% to 18% over last years net sales of $372.9 million. The company saw EPS of 38 cents last year.
Huffy sees 2004 sales in the $450 million to $460 million range with earnings in the range of 22 cents to 27 cents per common share.
HUF shares were down 22.8% last week — and off 34% from their 52-week high — to close at $5.27 on Friday.
Don Graber, Huffy chairman and CEO, said that the shortfalls were due to slow sales in the in-line skate, backboard, opportunity, and action sports divisions. The slower sales were due in part to a trend towards lower price-points. Graber said, “We are seeing an order pattern toward lower price and lower margin products Hopefully, as we move into 2004, the consumer will start to shop more for mid and high price point.”
In speaking on each issue individually, Graber stated that the backboard business slowdown was a, “category issue. We havent lost any market share retailers are not supporting the business with as many promotions as they have in the past.” Graber said that Huffy expected weakness in the in-line skate category, but “the actual sales levels are even softer than we anticipated.”
The opportunity business did not perform to expectation either. Industry analysts see expect that better inventory management industry-wide could dry up the opportunities for the Gen-X close-out business, a position disputed by Graber. “There is stuff out there; we are closing more deals,” he said.
He indicated the problem occurred when “we lost focus on that business a little bit earlier in the year.” He indicated that October sales were slow but that they were improving through November and the forecasts for December and Q1 are strong. He said the opportunity business now has positive momentum “at the moment”.
Graber said the issues with Gen-X have been with “processes, practices, and systems” addingd that Gen-X added staff to “support expected sales,” but the “sales have not materialized”, pushing sales expenses higher.
“Clearly we are addressing that,” he said.
Operations on the cycling side of Huffy are gaining some benefit from the Gen-X acquisition, which took place in June of 2002. Paul DAloia, COO of Huffy, said, “We have now consolidated our purchasing team into one centralized team for the bicycling and Gen-X product branded side.”
On the issue of inventory, the only division with any excess was in-line skates. Graber pointed to the cycling and backboard divisions as “doing a great job with inventory.” The fire at the Sisco snowboard plant did, “inhibit us from having the amount of snowboards we would have liked earlier in the season,” but Graber went on to say that the business was strong, and Huffy sees some upside from snowboards in December.
The company said they were not in default on any of their loan covenants.
And Sells Volant to Atomic
Huffy also announced that they have sold the Volant ski division to Amer groups Atomic ski division. The terms of the deal were not disclosed. It is expected that HUF will show the benefits in Q4 of 2003, and all proceeds are going toward the reduction of debt.
Don Graber said, “Volant requires specialty ski distribution and a dedicated technical sales and marketing support ski team. Volant does not align itself well with Huffy's strategic category and distribution strategies.” He went on to say in a conference call that Huffy is focused on big box distribution.
Atomic, which has manufactured Volant skis for Huffy in Altenmark, Austria on an OEM basis for the past two years, has acquired not only the brand, but also several patents and technologies that were previously exclusive to Volant.
Atomics President, Dr. Michael Schineis said, “The Volant brand will strengthen our position as a leading ski manufacturer especially in USA and Canada but also in other high-end markets like Switzerland.”
SEW spoke with Atomic USAs VP of Marketing, Matt Miller, who said, “I think the brand has been bounced around, and somewhat ignored We are going to a limited and exclusive distribution with a small number of strong partners. We dont think this will cannibalize our distribution.”
He went on to say that the only personnel coming with the acquisition is the VP of sales, Schultz Greenberg, and the rep force. Everyone else is staying with Gen-X. All aspects of the brands will be separated reps, marketing, and customer service, but warehousing and shipping will be consolidated.
>>> Thats a lot of people to leave behind in a division that has too many to start with
