Amer Sports continues to focus heavily on the integration of Salomon and the restructuring of the French companys different manufacturing facilities. The company continues to be on-schedule with these initiatives, but there is still much work to be done.
Geographically, Amer sports sales for the first half in the Americas accounted for 54% of the total while Europe, the Middle East, and Africa (EMEA) accounted for 35%. Asia Pacific was 11%. Sales growth was strongest in the Americas, mainly due to exchange rate fluctuations, with an 11% increase in Euros and a 4% increase in local currencies. Sales grew 3% in EMEA in both local and reported currencies. Asia pacific sales increased 6% in reported currencies and local currencies.
In local currencies, Salomons sales rose by 6% for the quarter with the Americas generating 21% of net sales, EMEA 68%, and Asia Pacific 11%. Sales increased in all market areas. Profitability within the Salomon business improved, however the division is still posting a loss in the first half of the year due to the seasonality of the wintersports business.
Winter Sports Equipment sales accounted for 32% of the total with relatively flat sales during the quarter compared to last year. Sales in the division are seasonally low during the second quarter, but pre-season orders were said to be ahead of last year at this time.
Apparel and footwear saw the strongest growth for Salomon and accounted for 41% of the business. Currency neutral sales increased 11% due to strong results from outdoor footwear and softshells. ArcTeryx and Salomons order book for winter apparel was ahead of last year.
Mavic was also seeing strong results from the increased popularity of the Tour De France and good media exposure during the event. The Mavic brand accounted for 27% of the divisions sales. The highest sales growth was seen in basic rims. In July, Mavic signed a new five-year follow-up agreement with the Tour de France.
Amer has made progress with the plans for merging Atomic and Salomon in ski manufacturing. Amer Sports estimates that it will gradually achieve annual cost-savings of over 40 million by the end of 2008. The social plan negotiations initiated in December at the Salomon French facilities were concluded and a total of 370 positions were cut.
Atomics net sales declined 16% in local currencies. Year-to-date sales declined by 25% in the Americas and 16% in EMEA, but grew by 22% in Asia Pacific. The distribution of Asics products ended in Austria, negatively impacting net sales by 7.2 million. Excluding the effect of Asics, net sales would have risen by 7% for the year. The divisions net loss expanded as it ramps up to deliver product for winter. Pre-season orders of alpine ski boots and cross country equipment are up, while snowboarding, alpine skis, and bindings are flat to last year.
Suunto seems to have recovered from a flat sales period in earlier quarters and reported an 11% increase in currency neutral sales for the second quarter, bringing year-to-date sales up to the same level as last year. Year-to-date sales declined by 14% in the Americas, but rose by 11% in EMEA and by 12% in Asia Pacific. Earnings were up substantially due to a one time item that impacted the bottom line in 2005. Sales of Suuntos diving instruments increased 11% year-to-date. Diving instruments and wristop computers accounted for a total of 69% of Suuntos net sales compared to 62% last year.
The companys Wilson division saw currency neutral sales increase 4% for the second quarter. The largest down-side for Amer was the Golf Division. Currency neutral sales decreased 14%, well short of internal expectations. 67% of Wilson net sales were generated in the Americas, 20% in EMEA, and 13% in Asia Pacific. Sales growth was 1% in the Americas and 2% in EMEA. In Asia Pacific, sales were down 9%. The decline was affected by the lower sales of racket sports products and golf products in Japan.
Golf sales declined to 22% of the total, while team sports increased to 38% and Racquet sports sales made up 40%. The decline in golf sales was cause by a new distribution strategy focusing on major accounts. The Racquet Sports Division saw strong sales of apparel and footwear. Team sports had strong sales across all major product lines. Both team sports and racquet sports saw double-digit growth during the second quarter.
The fitness equipment market remained strong for Amer Sports with Precors currency neutral sales increasing 10% for the quarter. The Americas generated 80% of Precors sales, while EMEA contributed 14% and Asia Pacific 6%. Year-to-date sales were up 14% in the Americas and 13% in EMEA, while Asia Pacific was flat. Earnings in the division rose substantially due to sales growth and better margins.
Demand for entertainment systems from fitness clubs is reportedly on the rise in all market areas. Fitness by Precor facilities will be launched in North America at Hilton, Doubletree, and Embassy Suites Hotels and the Waldorf-Astoria in NYC. Installation will be finished between 2007 and 2009, depending on the age of the current fitness facilities.
Amer management is predicting that that the demand for sports equipment will continue in the back half of the year. In 2006 net sales are expected to be 1.8 billion compared to pro-forma net sales of 1.7 billion last year. Earnings per share in 2006 are expected to come in at 0.95 to 1.05. Management also emphasized that 2006 will be a transitional year for Salomon and substantial earnings improvements are expected in 2007 and 2008.
|Second Quarter Pro Forma Results|
|(in $ millionsa)||2006a||2005a||Changeb||Local Chgc|