Amer Q4 Profit Hurt by Steep Declines in Americas

By region, sales in the Americas fell 10.1% to €178.8 million ($235.8 mm). Sales grew 6.7% to €249.5 million ($329 million) in the EMEA region and gained 4.2% to €67 million ($88.4 million) in Asia Pacific. In local currencies, sales increased 6% in EMEA, were flat in Asia Pacific, and dropped 15% in the Americas.

Earnings before interest and taxes (EBIT) before non-recurring charges slumped 34% to €35.2 million ($46.4 mm). The earnings decline also reflects one-time product recall costs from Mavic and Atomic of €6 million. The year-ago period included €42.7 million ($61.9 mm) in restructuring costs that reduced net EBIT to €11 million ($15.9 mm).  Fourth quarter net earnings were €17.7 million ($23.3 mm) against €1.3 million ($1.9 mm) in Q4 last year after the restructuring charge.
Looking ahead, Amer expects 2009 earnings will improve with the help of savings of more than €20 million stemming from last year's restructuring of its winter sports equipment business. But top-line growth is being hampered by weak ordering patterns across retail.

“Even if sell-out from stores has remained on a relatively healthy level, many of our retail clients have taken a cautious approach and are destocking their inventories,” said Roger Talermo, president and CEO. “In some cases again, our clients have been postponing their ordering due to the tight credit conditions in the financial markets. All in all, in the environment we are in, our outlook is more uncertain than normally.”
In the Winter and Outdoor Segment, sales gained 7% in the quarter to €326.6 million ($430.7 mm), and climbed 5% in local currencies.  EBIT for the Winter and Outdoor segment climbed 4% to €36.7 million ($48.4 mm).

Sales of winter sports equipment grew 7% to €202.7 million ($267.4 mm) and gained 5% in local currencies. The recovery in winter sports equipment was “slower than expected in 2008” despite favorable weather conditions. Alpine Europe as a region and alpine boots as a product category grew in high-single-digits for the year, but continued weakness in the U.S. and the Nordic skiing markets depressed global sales.  Amer said, “Retailers’ attempts to reduce their own inventories decreased the amount of re-orders.”

Fourth quarter apparel and footwear revenues grew 13% to €67.9 million ($89.5 mm), up 18% in local currencies.  Growth in Salomon and Arc'teryx apparel and Salomon footwear sales continued in all key markets during the year.  Amer said the outdoor trend remained solid, and trail running as a category “continued to gain popularity.”
Sales of cycling increased 3% to €31.3 million ($41.3 mm) but were up only 1% in local currencies. Mavic's growth opportunities were impacted by supply chain issues.

Net sales of sports instruments were down 2% to €24.7 million ($32.6 mm) and dipped 3% in local currencies. Sales in 2008 do not include Ursuk, divested at the beginning of the year. The wristop category saw 20% growth in the full year but the market for diving equipment declined in 2008 as a result of the economic environment. 

Looking ahead, Amer said that despite an expected slowdown in retail sales, profitability in the Winter and Outdoor segment is expected to improve due to the winter sports equipment restructuring. In apparel and footwear, the strong order book and good sell-through of products should allow it to grow faster than its peers in the industry. The outlook for Mavic in 2009 is cautious, reflecting the uncertainty of bike manufacturers. Suunto’s sales are expected to grow, thanks to new channel entry and new product introductions.

In the Ball Sports segment, sales gained 3% in the quarter to €110 million ($145.1 mm) but were off 2% in local currencies. EBIT plunged 58% to €3.4 million ($4.5 mm) mainly due to inventory adjustments and low margin sales in the Team Sports business.

Team Sports net sales increased 11% in Q4 to €52.8 million ($69.6 mm) and gained 3% in local currencies. For the full year, key growth areas were bats, up 15%; soccer, 12%; and basketballs, up  8% for the year. Regional pushes have been implemented to expand share in Latin American soccer, European basketball and Asian baseball.

Racquet Sports rose 2% to €45.1 million ($59.5 mm) but were off 1% in local currencies. Amer established a Chinese infrastructure and an in-house tennis apparel strategy during the year to drive growth in the segment.

Golf sales declined 22% on both a net and local currency basis to €12.1 million ($16 mm). The decline mainly reflects the decision to license the golf business in Japan and exit underperforming business areas.  Amer said, “The golf market remained competitive. Retail distribution continued to consolidate and private label brands became more prevalent. Wilson gained momentum in the premium club category with a focused iron strategy.”

Looking to 2009, sales and profitability in Ball Sports are expected to be flat. Amer said, “Economic development in North America, in particular, remains a factor of uncertainty in the outlook.”

Fitness sales slumped 31% to €58.7 million ($77.4 mm) and were down 36% in local currencies. The segment showed an EBIT loss of $2.3 million ($3 mm), reflecting the sales declines.  Amer saw lower gross margins for the full year from a lower capacity utilization rate as well as increased raw material costs.  Besides weak consumer spending, Fitness has been hurt by a “a significant reduction” in the number of specialty dealers last year.

Amer said, “Demand for commercial equipment remained healthy until the late fall, after which the tight credit market made it more difficult for small customers to finance equipment investments. Furthermore, customers became concerned about the general economic outlook and consequently postponed their buying decisions.” 

During Q4, two rounds of layoffs eliminated 41 positions at Precor.  Amer said the short-term outlook for Precor “remains uncertain” as many customers are postponing their investments in new fitness equipment.

“We are ready to consider all necessary measures to achieve this. New programs have been started to significantly reduce working capital,” Talermo said. “These will bring results towards the end of the year. Furthermore, our capital expenditures will be lower than during the previous years. We are also continuing to cut expenses in most of our businesses in order to adjust our organization to the current market conditions. All in all, with our improving cash flow and other possible measures, I believe that our balance sheet will strengthen during the current year.”

 

Double-digit declines in the Americas region caused Amer Sports' Q4 sales to dip slightly to €495.3 million ($653.2 mm) versus €497.1 million ($720.0 mm) in the year-ago period.  Currency fluctuations added 3% to the sales figures for the priod.  Underlying profits fell in the fourth quarter as weakness in Fitness and Team Sports offset improving profitability in winter sports equipment.

 

By region, sales in the Americas fell 10.1% to €178.8 million ($235.8 mm). Sales grew 6.7% to €249.5 million ($329 million) in the EMEA region and gained 4.2% to €67 million ($88.4 million) in Asia Pacific. In local currencies, sales increased 6% in EMEA, were flat in Asia Pacific, and dropped 15% in the Americas.

 

Earnings before interest and taxes (EBIT) before non-recurring charges slumped 34% to €35.2 million ($46.4 mm). The earnings decline also reflects one-time product recall costs from Mavic and Atomic of €6 million. The year-ago period included €42.7 million ($61.9 mm) in restructuring costs that reduced net EBIT to €11 million ($15.9 mm).  Fourth quarter net earnings were €17.7 million ($23.3 mm) against €1.3 million ($1.9 mm) in Q4 last year after the restructuring charge.

 

 

Looking ahead, Amer expects 2009 earnings will improve with the help of savings of more than €20 million stemming from last year's restructuring of its winter sports equipment business. But top-line growth is being hampered by weak ordering patterns across retail.
“Even if sell-out from stores has remained on a relatively healthy level, many of our retail clients have taken a cautious approach and are destocking their inventories,” said Roger Talermo, president and CEO.

 

“In some cases again, our clients have been postponing their ordering due to the tight credit conditions in the financial markets. All in all, in the environment we are in, our outlook is more uncertain than normally.”

In the Winter and Outdoor Segment, sales gained 7% in the quarter to €326.6 million ($430.7 mm), and climbed 5% in local currencies.  EBIT for the Winter and Outdoor segment climbed 4% to €36.7 million ($48.4 mm).

 

Sales of winter sports equipment grew 7% to €202.7 million ($267.4 mm) and gained 5% in local currencies. The recovery in winter sports equipment was “slower than expected in 2008” despite favorable weather conditions. Alpine Europe as a region and alpine boots as a product category grew in high-single-digits for the year, but continued weakness in the U.S. and the Nordic skiing markets depressed global sales.  Amer said, “Retailers’ attempts to reduce their own inventories decreased the amount of re-orders.”

 

Fourth quarter apparel and footwear revenues grew 13% to €67.9 million ($89.5 mm), up 18% in local currencies.  Growth in Salomon and Arc'teryx apparel and Salomon footwear sales continued in all key markets during the year.  Amer said the outdoor trend remained solid, and trail running as a category “continued to gain popularity.”
Sales of cycling increased 3% to €31.3 million ($41.3 mm) but were up only 1% in local currencies. Mavic's growth opportunities were impacted by supply chain issues.

 

Net sales of sports instruments were down 2% to €24.7 million ($32.6 mm) and dipped 3% in local currencies. Sales in 2008 do not include Ursuk, divested at the beginning of the year. The wristop category saw 20% growth in the full year but the market for diving equipment declined in 2008 as a result of the economic environment. 

 

Looking ahead, Amer said that despite an expected slowdown in retail sales, profitability in the Winter and Outdoor segment is expected to improve due to the winter sports equipment restructuring. In apparel and footwear, the strong order book and good sell-through of products should allow it to grow faster than its peers in the industry. The outlook for Mavic in 2009 is cautious, reflecting the uncertainty of bike manufacturers. Suunto’s sales are expected to grow, thanks to new channel entry and new product introductions.

 

In the Ball Sports segment, sales gained 3% in the quarter to €110 million ($145.1 mm) but were off 2% in local currencies. EBIT plunged 58% to €3.4 million ($4.5 mm) mainly due to inventory adjustments and low margin sales in the Team Sports business.

 

Team Sports net sales increased 11% in Q4 to €52.8 million ($69.6 mm) and gained 3% in local currencies. For the full year, key growth areas were bats, up 15%; soccer, 12%; and basketballs, up  8% for the year. Regional pushes have been implemented to expand share in Latin American soccer, European basketball and Asian baseball.

 

Racquet Sports rose 2% to €45.1 million ($59.5 mm) but were off 1% in local currencies. Amer established a Chinese infrastructure and an in-house tennis apparel strategy during the year to drive growth in the segment.

 

Golf sales declined 22% on both a net and local currency basis to €12.1 million ($16 mm). The decline mainly reflects the decision to license the golf business in Japan and exit underperforming business areas.  Amer said, “The golf market remained competitive. Retail distribution continued to consolidate and private label brands became more prevalent. Wilson gained momentum in the premium club category with a focused iron strategy.”

 

Looking to 2009, sales and profitability in Ball Sports are expected to be flat. Amer said, “Economic development in North America, in particular, remains a factor of uncertainty in the outlook.”

 

Fitness sales slumped 31% to €58.7 million ($77.4 mm) and were down 36% in local currencies. The segment showed an EBIT loss of $2.3 million ($3 mm), reflecting the sales declines.  Amer saw lower gross margins for the full year from a lower capacity utilization rate as well as increased raw material costs.  Besides weak consumer spending, Fitness has been hurt by a “a significant reduction” in the number of specialty dealers last year.

 

Amer said, “Demand for commercial equipment remained healthy until the late fall, after which the tight credit market made it more difficult for small customers to finance equipment investments. Furthermore, customers became concerned about the general economic outlook and consequently postponed their buying decisions.” 

 

During Q4, two rounds of layoffs eliminated 41 positions at Precor.  Amer said the short-term outlook for Precor “remains uncertain” as many customers are postponing their investments in new fitness equipment.

 

“We are ready to consider all necessary measures to achieve this. New programs have been started to significantly reduce working capital,” Talermo said. “These will bring results towards the end of the year. Furthermore, our capital expenditures will be lower than during the previous years. We are also continuing to cut expenses in most of our businesses in order to adjust our organization to the current market conditions. All in all, with our improving cash flow and other possible measures, I believe that our balance sheet will strengthen during the current year.”