Amer Sports fourth quarter was impacted by challenging conditions in the sporting goods market throughout 2009 as well as weak global economic conditions and uncertainty about the financial markets performance.

 

The U.S. market was negatively impacted more so than the European market and, in general, there was less demand for high-ticket items. For Amer Sports this meant large sales declines in the Fitness and Golf businesses. On the other hand, the demand for low-ticket items remained relatively healthy, and some categories even saw clear growth, such as Salomon’s footwear business.


As a result of the slow sales environment, Amer Sports top line sales declined 2.5% to €482.8 million ($713 mm) in Q4 compared to €495.3 million ($653 mm) for the fourth quarter of 2008. On a currency-neutral basis, sales were actually up 1.0%. Despite declining sales, Amer was still able to more than double net earnings to €36.6 million ($54 mm) compared to €17.7 million ($23 mm) in Q4 last year. The improvement is due to higher sales and better profitability within Amers Winter Sports segment.


Amers key priority in 2009 was to strengthen the balance sheet, and the company was able to exceed its own plans due to a working capital reduction program across the entire organization. During the year, Amer re-established a strong balance sheet and reduced debt considerably.
The biggest improvement projects for the 2009 fiscal year were the roll-out of the global IT platform, which had a price tag of €10.0 million and Precor’s new strength equipment facility in North Carolina, which cost €4.5 million. Another €52.0 million was invested in research and development, representing 3.4% of net sales. Winter and Outdoor’s share of R&D expenditure was 62%, while Ball Sports accounted for 12%, and Fitness for 26% of the total.


Winter & Outdoor sales increased 0.8% to €329.2 million ($486 mm) compared to €326.6 million ($431 mm) in the fourth quarter of prior year. On a currency-neutral basis, Winter & Outdoor sales increased 3.0%. The Winter Sports division was the only division to show an revenue increase in euro terms, while the Cycling division was the only segment to show a decline in currency-neutral terms. The Winter & Outdoors segments profitability was boosted by strong results in Winter Sports Equipment and the continued solid level of profitability in apparel and footwear. The profitability of both cycling and sports instruments weakened mainly due to lower sales.


Winter Sports Equipment sales were up 3.6% to €203.7 million ($301 mm) in Q4 compared to €196.7 million ($259 mm) in the prior-year quarter. On a currency-neutral basis, sales were up 6.0% for the period.  Industry sales were relatively stable as a whole, but sales showed very different patterns in  key markets during 2009. According to Amer, the alpine and Nordic countries started to show signs of recovery with favorable weather conditions. The North American market continued to weaken whereas the Asian market was flat.
After significant restructuring in 2008, 2009 was the first year for Amers Winter Sports Equipment business operating under its new structure.


Winter Sports Equipment completed its consolidation from 10 manufacturing sites to six at the beginning of the year. In addition, the integration of a Bulgarian ski factory, which was acquired in 2008, proceeded according to plan. The Winter Sports Equipment business area produced a positive result after a very challenging period in 2008.


Apparel & Footwear division sales in the Winter & Outdoor segment were down 0.1% in Q4 despite strong sales of Salomon footwear. The divisions sales were €73.8 million ($109 mm) compared to €73.9 million ($98 mm) for the same prior-year period. On a currency-neutral basis, sales were up 2.0% for the quarter.


Salomon strengthened its global position in the outdoor footwear market in 2009 due to growth in trail running footwear and the brands new hiking-backpacking offer, especially in Europe. Ski apparel also continued to grow. Amers apparel and footwear business is weighted toward the winter season. However, the outdoor and trail-running spring/summer collections have continued as the fastest growing categories.         


Despite a tough U.S. environment and high exposure in the U.S. market, Arcteryx increased its sales mainly due to a successful Spring/Summer collection. Even though the U.S. was the toughest market in 2009, Amer Sports estimates that its apparel and footwear business market share increased domestically. The outdoor trend remained strong and trail running as a category continued to gain popularity. The division’s profitability was maintained in 2009.


Cycling Products sales declined 13.4% to €27.1 million ($40 mm) in Q4 compared to €31.3 million ($41 mm) for the fourth quarter of 2008. Earlier in 2009, Amer announced its intent to sell the Mavic business, which is the only brand in its cycling division, but it later decided to hold on to the brand. On a currency-neutral basis, sales declined 12.0%. Due to the challenging business climate in 2009, both independent bike dealers and bike manufacturers  reduced their inventories during the year.

 

This resulted in a major fall in OEM orders for the Mavic brand and weak demand in the U.S. in particular.
Sports Instruments sales in the Winter & Outdoor division slipped 0.4% to €24.6 million ($36 mm) compared to €24.7 million ($33 mm). On a currency-neutral basis sales were up 4.0%.  In 2009, Suunto entered the premium sports watch market with the Suunto Elementum collection.


The Winter and Outdoor segment is well positioned to continue to improve its profitability. The Apparel and Footwear business area continues to extend its direct-to-consumer program and its profitability is expected to remain at a good level. Within Winter Sports Equipment, Cycling and Sports Instruments is focusing on improving gross margins while maintaining tight cost control.


Ball Sports, which is comprised of the Wilson Sports business, saw sales heavily impacted by the struggling economy. Sales declined 8.0% in local currency terms to $139.9 million, compared to $145.1 million in the same period last year. Profitability also suffered as a result of revenue declines and lower margins driven by the recessionary environment. The Americas and the Golf business area were impacted in particular. The 2009 revenue declines were also affected by the inventory reduction trend in retail.


Racquet Sports net sales fell in local currency terms by 5.0% to $60.4 million compared to $59.5 million. The division saw a decline in the Americas that was driven by the poor economic environment. This was partially offset by growth in Asia Pacific which came from a positive development in both Australia and Korea combined with the expanded distribution in China. Racquet Sports profitability remained at a good level.


For 2009, market trends remained stable for Racquet Sports. The biggest product categories were tennis rackets, representing 40% of net sales, and tennis balls 22%.


Team Sports net sales fell in local currency terms by 6% to $64.4 million compared to $$69.6 million in the same quarter last year. Team Sports profitability weakened due to revenue declines and lower margins driven by the recessionary environment. The business environment in the Americas remained challenging due to the economic downturn and the inventory reduction trend by the trade. Growth in Asia Pacific was driven by Korea, where the baseball strategies have been successful.


The Golf division net sales fell in local currency terms by 16% to $15.1 million compared to $16.0 million last year. The golf equipment market remained very competitive. The overall market decline created a challenge for brands and retailers alike. Wilson Golf’s profitability was affected by the challenging market environment. Wilson Golf’s strategy going forward is to focus on the iron category.


In 2010, a slight recovery is expected in the Ball Sports segment, driven by retail distribution gains and assumed restocking due to low trade inventory levels. Ball Sports segment profitability is expected to improve mainly due to gross margin improvements and tight cost controls.

Fitness segment sales, which is comprised entirely of the Precor business, were also impacted by the economy, but not as dramatically as Ball Sports. Fitness equipment manufacturers worldwide experienced significant reductions in sales in both the commercial and consumer markets during 2009. Precor brand sales increased 0.3% to €58.9 million ($87 mm) compared to €58.7 million ($77 mm) in the same period last year.


The consumer (home use) market experienced a second year of decline with the premium segment, where Precor competes particularly, exposed to the broader trend of reduced discretionary spending. Financial weakness among specialty fitness dealers, the primary distribution channel for premium home equipment, magnified market challenges.  The second dependable driver of sales in the division was commercial equipment sales tied to the opening of new facilities.

 

Tightened credit markets caused fitness facilities to cancel expansion plans in 2009, but commercial business saw a slight improvement in Q4 as club operators increased their investments in new and replacement equipment.  In the near-term the outlook for the fitness industry is uncertain, according to Amer. As 2009 progressed sales became more predictable and Precor returned to growth in the fourth quarter.
Looking ahead at the prospects for the entire business in 2010, Amer Sports does not anticipate a quick recovery in the sporting goods market, and therefore the company’s key priority is to improve its profitability through gross margin improvements and continued tight cost controls.