Amer Sports said earnings declined in the first quarter as solid sales gains and steady gross margin were more than offset by the negative impacts of currency exchange rates, particularly in Russia, where the ruble dropped in the wake of the Ukrainian crisis.
The Finnish company reported net sales increased 6 percent in currency-neutral (c-n) terms to €501.5 million ($687mm) in the quarter ended March 31, when gross margins edged up 10 basis points to 44.3 percent. Earnings before income taxes (EBIT), however, declined to €20.6 million ($28mm) from €26.4 million due to the negative impact of currency exchange rates, including an 8 percent decline in the value of the Russian ruble against the euro.
Amer Sports, which owns the Salomon, Wilson, Atomic, Arc'teryx, Mavic, Suunto and Precor brands, reported earnings per share of .07 euros, compared with .13 euros in the first quarter of 2013.
“We delivered a good start for the year with a solid 6 percent growth and slightly improved gross margin, driven by broad-based double-digit growth in several of our strategic growth areas,” said Amer Sports President and CEO Heikki Takala. “During the quarter we also faced quite some challenges, including a mild winter which impacted adversely especially cross-country skiing, however the Winter Sports Equipment business showed remarkable resilience and even good growth in parts of the portfolio. In tennis we declined as intended, largely due to cleaning up some unprofitable sales with the objective to ignite more profitable growth in Wilson. In Russia, we faced challenges due to declining consumer demand and devaluation of the currency which caused a decline in our EBIT.”
At the Winter and Outdoor segment, EBIT declined 33 percent to €9.5 million ($13mm) on an 8 percent increase in sales (12 percent c-n), which reached €287.5 million ($394 mm). Sales were up 10 percent c-n in the Americas to €55.8 million ($74mm), and 9 percent c-n in EMEA, where they reached €194.1 million ($266mm), driven by softgoods.
Footwear (Salomon) sales, which comprise the largest category in the segment, increased 11 percent to €$113.7 million ($156mm) and were strong in all geographic markets except Russia. Apparel sales (Salomon and Arc’teryx) increased 11 percent (14 percent c-n) to €70.9 million ($97mm), with strong contribution from Arc’Teryx. Cycling sales (Mavic) increased 8 percent c-n to €39 million ($53mm), including a 14 percent increase in apparel sales. At Sports Instruments, which manages the Suunto brand, sales surged 23 percent c-n to €25.9 million ($35.5 mm), driven by outdoor instruments.
The laggard in the group was Winter Sports Equipment (Salomon and Atomic), where sales declined 11 percent (-7 percent c-n) to €38 million ($42mm) as sales were impacted by unfavorable weather conditions, especially in Northern Europe. Net sales of alpine ski equipment increased slightly while sales of cross country ski equipment and snowboards decreased.
At the Ball Sports segment (Wilson), net sales declined 8 percent (-4 percent c-n) to €150.7 million ($206mm) and EBIT fell 24 percent to €13.2 million ($18mm). Sales declined across all geographies, falling 6 percent in EMEA (-6 percent c-n), 7 percent in the Americas (-3 percent c-n) and 16 percent in the Asia-Pacific (-7 percent c-n). In Individual Ball sports, sales declined 7 percent c-n to €85.4 million ($117mm), while Team Sports sales fell 5 percent c-n to €65.3 million ($90mm). Solid growth in Basketball and American Football was offset by decreasing sales in Individual Ball Sports. In tennis, sales declined due to a clean-up of some unprofitable sales with the objective to ignite more profitable growth in Wilson as well as due to late season start in North America.
Fitness sales edged up 1 percent (4 percent c-n) to €63.3 million ($87mm) and generated EBIT of €3.4 million ($4.7mm), up from a small loss a year earlier. Sales declined 6 percent c-n to €15.7 million ($22mm) in EMEA, climbed 2 c-n to €39.5 million ($54mm) in the Americas and rose 49 percent c-n to €8.1 million ($11mm) in the Asia Pacific.
Amer Sports ended the quarter with inventories and work in progress valued at €344.4 million, up 3.4 percent from a year ago and 3.0 percent below Dec. 31, 2013 levels. Its debt to equity, or gearing ratio, ticked up 200 basis points to 58 percent.
While the company expects global trading conditions to remain challenging, with some regional improvements, it still expects net sales and EBIT growth in 2014 to meet its five-year growth targets of five percent in local currency terms. The company will continue to focus on softgoods growth, consumer-driven product and marketing innovation, commercial expansion and operational excellence. Amer Sports shares closed at €15.42 on the NASDAQ OMX Helsinki exchange March 31, up 19.8 percent from a year earlier, indicating a market capitalization of €1.82 billion or about $2.5 billion.
“The trading conditions have been more unfavorable than expected; nevertheless I'm pleased with the progress in our own actions,” Takala said. “Our long-term strategies are working and we continue to execute with appropriate agility, looking forward to another year of growth and improvement.”
