Amer Sports continued to suffer through the first quarter due to the value of the U.S. dollar, challenging market conditions and dramatic drops in fitness sales. However, in spite of the heavy double-digit declines in the top line for Precor, the company saw minor profitability in its winter and outdoor equipment sales, which accounted for 46% of the companys first quarter business.
Amers Winter and Outdoor business provided no surprises for management, with revenues basically flat to last years first quarter. The expense line was lower due to restructuring, and industrial synergies are expected to be reflected in the 2009-10 product deliveries.
Inventory levels apparently remained low in Q1, with ski products said to be clearly lower than they were a year ago, and other categories should have “very limited or no products that are old and not worth anything,” according to CEO Roger Talermo. On a euro currency basis, the inventories came down 20 million during the first quarter, offsetting the 15 million increase seen at first quarter-end last year.
Winter and Outdoor sales were up 5% in EMEA in local currencies , down 8% in Asia Pacific, and down 8% in the Americas on a currency-neutral basis.
Half of the segmental sales in the first quarter were related to the Apparel and Footwear segment, which management said delivers the majority of its spring/summer collection during the first three months of the year. Sales in this segment grew 18% for the period, balanced over Salomon footwear, Salomon apparel and gear, as well as Arc'teryx. Weakness in North America was said to be offset by success in the Central European markets. Management said the sell-through of key outdoor and trail running footwear products continues to be strong, but the order intake for the fall/winter collection is more cautious than for the spring/summer season. Production commitments are being scaled down to reduce the inventory risks and improve cash flow.
In the Winter Sports Equipment segment, which includes Salomon and Atomic, sales were fairly flat to last year, with a minor 1% neutral-currency decline. Although the segment is in the middle of pre-order season, with 40% to 50% of pre-bookings in so far, management said that its clear that dealers will continue to be cautious in this segment with the exception of the strong mountain regions of the Alps, Switzerland, Austria, France and Southern Germany. Pre-season ordering in North America was said to be slow, impacting the snowboard business in particular. The company said the final changes to the new industrial structure were completed during the first quarter.
Cycling showed a 21% decline in Q1, which Talermo attributed to the OEM business and bike dealers also remaining cautious, as well as the recall of the high-end composite wheel set R-SYS in the early part of the year. The CEO anticipates the segment to pick up, as it is still a “on a positive mood,” and commented that the Central Europe cycling business should definitely pick up. Mavics deliveries to OEM manufacturers were sharply lower in the first quarter as the whole supply chain reduced its inventories anticipating softer markets, said Amer.
Amers Sports Instruments business, which consists solely of the Suunto brand, had net sales decrease 16% on a currency-neutral basis from 20.6 million from last years Q1 to 17.7 million this year. The decline reflects the economic environment, claimed Amer, with especially the diving market being affected. In the training category, consumer demand was good and saw double-digit growth. Amer said a large cost savings program has been initiated to “protect Suuntos profitability.”
The Winter and Outdoor business posted EBIT of 11.5 million ($15 mm) in the first quarter, a decline of nearly 27% comapred to the year-ago quarter.
Precor sales fell 25% on a currency-neutral basis during the quarter, which the company said was mostly due to the high-end and nature of the products. “We feel that the uncertainty around Fitness business is still there,” said Talermo. “There is very little light momentarily that this would change very quickly.” As a result of the rocky quarter for the segment, an unspecified number of employees were cut during the period and salaries have been “re-evaluated.” Sales declined 15.8% when measured in euros. Currency-neutral sales fell 12% in EMEA, 27% in Asia Pacific and 27% in the Americas. Measured in U.S. dollars, Precors home currency, sales fell 26.5% to $63 million.
Consumer sales were affected by both the overall withdrawal from discretionary spending by many families and by a significant reduction in the number of specialty dealers compared to the prior year, said Amer.
Management said that demand for commercial equipment for both North America and EMEA were impacted by costumers deferring purchase decisions in light of economic uncertainty. Availability of credit and financing (leasing) are also said to be having an impact, particularly in Europe. Management said the distribution lost due to the bankruptcy of two major dealers has not yet been replaced. The commercial business decline is driven by tight credit markets which are making it more difficult for small customers to lease equipment and by a “wait and see” attitude of other customers that are concerned about the general economic outlook, said the company. Additionally, many customers are putting new projects on hold which is restricting the business to replacement sales rather than the new facility sales that have driven the industry in the last few years.
Precor posted a 3.4 loss ($4 mm) on the EBIT line for the first quarter, compared to a 3.7 million ($6 mm) EBIT profit in the year-ago period.
Wilson Sports should see a quick turn when consumer confidence is back, remarked Talermo in comments to investors and analysts on the companys quarterly conference call. First quarter net sales were down 0.8% in euros, falling 8% on a currency-neutral basis. In Wilsons home U.S. dollar currency, sales declined more than 13% to $187 million from $216 million in the year-ago period. In U.S. dollars, Wilsons racquet sales fell 11% to $84 million compared to $94 million in Q1 last year. Golf sales shrunk 27% to $26 million from $35 million in the year-ago period and Team Sports sales declined 11% to $78 million from $87 million in Q1 2008.
In euros, Wilsons EBIT for the quarter fell 26.8% to 11.5 million compared to 15.7 million. In U.S. dollars, the same metric was down 36% to $15 million.
The Racquet Sports segment fell 4% in currency-neutral terms, despite local currency growth of 13% in Asia. The Asia growth was said to be driven by expanded distribution in China and a strengthening position in badminton. The 12% decline seen in the Americas was attributed to the economic recession where consumers are seeking value and trading down to lower price points.
The Golf segment, which saw a 17% decline in local currencies, is the sport category being hit the greatest by the economic recession, partly because of the high cost of participation. Net sales declined 26% in the Americas, 16% in Asia and 7% in EMEA.
Due to “uncertainty in consumer demand in general,” Amer Sports has declined to provide any guidance beyond the pre-order season in winter sports. The company had previously stated its 2009 outlook anticipated improved sales.
