Amer Sports Turns in Solid 2011 Performance Despite Disappointing Fourth Quarter

 

Amer Sports reported fourth-quarter revenues slipped 5 percent to €583.4 million ($751 mm). Sales grew 12 percent in the Americas and 6 percent in Asia, but could not offset a 16 percent decline in EMEA, where Europe was hit by another late winter. Earnings before income taxes (EBIT) declined 4.3 percent to €46.3 million ($62 mm), including a 12.1 percent decline at W&O. Gross margin reached 42.4 percent, up 160 basis points from a year ago. EBIT improved 4.7 percent at Fitness, while Ball Sports narrowed negative EBIT by nearly 90 percent to -€700,000.

 

The W&O business (Arc’teryx, Atomic, Mavic, Salomon and Suunto), which accounted for 61 percent of the company’s sales in 2011, began the year with a bang but ended with a whimper as snow conditions seesawed from the epic conditions of the first half to a nearly complete absence of snow in November and December in both North American and Europe. Segment sales reached €375 million ($506 mm) in the quarter ended Dec. 31, down 4 percent in local currency terms from €416.5 million ($567 mm) in the fourth quarter of 2010 on a local currency basis. Winter Sports Equipment sales were hit hardest, declining 14 percent to €252.9 million in local currency, although much of the decline was expected because the company shipped more of its fall/winter goods in the third quarter this year.

 

Footwear’s (Salomon) net sales reached €51.0 million in the quarter, up 18 percent in local currencies. Apparel’s (Arc’teryx, Salomon) net sales totaled €65.8 million, up 12 percent in local currencies.

Cycling’s (Mavic) net sales totaled €29.5 million and were up by 17 percent in local currencies. Sports Instruments’ (Suunto) net sales were €23.7 million and declined by 7 percent in local currencies.

Sales at the Ball Sports segment (Wilson) rose 2 percent (7 percent in local currency) to €109 million ($147 mm) in the quarter, thanks largely to strong football sales in the United States offsetting weak tennis sales. Racquet Sports’ net sales declined 7 percent to €41.1 million, down 1 percent when measured in local currencies, in part due to the impacts of the tsunami in Japan. Golf revenues reached €10.8 million ($15 mm) off 6 percent in local currencies. Team Sports’ net sales rose 12 percent to €57.1 million ($77 mm), or 16 percent in local currencies. EBIT was €700,000, a big improvement from -€2.7 million a year earlier after excluding non-recurring items.

The Fitness segment (Precor) continued a strong rebound, growing 22 percent (30 percent in local currency) to $72.9 million ($98 mm). The Americas increased by 35 percent, EMEA by 20 percent and Asia Pacific by 16 percent in local currencies. There was growth in both commercial and consumer channels. EBIT was €4.5 million as increased sales volumes was offset mainly by spending on strengthening the distribution.

Despite the fourth quarter miss, Amer Sports reported record sales of €1.88 billion ($2.55 bn) for 2011, up 8 percent thanks to strong winter sports sales earlier in the year and its accelerating footwear and apparel businesses. Pre-orders for footwear and apparel for spring/summer 2012 are up by 14 and 28 percent respectively. Gross margin grew 100 basis points to 43.5 percent thanks to growth in own retail and productivity improvements at the company’s Bulgarian ski factory and Precor plants. Excluding non-recurring items, EBIT margin at W&O increased 90 basis points. Net income rose 31.9 percent to €90.9 ($121 mm).

 “I continue to be especially pleased by the progress in softgoods, which in 2011 became our largest category, representing nearly 30% of the company sales,” said Heikki Takala, president and CEO. “Equally, I’m delighted by the strong development in Fitness, up by 17 percent, in Cycling, up by 14 percent and in Team Sports, up by 11 percent.”
The company ended the quarter with €359.7 million ($466 mm) in inventory, up a more than expected 19.1 percent due to the growing softgoods business and lower than expected winter sports orders. CFO Jussi Siitonen said poor sell though of winter sporting goods spiked accounts receivables, but that the company had positive cash flow of €30 million in January. Net debt to EBIDTA was running at 2.3, well below the maximum 3.0 allowed by loan covenants.

Amer Sports is now eyeing the action sports market as a way to expand its appeal to younger consumers – a strategy adopted VF Corp. in 2008.
“Just before Christmas, we announced the acquisition of Nikita, which is a snowboard-inspired young female brand,” said Takala. “That's going to give us a new consumer target group, and nicely complement the Salomon snowboard and Bonfire apparel businesses, which we have. So we're truly able to organize for the action sports market and segment going forward, so that's a key focus area for the years to come.”

Despite strong growth in preseason orders for spring/summer, Amer Sports did not provide earnings guidance for 2012, in part because it expects the late winter will eat into pre-season orders for next fall and winter. That could hurt gross margins in 2012, which are already being squeezed 150-200 basis point from cost inflation. 

 “The Winter Sports Equipment market will be challenging due to the slow start of the season in key markets,” he said. “Further, the economical (sic) environment remains cloudy.”