Although apparel and especially footwear performed well, weakness in most other categories and particularly in North America led to a widened loss for Amer Sports in the second quarter. Citing the tough economic climate and lower-than-expected level of pre-season bookings on a full-year level, Amer also reduced its earnings outlook for the year. Amer now expects EBIT, excluding a capital gain of €13 million ($20 mm), will amount to between €90 million and €105 million ($138.6 mm to $162 mm). The company’s previous guidance ranged between €100 and €130 million ($154 mm to $200 mm).


“We could see that the challenging environment that we had been talking about continued,” said Roger Talermo, president and CEO, on a conference call.  “Specific softness in the U.S. market continued likewise. I cant say, really, that we saw it spreading out through the world, but it was spreading out in the US into different fields. Despite that, we can say that our absolutely strong foothold this quarter was the footwear and the apparel business. Especially the footwear business showed very good growth.”


In the Winter and Outdoor segment, total revenues grew 4.4% in the quarter to €104.6 million ($163.5 mm), and were ahead 8% in local currency terms. Apparel and footwear sales grew 6.9% to €38.9 million ($60.8 mm), cycling was flat at €26 million ($40.6 mm), sports instruments inched up 0.9% to €22.6 million ($35.3 mm), and winter sports equipment gained 15.5% to €17.1 million ($26.7 mm). In local currencies, apparel and footwear advanced 11%, cycling was up 2%, sports equipment gained 6% and winter sports equipment revenues jumped 14.8%.


Talermo noted that the robust sales in winter sports equipment came in a “very, very low period of the business.” Overall pre-orders in winter sports equipment were up 3%, with solid recovery in key Central European alpine markets and Japan, but “unsatisfactory development” in North America. Alpine inventories were in “a pretty good shape in the industry and that’s good news because that’s the big chunk of the business in the winter and winter sports equipment.” But inventories  remained high in cross country as the Nordic countries suffered from the continuous weakness of cross-country skiing.


Amer said the restructuring process of the Winter Sports Equipment business area was concluded as planned in the second quarter. The number of manufacturing sites will be reduced from 10 to six and personnel will be reduced by more than 400 people by the end of the year. The annual savings target of over €20 million ($30.8 mm) in 2009 is intact.


Apparel and Footwear’s growth was especially strong on the footwear side. Strong growth came in European markets with the U.S. market for footwear is also “generating promising results” due to marketing investments in the region. Said Talermo, “In North America, where we are a newcomer, the trail running lines have been very well accepted and awarded by the magazines.

 

So, the sell through, to our understanding in the stores, have been good. So, well see that there is a clear momentum in our footwear category from that perspective.”
Cycling component (Mavic) revenues in Q2 were up 2% in local currencies. Sales were impacted by capacity constraints as a result of the ongoing restructuring in France, but the order book remained healthy. Said Talermo, “It looks like it’s a decent year for the cycling business and the order levels remains healthy when we went into the summer and now going into the autumn.”

 

Sports instruments (Suunto) revenues grew 6% currency-neutral, helped by several new lines and product launches during the period. The gains were driven by the training lines and the outdoor lines.
EBIT in the quarter in the Winter and Outdoor segment showed a loss of €26.7 million ($41.7 mm), slightly less than the loss of €28.8 million ($38.8 mm) a year ago. The improvement reflects increased sales of winter sports equipment and a better underlying profitability. Also boosting the bottom line was continued profitable growth in apparel and footwear, as well as in cycling.


In the ball sports division, revenues fell 13.0% in the quarter to €130.9 million ($204.6 mm), and were down 4% in local currencies. Declines were seen racquet sports, down 12.0% to €62.6 million ($97.9 mm); team sports, declining 9.7% to €41.1 million ($64.3 mm); and golf, off 19.5% to €27.2 million ($42.5 mm). In local currencies, racquet sports fell 5%, team sports were up 3%, and golf fell 12%. EBIT in ball sports was down 24.7% in the quarter, to €11.3 million ($17.7 mm).
Racquet Sports decline was due to a “challenging environment” in the U.S. and partly because of some capacity constraints, especially with the ball business out of China.


“Im not going to blame the downfall on the Chinese situation, but it’s evident that in the areas where we have our ball factories, there is a quite high rise in wages and raw materials,” said Talermo. “So, we have had some shortage of people to get into the factories. But that’s something that has been worked out pretty well now.”


The 3% gain in team sports in local currencies was mainly due to increasing sales in the U.S., where specialty store sales were solid on the success of programs around baseball. The sell-in of 2009 baseball products has started, and initial feedback is positive. Said Talermo, “It looks like there is a lot of momentum going on in the baseball category. Were quite optimistic with the team sport side to continue to do pretty well despite the fact that the environment is quite challenging.”


The golf decline largely reflects the licensing of the golf business in Japan and exiting OEM golf ball production in the U.S. last year. In addition, sales were lower in the U.S. reflecting that two large American retailers implementing aggressive golf private label programs for 2008. Said Talermo, “The good news is that our staff line, which is our high end, has done much better. So, we are clearly changing the mix.”
Amer’s goal is to bring the golf segment back to profitability this year.  Said Talermo, “It’s a little challenging, but there’s still a lot of good opportunities to make black numbers with the golf.”


In the fitness segment, sales dropped 16.9% to €49.6 million ($77.5 mm), and were down 5% in local currencies. On an EBIT basis, the segment showed a loss of €400,000 ($600,000) against earnings of €6.2 million ($8.4 mm).


Talermo called fitness “still the most challenging businesses,” and said the weak North American economic environment on the consumer side had the biggest impact on the segment’s performance.


“The problems and challenges we are facing comes from the consumer market,” said Talermo. “The consumer market is very soft. There’s very weak demand, both because consumers have a much lower demand than they have had in the previous quarters and months and even few years. But also because the retailers, as we work through retailers in this category, they are de-stocking and they are trying to be very cautious in the climate which exists in the United States.”


The good news, according to Talermo, is that quite a few retailers have indicated that sales are flattening in the category. The company is also adjusting Precor’s cost base to correspond with declining sales. “These changes will have a positive impact on Precor’s profitability during the second half of the current year,” he said.


About 74% of the fitness business is commercial, or selling to fitness clubs, and Talermo described the performance of that business as “okay.”