Following a year of double-digit declines, Asics America Group (AAG) reported that Koichiro Kodama will replace Gene McCarthy as CEO of the region in a broad management overhaul.
The changes come as Asics reported a net loss of ¥20.3 billion for 2018 after taking an impairment charge of ¥230 billion in the fourth quarter. Operating earnings also fell 46.3 percent in the year due to a steep loss in the Americas region as well as profit declines in the Japan and Asia Pacific region.
McCarthy joined Asics in October 2015 just as Asics faced a lawsuit from its former retail licensing partner and wound up closing all its doors in the U.S. But McCarthy’s plan to expand Asics in part by expanding to a larger audience beyond run never gained traction and Asics continued to lose space on running shoe walls to Brooks and New Balance as well as newcomers such as Hoka One One.
In 2018, sales in the Americas fell 15.0 percent on top of declines of 6.0 percent in 2017 and 14.5 percent in 2015. Part of those declines reflect the closing of 13 doors due to the dispute with its licensing partner as well as currency-headwinds.
On a currency-neutral basis, sales in the Americas were down 13.5 percent in 2018, 7.7 percent in 2017 and 9.0 percent in 2016.
“Gene made countless contributions to Asics America as he navigated the brand through an incredibly turbulent time for our industry and implemented numerous changes that set the region on course for success,” said Alistair Cameron, executive officer Asics Corp. and senior general manager Geography Strategy division. “We thank him for his energy, spirit and being a true champion of the brand during his time with the Asics.”
In its statement, Asics America highlighted a number of signs of progress, including growth on brand owned sites and at key retail accounts with the help of new releases.
E-commerce sales across third-party and owned websites jumped 58 percent in the fourth quarter versus the third quarter due to new product launches as well as a shift in consumer shopping behavior toward brand-owned sites, where Asics is seeing the most growth, approximately 32 percent year-over-year in the quarter. In addition, year over year online conversion rates increased from 1.5 percent to 1.9 percent on brand-owned sites.
Growth was also seen across “key retail channels,” expanding 12 percent over the third quarter growth and 11 percent year-over-year. This increase is attributed to successful product launches during the quarter that drove consumers to Asics’ retail locations.
On product, successes included 44 percent year-over-year growth in the fourth quarter for models in the Asics Gel-Quantum family and 12 percent growth in the Asics Trail Running category. Onitsuka Tiger, Asics’ heritage lifestyle fashion brand, saw year-over-year growth in the AAG region of 23 percent. Overall, “and largely due to market forces,” Asics saw net sales decrease 13 percent year-over-year for AAG.
To revive growth across the region, a new category structure focused on Performance Running, Core Performance Sports and Sport Style has been implemented, along with the appointment of new leadership team members.
New members include:
- Koichiro Kodama, CEO, AAG: A 30-year industry veteran, who has built his career working with major brands in the U.S., London and Japan, Kodama joined Asics in 2016. At Asics, he previously served as VP of corporate strategy and most recently as EVP of sales for the Americas region.
- Richard Sullivan, EVP of sales, categories and marketing: In this new role, Sullivan will oversee all sales, marketing, merchandising, apparel functions along with the teams in Canada and Mexico. He most recently served as president of Asics Canada.
- Craig Gillan, VP Operations: Gillan will manage all operational functions, including: the distribution center, customer service and sales operations, IT, logistics, inventory planning, SPMO and facilities. Gillan joined Asics America in July 2012, as director of e-commerce and then served as VP of direct to consumer before taking on a global role where he most recently served as the GM, global digital commerce at Asics Digital.
- Paul Ljucovic, VP of finance: Ljucovic joined Asics in 2017 and will transition from his current role as SVP of finance and operations for Asics Canada to overseeing all finance across Asics.
Asics’ release didn’t provide more details on the new category structure but indicated it includes a heightened focus on running.
“We are pleased about the momentum that closed out 2018, with continued growth in our direct-to-consumer investments, both in retail and online, across our performance footwear categories” said Cameron. “More importantly, as we go forward in 2019, we are strategically implementing a new category structure to drive growth across the region, in particular within Performance Running.”
In the Americas, the operating loss in the year came to ¥4 billion against earnings of ¥2.36 billion a year ago. The loss was blamed on lower sales, increased discounts and increased costs related to new stores that offset lower marketing spend.
Asics Americas’ operating profit has been under pressure for several years. Operating earnings came to ¥862 million in 2016 and ¥1.5 billion in 2015. In 2014, operating earnings were ¥10.9 billion.
Revenues in the year slumped 15.0 percent to ¥90.2 billion from ¥106.1 billion a year ago. Revenues were off 13.5 percent on a currency-neutral basis.
In the U.S, sales were down 14.2 percent in the year due to sluggish sales of running shoes. In Brazil, sales were down 5.6 percent also due to weakness in running footwear. Overall, increased sales in the DTC channel were offset by declines at wholesale.
Extrapolating nine-month figures from full-year results shows that sales were ¥22.5 billion in the fourth quarter against ¥23.8 billion a year ago, representing a decline of 4.3 percent on a reported basis.
The operating loss in the latest fourth quarter was ¥3.04 billion after charges as the region had accumulated a loss of ¥958 million in the nine months. The region showed a loss of ¥1.97 billion in the year-ago quarter.
Among product areas, sports shoes sales in the Americas in the year were down 14.3 percent to ¥83.2 billion. Sportswear wear was up 2.6 percent to ¥5.1 billion while sports equipment was down 17.2 percent to ¥1.9 billion.
By category, running was down 15.4 percent to ¥83.0 billion, training was off 26.6 percent to ¥2.3 billion; and CPS ( Core Performance Sports) declined 3.8 percent to ¥6.9 billion. On the positive side, Lifestyle in the Americas region in the year gained 9.3 percent to ¥4.1 billion. Of that, Onitsuka Tiger grew 9.3 percent to ¥1.7 billion and Asics Tiger gained 1.4 percent to ¥2.2 billion.
Companywide, Asics’ net loss in the year of ¥20.3 billion for the year after the impairment charge compared with net earnings of ¥13.0 billion a year ago.
The charge consisted of impairment of goodwill, ¥134 billion; impairment loss on unprofitable stores, ¥62 billion; impairment loss on software, ¥23 billion; staffing (overseas), ¥14 billion; and other impairment loss, ¥8 billion. This was partly offset by a gain of ¥13 billion from sales of strategic share.
Asics said the related restructuring effort is expected to improve operating income this year by ¥4 billion. This includes a decrease in amortization of goodwill and intangible assets, ¥2.2 billion; reducing in store expenses, ¥1.5 billion; and optimization personal overseas, ¥600 million.
Operating earnings slumped 46.3 percent to ¥10.5 billion, down from ¥19.6 billion a year ago. Revenues reached ¥386,7 billion, down from ¥400,.2 billion a year ago and representing a 3.4 percent drop.
For the quarter, extrapolated figures show sales increased 1.0 percent to ¥90.98 billion. The operating loss came to ¥4.7 billion against a loss of ¥4.9 billion in the same period a year ago. The net loss of ¥28.6 billion after the charge against a net loss of ¥2.8 billion.
In other regions, sales in Japan in the year were down 1.0 percent to ¥118.2 billion. Operating income declined 31.4 percent to ¥4 billion. In the EMEA region, sales were down 0.6 percent to ¥105.6 billion. Operating earnings were down 38.5 percent to ¥50 billion.
For the current year, Asics expected sales to inch up 0.9 percent to ¥390 billion. Operating income is expected to move up 14.1 percent to ¥12 billion. Net income is expected to reach ¥5 billion.
Photo courtesy Asics