Descente Ltd. raised its guidance for fiscal 2015 after reporting big profit gains in the six months ended Sept. 30 as growth in South Korea and other parts of Asia offset a decline in its native Japan and drove up sales 13.8 percent.
The Japanese maker of snow sports apparel and a distributor of more than a dozen licensed athletic, golf and outdoor brands reported net sales of ¥57.1 billion ($548 million) as higher than expected sales in South Korea more than offset declines in Japan.
Gross margin increased 19.7 percent to ¥31.7 billion ($304 mm), or 55.4 percent of sales, up 270 basis points compared with the second quarter of 2013. SG&A expenses increased 14.6 percent to ¥27.4 billion ($263 mm), or 48.0 percent of sales, up 30 basis points from the year earlier quarter. Operating income surged 47.5 percent to ¥3.67 billion ($35 mm), compared with the fiscal second quarter of 2013. Ordinary income rose 49.5 percent to ¥3.91 billion ($38 mm) and net income increased 53.1 percent to ¥2.78 billion ($27 mm).
Based on the results, Descente increased its forecast for full year net sales, operating income and earnings per share by 2.5, 14.3 and 12.5 percent respectively.
In Japan, sales declined ¥971 million ($9 mm), or 3.4 percent, to ¥27.3 billion ($262 mm), while segment profit slid 15.9 percent to ¥399 million ($4 mm) as the country’s new sales tax and unfavorable weather cut into consumer spending. Descente tried to counter the decline by reducing selling, general and administrative expenses, but was unable to offset a nearly 20-fold increase in provisions for sales returns made in anticipation of Japan’s new sales tax, which went into effect in April. Many Japanese companies boosted their reserves in anticipation Japanese consumers would end up returning impulse purchases they made ahead of the sales tax taking effect in April.
In Asia, sales reached ¥29.8 billion ($286 mm), an increase of 35.9 percent from the same period last year, while segment income rose 55.1 percent to ¥3.38 billion ($32 mm) from the same year ago period. In South Korea, business remained strong in general. In China the athletic business was strong. In Hong Kong the golf business was strong and the Outdoor business, which includes the Descente, Marmot and Air to Ground A-Seven brands, has progressed steadily.
In North America, where Descente only sells ski wear under its owned Descente brand, sales reached ¥60 million ($575,000), up from ¥3 million yen a year earlier. The segment reported a loss of ¥171 million ($2 mm), flat with a year earlier.
Descente said it made strides toward its international expansion as spelled out in its Compass 2015 plan, including establishing a marketing hub in Hong Kong for Southeast Asia and an office in Switzerland to strengthen its European business. It has also begun coordinating marketing with Umbro and Lecoq Sportif licensees in the west in a bid to present those brands more uniformly across the globe.
In terms of product categories, sales of Athletic Wear and related products came to ¥37.8 billion, up 19.9 percent from the same period last year. Lecoq Sportif sales were strong, while Descente and Arena were on par with a year earlier and sales of Umbro declined.
Sales of Golf Wear and related products reached ¥16.4 billion ($157 mm), up 3.5 percent as Lanvin Sport and Cutter & Buck showed good sales and Munsingwear and Le Coq Sportif declined. Munsingwear sweaters and outerwear performed well in South Korea, where sales of Le Coq Sportif golf shoes also were brisk.
Descente ended the period with inventory valued at ¥19.5 billion ($187 mm), up ¥565 million ($5 mm), or 3.0 percent from March 31, 2014.
In addition to its own brand, Descentes companies and affiliates manufacture and distribute more than a dozen apparel brands for cycling, golf, outdoor, racquet, snow sports and volleyball under license for the Asian markets, including China, Hong Kong and Korea. Licensed brands include Cutter & Buck, Lecoq Sportif, Marmot, Munsingwear and Umbro.
