Descente Ltd. reported net income declined 31.7 percent in its year ended March 31 due to an increase in SG&A expenses and impairment charges related to Inov-8 and Skins. Revenues inched up 0.9 percent.
Revenues reached ¥142.4 billion, up from ¥141.1 billion a year ago.
Operating income slumped 17.3 percent to ¥7.94 billion due to an increase in SG&A expenses. Ordinary income was down 12.8 percent to ¥8.46 billion. Profit attributable to owners reached ¥3.94 billion against ¥5.77 billion.
The steeper net earnings decline versus the operating decline reflects impairment charges for Inov-8 and Skins.
In its statement, Descente said that while the company impaired a part of Inov-8’s goodwill (¥1,246 billion) in FY17, due to the “continuous sluggish business condition” at the footwear brand, the company impaired the total book value of intangible fixed assets including the goodwill for FY19. In total, Descente absorbed an impairment charge against Inov-8 of ¥1.82 billion in FY19. Descente acquired a majority stake in Inov-8 in 2015.
Descente also said it recorded an impairment charge of ¥603 million against Skins. Descente said it recorded a loss on loan guarantees (¥413 million) related to the Skins brand in FY17, however, the loss of the full amount of outstanding guarantees, Skins brand’s trademark right and inventory were added up as a result of the bankruptcy of the Skins group in Switzerland in January 2019.
By region, Japan’s sales inched up 1.7 percent to ¥59.66 billion. Operating income declined 62.4 percent to ¥2.14 billion. In its statement, Descente said, “In the athletic category, “Descente” and “le coq sportif” performed well, but “umbro” struggled. In the golf category, sales of “Descente” and “le coq sportif” performed steadily, but sales of “Munsingwear” struggled. As a result, although sales in Japan as a whole increased year-on-year, segment income decreased because SG & A expenses increased resulting from prior investment in directly-managed stores and e-commerce activities more than an increase in gross profit from sales growth.”
In its Asia segment, sales inched up 0.5 percent to ¥79.22 billion. Operating income plunged 95.8 percent to ¥6.45 billion. Descente said, “In Korea, “Descente” performed well, but “le coq sportif” and “Munsingwear” struggled. “Arena” performed well in Hong Kong and Singapore. As a result, although sales in Asia as a whole performed steadily, segment income decreased from the previous year due to an increase in SG & A expenses resulting from the opening of more directly managed stores in Korea.”
In the Europe/Americas’ segment, sales were down 1.4 percent to ¥3.57 billion. The region’s operating loss widened to ¥765 million from ¥581 million a year ago. Descente said, “The establishment of Descente Athletic Americas, Inc., has led to an increase in sales of “Descente”. However, because of an increase in SG & A expenses of the Company and sluggish growth in “Descente Mountain Americas” and “Inoveight Ltd.” both sales and segment income in Europe and Americas decreased from the previous year, and an impairment loss on “Inoveight Ltd.” related assets was recorded as an extraordinary loss (not included above table).”
For its year ended March 31, 2020, sales are expected to reach ¥144 billion, up 1.1 percent; operating income, ¥8 billion, up 0.8 percent; ordinary income, ¥8.2 billion, down 3.1 percent; and net income, ¥5.3 billion, up 34.4 percent.