Amer Sports said that while losses at its Salomon and Atomic ski businesses soared in the second quarter, rapidly growing apparel sales ensure that it will match its 2011 earnings.
The Finnish sporting goods company reported net sales reached €353.8 million ($455 mm) in the second quarter, up 12 percent from the April-June 2011, or 5 percent on a currency-neutral (c-n) basis. The increase was driven by double-digit growth in Apparel (Salomon, Arc’teryx), Fitness (Precor) and Sports Instruments (Suunto) and high growth rates in China, Russia and own retail.
Gross margin improved 80 basis points to 43.1 percent, thanks largely to improvements in the company’s Ball Sports business, which includes Wilson tennis and baseball products. Earnings before interest and taxes (EBIT) were negative €19.8 million (-$26 mm), compared to negative €10.9 million (-$16 mm) in the year earlier quarter. Earnings per share came in at -€0.19, compared to -€0.12. Investments aimed at growing sales of soft goods, sales in emerging markets and own retail ate into profits during the quarter.
The company said it expects apparel sales to grow by more than 20 percent this year, while footwear (Salomon) sales will grow by just 5 percent as retailers' focus on reducing their inventories. In Winter Sports Equipment, pre-season sales are down 13 percent due to the late and mild winter in the previous season, but the company said it has gained market share. Still, the company expects EBIT to come in even with last year, when it increased 26 percent to €135.5 million.
“We achieved solid growth in the second quarter, despite deterioration in trading conditions especially in Europe where several major retailers are reducing inventories and pre-orders,” said Heikki Takala, president and CEO. “We continued to improve our gross margins and to drive cash flow through working capital reduction.”
As examples of the strategic investments in past 12 months, Takala cited the opening of some 20 new own retail stores and 20 new e-commerce stores. The company has put in place entirely new category market organizations in Russia, China and Brazil and significantly increased its product initiative pipeline, especially in Salomon, Arc'teryx and Wilson for 2013 and onwards.
“Whilst all these investments represent incremental cost and admittedly burden especially the seasonally low second quarter results, they have a positive sales and gross margin contribution already in the current year, enabling us to by-pass our 2 billion euro sales milestone in 2012,” he said. “We continue to execute our strategy with confidence as we see that it's working.”
Amer was able to grow dollar sales of its Salomon and Atomic skis by 20 percent during the quarter, but sales are down 3 percent c-n through the first half. Moreover, the company won’t see the impact of its 13 percent decline in pre-season orders for Winter and Outdoor product until the third quarter, since it does not begin delivering skis for the upcoming season until August.
Footwear sales were flat c-n as dealers, particularly in Europe, reduced their inventory. Apparel sales rose 39 percent with growth occurring in all geographical regions. In Cycling, which consists of the Mavic wheel brand, sale grew 2 percent. Sport Instruments sales were up 14 percent thanks to solid sales of Suunto’s Ambit GPS watch launched in the first quarter. Winter and Outdoor segment sales declined 2 percent c-n in EMEA, grew 18 percent in the Americas and 40 percent in Asia Pacific.
In Ball Sports, sales were flat on c-n terms. Performance tennis rackets were up, while lower price point tennis rackets were flat and balls as well as baseball bats decreased as trade was de-stocking their inventories. EBIT improved 6.6 percent thanks to strong margins and favorable exchange rates. On Team Sports side, net sales declined 2 percent c-n due largely to the baseball bat category.
At the Fitness Segment, investment made in sales and distribution in Europe paid off as sales to clubs and institutions increased 10 percent and consumer sales increase 16 percent currency neutral.
