Fila Holdings Corporation (FHC) again saw a shrinking Fila brand business in the fourth quarter, even as decreases moderated somewhat versus the third-quarter trend.

The overall fourth quarter FHC business, comprised of the Fila brand based in Korea and a majority stake in the U.S.-based Acushnet Golf (Titlest and Footjoy) business, declined 15.2 percent, or 11.5 percent in constant-currency (CC) terms year-over-year to ₩760.8 billion in the fourth quarter.

Fila Holdings reports in the Korean Won (₩) currency for the Fila brand and U.S. dollars ($) for the Acushnet business.

Consolidated gross margins were 51.1 percent of sales in the fourth quarter, up 490 basis points versus 46.2 percent in the 2022 fourth quarter. Margins rose 470 basis points in constant-currency terms, helped by the sharp increase in Fila USA margins against a weak prior-year quarter.

Consolidated SG&A expenses rose 1.8 percent (+4.5 percent CC) to ₩429.9 billion in the fourth quarter.

Consolidated operating loss for the fourth quarter was ₩41.4 billion , compared to an operating loss of ₩7.9 billion in the 2022 Q4 period, due in large part to a ₩33.1 billion operating loss in the Acushnet business that was said to be affected by heightened staff costs and augmented advertising and promotion expenditures.

Consolidated operating margins were negative 5.4 percent of sales in Q4, compared to negative 0.8 percent in the same quarter last year.

FHC net income (loss) was a net loss of ₩60.1 billion in the fourth quarter, compared to net income of ₩136.1 billion in the prior-year quarter.

Fila Brand
Overall, Fila brand revenues were ₩211.7 billion in the quarter, down 23.5 percent (-22.5 percent CC). The story here was similar to most other footwear and apparel brands, with the company pointing to the U.S. consumer market, excessive inventory and increased promotional activity. However, the company also referenced a strategic recalibration of its Korean sales channels under its five-year Strategic Roadmap. Fila said the “inventory digestion” through discount channels continued.

Fila brand sales, by comparison, decreased 35.1 percent (-33.9 percent) in the 2023 third quarter and declined 30.4 percent (-30.7 percent CC) for the year.

The Fila brand operating loss was ₩8.3 billion in the fourth quarter, compared to a ₩23.5 billion operating loss in the 2022 fourth quarter.

Fila USA
Fila USA revenues, which covers the U.S., Canada and Mexico, fell 38.6 percent (-35.3 percent CC) in Q4 to ₩54.1 billion, due to continued promotional activities throughout 2023 and conservative ordering from retailers.

Gross margin surged nearly 26 full points year-over-year to 33.6 percent of sales in the quarter in Korean Won terms and jumped nearly 28 full points in constant-currency terms. The prior-year quarter’s margins were negatively impacted by one-time higher freight and storage costs and totaled just 7.8 percent of sales at the time.

SG&A expenses were ₩32.5 billionin the quarter, down 17.2 percent year-over-year or down 21.7 percent in U.S. dollar terms.

Fila USA posted an operating loss of ₩28.0 billionin the quarter, a considerable increase from the loss of ₩2.8 billion in the year-ago period, due to the decreased revenues and overall gross profit issues and despite aggressive cost management efforts.

Fila USA posted a net loss of ₩30.1 billionin Q4 compared to a loss of ₩2.1 billion in Q4 last year. Inventories declined 53.9 percent year-over-year at year-end, aligning with initiatives to reduce inventory.

Fila Korea
Fila Korea, excluding Design Services Fee Income, declined 24.1 percent in Korean won terms to ₩75.2 billion in the quarter. Design Service Fees were up 20.4 percent to ₩23.8 billion. The company said the decline reflected the strategic refitment of its Korean sales channels, utilizing both online and offline wholesales and scaling down rebranding channels throughout the year.

Gross margin improved 100 basis points to 54.9 percent of sales in Q4, mainly due to inventory write-offs and valuation allowances valued at approximately ₩8 billion in the quarter.

Operating profit was down 53.4 percent to ₩6.9 billion in the quarter, reportedly due to decreased net revenue and gross profit, partially offset by controlling SG&A expenses and increased investments in advertising and promotional activities. Net profit fell 38.9 percent year-over-year to ₩12.3 billion in Q4 2023.

Acushnet Company
The Acushnet company, the parent of the Titleist and FootJoy brands that is 52 percent owned by Fila Holdings, saw revenues decline 7.7 percent in the period to $413.0 million in the quarter.

Acushnet posted an operating loss of $24.7 million (-₩33.1 billion) in Q4, compared to operating profit of $11.6 million in the prior-year quarter.

Net income (loss) for the Acushnet business was a loss of $26.1 million in the 2023 fourth quarter, compared to net income of $53.3 million in the 2022 fourth quarter. For more results from Acushnet, go here.

Looking ahead, FHC said total 2024 revenues are expected to be similar to the 2023 revenue levels, while consolidated operating profit is expected to grow in double digits due to the base effect from 2023 and the profitability improvement in the Fila business.

Fila USA revenues are estimated to range from down 5 percent to up 5 percent for the year ahead. The Fila USA operating loss for 2024 is forecast to range from ₩60 billion to ₩40 billion.

Fila Korea, excluding DSF, looks positive for 2024, with a forecast of flat to up 10 percent for the year. Fila Korea, excluding DSF, is expected to post an operating loss for 2024 in a range of ₩15 billion to ₩5 billion.

Image courtesy Fila