Head N.V. saw less upside in its practice of reporting in U.S. currency in the third quarter, as the strengthening Dollar narrowed the spread against the Euro to just 20 basis points in the period. But the company needed less of a boost in reporting their results this time around as solid increases from Europe in both Winter Sports and Racquet sports pushed the sales gain over 5% in both Dollars and Euros.
It was a “close but no cigar” scenario for the year-to-date period as net revenues came within a half percent of the numbers for the nine-month YTD period last year, generating sales of $292.4 million for the period, compared to $294.1 million in the year-ago YTD period. But the company was able to post a solid net profit of roughly $2.9 million for the YTD period, compared to a YTD loss of $37 million for the same period last year, thanks to the sale of a facility in Ireland and about $5 million in savings from restructuring.
Third quarter operating profit before restructuring costs and the gain on the sale of the Ireland facility jumped nearly 36% to $13.7 million (11.2 mm) versus $10.1 million (8.2 mm) in Q3 2004, but net income declined 7.4% to $7.5 million (6.1 mm) from $8.1 million (6.6 mm) in Q3 last year.
Total sales for the quarter were up 5.1%, or 5.3% measured in Euros, to $125.9 million (103 mm) from $119.8 million (98 mm) in the 2004 third quarter. Europe sales, measured in home country Euros, were up 7.0% to 64 million from 60 million in the year-ago period. Sales in North America rose 1.7% in Euros to about 29 million, while the Rest of World region saw sales in Euros were up 5.3% to just over 10 million for the period.
Winter Sports made up 57% of sales in Q3, while Racquet Sports generated 34% of total sales and Diving fell to just 8% of the business.
While the Winter Sports group is the largest division in the back half of the year, sales growth in the business was stymied by weakness in the North America and Rest of World regions. The division sees roughly 90% of its annual sales generated in the second half on a historical basis, but the second quarter is now generating more sales for the division as retailers rely more on fill-ins and chase product.
In Euros, Winter Sports sales rose 4.0% to about 59 million from approximately 56 million in the third quarter last year.
Sales in the Skis category, which made up roughly 38% of division revenues, grew at about the same rate as the overall division, posting a 3.8% gain to $27 million (22 mm) from $26 million (21 mm) in Q3 2004.
Bindings sales for Q3 declined nearly 23% for the period to $19 million (15 mm) from $24 million (20 mm) in the year-ago period, accounting for just 26% of total division revenues versus 35% of the total in last years third period.
Sales of Boots jumped 40% to $19 million (16 mm) in Q3, compared to $14 million (11 mm) in the same period last year. Shipments of Boots jumped 37% for the YTD period to 269,000 pairs, compared to 196,000 pairs shipped in the 2004 YTD period. Snowboard revenues increased 33.5% to over $6 million (5 mm) in Q3 from just under $5 million (4 mm) last year.
The divisions Europe business grew a healthy 8.1% in Euros to 46 million in the third quarter, growing to 79% of divisional revenues in the period from 76% of the business in Q3 last year. North America declined 6.9% to about 10 million, or about 17% of sales, and RoW fell nearly 17% to 2.3 million, based on average conversion rates for the quarter. The division saw gross margin dip 20 basis points to 38.3% of sales in the third quarter, but still rose for the nine-month period on product mix shifts and higher sales.
The Racquet Sports division saw both sales and gross margins improve in the third quarter on cost reductions and the success of the new Flexpoint technology. Sales growth in the U.S. lagged behind the other regions, but revenues were still up across all regions and categories. In home country currency terms, sales for Q3 were up 9.0% to 35 million from 32 million in the year-ago period. Europe sales increased 12% to 13 million, while U.S. sales rose 4.5% to 16 million and RoW sales improved more than 16% to 6 million.
Racquet sales jumped more than 35% to approximately $28 million (23 mm) in the third quarter, even surpassing second quarter sales for the category. Racquets represented about 66% of sales in Q3 this year, compared to about 53% in Q3 last year, due in part to the loss of the “Other” category. Head management reported a marginal increase in unit sales of racquets, shipping 1.47 million units in the nine-month YTD period this year versus 1.45 million units this year.
Ball sales were up about 12% for the period to roughly $14.5 million (12 mm), delivering 34% of division sales versus 33% in the year-ago period. Head shipped fewer balls this year, due in large part to the closure of the OEM ball factory, delivering approximately 5.10 million dozen in the YTD period compared to about 5.22 million dozen in the year-ago period.
Gross margins were up 120 basis points to 36.9% of sales in Q3 and improved 180 basis points to 40.3% of sales through the first nine months of the year.
Diving revenues for the quarter were said to be impacted by a decline in the Italian market as well as from the reduction of the product range to “optimize profitability.” Management also pointed to an 8% decline in total global market size for the diving business, reflecting a new reality of less worldwide travel due to tsunamis, hurricanes, and the political unrest in the Middle East that is impacting Red Sea resorts.
As for the 2005 outlook, Head management said they were encouraged by the positive development in the business during the third quarter. Despite market conditions they see as “challenging,” the company is more optimistic about the outcome for the full year of 2005, and raised operating profit guidance to be flat to last year, compared to earlier projections that had profits lower for the year.
>>> Now that the benefits of reporting in U.S. Dollars have diminished, the move back to reporting in Euros would be a timely one…
| Head N.V. | ||||
| Third Quarter Results | ||||
| (in $ millions) | 2005 | 2004 | Change | Chg |
| Total Sales | $125.9 | $119.8 | 5.1% | 5.3% |
| Europe | $78.0 | $73.0 | 6.8% | 7.0% |
| N. America | $35.2 | $34.7 | 1.5% | 1.7% |
| Rest of World | $12.6 | $12.0 | 5.1% | 5.3% |
| Winter Sports | $71.5 | $68.9 | 3.8% | 4.0% |
| Europe | $56.5 | $52.4 | 7.9% | 8.1% |
| N. America | $12.2 | $13.1 | -7.1% | -6.9% |
| Rest of World | $2.9 | $3.4 | -17.0% | -16.8% |
| Racquet Sports | $42.5 | $39.1 | 8.7% | 9.0% |
| Europe | $15.7 | $14.1 | 11.7% | 12.0% |
| N. America | $20.0 | $19.2 | 4.3% | |
