Head N.V. said weak reorders of snowsports in Europe contributed to a 1.9 percent decline in net sales in the quarter ended March 31, but that sales fell across all five of its divisions. Net sales fell €1.1 million ($1.5mm) to €59.8 million ($81.7mm).
The adjusted operating loss for the three month period increased by €2.2m to €5.5 million ($7.5mm) compared to prior year. Of this, €500,000 was due to lower sales but at broadly flat gross margins and the balance of €1.7m was due mainly to increased selling and marketing costs. The increase in selling and marketing includes higher distribution costs.
The net loss reached €7.7 million ($10.5mm), up from €2.4 million, mainly due to the lower adjusted operating performance compounded by lower ESOP income, and higher interest and other finance costs. The
increase in interest and other finance costs of €3.1m in the period mainly arose due to the buy back of €14.4m of par value senior notes and the resultant acceleration of the amortization of non-cash disagio costs.
Operating cashflow for the first quarter declined by €8.9m due to lower operating results and an increase in working capital. The increase in working capital is a result of returning to more normalised levels after the very tight controls in place during 2009 and 2010 which cannot be maintained long term, and the lower level of sales resulting in inventory build up.
“As anticipated, 2011 has been more challenging than 2010,” the company wrote in its letter to shareholders.
Net sales at its Winter Sports division fell 6.9 percent to €13.0 million ($17.8mm) as the good early snow did not last in Europe. By mid January sales reorders reduced considerably driving sales down in the division by nearly 7% for the first quarter.
In Racquet Sports, sales were off 2.0 percent to €35.0 million ($58.3mm) on lower volume of ball sales and a decline in racquet sales due to a later introduction of new products in 2011.
In Diving, sales reached €11.3 million ($15.4mm), down 1.7 percent as a budding recovery was severely impacted by both political turbulence in key dive destinations in north Africa and natural disasters in Australia and Japan.
The company’s new introduced Sportswear Division generated nearly €1m in sales in the first quarter, but is not expected to be profitable this year.
“The year has begun with some challenges, both natural in the form of rain, floods, fires and tsunamis and man-made in the form of political unrest. In addition, the impact of raw material price rises mentioned back in February has yet to fully impact our margins, but we are anticipating this to be reflected in the results during the second half of the year. Overall, we believe that the operating results will be significantly below those achieved in 2010.”
