Head N.V. saw their bottom line take a major hit in the second quarter, as a $20.6 million (17 mm) income tax expense drove the net loss for the period up 245%, or up 225% when measured in the companys native Euro currency.
The company saw a $3.0 million (2.6 mm) benefit in the year-ago period. Excluding the tax effect, the net loss would have narrowed by 15%, or 20% when measured in Euros. The companys operating loss narrowed 26.4% to $5.7 million (4.7 mm) in the second quarter and was cut by nearly 31% when measured in Euros.
The second quarter is the smallest period for the Winter Sports division and makes up just 7.6% of total company revenues for the quarter. The division did build gross margin during the period, due primarily to better prices on bindings, which made up 85% of Winter Sports sales during the period versus 71% in the year-ago period. Skis were 12% of division sales, down from 23% in Q2 last year, and boots were 3% of division sales in second quarter.
Ski unit sales were down 38.5% in Q2 to 8,000 pairs.
Bindings, including manufacturing, were up 26.3% to 163,000 pairs. Head said that pre-season bookings are improved over LY, giving them a “positive outlook” for the Winter Sports business for Fall.
The Racquet Sports division reportedly saw market share gains in rackets during the period and a better product mix that helped improve gross margins 330 basis points to 42.2% versus 38.9% in the year-ago quarter. Head pointed to the success of the Liquidmetal tennis racket range as the primary reason for capturing six out of the top eight share positions in Germany, France, and the U.S. Pro/Specialty market.
Racket sales inched up less than one percent to approximately $22.5 million in the second quarter, representing 48% of division sales versus 50% of sales in Q2 last year. On a unit volume basis, Head sold 500,000 racket sin Q2 versus 460,000 rackets in Q2 last year, an 8.7% increase. Ball sales declined 10% in the period to roughly $17 million, delivering 36% of division sales versus 42% in the year-ago period. “Other” sales doubled in the period.
In Euro terms, racket sales declined roughly 5% and balls fell 15% in the quarter versus last year.
The company expects Racquet Sports sales in Fall to be “slightly behind” last year due the launch last year of the LiquidMetal product.
For the company as a whole, Head reiterated its February guidance and expects reported revenues and operating profits, excluding one-time charges, for 2004 to increase from 2003. Net income will suffer due to the change in Austrian tax rates that hurt the Q2 numbers.
Inventories were up 2.7% at quarter-end to $121 million, but were down 2.8% when measured in Euros.