Head N.V. continues to see weakness in its Winter Sports division despite a strong start to the winter season throughout much of North America and the Alps. The company reported net revenues were down 1.0% to €92.2 million ($132 mm) for the three months ended September 30 from €93.1 million ($140 mm) in the year-ago period. The decrease was primarily due to decreased sales volumes in Winter Sports. A strong racquet sports market and better product mix was able to partially offset the winter weakness.  Head seems to be making some solid strides operationally, with strong margins and a considerable increase in net income.


Winter Sports revenues for the third quarter decreased 7.3% to €50.4 million ($72 mm) from €54.3 million ($82 mm) in the comparable 2008 period. This decrease was due to lower sales volumes partially offset by favorable product mix and the strengthening of the U.S. dollar against the euro compared to the comparable 2008 period.


For the year-to-date period, Head management said that ski volumes were down by 20%, bindings off 11% and boots declined 13% for the period. Overall winter sports sales have declined by 8.9% reflecting the improved product mix in 2009 and favorable exchange rate movements.
Head believes that the ongoing trend towards rental equipment is responsible for the increased demand for boots compared to skis.

 

In addition, late season ski resorts reported a declining number of visitors as a result of the current difficult economic conditions. Management said this led to very cautious pre-season booking behavior, especially in North America where pre-season bookings are down 25% to 30%. Pre-season bookings are down to a lesser extent in Europe and Japan. The company estimates that pre-season orders worldwide for winter sports equipment are down by approximately 10%.
Johan Eliasch, company chairman and CEO, commented, “The key selling season is now under way for our winter sports business and for the first nine months of the year volumes were down as anticipated in all key product groups due to cautious global preseason ordering brought about by the difficult economic conditions.”


Some early snow in the Alps in mid October should help to start the retail selling season which could result in some additional re-orders from European retailers.


Racquet Sports revenues for the third quarter increased 9.3% to €33.4 million ($48 mm) from €30.5 million ($46 mm) in the comparable 2008 period. The increase was said to be due to higher sales volumes of tennis racquets and footwear and favorable product mix resulting from the launch of new tennis racquets as well as the strengthening of the U.S. dollar against the euro. The improvement in sales in the Racquet division was a result of the launch of a new series of products under the “YouTek” concept in conjunction with a brand repositioning which resulted in an improved product mix. Tennis ball volumes grew slightly in both the US and Europe and this, combined with the positive exchange impact on U.S. balls, resulted in overall revenue growth.


Management estimates that the market for tennis racquets in 2008 was approximately 9.8 million units, with a value of approximately €280 million at wholesale level. For the first half of 2009, the total tennis racquet market was thought to have declined by approximately 5% in units and value, with the European markets performing more positively than the U.S. and Japan market.


Diving revenues for Q3 increased 1.3% to €10.1 million ($14 mm) due to the strengthening of the U.S. dollar against the euro. Head’s Diving division is the most affected by the recession due to its link to travel and the relatively high price points of the products. Head management said that the worldwide diving market declined in the range of 20% compared to the same period in 2008 and they do not expect to see any significant recovery in the market in 2009.


Licensing revenues for Q3 remained stable at €1.2 million ($2 mm) compared to the comparable 2008 period.


Overall gross margin increased 270 basis points to 40.0% of net sales in 2009 from 37.3% in the comparable 2008 period.  Third quarter selling and marketing expense decreased 1.2% to €21.9 million ($31.1 mm) and general and administrative expense decreased by €0.8 million, or 11.2%, to €6.3 million for the quarter.


The net profit for the period, including the gain on exchange of senior notes, net of tax (€31.2 million) was €41.5 million ($59 mm) compared to a €1.2 million ($2 mm) in net profit in Q3 2008. Excluding the note exchange, net income was still up substantially to €10.3 million ($14.6 mm).