During the quarter, overall revenues declined 
in the mid-singles, due to softness in Racquet sales. Though sales were up in the mid-singles in Winter Sports, the quarter was too small for the division to offset the declines in Racquet as Diving was relatively flat for the quarter. A declining gross margin coupled with rising expenses led to a widened net loss for the quarter compared with last year.
Within the European region, sales decreased to Austria with small gains in Italy and the Rest of Europe, not enough to offset the softness in Austria. The net loss of the Rest of Europe expanded, while Austria switched to a net loss from a profit in the year-ago period. North America slimmed its loss for the quarter from 1.1 million ($1.4 mm) to 852,000 ($1.1 mm).
In the Winter Sports division, Europe continues to be the dominant region with 84% of revenues compared to 8% in North America. Sales were stronger in North America and the Rest of the World, offsetting decreased sales in Europe. The segments sales growth was due to “earlier pre-season sales of skis and higher sales volumes of bindings.” While Q2 2007 gross revenues increased by 3.4%, gross margin for the division decreased to 9.2% for the quarter, down from 28.0% in the year-ago quarter. The decline in margin was due to lower revenues in relation to fixed manufacturing costs, while product mix is in line with the year-ago period.
During the second quarter, Head shipped 47,000 pairs of skis compared to 79,000 pairs last year. Shipments of bindings, Heads top volume product, decreased to 351,000 pairs this year from 425,000 pairs in the second quarter last year. Ski boot sales decreased from 60,000 to 33,000 pairs. Snowboard equipment sales were down from 36,000 units to 21,000 units, and protection decreased from 7,000 to 5,000 units.
The Racquet Sports division also saw revenues decline during the quarter due to a shift in the new product launch cycle, changes in product distribution, and the strengthening of the Euro against the Dollar; though, the last hindrance to sales was actually a help to margins. In addition, the company said that “lower sales volumes in squash and racquetball racquets and balls” also contributed to the decreased sales in the quarter.
Gross margins for the division increased 310 basis points to 41.6% of sales compared to 38.5% last year. Units sold decreased slightly for the quarter, down to 1.044 million units compared to 1.083 million last year. Tennis Balls decreased from 3.7 million units to 3.6 million units in the second quarter.
Diving was up slightly in sales for the quarter, posting sales just above the year-ago quarter. The company said that the strengthening of the Euro against the Dollar worked to keep sales growth down here as it did with Winter Sports product. Gross margins in the division, however, decreased 200 basis points to 40.3% of sales versus 42.3% during the same period last year.
Licensing revenues added approximately 2.1 million ($2.8 mm) to the top line, but was below last years level.
Overall, with gross margins heading downward and expenses on an uptick, the company saw a much widened bottom line for the second quarter, though at a somewhat slower rate than in the winter sports-heavy first quarter.
