ICON Health & Fitness saw both categories of its business take a dive in its fiscal first quarter ended August 28, 2004, resulting in a total sales decline that was more pronounced than even its lowered expectations against a strong Q1 last year. The company also saw a sharp decline in gross margin, due primarily to increased commodity prices, such as steel, as well as increased transportation costs and “unfavorable manufacturing variances.”
Selling expenses increased as a percent of sales, jumping 190 basis points to 19.4% of sales versus 17.3% in the year-ago period. R&D expense as a percent of sales was also impacted by the de-leveraging of sales. G&A expenses increased 10.8%, due primarily to “increased legal fees due to ongoing litigation, the cost of insurance plans, and rent and lease expenses.”
G&A as a percent of sales rose 310 basis points to 13.8% from 10.7% in Q1 last year.
The decline in sales and the increase in the expense lines led to the inevitable jump in the net loss for the period.
ICON will lose additional revenues from the shutdown of its JumpKing trampoline business. JumpKing sales accounted for 7.5%, or $82.6 million, of total company sales in fiscal 2004, up 6.3% from $77.1 million in fiscal 2003, or 7.6% of sales. ICON said it could not, in good faith, determine the costs associated with the discontinuation of the trampoline business, including the elimination of 415 jobs.
The increase in inventories were said to be due to a ramp-up in anticipation of higher sales in Q2 and Q3.
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