Sporting Goods industry vendors in both the Softgoods and Hardgoods categories started to see acquisitions play a bigger role in the bottom line gains, while U.S. companies continued to benefit from a weaker dollar and many European companies struggled to keep pace with the FX rate-aided growth posted by their U.S. counterparts.
Companies in the Softgoods sector, which includes Footwear and Apparel, saw profit growth outpace sales growth by by more than a three-to-one margin. The Hardgoods sector again saw improving sales growth, due primarily to acquisitions, but saw profit gains match the upside in the top-line for the first time since SEW began tracking quarterly performance of these companies.
Sports Executive Weekly presents an overview of fourth quarter vendor results in the chart on page two. Results are posted for those companies that have reported for the period ended closest to the end of December.
Total sales increased 15.8% in the fourth quarter for the companies tracked in this report, while net income rose 46.0% for the period. Because the report is not a clear picture of the entire industry, SEW feels the total numbers are less significant than the trending information provided in the percentage increases and decreases. Return on Sales, which is the measure of net income as a percentage of sales, increased 110 basis points for the quarter versus the year-ago period, coming in at 5.6% of sales versus 4.5% in Q4 last year. However, the ROS number declined 450 basis points from the third quarter report for the same companies. For the fourth quarter, the gross margin for the reporting companies averaged 39.7% of sales for the quarter, up 70 basis points from 33.0% of sales in the year-ago period, but down 200 basis points from the average gross margin reported for the total third quarter.
The honors for most organic growth in the Softgoods sector again goes to Deckers, which saw sales grow 108% in the quarter as the company continued to reap nice upside from the Ugg boot phenomenon while taking full advantage of its acquisition of the Teva brand. Ashworth was the other key winner in organic sales growth, benefiting from continued growth in its licensed Callaway apparel line.
Excluding benefits from its acquisition of DC Shoes, Quiksilver still posted a 22.6% increase in sales for its fiscal first quarter ended January 31. Organic sales growth at VFCs Outdoor Coalition, which includes The North Face, Jansport, and Eastpak in their ongoing businesses, was pegged at 21% for Q4.
While there were no sales decliners in the Softgoods segment in Q4, the MJ Soffe division of the Delta Apparel business declined 8.0% to $5.7 million for their fiscal second quarter ended January 1.
Softgoods sector gross margins continued to improve, expanding 70 basis points versus the year-ago period to 41.8% of sales. Strong margin gains at Skechers, Saucony, LaCrosse, and Puma, were nearly offset by sharp declines at Sport-Haley, Phoenix Footwear (-745 bps), Everlast, and Rocky Shoes and Boots (-430 bps).
Despite showing a 46.2% increase in profits for the
quarter, Nike again held back growth on the net income line for the Softgoods sector. Total sector net income would have been up more than 65% for the quarter without the still impressive Nike gain. The income line did get a nice boost from the narrowing operating loss at Brand adidas and a swing to profit at Skechers. But it was again Deckers that gets the nod as top-performer on the bottom line as net income jumped more than 356% for the period to 12.5% of sales.
Looking more specifically at peer group performance, SEW breaks the Softgoods sector into three segments for the full quarterly report due out in April. Those segments, which include Apparel Only, Athletic Footwear & Apparel, and Outdoor Footwear & Apparel, show distinct patterns in their performance in the quarter. Currently, Apparel Only companies outpaced the sector as a whole, posting a 20.7% increase in total segment sales for Q4, but the income line lagged the total sector that benefited from a sharp increase in Athletic Footwear profits. Athletic Footwear income jumped 72% in the period versus the year-ago period on a 14.5% gain in sales for the segment. Outdoor Footwear sales increased 21% for the quarter, but profits were down a point from the year-ago quarter.
Return on Sales (ROS) numbers posted by the Softgoods companies in the period were boosted by stronger contributions from the footwear companies. Apparel ROS came in at 4.6% of sales, or flat to last year. Outdoor Footwear/Apparel companies outpaced their cousins on the Athletic side, posting an 8.9% ROS in Q4 2004 while Athletic ROS came in at 6.3% of sales, up 210 basis points from Q4 2003. Outdoor ROS declined 200 basis points in the quarter.
SEW has made a few changes to last years report, this year combining the Apparel and Footwear companies into a single Softgoods sector report. We have also moved one company, VF Corps Outdoor Coalition, up to the Softgoods sector, as the company moves forward aggressively with acquisitions in Footwear and Apparel, especially the acquisitions of Vans, Inc and Reef.
SEW has also broken out divisional results when able to gather the relevant information, whether it be through filed documents, press releases, court documents, or good-old-fashioned phone calls. The report now breaks out adidas-Salomon into the three operating groups that make up its consolidated business to give a more accurate picture of the individual performances and also do the same for Amer Group so performance against peer group can be measured more accurately.
This report is a summary of results for the quarter. All detailed company financial information can be found in SEW issues over the last 60 days and the detailed peer group analysis will be made available in the Sports Executive Research report that will be sent to subscribers on April 15.
