Industry Vendors See Q1 Sales Up Double-Digits

 

Stronger sales, however, were offset by higher costs as manufacturers appear to be realizing margin pressures due to rising raw material and fuel costs.

 

Likewise, the fact that overall inventory levels were up by nearly a quarter during Q1 suggests that manufacturers are planning ahead for the aforementioned higher input costs related to transportation and raw materials. The true test will come when soaring prices of fuel, labor and commodities like cotton, rubber, copper and steel are passed on to the consumer – something that is happening right now and will continue to a greater extent into the near future. On the bright side, oil and gas prices have started to decline recently while food prices appear to have leveled out. Likewise, while a recent report by the Labor Department indicated that companies paid more in May for raw materials and factory goods, the increase was minimal.

First quarter results shown in the charts on pages 4 and 5 are posted for those vendor companies that have reported for the period ended closest to the end of March.  However, because the report is based primarily on public company filings and is not a complete picture of the entire industry, Sports Executive Weekly feels the total numbers are less significant than the trending information provided in the percentage increases and decreases.

Thirty-nine of 47 companies reporting quarterly results, or 83%, reported growth in revenues for the first quarter, with 32, or about 68%, reporting earnings growth during the same period. This comes against a year-ago period that saw the industry in the midst of a significant turn-around from dismal 2009 results.

For first quarter, both the Hardgoods and Softgoods sectors exhibited double-digit aggregate sales growth, although rising costs and higher inventory investments led to bottom line and margin contractions for both sectors.

Sales strength on the Softgoods side was driven by several major contributors, including brand Adidas, Puma, Gildan, VF Outdoor and Under Armour, among others. Under Armour, which saw sales jump nearly 40% on strength from its apparel business and owned-retail business, reported recently that it expects to double sales over the next three years. Under Armour CEO Kevin Plank said the company expects growth to come from direct-to-consumer expansion as well as continued growth from the companys apparel business.

Adidas brand, which saw sales up more than 20 percent for the quarter, benefitted from strong sales in Latin America and 50 percent growth from its Sport Performance line. At Gildan, sales came in well above forecast, jumping more than 17 percent on strength from activewear and underwear.  Profits for Gildan, which recently acquired the GoldToe Moretz business to bolster their socks position in the U.S., improved by more than a quarter due to higher net selling prices along with the impact of more favorable income taxes.  At Nike, sales improved just better than 7 percent to $5.1 billion, but management noted that the company will begin to raise prices across its footwear and apparel range to mitigate the overall impact of higher input costs. Nike noted that rising costs of oil, cotton, labor and air-freight costs had hindered margins and earnings for the quarter.

VF Outdoor & Action Sports coalition sales soared in the high-teens on strength from the coalitions two largest brands – The North Face and Vans, each of which achieved global revenue growth close to 20 percent. Earnings at VF Outdoor were up in the low-teens.  Also of note, Wolverine World Wide saw sales and earnings improve 16 percent and 31 percent, respectively, on strength from its Chaco and Cushe brands as well as its new Merrell Barefoot category.

Earnings for the Softgoods sector slipped 3.1 percent despite notable bottom-line growth from VF Outdoor, Iconix, Crocs and VF Imagewear.  Broder Bros. and Rocky Brands each swung to a profit from a year-ago net loss while both LaCrosse and Quiksilver swung to a loss.  Of note, Quiksilver posted a revenue improvement for the first time in three years but reported a net loss of $83.3 million due to charges related to natural disasters in several of its Asia Pacific markets.   The other drag on profits was Skechers.

Overall margins for the Softgoods sector contracted nearly 70 basis points versus the year-ago period on the aforementioned rising costs. The aggregate return-on-sales for the quarter was 9.1 percent of sales, down slightly from the 10.4 percent ROS in the year-ago first quarter.
For the Hardgoods sector, aggregate sales improved nearly 11 percent while gross margins contracted by 60 basis points.  Eighteen of 21, or 86 percent, of reporting companies, reported revenue growth for the first quarter.  Leading the way were Adams Golf (+35.0 percent), Amer Winter/OD (+28.5 percent), Jarden Outdoor (+10.3 percent), Precor (+22.7 percent) and TaylorMade (+26.0 percent), among others. Of note, the golf sector, which has been up-and-down during the recession and highly reliant on clearance sales and promotions, recorded a 7.5 percent jump in sales versus the year-ago period, although margins contracted by an average of 160 basis points and profits fell 11.1 percent, thanks to a profit decline at Callaway Golf.

Overall earnings for the Hardgoods sector were up 9.2 percent versus the year-ago period, with several brands, including Precor, Nautilus and Cybex, swinging to a profit in the first quarter from year-earlier losses. When backing out Jardens 60 percent-plus bottom line, however, the aggregate bottom line for  Hardgoods manufacturers dipped 0.6 percent for the quarter.

Compared to the first quarter of 2010, overall vendor inventory levels increased over 24.1 percent in first quarter of 2011.