Industry Vendors See Q2 Sales and Profits Shrink

While the declines were reflected across much of the market, hardgoods vendors were again hit more severely for the period as the pull-back in consumer purchases of big-ticket items like fitness and golf clearly hurt results for those sectors. 

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

Overall, softgoods outperformed hardgoods across the board, but in this case that just meant “less negative.” Softgoods net sales were down in the low-teens for the quarter, a sharp reversal from the mid-teens growth of a year ago.

Softgoods gross margins shrunk approximately 225 basis points to 44.7% of net sales and consolidated profits, which is represented by net income for total company reporting and operating income or EBITDA for divisional reports, fell more than 30% as many softgoods vendors could not cut expenses deep enough to offset the sales and gross margin declines for the period.  Return on sales in the softgoods sector fell 230 basis points to just 8.6% of sales.

Only four softgoods companies managed to show a revenue increase for the second quarter, with Deckers (+12.5%) still getting a boost from the UGG phenomenon, LaCrosse (+7.8%) offsetting declines in outdoor with strong military boot orders, Puma realizing some upside (+4.1%) on foreign currency gains on growth in the U.S. and South America (the latter due in large part to a shift from distributors to direct revenues) and Under Armour (+5.1%), which got a lift from the addition of running footwear, expansion of owned-retail and apparel growth fueled by international and inventory liquidation.  Another, Iconix Brand Group (+9.1%) is considered in the apparel sector, but is essentially a licensing company for brands like Starter, Danskin and others at Walmart.

Not surprisingly, it was these same companies, along with Adidas Group and VF Outdoor, that were only firms to improve profits or swing into the black for the quarter.  Only five companies saw gross margins improve for the period.

Slicing the sales line a bit further finds the predominantly apparel companies and predominantly athletic footwear companies faring worse than the predominantly outdoor footwear companies.  Gross margins actually grew 145 basis points for the outdoor footwear companies, while GM shrunk 110 basis points for the apparel companies and fell 285 basis points for the athletic footwear guys.  Remarkably, only Heelys posted a GM gain in the athletic footwear segment, and only Adidas Group posted an improvement in the bottom line for the period.