New Products and Emerging Markets Propel Amer Sports to Record Sales, Flat Profits

Sales increased 8 percent in currency neutral (c-n) terms during the quarter, driving by Sports Instruments (Suunto, +27 percent), Footwear (Salomon, Wilson, +19 percent), Fitness (Precor, +21 percent) Ball Sports (Wilson, +13 percent), Apparel (Arcteryx, Salomon, Wilson, +17 percent), and Cycling (Mavic, +8 percent).

In the Americas, revenues grew 5 percent to €224.8 million, or 50 percent of the companys sales for the quarter. That was a point higher than the fourth quarter of 2011. In EMEA, sales grew 10 percent to €305.3 million, or 36 percent of company revenue, down a point. Sales in the Asia-Pacific region increased 12 percent to €88.4 million, remaining at 14 percent of company sales. Sales grew 16 percent in Russia, 44 percent in China and 13 percent in Latin America. Together, these emerging markets generated 8 percent of sales, up from 7 percent in 2011 and 5 percent in 2010. 

Gross margin dipped 50 basis points to 41.9 percent of revenues due to primarily to higher close outs sales and lower production of skis and other Winter Sports Equipment.

We entered the year with higher inventories on Winter Sport Equipment because the end of 2011 sales were lower than expected, said President and CEO Heikki Takala. And then as the preorders were lower…we produced less.

Earnings before income taxes (EBIT), excluding the non-recurring restructuring charge, were €46.5 million, or essentially flat with €46.3 a year earlier. The charge caused earnings per share to plummet to €0.05 from €0.25 a year earlier.  Excluding non-recurring items, earnings per share were €0.22, compared with €0.25 in the fourth quarter of 2011.

Net cash flow after investing activities was €96.7 million (€49.0), mainly driven by decreased working capital. The company ended the year with a debt of €434.3 million, up 10.9 percent, but has no significant long-term refinancing needs until 2015.

Revenues at the Winter and Outdoor division, rose 5 percent (7 percent c-n) in the fourth quarter to €402.8 million. The growth was driven by Apparel sales and Suunto. The winter sports equipment business was able to maintain mid-single digit profitability despite an 1 percent decline in sales (-3 percent c-n).

The division accounted for 65 percent of company revenue, down from 67 percent in 2011. EBIT for the division, excluding the non-recurring restructuring charge, fell 7 percent to €41.7 million.

For all of 2012, Europe accounted for 63 percent of Winter and Outdoor sales, or €774.4, up 2 percent c-n. The Americas accounted for another 24 percent, or €289.5 million of sales, up 6 percent. Asia-Pacific contributed the remaining 13 percent, or €157.3 million, which was an increase of 12 percent.

In 2012, our Winter Sports Equipment business was adversely impacted by the previous mild and late winter, and whilst the business did pick up in the fourth quarter, the full year sales were down by 8 percent, said Takala. Encouragingly, due to our operational efficiency program Focus, Winter Sports Equipment safeguarded mid-single-digit profitability despite the sales decline.

Apparel sales rose 17 percent (12 percent c-n) in the fourth quarter and 30 percent in the full year with Salomon and Arcteryx both posting double-digit growth. Softgoods sales broke the €600 million mark for the year and now contribute 30 percent of the groups sales. Footwear (Salomon) sales grew 19 percent (17 percent c-n) in fourth quarter.  Cycling (Mavic) grew 8 percent (7 percent c-n) powered largely by soft goods and Sports Instruments (Suunto) grew 27 percent (25 percent c-n). 

Fourth-quarter sales at the Ball Sports division, which consists of the Wilson brand, grew 13 percent (17 percent c-n) to €127.7 million and accounted for 21 percent of sales, up 3 points from 2011. Ball Sports EBIT reached €1.0 million, compared with a loss of €700,000 a year earlier. For the full year, sales of Individual Ball Sports grew 7 percent as sales of tennis rackets and tennis balls grew 14 and 6 percent respectively. Team Sports sales grew 3 percent despite a decline in baseball bats. Unfortunately there is the trade inventory overhang in the US, so that’s weighing a bit on the team results, said Takala.

The Americas accounted for 65 percent of Ball Sports 2012 sales, or €370.1 million, up four percent from 2011. EMEA accounted for 21 percent, or €118.0 million and Asia Pacific for 14 percent, or €81.6 million.
 
In the Fitness division, where the Precor brand is also in turnaround mode, revenues grew 17 percent (21 percent c-n) to reach €88.0 million, or 14 percent of revenue, up a point from 2011. For the year, sales rose 10 percent, with sales growing 28 percent in EMEA, 21 percent in Asia Pacific and 3 percent in the Americas. 

The Americas accounted for 64 percent of Fitness revenue for 2012, or €174.5 million, up 3 percent. EMEA accounted for 26 percent, or €70.3 million, up 28 percent, while Asia Pacific, accounted for 10 percent, or €28.3 million, up 21 percent.
The company ended the year with €336.7 million in inventories and work in progress, down 6.8 percent from a year earlier. Amer Sports owned or is a partner in 201 brand stores and 20 e-commerce sites.

Takala said the 2012-13 winter has started very well n Europe and Asia but not as good in North America. He said it is difficult to know how much winter sports equipment remains unsold globally and does not expect to have much visibility into the inventory situation for two more months. Regardless, Amer Sports launched a restructuring program last fall that aims to take €20 million in annual costs out of its Winter Sports equipment business by the end of 2014. That should enable the business to profit in good and bad snow years. The restructuring will result in the elimination of 250 jobs.

The company expects to grow revenues, gross margins and EBIT in local currency terms in 2013 despite the challenging environment in Europe by continuing to grow its soft goods business, drive down costs at its winter sports equipment business and expand sales in emerging markets.