Outdoor and active lifestyle retailers and vendors reported big gains in the first fiscal quarter of 2010, adding to the evidence that the outdoor sector is well on its way to a rebound. In spite of these strong results early in the year, consumer confidence and spending is still a major concern and the industry remains cautiously optimistic about the remainder of the year. In fact, reports continue to come in suggesting that spending has slowed slightly in the last few weeks. The question about whether or not this trend will continue remains to be seen.
With the last of the first quarter reports now filed with the SEC, The B.O.S.S. Report presents a wrap-up of industry public company results shown in the chart on page 3 of this issue. Results are posted for those companies that have reported results for the period ended closest to the end of March. Because the report is not a total picture of the entire industry, BOSS feels the total numbers are less significant than the trending information provided in the percentage increases and decreases.
Looking at all outdoor companies covered in this report both vendors and retailers the industry saw top line sales increase 10.5% on average. Gross margins increased 130 basis points which helped the average net income more than double compared to the first quarter of 2009. Return on sales (a metric measuring profitability as a function of sales), doubled from 2.6% in the first quarter of 2009 to 5.2% in the first quarter of 2010.
Softgoods companies (footwear and apparel) reported the strongest top-line and bottom line growth, more than doubling profits for the quarter. While sales growth was widespread throughout the Softgoods sector-with every company posting at least mid-single digit increases-footwear companies seemed to fare slightly better than apparel.
The strongest top-line growth rate came from LaCrosse, spurred by stronger military sales. Surprisingly, right behind LaCrosse was Crocs, a company that many in the industry had written off as another casualty of shifting consumer taste.
Gross margins also jumped in the first quarter for Softgoods vendors. Every company reported increasing margins except for Rocky Brands. Crocs realized a nice return to higher margins, too.
Among Softgoods companies, return on sales increased to 10.2% compared to 5.7%. Footwear companies and apparel companies realized equally strong net income growth in the quarter. Wolverine World Wide net income jumped 161.6% for the period and was clearly the company with the highest growth rate.
Softgoods companies also realized a nice double-digit decline in inventories, which also helped boost profits. On average the sector saw inventories fall 13.1% with nearly every company reducing its stock on hand.
Hardgoods companies are racking up solid improvements to operating costs and many of the restructuring initiatives started in the past year are paying dividends. However, the Hardgoods sector still saw the slowest growth rates in the industry in both sales and profits.
Every Hardgoods company except Shimano, which is facing some considerable competitive challenges to its bike component business, posted solid gross margin increases during the quarter. Excluding Shimano, Hardgoods sector gross margins would have been up more than 200 basis points on average.
Net income growth was a mixed bag among Hardgoods companies, with hefty declines coming from Jarden’s Outdoor segment and Easton Bell Sports. However, two companies involved in SnowSports Amer and Head saw a nice swing back to profitability in Q1. This boosted the overall sector’s performance and on average, net income grew over 20% for Hardgoods brands.
Among Hardgoods companies, return on sales increased slightly, bumping up 50 basis points to 4.6% in the first quarter of 2010 compared to 4.1% in the first quarter of 2009. Inventories were down among hardgoods companies as well, falling on average 13.1% for the quarter.
Retailer’s sales were also up for the quarter. On average sales increased 11.6% with Sport Chalet reporting the only decline in sales in the first quarter. Excluding Sport Chalet, sales would have been up 14.4% on average. Every retailer covered in this report was able to boost gross margins. For Lululemon, margins were up over 10 full percentage points.
With margins up, and inventories down, retailers were able to increase net income considerably. Last year, the average retailer’s first quarter net income was actually a loss of over $25 million. This year that average swung to a profit of over $50 million.
While the industry is showing big gains in the first quarter, many are wondering how double-digit growth rates in both sales and profits can possibly be sustainable in today’s current economy. Many retailers are already seeing signs of a slowdown in consumer spending and unemployment is still hovering around 10% across much of the country.
With so many unstable variables at play, many leaders in the industry remain very cautious. However, there has also been talk of more M&A activity on the horizon, which could be a sign of increased confidence in the back half of the year.
