Outdoor Market Records Improved Sales, Earnings in Q1, but Margins Contract on Input Costs

Stronger sales, however, were in some cases offset by higher costs as manufacturers and retailers alike saw margin pressures due to rising raw material and fuel costs.  The vendor side of the business was able to offset much of that margin pressure with increased higher-margin owned-retail revenues and reduced SG&A expenditures.

Likewise, the fact that overall inventory levels were up more that 20 percent during Q1 suggests that vendors may be planning ahead for higher input costs related to transportation and raw materials. The true test will come when soaring prices of oil 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.

First quarter sales were solid as consumers braved unfavorable shopping conditions during January and February.  Outdoor apparel accounts compensated for lost revenues normally generated by spring apparel by selling more full-price winter clothing and capitalizing on post-holiday sales.

Sales of Outdoor Hardgoods in the combined outdoor specialty channels, comprised of the consolidated Independent Outdoor Specialty and Outdoor Chain Specialty business, were up 1.5% to $58.4 million for the month ending January 29, 2011.

Referencing the BOSS chart on page 3, the first quarter saw 16 of 19, or just more than 84 percent of outdoor vendors, reporting revenue growth for the period. Of those reporting sales growth, all but two reported revenues increasing in double-digits.
On the Softgoods side of the business, Columbia Sportswear, Crocs, Deckers, Under Armour, VF Outdoor and Wolverine World Wide turned in the best revenue performances of high-volume vendors.

Aggregate revenues for footwear and apparel manufacturers improved by 18 percent while the average gross margin edged up by 35 basis points. Also of note, return-on-sales for softgoods vendors was a very-healthy 10.1 percent for the quarter, roughly flat to last years first quarter.

Footwear and apparel manufacturers saw their bottom lines improve by nearly 20 percent on significant earnings growth from Crocs, Wolverine World Wide and VF Outdoor while only one vendor, LaCrosse, posted a slight loss for the period, and only Timberland posted a decline in profits for the quarter.

At 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 more than 13 percent in the quarter.

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 its new Merrell Barefoot category.
For the Hardgoods manufacturers, overall revenues improved 13.2 percent although earnings dipped slightly, well off double-digit bottom line in the preceding quarters. All of the decline can be traced to Shimano, which was hit hard by the Japan earthquake and posted a 56.1 percent decline in net income for the period, and Head NV, which saw its loss more than triple for the quarter.  Excluding those two vendors, profits in the hardgoods sector would have been more than 35 percent in first quarter.  Two new high-growth vendors, Skull candy and SRAM International, have been added to the table on page 3 this quarter as the two await the mch-anticipated IPOs.

Aggregate Hardgoods gross margins were flat for the period.
Among the higher-volume Hardgoods vendors, Amer (+28.5 percent) and Jarden (+10.3 percent) exhibited the most notable revenue growth. At Amers Winter & Outdoor division, which includes ArcTeryx, Salomon, Atomic, Suunto and Mavic, good snow in North America as well as strength from the hiking and running categories in EMEA boosted the top line for the group.

 

At Jarden Outdoor, which accounted for than 30 percent of the segments total revenue, sales improved 10.3 percent while earnings jumped more than 60 percent. Also of note, Head N.V. recorded revenues in all three of its primary business segments, including a 6.9 percent in its Winter segment that resulted from weather-related drop-offs in re-orders through most of the quarter.

For the Retail sector, sales improved 6.5 percent with earnings up 54.4 percent for the quarter. Aggregate margins for the quarter improved 60 basis points. GSI Commerce, which recorded sales growth of nearly 19 percent for the quarter but was a perennial drag on the aggregate profit trend, was acquired by EBay this year and has been removed from the table on page 3.

At Dicks Sporting Goods, which accounted for nearly 40 percent of the segments total revenue by sales volume, sales improved a healthy 6.3 percent despite heavy rains in key areas of the country. Meanwhile, strong cost controls and higher merchandising margins helped the sporting goods giant beat preliminary EPS guidance and record 40 percent-plus bottom line growth.

Only Lululemon posted a double-digit revenue increase for the quarter, while three sporting goods chains languished in the low-single-digits as weather issues cut into spring apparel, footwear and equipment sales.  Still, aggregate profits for the Retail sector jumped as Cabelas, Dicks Sporting Goods and Lululemon each posted very strong bottom-line gains and Sport Chalet swung to a quarterly profit for the first time in 13 quarters.

Retail inventories were up 12.4 percent at quarter-end.