Performance Sports Group Q4 Impacted by Currency Woes

In reporting preliminary fourth-quarter results, Performance Sports Group Ltd. (PSG) said foreign exchange (FX) impacted fourth-quarter results by 13 cents a share, resulting in adjusted net income of approximately $8 million, or 17 cents per share.

Results came in below Wall Street’s consensus estimate of 22 cents a share and was down from the reported 29 cents earned on a reported basis a year ago.

PSG officials took the unusual step of holding a conference call to explain the currency impact and show that the company’s underlying fundamentals remain healthy. Weakness in the Canadian dollar, which accounts for about a third of revenues, is particularly impacting results, as well as its exposure to hockey, which represents nearly all of its revenues generated outside of the U.S.

“The most important message today is that the fundamental building blocks of shareholder value that we have continued to describe to investors and analysts are performing quite strongly,” said Kevin Davis, PSG’s president and CEO, last week on the call.
 
Amir Rosenthal, president, PSG brands and EVP, finance & administration, CFO and treasurer, also noted that the company had warned in reporting third-quarter results that FX would have a “very large impact” on the fourth quarter and the first half of fiscal 2016, but the warning had been “significantly underestimated in current published consensus numbers.”

Currency-neutral adjusted net income in the fourth quarter is expected to be approximately $14 million, or 30 cents a share, versus $10.8 million, or 29 cents, a year ago, representing a gain of 29.6 percent.

Excluding the 9-cents-per-share gain from the BRG Sports intellectual property litigation settlement in the year-ago fourth quarter, currency neutral adjusted net income is expected to increase approximately 85 percent while currency neutral adjusted EPS is expected to increase approximately 50 percent. The company’s number of shares grew in the latest period due to its June 2014 initial public offering.

Adjusted for the litigation and foreign exchange impact, reported earnings of 17 cents would have compared to 7 cents a share.

Fourth-quarter sales on a currency-neutral basis jumped 38 percent to more than $156 million. The gains reflected a 16 percent increase in its hockey business, which includes Bauer, and the addition of Easton for a full quarter. On a reported basis, sales were up approximately 30 percent to more than $147 million.

For the full year, currency neutral adjusted net income is expected to increase 64.9 percent to $61.5 million or $1.33 per share, compared to $37.3 million, or $1.00, in fiscal 2014. Excluding the litigation settlement, currency-neutral adjusted net income is expected to increase approximately 80 percent while currency-neutral adjusted EPS is expected to increase approximately 45 percent.

With foreign exchange expected to lead to a 30-cents impact, reported EPS is expected to be approximately $48 million, or $1.03. Adjusted for the litigation and foreign exchange impact, earnings would have risen 58.7 percent to $1.03 from 63 cents a share.

For the full-fiscal year, currency-neutral sales are expected to climb 51 percent to more than $675 million. Including the impact of FX, reported revenues reached more than $654 million, up approximately 47 percent.

For the current fiscal year, unfavorable currency movements are expected to continue in the first half of fiscal 2016. Results are expected to be particularly impacted in the first quarter, when hockey typically represents more than 35 percent of its total revenues as compared to around 20 percent in the fourth quarter.

Hockey revenues are expected to decline in the first quarter due to the launch of only one family of equipment this year versus two families last year. Easton results will also be impacted by the launch of one Mako bat this year versus two last year in addition to increased investments to grow Easton’s category infrastructure outside of bats.

“We remain very bullish about FY16,” added Rosenthal. “We expect for the year that on a currency neutral basis all of our businesses will grow faster than their underlying markets and that profits will grow faster than revenues. To be clear, that is our expectation for the full-year and may not be true in every quarter for every brand.”

Elaborating on the progress across its business segments, Davis said hockey revenues grew 13 percent in its 2015 fiscal year on a currency-neutral basis, and expanded market share from 54 percent to an estimated 56 percent over the year. Added Davis, “We grew or maintained our market share in every category despite having certain market shares in excess of 65 percent and an overall market share that started the fiscal year at 54 percent.”

During the recent NHL Stanley Cup finals, Bauer was the leading equipment brand at 83 percent market share in skates, 41 percent in sticks, 54 percent in helmets, 46 percent in gloves and 55 percent in pants.

In apparel, sales grew 59 percent in the fourth quarter and 36 percent for the entire year. The uniform business grew more than 80 percent in the quarter and 50 percent in the year while performance apparel climbed over 120 percent in the quarter and over 50 percent in the year.

Davis also reiterated that Bauer plans to bid for the NHL jersey license with the current contract with Reebok ending in 2016. While highlighting the license’s potential to boost hockey apparel revenues, Davis also cautioned that Bauer has close to 100 percent name recognition in hockey and another brand may bid more to gain name recognition. He added, “We value our strong relationship with the NHL and no matter what the outcome we will look for ways to enhance our partnership with the best league in the world and provide the highest performing products to their athletes.”

Davis also noted that Bauer’s first retail store, called Own the Moment, will open in September just outside of Boston with a second to open in Bloomington, MN in late fall. The store openings are projected to be less than 1 cent dilutive to adjusted EPS in fiscal 2016 and accretive in fiscal 2017.
 
In its baseball segment, Easton had a total of 17 teams in the College World Series, more than any other baseball brand. Several introductions are planned in non-bat categories, which is expected to outpace the year-over-year bat growth in fiscal 2016. Easton will also be entering the Japanese market this year.

Combat is benefiting from a strong response to its Maxum line of bats and gaining increased distribution, which Davis called “an encouraging development for what has historically been sold in specialty retail.”

In lacrosse, Maverik grew 27 percent in fiscal 2015. Five Maverik schools made it to the top 16 NCAA tournament and the brand added High Point University and Penn State to its roster of endorsed schools last year. The Cascade helmet brand is expected to benefit from the expected approval of a new women's lacrosse performance standard for new headgear.

“Our M&A pipeline continues to be quite full and there are plenty of exciting organic growth opportunities,” added Davis. “We could not be more excited about the future of our business.”