Acquisitions continued to play a diminished role in the results of public companies in the sporting goods industry in the second quarter, but organic sales growth still managed to outpace earnings growth by a wide margin for the period in the Softgoods sector, mostly attributable to an earnings decline at Nike, Inc. and losses posted at Timberland, while the Hardgoods sector saw profits outpace sales gains by a 10-to-1 margin, thanks to a sharp reduction in the quarterly losses posted by ICON Health & Fitness and Salomon.
With the last of the first quarter reports now filed with the SEC, Sports Executive Weekly presents a wrap up of industry public company results presented in the charts on pages four and five. Results are posted for those companies that have reported results for the period ended closest to the end of June. A complete analysis of the quarter is included in the full quarterly report due later this month.
At first glance, the Hardgoods sector looked like the place to be in the second quarter, but much of the bottom-line improvement came as a direct result of the deep losses posted at ICON in Q2 last year. Excluding the ICON and Salomon improvements, the balance of the Hardgoods sector just barely eked out an increase in profits for the period.
Total sales increased 12.6% in the first quarter for those companies tracked in this report, while net income rose 11.3% for the period, the same rate of growth in Q2 last year. Because the report is not a clear picture of the entire industry, SEW feels the total numbers are less significant than the trending information provided in the percentage increases and decreases. Return on Sales, which is the measure of net income as a percentage of sales, was flat for the quarter versus the year-ago period, coming in at 6.6% of sales for the period, a 10 basis point decline from second quarter last year and 120 basis points lower than the ROS figure for Q1 this year.
The ROS figure can be skewed a bit by the companies whose profit is represented by operating income or EBIT, rather than net income.
It is best to use the ROS measure to look at the performance of a particular company versus its results in the year-ago period, or to assess companies that report on a like-for-like basis.
For the second quarter, the gross margin for the reporting companies averaged 44.3% of sales for the quarter, up 475 basis points from the year-ago period, and up 340 basis points from the average gross margin in the first quarter. Softgoods GM jumped 625 basis points, while Hardgoods GM declined 100 basis points.
The Softgoods sector only saw about 110 basis points of growth coming from acquisitions in the quarter, about a third of the basis point growth from Q2 last year. Companies in the Softgoods sector, which includes Footwear and Apparel, saw profit growth slow to roughly a quarter of the sales growth for the period. Organic sales growth was pegged at 13.0% for the sector. However, when excluding the Nike impact on the quarterly sales and profit numbers, profit growth increased just over 10% while organic sales growth increased to more than 16% for the quarter.
Phoenix Footwear and Quiksilver added the acquisition gains for the period, but the sector also saw big growth from newly-minted public companies like Crocs, Under Armour, and Volcom, all of whom added to the growth for the sector, while Under Armour got half of its growth from the addition of cleated footwear that didnt exist in Q2 last year. Crocs had the most sales growth in the sector at 232% and also posted the largest increase in net income with a 368% gain on the bottom line. Under Armour was number two in sales growth in Softgoods, but net income growth came in at nearly half that rate due to increased investments in footwear and a 240 basis point decline in GM attributed in part to the move into the category.
Sports Executive Weekly is still approaching the Hardgoods sector a bit differently for the quarter, opting to exclude the marine divisions of Brunswick from the report due in large part to SEWs constituency, which, for the most part, is not in the boat business. The other factor that weighed in the decision was the ability for those businesses to skew the numbers a great deal, while having little impact on the retail businesses covered.
Organic sales in the Hardgoods sector were up 5.0% for the period, thanks in part to a better Golf segment business and continued health in the Fitness segment, excluding the ICON business. Atomic Ski (-28.2%) and Aldila (-20.3%) were the biggest decliners for the Hardgoods sector, while Easton-Bell Sports, Thule, and TaylorMade-adidas Golf all saw strong double-digit gains from acquisitions. Adams Golf was the biggest gainer on an organic basis. The Easton-Bell Sports business was up 7.7% on an organic basis.
Total Golf segment revenues were up 6.1% for the period, or up 2.1% on an organic basis. Last years sector-leading growth at Adlila (+53%) gave way to a decline in Q2 this year and that could signal a slowdown in the wholesale business going into the back half of the year. TaylorMade led the Golf category this year, posting its second consecutive quarter with revenue growth in excess of 30% for the period when measured in U.S. Dollars, thanks in large part to surging adidas Golf footwear and apparel sales and the inclusion of the Greg Norman Collection business from the acquisition of Reebok. Excluding the GNC business, TM-aG revenues would have increased 12.0% when measured in U.S. Dollars. A heavy promotional environment at retail during the quarter hurt all the Golf companies on the GM line for the segment, which declined an average of 265 basis points for Q2 to just under 40% of sales.
In Fitness, the sales declines at ICON Health & Fitness cut into improvements at other companies, but the narrower loss at the company also cut the bottom line loss in the segment by almost 75% versus Q2 last year.
Look for a full recap of the second quarter retail business in next weeks SEW.
