Despite the fact that the media is hyperventilating over worries about
the burst in the private equity funding bubble, the credit crunch and
sub-prime lending problems, softgoods marketers in the sporting goods
industry went about business as usual in the second quarter, resulting
in a quarterly review relatively void of extraneous outside influences
that have shifted the numbers a great deal in the past.
With the last of the second quarter reports now filed with the SEC,
Sports Executive Weekly presents a wrap up of industry public company
results presented in the chart on page three. 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. Because the report is
not a total picture of the entire industry, SEW feels the total numbers
are less significant than the trending information provided in the
percentage increases and decreases.
According to the data compiled by SEW, the overall softgoods market
performed very well as sales grew in the low-teens, while net income
grew in the mid-20s. Collectively, margins for softgoods vendors grew
approximately 55 basis points to 44.1% of sales, while return on sales
improved approximately 90 basis points to 8.7% of sales for the second
quarter versus the prior-year period.
According to retail point-of-sale data compiled by SportScanINFO,
retail sales in the softgoods sector were also rather healthy for the
second quarter, although not trending as high as the sell-in numbers
generated by the reporting companies on page three. Based on the SSI
data, sales of Sport Footwear and Sport Apparel at retail both posted
gains in the mid to high-single-digits for the retail second quarter
through July, while Licensed Apparel sales were up in double-digits
over the same period. Much of the product shipped by vendors in later
half of the second quarter was earmarked for the back-to-school season,
which continues to slide further into the retail third quarter (see
report coming in SEW_0740).
Looking at the overall softgoods report for the period, expense
containment was a clear focus as consolidators looked to highlight the
upside of integrating new brands and others prepare for a possible
rocky road ahead. That expenses were a focus becomes readily apparent
when looking at Brand adidas, where net income jumped 41.5% despite
slightly diminished margins and only 6.7% sales growth. Management
attributed the improvement to “integration-driven cost synergies,” in
their quarterly report. Excluding the adidas result alone brings the
overall softgoods net income growth down to just below 20%, while sales
growth stays in the low-teens.
Back on the top-line, for the most part, what you see is what you get
as the only acquisition-based derivations come from VF Corp.s
acquisitions of Eagle Creek and Majestic Athletic, together accounting
for approximately $50 million in revenues, but only affecting overall
growth by a half percentage point.
Heelys added nearly a half percentage point to the overall sales
increase with its more than doubled sales in Q2, but the look to Q3
does not seem quite as bright for the brand. More troubling is the
effect of HLYS on the bottom line, where the company buoyed
softgoods-wide net income by a full percentage point.
With reports of retailers chock-full on Heelys inventory surfacing, and
data on the SportScanINFO system signaling negative trends for
back-to-school, the boost provided by HLYS to the overall profit line
for the softgoods market may very well turn into a liability in the
third quarter. The other newcomer from last year, Crocs, remains on a
steep growth curve, posting the largest sales gains of any company on
the chart, boosting total softgoods revenues to over a full percentage
point and profits by just under 400 bps.
The issues at Quiksilver highlighted on the softgoods report stem from
the acquisition of Rossignol and Cleveland Golf, which may both be sold
off shortly (see the article page 6). Without Quiksilver in the mix,
softgoods income would have increased 28%, though sales growth would
have been slightly less. The company is seeing big numbers out of
their DC Shoes brand, which has been a winner during the back-to-school
season.
While its becoming increasingly difficult to assess trends of footwear
companies versus apparel companies, the vendors that are primarily
footwear vendors come out on top, even though apparel had slightly
higher sales. As a whole, apparel vendor sales increased in the
mid-teens for the quarter, but net income dropped in the mid-20s as a
result of gross margins decreasing by more than 100 basis points.
Return on sales for the apparel guys decreased 290 basis points to 4.5%
of sales.
Footwear vendors, on the other hand, led by the likes of adidas and
Crocs, saw sales grow in the low-teens, but an 80 basis point increase
in gross margins (just enough to offset the downturn in apparel margins
on an overall basis), caused the profit line to grow just over 30% for
Q2.
Within footwear, outdoor brands performed better than athletic on both
the top- and bottom-line in percentage growth terms, but athletic saw
larger absolute dollar growth. Return on sales increased 150 basis
points for footwear vendors as a whole, while growing nearly the same
for athletic and at 210 basis points for outdoor.
>>> Look for a review of the Q2 Hardgoods market in SEW_0739…
