With the last of the third 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 8 and 9. Results are posted for those companies that have reported results for the period ended closest to the end of September. 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.
Net sales reported by Softgoods vendors increased 10.6% on a combined basis led by Crocs, which more than doubled sales, and strong growth at Deckers, Under Armour and Volcom. The Nike and the VF Outdoor businesses, though slower on a percentage basis than the growth companies, buoyed overall sales with strong growth off a large base.
The Softgoods market further benefited from the weakened U.S. Dollar as sales that were negative in Euros for Reebok and Puma saw positive growth when converted to U.S. figures. Additionally, the 3.4% growth seen by adidas in Euros was even stronger when measure in Dollars.
Apparel vendors saw faster growth in the third quarter, with sales jumping 13.9%, than Footwear, where sales grew 9.8% for the period. Apparel vendors, however, saw Quiksilvers reported loss, combined with Warnaco Swim and Delta Apparel, completely offset profits from the other vendors. When using ZQKs adjusted results, profit for the apparel group grew 10.1% for the quarter, slightly behind sales growth.
More troubling here was the collective 25.7% jump in inventories at quarter-end led by Under Armours 102% spike. Even without UA, all of the apparel vendors saw double-digit inventory growth; a trend made all the more worrying when compared to SportScanINFO retail point-of-sale data that indcicates that Sport Apparel sales for the month of November were just below flat, while down in the high-teens for fiscal October. All cold weather categories were affected, from compression apparel to hunting apparel to outdoor outerwear and baselayer goods. Whether this recent cold weather trend will fuel enough late season growth to offset the early season lull at retail or just support normal fourth quarter sales remains to be seen.
Outdoor Footwear sales growth outpaced Athletic Footwear in the third quarter by approximately 400 basis points, but Athletic saw stronger gross margin improvement, leading to much higher growth on the bottom line. That the much larger Athletic Footwear sector posted 8.8% sales growth is impressive, with only K-Swiss and Heelys posting sales decreases in U.S. Dollars for the quarter.
As Sports Executive Weekly forecast in the second quarter report, Heelys, which had previously been a boon to the Athletic Footwear market, turned into a burden in Q3 with sales decreasing 31.2% and slowing overall Athletic Footwear growth by nearly half a percentage point. With the brand now moving into the Family Footwear channel and Sporting Goods retailers dumping the product at half the retail prices seen last Christmas, Heelys, which is carrying inventory at twice the levels of last year, will probably see margins continue to drop along with the bottom line as they move into the fourth quarter and holiday periods.
Strong bottom line growth from Nike and Reebok in the quarter fueled the overall Athletic Footwear market to a 28.8% jump on the bottom line, which well outpaced profit growth amongst Outdoor Footwear companies. For Outdoor Footwear vendors, third quarter sales grew 13.6%, led by Crocs and Deckers. This segment, however, did not have the integration work seen at adidas, nor the back-end work seen at Nike to help boost net income growth.
Phoenix Footwear posted extreme bottom line growth following the sale of Royal Robbins to Kellwood, but off a small base that was barely enough to move the needle.
Overall profits for Outdoor Footwear companies jumped 15.6% with Phoenix, Deckers and Crocs offsetting decreases at Rocky Brands and Timberland.
As a whole, Softgoods gross margins saw a few wild swings in terms of basis point changes relative to sales, but the shifts were at smaller companies who combined accounted for just over 1% of overall Softgoods margins for the quarter.
Fueled by the major players, especially the combined adidas/Reebok entity, Puma and Nike, overall Softgoods margins increased 135 basis points to 45.5% of sales for the third quarter. The margin improvement on top of the strong sales result in Softgoods fueled a 12.9% jump in overall net income for the third quarter with those same major forces having the largest sway.
Were it not for Quiksilvers large net loss due to the sale of the Cleveland Golf business, overall Softgoods profits for the market would have increased 24.2% for the third quarter.
Hardgoods sales growth was once again driven by the Golf market, while growth in Fitness effectively offset the sales decrease in Snow Sports. On a consolidated basis, sales by Hardgoods vendors increased 6.0%, but gross margins increased only 30 basis points. As a result, net income for the group decreased 9.4%, while return on sales decreased a full percentage point to 6.0% of sales from 7.0% in the year-ago quarter.
Excitement in the golf market around new technologies and products helped fuel a 9.5% sales increase for Q3 for the vendors collectively. Adams Golf and Callaway paced the industry, while TaylorMade-adidas Golf benefited from the Dollar turning a decrease in Euros around. The shaft manufacturers, however, slowed the pace, with Aldila and True Temper both posting double-digit sales declines for the quarter. Excluding these two, the Golf market saw sales increase 10.0% for the period.
Margin work at Callaway and TM-aG more than offset decreases at Adams, Aldila and True Temper, helping to fuel a 31.0% jump in profits for the sector. Return on sales grew nearly a full percentage point to 5.8% of sales for the golf segment, while even more impressive was the 9.3% decrease in inventories.
The Snow Sports vendors saw sales decrease 3.3% for the quarter, a slump that would have been much worse were it not for the offset of currency exchange rates and strong softgoods sales at Salomon.
When looking only at Salomons Winter Sports division, Snow Sports sales decreased 14.4% for the quarter as retailers remained glutted with inventory following last years poor season. Amers focus on improving operations at Salomon helped the Snow Sports segment at least post a bottom line improvement for the quarter. However, if this season proves as poor as last, this segment will be in for rough times as sales misses translate to bottom line pain.
Fitness segment vendors posted a collective 3.2% increase in Q3 sales, effectively offsetting the decrease in Snow Sports. Nautilus was the only Fitness vendor to see a decrease in sales for the quarter, while Amers Precor division and Brunswicks fitness business led the way. However, Cybexs opening of new facilities and Nautilus restructuring efforts hampered margins, causing profit for the overall segment to decrease over 50% for the quarter.
