Amer Sports is ramping up investments in its omni-channel strategy to deal with changes that have weakened the U.S. market. The group suffered a decline in underlying operating profit for the first quarter and its earnings were hit by unfavorable hedging rates.
Heikki Takala, Amer's chief executive, explained in a conference call with analysts that consumer habits are changing more rapidly than anticipated. The extra investments in the Finnish group's digital transformation should weigh on short-term profit margins but they should yield more long-term benefits.
Takala said that the investment was required to adjust the organization, to build databases faster, to bring more consumers into the funnel and improve conversion. The group particularly wants to interact more directly with consumers, including the expansion of online sales with an extra ten to 15 online stores by the end of this year.
The owner of Salomon, Arc'teryx, Atomic, Wilson and many other brands saw its turnover increase by 4 percent to €661.6 million for the quarter. This amounted to a rise of 2 percent in constant currencies, driven by an increase of 14 percent for apparel. Own retail sales jumped by 27 percent, with an increase of 43 percent for online sales and a comparable store sales rise of 6 percent. The Finnish company enjoyed double-digit sales growth in China and in winter sports equipment, although the first quarter is relatively small in this category, and the fitness division has started to rebound.
The weakness of the U.S. market most strongly affected sales of footwear, which moved up by just 2 percent in constant currencies for the quarter. Takala said that pre-orders were sluggish but sell-through of footwear was strong and online sales of footwear advanced at double-digit rate.
However, the group's gross profit margin was down by 2.1 percentage points to 45.3 percent for the quarter, which was blamed on less favorable hedging rates on the U.S. dollar. This factor had an impact of €15 million on the group's earnings before interest and tax (Ebit), which shrank by 17 percent to €38.2 million before one-off items. It spent €6.7 million on its restructuring program for the quarter, while it had to write down €6.3 million due to the situation with The Sports Authority in the same quarter last year. Amer Sports' net profit slipped by 16 percent to €19.5 million.
The outdoor division raised its quarterly sales by 6 percent to €396.2 million, which was a rise of 4 percent in constant currencies. It was spread evenly in geographic terms, with increases of 4 percent in the Americas and in Europe, the Middle East and Africa (EMEA), while underlying sales were up by 3 percent in Asia Pacific.
Amer Sports said that the outdoor division's sales were affected by high trade inventories in the U.S. market, which mostly impacted footwear and cycling sales. Apart from the sluggish increase of 2 percent in footwear, the group's turnover in cycling products, mostly from the Mavic brand, was down by 6 percent in constant currencies.
| Amer Sports Consolidated Income Statement | |||
| (Million Euros, Quarter ended March 31) | |||
| 2016 | 2016 | % | |
| Winter and Outdoor | 396.2 | 374.4 | 5.8 |
| Ball Sports | 184.9 | 186.7 | -1.0 |
| Fitness | 80.5 | 74.4 | 8.2 |
| NET SALES | 661.6 | 635.5 | 4.1 |
| Cost of Goods Sold | 362.0 | 334.0 | 8.4 |
| Licence Income | 1.3 | 1.8 | -27.8 |
| Other Operating Income | 1.8 | 0.8 | 125.0 |
| R&D Expenses | 26.8 | 22.3 | 20.2 |
| Selling & Marketing | 195.0 | 184.4 | 5.7 |
| Admin. and Other Expenses | 49.4 | 57.7 | -14.4 |
| Net Interest expense | 5.2 | 7.9 | -34.2 |
| Pre-Tax | 26.3 | 31.8 | -17.3 |
| Tax | 6.8 | 8.6 | -20.9 |
| NET | 19.5 | 23.2 | -15.9 |
| Euro/Share (Diluted ) | 0.17 | 0.20 | -15.0 |
The Arc'teryx brand fueled the uptick of 14 percent in apparel sales, while the favorable winter conditions in many key markets pushed up sales of winter sports equipment by 18 percent in constant currencies. The Suunto brand suffered an underlying sales decline of 26 percent in the sports instruments category, due to the timing of product launches. The outdoor division's Ebit contracted by nearly 24 percent to €28.8 million excluding one-off items.
With Wilson and other brands, the ball sports division's turnover dwindled by 4 percent in constant currencies, down by 1 percent in reported terms to €184.9 million. It retreated in the Americas and in EMEA but managed an underlying increase of 5 percent in Asia Pacific.
The downturn in ball sports was again attributed to the situation in the U.S. wholesale market, along with de-stocking of baseball products ahead of changes in bat regulations in early 2018. Underlying sales were down by 4 percent for team sports and 3 percent for individual ball sports. Then again, the group claimed gains in market share in the performance tennis category, and Takala said that ball sports achieved high double-digit growth in own online retail sales. The whole ball sports division's Ebit declined by 13 percent to €16.5 million excluding one-off items.
After some delays, product launches led to an uptick of 8 percent to €80.5 million in quarterly sales of the fitness division, which includes the Precor and Queenax brands. Its turnover was up by 6 percent in constant currencies, with jumps of 16 percent in EMEA and 10 percent in Asia Pacific, and a smaller increase of 2 percent in the Americas. Operating profit before one-off items for the fitness division more than doubled but it remained unimpressive at €0.7 million.
The company predicts that its sales will increase in constant currencies for the year, but the growth is projected to be biased to the second half of the year. Amer Sports says that shipments should start to improve again, after the delays in the impact of some product launches and the U.S. market issues. Operating profit before one-off items is projected to be stable, as it includes extra investment for the group's digital development.
