Amer Sports confirms its recovery

With favorable weather triggering buoyant re-orders, brisk sales of outdoor footwear and apparel in Europe continued to drive the recovery of Finland's Amer Sports group in the fourth quarter of last year. The expansion of the company's balls sports and fitness units remained weaker, but the group was in leaner shape at the end of a year characterized by restructuring measures as well as investments in marketing and retailing.

Marketed chiefly under the Salomon and Arc'teryx brands, the Amer group's outdoor footwear and apparel sales reached another peak in the last months of the year. Footwear sales jumped by 76 percent to €47.3 million for the quarter, an increase of 71 percent in constant currencies, and apparel sales were up by 34 percent to €63 million, amounting to a rise of 25 percent in constant currencies.

This performance lifted the revenues of Amer's entire winter sports and outdoor division, which were bolstered by favorable snow conditions and economic recovery in several large markets. Sales of winter sports equipment jumped by 24 percent to €252.8 million for the quarter, up by 19 percent in constant currencies. Weather conditions have remained favorable across most of Amer's markets so far this year, with some weaker patches in Central Europe.

Sales of sports instruments inched up by 2 percent in constant currencies but inflated by 8 percent in euros to €26.6 million, driven by outdoor products. Only the cycling unit saw its sales retreat by 1 percent to €26.8 million, a dip of 3 percent in constant currencies, partly due to lower OEM sales.

The winter sports and outdoor unit's sales jumped by 25 percent in Europe, the Middle East and Africa (Emea) to €294.5 million, and it achieved a sales rise of 38 percent to €70.2 million in the Americas. In Asia-Pacific, sales were up by 22 percent to €51.8 million, but this amounted to a lower increase of 7 percent in constant currencies.

The winter and outdoor division's sales ended the quarter at €416.5 million, up by 27 percent in euros and by 21 percent in constant currencies. Its Ebit climbed to €61.2 million excluding one-off items of €10 million, up from €42.5 million for the same quarter last year, owing to higher sales and gross margins.

Apart from this impressive performance in the winter and outdoor business, Amer Sports managed a sales hike of 13 percent to €107.3 million in ball sports for the quarter, up by 4 percent in constant currencies. As part of this division, the team sports unit had a robust quarter, with sales up by 7 percent in constant currencies, driven by bats and basket balls in the Americas. Golf did even better on the same basis, with sales up by 21 percent.

Then again, underlying sales of racquet sports products declined by 1 percent, plagued by the weakness of the Japanese tennis market. The turnover of the entire ball sports unit shrunk by 5 percent in Asia Pacific in constant currencies. While Wilson continued to garner strong orders of high-end performance racquets, its sales of lower-end products were sluggish.

The Ebit of the ball sports division turned into a loss of €2.7 million for the quarter, due to a lower gross margin and more spending on marketing. The golf unit by itself suffered an operating loss. The ball sports division's Ebit was further reduced by one-off expenses of €2.7 million, adding up to an operating loss of €5.4 million for the quarter.

Fitness sales increased by 1 percent to €59.6 million for the quarter, but in constant currencies they dipped by 6 percent. However, this includes a hit of €4.5 million due to an adjustment in the recognition of sales of extended warranties, and the unit's underlying sales were stable. Its Ebit excluding non-recurring items of €2.3 million was down by 4 percent to €4.3 million.

The entire group's quarterly sales were up in all regions, although the troubled Japanese market reduced the increase in the Asia-Pacific region to 3 percent in constant currencies. Amer ended the quarter with a sales increase of 21 percent to €583.4 million, up by 14 percent in constant currencies.

Bucking the trend of strong improvements in the last quarters, the group's gross margin was nearly stable for the quarter, due to an inventory clean-up and increased spending on air freight. Amer's managers warned that gross margins would remain a challenge this year, on account of higher labor and raw material costs, particularly for rubber and aluminum, although the group has mitigation plans.

In spite of the stable gross margin, Ebit before one-off items jumped to €56.0 million for the quarter, up from €44.4 million the previous year. This quarterly group Ebit includes increased spending of about €4 million on marketing and own retailing but excludes non-recurring items of €7.6 million. Among these is a capital gain of €7.4 million on the divestment of an unused French manufacturing site in Rumilly, which brought in €8 million.

For the full year, the entire group's sales were up by 13 percent to €1,740 million, which meant a rise of 8 percent in constant currencies. Again, it was driven by the growth of the winter and outdoor sports division, particularly in apparel and footwear.

Across the company, footwear sales climbed by 30 percent to €219.6 million and apparel sales by 15 percent to €156.6 million. In constant currencies, sales grew by 26 percent for shoes and a lesser 6 percent for apparel. Sales of winter sports equipment expanded by 18 percent to €438.4 million, while cycling was up by 6 percent to €106.4 million and sports instruments by 10 percent to €94 million – including a rise of 14 percent for outdoor sports instruments.

This added up to an annual sales hike of 18 percent to €1,015 million for the entire winter and outdoor sports unit, up by 12 percent in constant currencies. All regions contributed to the rise, with Emea achieving a sales jump of 15 percent in constant currencies.

Amer Sports managers predict further growth for the apparel and footwear units this year, on the back of strong pre-orders and investments made to further drill into their potential, including the appointment of separate managers for apparel and footwear last October. The company pointed out that, with sustained growth in the last years, apparel and footwear had already increased to more than 20 percent of its sales last year.

The ball sports unit managed a sales rise of 9 percent for the year to €520.6 million, up by 3 percent in constant currencies. This includes an increase of 4 percent for racquet sports products to €232.5 million, although they dipped by 1 percent in constant currencies, hit by a drop in Asia-Pacific.

Amer's fitness unit saw its sales expand by 6 percent to €204.8 million for the year, although they inched up by just 1 percent in constant currencies. Their underlying decline in the Americas was compensated by expansion in Emea and Asia Pacific. Sales to fitness clubs climbed by 2 percent in constant currencies for the year, with a marked improvement in the second half in all the regions.

The entire group's Ebit more than doubled to €107.9 million excluding non-recurring costs of €11.1 million relating to restructuring measures and increased incentives, partly offset by capital gains. All three divisions contributed to this increased Ebit, most of all the winter and outdoor unit, which more than doubled its Ebit before one-off items to €96.9 million. For ball sports this underlying Ebit was up by 37 percent to €32.2 million, while fitness returned an operating profit of €2.7 million, compared with a loss of €2.5 million last year.

Amer Sports' gross margin improved by 2.2 percentage points to 42.6 percent for the year and the group achieved an Ebit margin of 6.2 percent excluding non-recurring items, moving closer to the target of 10 percent set by the new management.

The group ended the year with a net profit of €68.9 million, again more than double the performance of the previous year. Amer's managers expect sales and Ebit to increase further this year, which should be marked by what the company described as a go-to-market push.

Amer's new management laid new strategic and structural foundations for faster growth in 2010, and now it will focus on widening and expanding the group's market approach. Specific countries earmarked for expansion of footwear and apparel are Russia and China. Another target is to increase direct to consumer sales, which already grew by 40 percent across the group in 2010, albeit from a very low basis.