Now that its ski business has stabilized, the Amer Sports group is being hit by sagging sales in its fitness unit. It already declined sharply last year and continued to drop by 25 percent for the first quarter of this year in constant currencies. In reported terms, fitness sales were down by 16 percent to €48 million, with falling sales in both the consumer and the club markets.
The Finnish-based company’s sales of fitness equipment, mainly under the Precor brand, were off by 12 percent in constant currencies in Europe, the Middle East and Africa (EMEA) for the quarter. But the situation was worse in the Americas, where its fitness equipment sales shrank by 27 percent, and the decline was equally steep in Asia.
Roger Talermo, Amer’s chief executive, explained that this category was particularly hard-hit by the economic downturn, as anxious consumers started by cutting down discretionary purchases such as fitness equipment. Furthermore, the economic troubles caused financial difficulties among retailers, with two major dealers going out of business. And the credit crunch was making it harder for clubs to buy equipment, particularly in Europe.
Gyms were therefore focusing on replacement and only bought new products when they had the means and were convinced of the quality of innovations. Precor was well-positioned in that respect with its Adaptive Motion Trainer (AMT), which managers said was turning into a category of its own, but apparently it was not enough.
The fitness division’s operating results (Ebit) turned into a loss of €3.4 million for the quarter, compared with a profit of €3.7 million in the same period last year. This performance would have been worse without cost-cutting and restructuring measures that were implemented last year, including staff and pay cuts.
The Amer Sports group as a whole saw its sales drop by 2 percent to €355.3 million for the quarter, which was a decline of 7 percent in constant currencies. Excluding currency effects, sales were up by 2 percent in EMEA and stable in Asia, but down by 15 percent in the Americas. While the performance of the fitness unit was most depressing, there were few other divisions that managed a sales increase.
Sales of the winter and outdoor division inched up to €164.4 million, up by 1 percent in constant currencies and in euros. The increase amounted to 5 percent in EMEA, against declines of 8 percent in both Asia and the Americas.
The winter sports equipment business accounted for sales of €37 million, almost exactly the same as in the same quarter last year. The company was encouraged by the level of sell-through in the ski business, owing to snowy weather, which meant that retailers were no longer holding large stocks of unsold products and appeared more eager to order.
By the end of the reporting period, Amer had only completed about half of its pre-orders, making it too early to predict the level of sell-in for the next season. But according to Amer’s management, the ski business appears to be doing well in alpine countries and the cross-country ski market seems to be back on track in the Nordics, after a long white winter. On the other hand, the U.S. market has been badly hit, particularly on the West Coast.
Within the same division, apparel and footwear stood out with a sales increase of 18 percent in constant currencies, reaching €82.5 million in the quarter. Salomon footwear and apparel and Arc’teryx apparel all enjoyed higher sales. The market was weak in the Americas, but this was more than compensated for by Central European markets, with strong sell-through of outdoor and trail-running products. Then again, Amer’s managers warned that this growth should slow down in the next quarters and it therefore reduced its production commitments.
The Ebit of the winter and outdoor business showed a loss of €10.9 million, but this was better than the loss of €14.6 million recorded for the same quarter last year. Owing to cutbacks implemented last year, expenses were lower, but managers pointed out that the €20 million of annual savings to be gained from its industrial restructuring plan in the ski business should become more apparent as the year progressed.
The ball sports unit, revolving mainly around Wilson, saw sales dip by 8 percent in constant currencies, sliding by 1 percent in euros to €142.9 million. In constant currencies, divisional sales were up by 12 percent in Asia, but fell by 3 percent in EMEA and by 13 percent in the Americas.
The rate of the decline reached 9 percent in constant currencies for team sports alone, down to €59.3 million for the quarter, as consumers sought lower price points and discounters gained ground at the expense of retailers operating in the higher-priced segments. Asian team sports sales soared by 47 percent in local currencies, but they were off by 6 percent in EMEA and by 10 percent in the Americas, which make up about 85 percent of this business at Amer Sports.
However, the company pointed out that the pattern of sales was erratic, with ups and downs from one week to the next. This reinforced the impression that retailers were handling the situation on an almost ad-hoc basis, making only small re-orders for products they had sold.
Within the division, sales of racquet sports products were off by 4 percent in constant currencies to €63.9 million. Amer’s managers pointed out that this was partly due to a relative lack of innovation in the tennis market, as its own K Factor moved into its third year. Sales of tennis balls were slightly up, indicating that participation was not the issue.
Again, the drop for racquet sports was steepest in the Americas, down by 12 percent, while EMEA sales remained stable and Asia grew by 13 percent. This was attributed to expanded distribution in China, where Amer Sports set up a subsidiary 18 months ago, and to growth in badminton.
Still in the ball sports unit, Wilson’s golf business reported sales of just €19.7 million for the quarter, down by 16 percent in euros and by 17 percent in constant currencies. Group officials said this was in line with the market, perhaps even better. The market was particularly hit by consumers’ focus on lower price points.
Overall, the Ebit of the ball sports division declined by 33 percent in constant currencies, falling to €11.5 million, due to lower sales and margin pressure.
Cycling was another unit that endured a double-digit sales decline, sinking to €27.2 million for the quarter, off by 21 percent in constant currencies. This was largely due to the fact that OEM manufacturers reduced their purchases of Mavic components. But at the same time, group managers stressed that sales were affected by a product recall and that the underlying trend was not nearly as bad as the figures suggested.
For sports instruments, sold mainly under the Suunto brand, sales in the training category remained healthy. The unit’s sales decline of 16 percent in constant currencies was chiefly blamed on sinking sales in the diving business, as consumers cut back on diving expeditions. A large-scale cost savings plan has been launched at Suunto.
The company’s gross profit slid by 1 percent to €143.8 million, and it ended the quarter with a net loss of €10.8 million, which was almost exactly twice the size of the loss suffered for the same quarter last year.
Due to the uncertain conditions in the market, Amer’s management was wary of issuing any detailed projections for the full year. In fact, they withdrew earlier guidance that results were anticipated to improve this year, and said that they would update the market as the pre-order season in the ski business had progressed sufficiently to draw conclusions. Amer was equally uncertain about the outlook for the fitness business, which enjoys its strongest quarters at the beginning and the end of the year – therefore the last quarter should be crucial for any indications of a pick-up in this market.
