Poor snow conditions across most of Europe claimed another victim as Finland’s Amer Sports group revealed that its winter sports equipment sales had roughly halved during the first quarter. Since winter sports sales are usually small in the first quarter, the impact of this hit remains limited. However, on the back of its pre-orders, Amer warns that its sales of winter sports products under the Atomic and Salomon brands should decline by 15 to 20 percent for the full year, due to higher inventories in the industry and widespread caution among retailers.
This predicted drop in winter sports sales should lead to a small decline in Amer’s overall sales for 2007, while earnings before interest and taxes (EBIT) are expected to remain stable. For the quarter, the group’s sales fell by 9.1 percent to €381.8 million, down by 4 percent in local currencies. It posted a loss of €7.8 million before interest and tax compared with EBIT of €1.6 million for the same period last year.
Atomic was worst-affected by the dearth of snow, which reduced its sales by 47 percent to €12.5 million for the quarter, or 46 percent in constant currencies. Making up about 70 percent of the brand’s turnover, Europe and the Middle East suffered a fall of 51 percent in Atomic sales. Nevertheless, the company indicates that Atomic lifted its European market share for alpine boots as well as alpine and cross-country-skis during the full winter season.
Atomic’s inventory levels are equivalent to the previous year, but due to uncertainty in the market it expects its sales to drop by 15 to 20 percent for the upcoming season, and has therefore reduced its staff and expenses. The payroll was cut by about 140 people, representing roughly 15 percent of the workforce. The company’s loss before interest and tax for the quarter widened almost in line with the sales decline, down by 41 percent to €13.3 million.
Meanwhile Salomon ended the quarter with a sales decline of 10 percent to €110.5 million, down by 8 percent in local currencies, mixing a collapse in winter sports with robust sales of footwear and apparel. Winter sports sales were down by 54 percent for the quarter and the drop was even more painful in Europe, where the lack of snow almost annihilated re-orders of cross-country skis. Salomon has adjusted its production plans to an expected drop of 15 to 20 percent in sales of its winter sports equipment for the next winter season.
On the other hand, sales of Salomon footwear and apparel, which make up about 55 percent of its business, increased by 23 percent in local currencies, particularly buoyed by strong sales of the brand’s trail running footwear. Pre-orders for the next season indicate that this positive trend should continue. Sales of Mavic bicycle components were up by 6 percent for the quarter, in a stable market.
In spite of Salomon’s sales decline, the company’s loss before interest and tax only widened fractionally to €22.6 million. The sales hit was partly offset by the synergies and improvements in cost control that were achieved after Salomon’s acquisition by the Amer group. The financial benefits of the 370 job cuts at Salomon and the cost reductions achieved through the on-going shift of production from France to Romania should become more apparent in the next quarters.
Sales of cross-cross country skis generally suffered more than alpine skis, leading to higher inventories in this category. In regional terms the climatic conditions were worst in Germany and only slightly better in Scandinavia. However, Amer was eager to dispell fears that global warming will have a structurally dramatic effect on winter sports in the foreseeable future, pointing to terrific snow conditions during the 2005/2006 winter. Furthermore, the company pointed out that, due to its scale in the winter sports equipment business, with Salomon and Atomic estimated to make up about 30 percent of the market, Amer could benefit from unrivalled cost efficiency.
The first quarter brought mixed results for Wilson, which saw its sales decline by 8 percent for the period to €163.6 million, although the drop was just 2 percent in constant currencies. On the same basis, racquet sports sales were up by 4 percent, boosted by the launch of the [K]Factor racket from February. Team sports sales were down by 4 percent, attributed to a change of scheduling of baseball sales, and the outlook for the rest of the year remains positive.
Sales of Wilson’s golf products slid by 9 percent in local currencies and their reported level was down 15 percent, however Wilson is focusing on lifting the profitability of its golf category and this is still expected to materialize in the full year. For the time being, the sales drop and investments in marketing and IT pushed Wilson’s EBIT down by 19 percent to €19.8 million for the quarter.
Precor had a sales rise of 1 percent to €73.8 million, up 9 percent in local currencies. Its sales were down by 11 percent in Europe and the Middle East, but this only represents a small portion of sales and it was more than compensated by a sales rise of 13 percent in the Americas. The company reports soaring sales to fitness clubs and households in North America, driven by strong enthusiasm for its new aerobic equipment, featuring viewing screens.
Precor is equally upbeat about its prospects in this category after the launch of the AMT, a new trainer for cardio workouts, that will be delivered in the US this year and distributed more widely across Europe from early 2008. The company continues to raise its market share, on the other hand its EBIT has declined by 18 percent to €9.9 million for the quarter, as Precor shifted more of its costs to this period.
Still, Suunto easily outshone the group’s other brands in terms of sales growth, boasting an increase of 11 percent to €21.4 million, up by 16 percent in local currencies. Sales of Suunto’s wristop computers even jumped by 43 percent for the period. Meanwhile, sales of its diving instruments were down by 5 percent, but the company believes they will pick up with the full-scale delivery of its new dive computers. Suunto’s EBIT was up by 36 percent for the quarter to €1.5 million, and both sales and profitability are projected to rise for the full year.
Among the latest moves to achieve synergies is the centralization of Amer’s warehouses in the USA. While all the brands used to have their own warehouse, logistics will be bundled in a group platform in Nashville, except for Precor which will retain its own warehouse in Seattle. Atomic will move to Nashville later this year, and Salomon during the first half of 2008.
