As winter sports retailers were still reeling from last year’s disastrous season and struggling to purge leftover inventories, Head saw its winter sports sales reduced by about one-third for the third quarter. The company estimates that the European winter sports business as a whole dropped by 25 to 30 percent so far this year, while it fell by around 6 percent in North America.
Head’s winter sports unit suffered as badly as expected, reporting a sales decline of 30.5 percent to €48.9 million for the quarter. The company was particularly affected by a decline in ski sales, which it estimated at nearly 30 percent in Central European markets, where Head is most active. The unit’s margin didn’t hold up either, dropping by 2.5 percentage points to 37.6 percent, due to the fact that sharply reduced preorders prevented Head from fully using its production capacity.
Johan Eliasch, Head’s chief executive, said this capacity would be cut if the company had to endure another bad season. However, the weather is more judicious so far this year and it remains to be seen what the season will look like after the reorders. Due to the leftover inventories and the cautious attitude of retailers, Head indicates that its winter sports sales in the last quarter of this year will be affected anyway.
Head’s alpine ski sales fell from 314,000 to 215,000 pairs, while sales of Tyrolia bindings declined from 961,000 to 697,000 units. Alpine ski boots were equally affected, down from 304,00 pairs to 193,000 pairs, and snowboard sales reached just 109,000 units, compared with 145,000 boards at the same time last year.
These declines were partly offset by a sales growth of 4.2 percent in sales of racquet-sport products, which reached €34.8 million for the quarter. This was chiefly attributed to the launch of the microGel racquet. The gross margin for this unit also increased slightly, up by 0.6 percentage points to 38.3 percent.
In the diving business, sales of Mares, Dacor and Spora inched up by 2.5 percent to €10.4 million for the quarter, but the unit’s gross margin retreated by 2.3 percentage points to 33.6 percent, due to closeout sales in France and Italy, combined with the negative repercussions of the dollar’s weakness. Licensing revenues rose by 14.7 percent to €1.4 million for the quarter.
But given the fact that Head’s sagging winter sports sales accounted for about 52 percent of the group’s turnover in this quarter, overall sales for the quarter declined by 17.1 percent to €92.8 million. The group’s gross margin fell by 1.4 percentage points to 39.2 percent and operating profit nearly halved to €8.8 million. Head ended the quarter with a net profit of €4.1 million, down from €11 million at the same time last year.
Adding earlier quarters, sales in the winter sports business were down by 30.5 percent as well to €69.6 million, and its gross margin took a heavy blow, down by 5.5 percentage points to 31.2 percent.
The rise in sales of racquet-sport products in the third quarter failed to offset sales decreases earlier in the year, so the unit ended the nine months with a sales drop of 3.7 percent to €102.3 million. This slide was chiefly attributed to the strength of the euro, which stimulated price competition in the European market for tennis balls. In volume, sales of tennis racquets rose from 1,542 million to 1,574 million units, while sales of tennis balls fell from 5,347 million dozens to 5,232 million dozens.
On the other hand, the gross margin of the racquet-sport unit was aided by the strength of the euro, as well as cost-saving initiatives. In the year to date, the gross margin for the division increased by 1.8 percentage points to 40.5 percent.
In spite of a nearly flat third quarter, the diving business posted a sales increase of 7.1 percent to €40.7 million for the nine months. In a stagnant global market, Mares continued to grab market share on the back of improved distribution. The unit’s gross margin firmed up as well, up by 1.4 percentage points to 39.9 percent. Among many other measures to reduce costs, the division has continued to move the production of some low-end injection-molded products from Italy to the Czech Republic.
That leaves licensing revenues, which declined by 13.4 percent to €5.1 million so far this year. Again, it was the decline of the winter sports business that dragged the group’s sales down by 13 percent for the nine-month period, ending at €211.8 million. The gross margin fell by 0.8 percentage points to 39.5 percent.
While the group posted an operating profit of €9.4 million for the three opening quarters of last year, it sank into losses of €5.4 million for the same period this year. Head’s management sticks to its forecast that it may end the year with an operating loss. In the year to date, Head suffered a net loss of €11.9 million, compared with a net profit of €1.1 million at the same time last year.
