For all the improvements that came about in its winter sports business, Finland’s Amer group still reported flat sales for its fourth quarter as it suffered a drastic and rapid decline in its fitness business. The group’s sales remained nearly flat at €495.3 million for the last quarter, which amounted to a decline of 3 percent in local currencies.
Sales in Amer’s fitness division dropped by 31 percent to €58.7 million for the quarter, a decrease of 36 percent in constant currencies. A steep fall in sales of consumer products was blamed on the reduced spending power of average households, as well as a significant reduction in the number of hard-pressed specialist retailers.
Demand for gym equipment strongly contracted after the fall, when cash-strapped customers found it increasingly arduous to finance equipment investments in the tight credit market. Some gym owners also hesitated to invest in equipment as they worried about the uncertain economic outlook.
Amer’s fitness division reported an operating loss of €2.3 million before interest and tax for the quarter, compared with earnings of €13.0 million for the same period in 2007. The company partly responded to the issue by implementing two rounds of lay-offs at Precor in the fourth quarter, leading to 41 job losses across all departments.
The problems of the fitness division could not be offset by a quarterly sales increase of 7 percent to €326.6 million for the winter and outdoor division. In local currencies, this amounted to a slightly slower rise of 6 percent. The largest chunk of the growth came from winter sports equipment, chiefly consisting of Atomic and Salomon. This unit saw its sales rise by 7 percent to €202.7 million for the quarter, but Amer admitted that it had been disappointed by the level of re-orders, amid the season’s superb snow conditions in Europe.
Apparel and footwear showed faster growth, achieving a 13 percent rise in sales to €67.9 million. Sales of cycling products improved by 3 percent, while sports instruments were down by 2 percent. EBIT for the winter sports division was up to €36.7 million, compared with €35.2 million in 2007, and it would have been higher without costs of about €6 million for product recalls of Mavic front wheels and heel components of some Atomic ski bindings.
As for Amer’s ball sports business, it saw its sales increase by 3 percent in euros to €110 million for the quarter, but they slid by 2 percent in local currencies. By far the worst performance came from the golf business, which suffered a sales decline of 22 percent to €12.1 million, which was chiefly due to Amer’s decision to license its golf business in Japan and to pull out of its least profitable markets.
Meanwhile, racquet sports sales were down by 1 percent in local currencies, but they inched up by 2 percent in euros to €45.1 million. Team sports sales did much better for the quarter, growing by 11 percent to €52.8 million, up by 3 percent in local currencies. In spite of the near-stagnant sales in Amer’s ball sports business, EBIT for the division was more than halved for the quarter, ending at €3.4 million. This was blamed on inventory adjustments and close-out sales in the team sports unit.
The Amer group’s EBIT for the fourth quarter more than tripled to €35.2 million. But this rise is misleading because Amer’s EBIT in the fourth quarter of 2007 included restructuring costs of €42.7 million. In 2008, it was burdened by much smaller one-off costs of about €6 million for product recalls at Mavic and Atomic. Excluding both of these costs, the company’s EBIT for the fourth quarter of 2008 declined by 23 percent, as its fitness and ball sports units became less profitable. Due to the restructuring costs in 2007, net profit jumped from €1.3 million in the last quarter of that year to €17.7 million for the same period last year.
For the full year, Amer’s sales were down by 5 percent to €1,577 million, which was a slight decrease of 1 percent in local currencies. Although the downturn of the Precor fitness unit accelerated in the last quarter, it had started earlier in the year, leading to a sales decline of 24 percent to €220.3 million for the division in the full year, a drop of 20 percent in local currencies.
The unit’s EBIT shrank to €3.8 million for the full year, down from €37.2 million the year before, on account of the lower sales as well as lower gross margins. The latter were attributed to a lower capacity utilization rate, and higher costs of raw materials. Amer admits that the short-term outlook for Precor remains uncertain, but the group is confident that the brand is well-positioned for a speedy recovery once the market picks up again. For the time being Precor is focusing on strengthening its retail distribution in the U.S. market, and moving into new markets.
The winter and outdoor sports division enjoyed a 4 percent rise in sales to €860.8 million for the full year, up by 5 percent in local currencies. Winter sports equipment sales were still down by 1 percent to €391.9 million, which is about the same level as 2007 in local currencies. However, apparel and footwear amply made up for this weakness with a sales rise of 15 percent to €264.9 million, equivalent to a rise of 19 percent in local currencies.
Salomon and Arc’teryx both benefited from the positive trend in the outdoor market, and particularly in the trail-running category. Furthermore, Amer reports strong sell-through and a double-digit increase in orders for this year, which should enable its outdoor apparel and footwear business to grow faster than the market.
Both cycling and sports instrument sales were nearly flat. However, the latter were affected by the divestment of Ursuk, which was spun off at the beginning of the year. Meanwhile, the wrist-top category saw its sales balloon by 2008, on the back of product launches and forays into new distribution channels. Sales of diving equipment were affected by the economic downturn, and Suunto could not escape the trend. The outlook for Mavic is cautious, but less so for Suunto, which will be at the center of product introductions this year.
EBIT for the winter and outdoor sports unit for the full year nearly doubled to €41.1 million, due to strong sales in the apparel and footwear business, and the restructuring measures implemented in the equipment business. These consisted of the removal of four production sites and about 400 jobs, generating savings of more than €20 million that should appear more convincingly in the 2009 results.
Furthermore, in September, Amer acquired all the ski manufacturing assets of its long-term Bulgarian partner, Pamporovo Ski, at a price of about €5 million. The transaction enabled Amer to take over full control of the manufacturing plant. The transfer to Amer was completed in November, and all of Pamporovo’s 330 employees will continue with the newly established Amer Sports Bulgaria AOOD.
On the whole, Amer admitted that the recovery of its winter sports equipment business was still slower than expected, particularly given the highly favorable weather conditions. It did well in the Alps and alpine ski boots, increasing its sales in high single digits for this category. On the other hand, its equipment sales were depressed by continued weakness in the U.S. market, as well as the Nordic skiing business.
At the ball sports unit, the underlying trend in local currencies was stagnant, but it reported a sales drop of 7 percent in euros to €495.5 million. Racquet sports sales were down by 4 percent in reported terms to €227.0 million, and they only crept up by 1 percent in local currencies. However, Wilson remained the market leader in tennis and it invested in prospective growth by setting up infrastructure in China and taking control of its apparel business.
On the team sports side, Amer lifted its bats sales by 15 percent, while sales of football products were up by 12 percent and basketballs by 8 percent. Other categories were far less buoyant, however, leading to a sales increase of just 3 percent for team sports sales in local currencies, which meant a decline of 3 percent in reported terms to €189.9 million. The company’s strategic targets in team sports are to expand its market share in Latin American soccer, European basketball and Asian baseball.
Golf sales were worst affected for the full year as well, reporting a sales decline of 21 percent to €78.6 million, down by 15 percent in constant currencies. Apart from the license in Japan, Wilson’s golf sales also suffered from the tough competition in the global golf market, and the rise of private labels. EBIT for the entire ball sports division was down by 23 percent to €37 million for the full year, as trading conditions deteriorated. This was particularly damaging in the U.S. market.
The group’s EBIT jumped to €78.9 million for the full year, up from €49.5 million the year before, but EBIT for 2008 included a gain of €13.1 million from the sale of Amer’s corporate head office building in Helsinki in April. The gap between the two years is also artificially widened by the €42.7 million restructuring costs incurred in 2007. Excluding both, EBIT would have dropped to €65.8 million in 2008, compared with €92.2 million the year before. This weakened EBIT was chiefly attributed to the steep sales drop in Amer’s fitness division. The company ended the year with net profit of €34 million, up from €18.5 million the year before.
Amer’s management predicted that its results for this year would improve, chiefly on the back of cost efficiencies in its winter sports equipment business. However, it stressed that the company’s outlook was more uncertain than otherwise, as retailers adopted a cautious approach and emptied their inventories, while others were unable to place large orders due to tight credit conditions.
Amer further stressed that it would place the “absolute priority” on strengthening the company’s balance sheet and added that it would consider all necessary measures to achieve this. Amer has taken steps to reduce its working capital, which should become apparent toward the end of the year. Furthermore, capital expenditure will be reduced, and the company is still striving to cut costs at all levels.
