Struggling with a bloated inventory market in the U.S. and sales channel adjustments in its home South Korea market, Fila Holdings relied on Acushnet Co. to generate the majority of its Q1 revenues and operating profit.
Operating income declined by 14.7 percent in constant currency to KRW 160,379 million (€112.3m) from KRW 168,794 million for the period ended March 31. The Titleist and FootJoy parent accounted for 97 percent of the total as Fila-only operating income slipped by 91 percent to KRW 4,094 million (€2.9m).
Q1 net income fell by 13.5 percent in constant currency to KRW 118,257 million (€82.8m) from KRW 123,092 million.
Gross margin improved by 80 basis points to 50.2 percent and the group’s inventory level increased 44 percent year over year to KRW 1,248,866 million (€874.2m).
Total group revenues fell by 6.2 percent on a constant-currency basis (+3.3 percent as reported) to KRW 1,108,599 million (€776.0m) from KRW 1,073,563 million with sales from Acushnet accounting for 79 percent of the total.
Fila’s total Q1 revenues declined by 35.3 percent on a constant-currency basis to KRW 233,181 million (€163.2m).
Recovering Chinese consumer market not enough to bolster Fila Korea sales
In South Korea, a mild recovery in the Chinese consumer market bolstered sales, but they still declined by 26.9 percent on a constant-currency basis to KRW 97,006 million (€679.0m) with Fila Korea only sales down by 31.6 percent to KRW 79,938 million (€56.0m) as sales from its design business gained 7.5 percent to KRW 17,068 million (€11.9m) in the period.
Operating income tumbled by 33 percent to KRW 17,150 million (€12.0m) as net income sunk by 39 percent to KRW 12,282 million (€8.6m). The region’s gross profit fell by nearly 28 percent to KRW 57,903 million (€40.5m) due to currency impact and higher raw material costs that more than offset higher average selling prices.
Promotional environment impacts Fila USA
Fila USA, impacted by a widespread promotional environment in the market, suffered a KRW 27,980 million (€19.6m) operating loss as gross profit slid 88 percent to KRW 4,485 million (€3.1m) from KRW 36,376 million on higher freight and storage costs.
Revenues fell by 46.4 percent on a constant-currency basis to KRW 76,768 million (€53.7m) from KRW 135,347 million.
The group’s royalty business was stronger in the EMEA (+2.1 percent) and Asia (+19.9 percent) but fell in both North America (-17.7 percent) and South America (-3.0 percent).
Results in the EMEA benefitted from the growth of licensees’ business operations that were partially offset by supply chain constraints. A marketing campaign and a recovery in Japan contributed to the royalty sales increase in Asia.
Total Q1 royalties rose by 3.6 percent in constant currency (+9.7 percent on a reported basis) to KRW 19,042 million (€13.3m).
Fila Holdings dims its FY23 prospects
With the Q1 results, Fila Holdings dimmed its FY23 prospects. The group said the adjusted revenue and consolidated operating profit outlooks were related to its ongoing sales channel adjustments in Korea and a need to accelerate inventory reduction in both its home market and the U.S. Annual consolidated revenues are now forecast to decline by 5 to 10 percent year-over-year as corresponding operating profit slips by 10 to 20 percent.
At Fila USA, the FY23 consolidated operating loss range is now pegged at KRW 90 to 110 billion (€63 to €70 million) versus a prior forecast of a KRW 80 to 90 billion loss.
