Faced with the ongoing process of liquidating bloated inventories in the U.S. amid a market flush with excess inventory, Fila Holdings reported a 40 percent constant-currency decline in Q2 operating income to KRW 91,943 million (€64.4m) for the period ended June 30.
Gross margin fell by 160 basis points to 46.6 percent from 48.2 percent, with growth in global royalty income and design service fees unable to offset negative impacts from the U.S. market.
The group reported a 68 percent drop in net profit to KRW 37,197 million (€26.0m) and a net loss attributable to owners of the controlling company of KRW 7,340 million (€5.1m) against a year-ago profit of KRW 74,155 million.
Total Q2 revenues fell by 5.7 percent year-over-year on a constant currency basis to KRW 1,147,006 million (€802.9m), with Acushnet sales growing by 9.3 percent to KRW 906,010 million (€634.2m). This accounts for 79 percent of the sales total. Fila, meanwhile, reported a KRW 46.2 million (€32.4m) operating loss from a 31 percent constant-currency drop in sales to KRW 240,996 million (€168.7m).
Promotional environment continues to impact Fila USA
Fila USA faced continued pressure from excessive inventory in the market that led to higher promotional activity and lower orders from retailers. The unit, which wants to lower its 2023 year-end inventory by 50 percent, reduced them by nearly 29 percent in Q2. But the unit reported a second consecutive operating loss following a Q1 equivalent to €3.1 million.
The Q2 operating loss was KRW 77,077 million (€57.7m) as total market sales fell by 25 percent on a constant-currency basis to KRW 91,530 million (€64.1m).
Design service fees bolstered revenues at Fila Korea
Fila Korea suffered a nearly 44 percent drop in Q2 operating profit to KRW 14,497 million (€10.1m) with the business excluding the design services unit reporting a loss of KRW 2,793 million (€2.0m).
While DSF sales increased by 9.5 percent to KRW 17,290 million (€12.1m), Fila Korea only revenues slipped by 30 percent to KRW 77,238 million (€54.1m). Year-over-year net income was down by 41 percent to KRW 11,852 million (€8.3m). The group said it continues to make aggressive channel adjustments, including a reduction in distribution to low margin channels.
EMEA was strongest region in global royalty segment
Driven by an increase in sales of mid-priced products, EMEA sales expanded by 3.9 percent year-over-year to KRW 10,121 million (€7.1m). Reported sales were also higher, by 7.1 percent, to KRW 5,554 million (€3.9m) in Asia.
But revenues declined in both Americas. North American royalty revenues fell by 17 percent in constant currency to KRW 1,196 million and dipped by 15 percent in South America to KRW 2,295 million (€1.6m) due to a challenging economic climate and elevated inflation across markets.
FY23 outlook update
While the group maintained its consolidated revenue outlook of a 5 to 10 percent decline this FY, it revised its consolidated operating profit forecast.
Fila Korea, including the design business, is now expected to report a 20 to 30 percent revenue decline this FY, and a 35 to 45 percent drop in consolidated operating profit. Fila USA consolidated revenues are seen as falling by 40 to 50 percent this year as the unit generates an annual operating loss between KRW 160 to 180 billion (€112.0 to €126.0m).
Meanwhile, Fila Korea’s operational targets for FY26 call for generating approximately 60 percent of all revenues from the direct-to-consumer channel and less than 20 percent from the wholesale segment.
