Korea-based Fila Holdings raised its guidance for full-year sales following the strong performance of its Acushnet subsidiary and a surge in global royalty revenues in the third quarter but cut its guidance for operating profits amid one-off restructuring costs and margin pressure due to promotional activities resulting from challenging market conditions affecting Fila USA.
Fila now anticipates a five to 10 percent increase in revenues this year, comfortably above its previous guidance on Aug. 1 of sales in a range of down 2 percent to up 2 percent. Global royalty revenues are seen increasing 10 to 15 percent versus prior guidance of a 5 to 10 percent rise. Sales at Acushnet are now seen rising 4.2 percent at the midpoint of guidance, an improvement on the previous outlook of a 3.6 percent increase at the midpoint. Revenues are still expected to decline by 20 to 25 percent at Fila USA and by three to eight percent at Fila Korea.
On the other hand, Fila’s operating profit is now expected to fall between 5 and 10 percent, while previously, it was expected to move in a range between down 2 percent to up 2 percent. Fila USA is now seen posting an operating loss of KRW 55 to 60 billion (€38.5-42.0m) against previous guidance of red ink of KRW 40 to 45 billion (€28.0-31.5m). Acushnet is expected to see a 0.5 percent increase in operating profit at the midpoint, below previous expectations of a 2.0 percent rise at the midpoint.
In the third quarter, Fila sales increased by a reported 16.4 percent to 1,079,544 million won (€755.7m), with constant currency growth of 2.6 percent. The gross margin narrowed by 0.8 percentage points to 48.1 percent, while operating profit improved by 10.4 percent to KRW 121,804 million (€85.3m) and operating margin decreased by 0.6 percentage points to 11.3 percent. Net income grew by 23.6 percent to KRW 93,846 million (€65.7m)
Acushnet sales in the three months ended Sept. 30 increased by 24.4 percent to KRW 753,836 million (€527.7m), led by its performance in the U.S. In U.S. dollar terms, revenues for the subsidiary increased by 7.0 percent to $558.2 million, with sales growth across all reportable segments. Acushnet’s gross margin widened by 1.3 percentage points to 52.8 percent, and operating profit climbed by 44.8 percent to $76.0 million as the operating margin expanded by 3.6 percentage points to 13.6 percent.
Global royalty revenues jumped by 32.2 percent to KRW 21,478 million (€15.0m). Fila brand revenues inched up by 1.4 percent to KRW 325,709 million (€228.0m) but were 5.7 percent lower at constant currency rates.
Fila USA revenues slumped by 20.4 percent, or 31.9 percent at constant currency rates, to KRW 122,441 million (€85.7m) due to weaker pricing power in the U.S. caused by excessive inventory in the overall market and more aggressive discounting from competitors. Gross margin in the Fila USA business arm decreased by 7.8 percentage points to 22.7 percent, hit by the higher promotional activity and an increase in storage costs due to delivery delays. Fila USA posted an operating loss of KRW 15,324 million in the third quarter against a profit of KRW 11,502 million the year earlier.
In South Korea, overall revenues rose by 4.6 percent to KRW 118,436 million, benefiting from a fast-growing tennis trend in the country and a surge in design fees. Fila-only revenues inched up by 1.1 percent compared to the year earlier to KRW 103,029 million. The quarterly sales contribution from design fees jumped by 35.9 percent to KRW to 15,407 million (€10.7m). The gross margin decreased by 5.3 percentage points to 53.8 percent, reflecting the negative cost effect of the strong dollar on raw material prices. Operating profit grew by 2.3 percent to KRW 20,211 million (€14.1m) as the positive impact of higher design fees outweighed the negative effect of higher raw material costs.
Royalty revenues in the EMEA region grew by 20.7 percent to reach KRW 10,562 million (€7.4m), benefiting from the licensee’s stable supply chain management and a strong U.S. currency effect. Revenues from licenses in North America declined by 7.6 percent to KRW 1,794 million (€1.3m) following the expiration of a royalty partnership with department store chain Kohl’s. Royalty revenues in Asia jumped by 71.5 percent to KRW 5,075 million (€3.6m), thanks to a recovery in Japan and a strong U.S. currency effect. Licensing revenues in South America soared by 89.3 percent to KRW 3,309 million (€2.3m), benefiting from both a favorable currency effect and strong demand that was focused on premium categories.
