The company estimates that retailers will reduce their orders of alpine ski equipment by 25-30 percent for the whole market, due to high inventory levels. Meanwhile, the last unseasonably mild winter contributed to a drop of 15.3 percent to €57.3 million in net revenues for the 1st quarter. The turnover in the winter sports category was nearly cut in half to €10,779,000 from €20,187,000 in the same period a year ago.
By volume, sales of all of the company’s winter sports products were down. The segment’s gross margin fell by 7.5 percentage points to 21.8 percent. During the period, 76 percent of the division’s revenues were generated in Europe, followed by 18 percent for North America and 6 percent for the rest of the world.
The racquet sports division’s sales fell by 9.0 percent to €33.0 million, due to lower turnover from tennis racquets and balls as well as the strengthening of the euro against the dollar during the quarter. The segment’s gross margin improved by 2.1 percentage points to 41.8 percent, thanks to a better product mix and lower raw material prices. North America accounted for 52 percent of the division’s turnover, followed by Europe at 41 percent and the rest of the world at 7 percent.
The only bright spot for Head was a 21.9 percent increase in diving revenues to €13.4 million, driven by better product availability and improved deliveries across all units, especially at Mares. The gross margin expanded by 7.2 percentage points to 42.4 percent, thanks to improved efficiencies that stem from the reorganization carried out in 2005/2006. By region, the division garnered 64 of its revenues in Europe, and 18 percent each in North America and the rest of the world. The global diving market was relatively flat in 2006, according to Head, but the company thinks it will grow slightly in 2007 after positive signs in the 1st quarter.
Licensing revenues dropped by 33.1 percent to €1.7 million, mainly due to lower sales of winter apparel, which traditionally accounts for a large chunk of this segment in the 1st quarter.
The group’s gross margin was up by 1.4 percentage points to 40.7 percent, but the operating loss in the period widened to €8.9 million, as compared to a loss of €3.8 million in the year-ago period. Head ended up with a net loss was €9.6 million, compared with a loss of €5.3 million.
In the question and answer segment of the quarterly conference call organized by the company to comment on its results, a person who claimed to be an investor badgered the company’s management on issues like Head’s interest charges and its debt, asking the management once more why none of the company’s high-yield bonds had not been paid in 2006 and whether they planned on lowering debt levels. Head’s management said that because of the investor’s incessant inquiries, it would no longer answer any “gratuitous questions.”
