Analysis: Sporting Goods Scorecard Q4 2022 – The top performers by sales and profit

Despite taking place during the annual holiday shopping season, the quarterly results were less than spectacular from a return on sales (RoS) and profitability perspective. The aggregate industry profit decline approached 60 percent, impacted by big losses at Adidas, Wolverine and Peloton, as the RoS declined to 4 percent from an impressive 12 percent in Q4/21.

Year-over-year RoS was down in each sector—Apparel, Footwear, Equipment, and Diversified/Retail – but most pronounced in Equipment as it fell into negative territory due largely to Peloton. Excluding the quarterly results from the interactive fitness company, RoS within Equipment would have been 2.1 percent versus 0.7 percent in Q4/21. Industrywide sales rose by more than 17.5 percent year-over-year to more than €95.6 billion, helped by product price increases throughout the year but likely impacted by inflationary pressures on the consumer. All segments had higher year-over-year sales, led by Footwear, but only Apparel reported higher profitability.

A breakout by segment:

Apparel

Consisting of seven firms, this segment saw its RoS fall slightly to 13 percent from 14 percent during the period. But the sector achieved a 3 percent gain in profitability, with VF Corp. contributing nearly 56 percent of the total and a 10.5 percent improvement in year-over-year revenues. Columbia Sportswear and The North Face’s parent accounted for 64.9 percent of sector sales versus 65 percent in Q4/21. The sector outperformed its Q3/21 profitability of -79.1 percent when all entrants reported lower year-over-year net income. But the Q4/22 total sales increase of 10.53 percent trailed the prior period’s 17.73 percent revenue improvement.

Footwear

With 17 entrants in the sector, it achieved a 3 percent RoS against a 9 percent RoS in Q4/21, as six companies reported losses in the year’s final period. Adidas, with its Yeezy troubles combined with other woes, and Wolverine Worldwide had the largest quarterly losses. If each of them is excluded from the 2022 and 2021 figures, the sector’s quarterly profits would have been down by 2.6 percent instead of by more than 52.5 percent. All companies in the sector had year-over-year sales gains except for Allbirds and Rocky Brands. Nike and Adidas accounted for 61.6 percent of sector revenues, down from 62.3 percent in Q4/21. Aggregate sector sales rose by more than 22.7 percent, with 11 companies reporting a double-digit increase and one, On Holdings, achieving a triple-digit percentage sales improvement. In Q3/22, the sector’s profit decline was -16.87 percent, with only Allbirds reporting a loss and a 24.2 percent revenue improvement.

Equipment

The largest sector, with 18 companies, generated a negative RoS of -2.4 percent against 4.6 percent in Q4/21, as seven companies reported period losses. Segment profitability slid by more than 154 percent, impacted by a more than €329 million loss at Peloton. Excluding the interactive fitness company from the results, sector profitability would have declined by about 80 percent. Shimano accounted for 14.5 percent of the segment’s quarterly revenues, which rose by more than 3.7 percent to more than €7.67 billion, but seven companies reported lower year-over-year sales in the period. This marks the second consecutive quarter of declining profits for the sector. In Q3/22, sector profitability fell by nearly 56 percent despite 4.68 percent revenue growth.

Diversified/Retail

The smallest sector with six entrants achieved an RoS of 4.1 percent versus 10.0 percent in Q4/21. Profitability, where Garmin generated more than 91 percent of the period total, declined by more than 30 percent. Revenues increased by more than 15.1 percent, with Foot Locker, Garmin and Lululemon accounting for 93.3 percent of the total. In Q3/22, the sector had a 4.36 percent increase in aggregate profits as total sales rose by nearly 21.5 percent.

Among the key Q4 developments:

• Columbia Sportswear forecast 3 to 6 percent sales growth in FY23 and a 30 to 90 basis point improvement in operating margin to a range of 11.6 to 12.2 percent.

• Deckers predicted FY23 sales for the 12 months ended March 31 will be $3.5 to $3.5 billion, driven by the upside from its Hoka brand.

• Skechers is planning to commence production in India, where the brand’s current business is said to be a little higher than $200 million annually, with the potential to exceed $1 billion at some point.

• Yue Yuen, the globe’s largest manufacturer of footwear, warned that numerous current headwinds, including high inventory levels, are making short-term demand for footwear “cloudy.”

• Garmin’s objective to expand its FY23 sales by 3 percent to approximately $5 billion with an operating margin of 20.3 percent.

• Fox Factory, fueled by sales growth from its Powered Vehicles Group (PVG), posted record sales and profits in FY22.

• Newell Brands will land a new president and CEO in Chris Peterson in May. The company’s outdoor and recreation segment reported an 11.4 percent drop in FY22 revenues to $1,315 million.

• Yeti, which now has more than 850 wholesale partners across Europe, is forecasting a 3 to 5 percent sales expansion in FY23 despite an expected decline in cooler sales.

• Compass Diversified saw its Boa business generate a 20 percent increase in annual revenues to $208.7 million as its income from continuing operation rose by more than 101 percent to $42.6 million in FY22.

• Foot Locker intends to escalate annual sales by 5 to 6 percent between FY24 and FY26. The group is closing operations in Hong Kong and Macau and converting owned and operated stores in Singapore and Malaysia to a license model.