Unstable U.S. market dampens Amer’s growth

Outdoor apparel and footwear sales at the Amer Sports Group have taken a break from the double-digit increases delivered in the first half of this year, but the outdoor category still supported the growth of the entire Finnish group in the third quarter.

Amer's sales reached €736.8 million for the three months, which was an increase of 3 percent in reported terms and 4 percent in constant currencies, and an organic growth at the same rate. The Finnish group's managers are apparently satisfied with the performance, amid unfavorable conditions in several categories.

Amer performed well in Europe, the Middle East and Africa (EMEA), where sales increased by 7 percent in constant currencies for the quarter. They moved up by 3 percent in Asia, as the group's turnover soared by 21 percent in China. However, Amer was under more pressure in the U.S. market, not least due to the inventories left over after the mild winter and the retail bankruptcies that unsettled the market. The group's sales in the Americas inched up by 1 percent in dollars and constant currencies.

Own retail sales jumped by 28 percent for the quarter, with store openings in the U.S. as well as China and Mexico. This mostly pertained to the Arc'teryx outdoor brand, which also launched a pop-up store in New York for its higher-end Veilance range. More store openings are scheduled in the fourth quarter in the U.S., China and Italy. Sales of the group's stationary stores inflated by 24 percent for the quarter, while online sales shot up by 36 percent, including the launch of an online store for Arc'teryx in Japan, among others.

The outdoor division's turnover moved up by 6 percent to €505.7 million in the quarter. It amounted to an increase of 6 percent in constant currencies, compared with 12 percent in the first half. The increase for the three months was driven by a rise of 8 percent to €146.3 million for outdoor apparel, mostly with the Arc'teryx and Salomon brands. The outdoor apparel category would have generated an increase of 11 percent without the divestment of Bonfire and Nikita last year.

There was a more distinct slowdown in growth of outdoor footwear sales, which increased by 16 percent in constant currencies for the first half but moved up by just 4 percent for the third quarter. That amounted to sales of €144.6 million, up by 2 percent in reported terms.

Then again, Heikki Takala, the group's chief executive, explained in a conference call with analysts that some deliveries had shifted from the third to the second quarter, which distorted the comparisons. This is partly due to changes in warehousing, as the group is investing in distribution capacity to deal with its expansion, and it shifted some deliveries to cope with a warehouse switch more efficiently. The investments in warehousing relate to the U.S. and the European markets, and should be ready around the middle of 2017.

Driven by the Atomic and Salomon brands, sales of winter sports equipment progressed by 3 percent to €140.5 million, but Amer indicated that this included a shift in deliveries to the third quarter and pre-orders had somewhat declined. The cycling business, operating chiefly under the Mavic brand, raised its sales by 10 percent to €34.3 million for the quarter, but this turnover would have fallen by 8 percent without the acquisition of Enve Composites. Sales of sports instruments, driven by the Suunto brand, surged by 23 percent to €40.0 million.

The performance of the outdoor division was strongest in EMEA, where sales advanced by 9 percent in constant currencies, while they moved up by 3 percent in the Americas and 4 percent in Asia-Pacific. The division's Ebit margin excluding one-off items moved up by 1.4 percentage points to 20.9 percent for the quarter.

The outdoor division still performed markedly better than the ball sports division, which includes the Wilson brand. The division's turnover reached €147.0 million, which was flat in constant currencies and down by 1.0 percent in reported terms. Amer blamed poor market conditions for both tennis and golf, which caused a sales decline of 10 percent in individual ball sports. This was partly compensated by strong sales in team sports. The brand has adopted a new market approach for baseball and is preparing to build another for tennis.

The turnover of Amer's fitness division, which chiefly consists of the Precor brand, slipped by 6 percent to €84.1 million, with a decline of 4 percent in constant currencies. The group points that several new products are about to hit the market and should more strongly support sales in the fourth quarter, and then have a full impact next year.

The group's gross margin increased by 1.0 percentage point to 48.0 percent, as price increases started to come through and some of the company's hedging still had an impact. Amer has continued to invest in items that support its expansion, such as marketing automation and cloud-based customer relationship management, which should help to create a company-wide database and thus leverage sales. The group's Ebit excluding one-off items gained €3.0 million to €106.5 million.

The one-off items amounted to costs of €2.4 million, as part of the targeted restructuring plan launched by Amer in August. These measures are meant to free up operating expenses of about €20 million, which will be reallocated to fund growth, but they will be paired with restructuring costs of €20 to €25 million spread over the second half of 2016 and the first half of 2017. Amer ended the quarter with net profit of €70.5 million, compared with €69.1 million for the same three months in 2015.

Adding up the first three quarters of the year, the Amer group's sales were up by 6 percent to €1,849.7 million, which was an increase of 7 percent in constant currencies, with organic growth of 6 percent.

The outdoor division's turnover improved by 8 percent to €1,111.1 million for the nine months, up by 9 percent in constant currencies. This includes increases of 11 percent for footwear and 14 percent for apparel, while winter sports sales were flat, cycling was up by 8 percent and sports instruments by 10 percent.

The Finnish group's gross margin was up by 1.0 percent to 46.9 percent and its Ebit margin advanced by 0.3 percentage points to 7.6 percent, excluding one-off items of €8.7 million, against €8.0 million for the same period last year.

The nine months ended with net profit of €79.0 million for the Finnish company, up from €68.3 million.

Amer reiterated its projection that its sales and Ebit margin excluding one-off items will both increase for the full year, in spite of the uneasy conditions in some markets. The growth is focusing on five priority areas, ranging from apparel and footwear to the U.S. and Chinese markets, retail sales, and connected devices and services.

At an investor day in August, the group reaffirmed its financial targets for 2020 but raised its guidance for sales over the five-year period. While it previously estimated that it could raise its turnover to €3.5 billion through organic sales and acquisitions, the company adjusted the forecast to estimate that it should reach the same level organically – and any acquisitions would be on top of the €3.5 billion.