Head's sales contracted by 2.8 percent to just under €97 million for the third quarter, due to a decline of 11.8 percent to €52.5 million in its sales of winter sports products. Since it has completed its pre-season orders, the group predicts that its winter sports sales will drop by about 10 percent for the full year, as a result of the inventories that were left over at retail level after the warm winter last year. This will mostly affect Head's sales of skis and snowboards, which suffered more than boots.

Head indicated that it may still be better off than some of its rivals, since some international retailers reduced their pre-season orders by 20 to 25 percent for alpine ski equipment. Due to these cautious pre-orders by retailers, Head predicted that reorders could be slightly higher than last year, if the season starts with more regular winter conditions.

The drop in winter sports was partly offset by a jump of 12.8 percent to €34.2 million in Head's racquet sports sales for the quarter, supported by wider market expansion. Sales of diving products under the Mares brand crept up by 0.6 percent to €11.1 million for the quarter, during which the company estimates that the diving market was flat. The business continued to expand in Asia, the U.S. and central Europe, but it shrank in southern European countries and the Middle East.

On the other hand, the warm winter last year badly affected sell-in of sportswear this year, leading to a sales crash of 30.6 percent to €985,000 for this unit. Licenses yielded sales of €992,000, which was an increase of 6.2 percent.

Head's gross margin was under extra pressure for the quarter, down by 2.3 percentage points to 39.6 percent. However, the group's much lower financial costs enabled it to lift its net income to nearly €5 million for the quarter, up from €0.6 million for the same months last year.

For the first nine months of the year, Head's turnover jumped by 5.3 percent to nearly €229.6 million, but the increase reached just 1.5 percent in constant currencies. The tight situation in the winter sports market weighed on the performance, as Head's sales of winter sports products contracted by 7.9 percent to €75.3 million. Sales in the unit still increased in the first half but they fell in the third quarter as Head started selling in for the upcoming season.

Head Consolidated Income Statement

(‘000 Euros, Quarter ended Sept. 30)

 

2012

2011

% Change

Winter Sports

52,518

59,527

-11.8

Racquet Sports

34,251

30,356

12.8

Diving

11,127

11,063

0.6

Sportswear

985

1,421

-30.7

Licensing

992

934

6.2

Sales deductions

(2,904)

(3,565)

-18.5

NET REVENUES

96,969

99,736

-2.8

Cost of Sales

58,545

57,911

1.1

Selling & Marketing

23,496

24,723

-5.0

General &

Administrative

6,908

6,766

2.1

Net Compensation

133

723

-81.6

Net Interest

1,255

6,233

-79.9

Other Income (Expense)

414

(458)

-190.4

Pre-Tax

7,045

2,922

141.1

Tax

2,055

2,289

-10.2

NET

4,990

634

687.1

Earnings per share (diluted)

0.06

0.01

500.0

On the other hand, the group was aided by buoyant sales of racquet sports products, up by 14.8 percent to €113.5 million for the nine months. The company said that the U.S. tennis market was estimated to have enjoyed a rise of 6.8 percent for racquets and 6.9 percent for balls in the first half of the year. For the same months, the European market expanded by 5.8 percent for racquets and 4.3 percent for balls. The Japanese market is also continuing to recover, showing significant growth.

Head said that its own sales increase came from higher volumes, as well as an improved product mix of both racquets and balls in North America. It pointed to external market growth, product launches and the performance of some of its endorsees – particularly Andy Murray, who won the men's singles at the London Olympics and the U.S. Open.

Sales in diving products were up by 4.9 percent to €39.5 million, as Mares lifted its sales in North America and Asia more than enough to make up for weaker sales in Europe. The company still estimated that it was outperforming in the European market. Despite the downturn in the third quarter, sales of sportswear were still up by 14.9 percent for the nine months.

The group's gross margin for the nine-month period shrank by 1.6 percentage points to 39.8 percent. This was blamed on higher cost of sales, partly due to a lower utilization of Head's alpine production facilities. Other factors included exchange rate changes, growing labor costs and investments in the sportswear unit.

Again due to lower financial costs, Head's loss for the nine months was reduced to €5.1 million, compared with €12.4 million for the same period last year. The lower sales of winter sports products should not only reduce Head's turnover in the fourth quarter but also lead to a deterioration of the group's operating results for the full year.