Amer Sports, the multi-brand Finnish sports company, said it was starting the second part of its restructuring measures to ease the turnaround of its ball-sports business. It wants to put more resources behind strategic categories such as apparel and footwear as well as own retail sales, which should support the expansion of its outdoor brands.
The company said that the measures would be implemented in the next one and a half to two years. They should cost about €60 million, which will mostly be recognized in the second half of this year. About €25 million of these expenses will have an impact on cash flow. While the measures should not affect the company's outdoor brands, Salomon and Arc'teryx, a re-allocation of resources should help them to expand and enable the company to take yet more advantage of scale and synergies.
Amer Sports already launched a restructuring plan two years ago, focusing on its winter and outdoor division. This has enabled the group to lower the break-even point for this part of the company and to build up a business that is more sustainable and less influenced by weather conditions.
The launch of the new reorganization measures came as Amer Sports reported sales of €376.1 million for the second quarter, which was a decline of 0.3 percent in euros and an increase of 4 percent in constant currencies. It was driven by double-digit growth in sales of apparel, footwear and cycling products, and expanding turnover in China and fitness products. Own retail sales climbed by 22 percent, with store openings as well as comparable sales increases.
The entire group's sales were most robust in Europe, the Middle East and Africa (EMEA), where they increased by 8 percent in constant currencies to €156.1 million for the quarter despite a drop of 11 percent in Russia. They advanced by 5 percent in Asia-Pacific, aided by a surge of 18 percent in China, but dipped by 1 percent in the Americas as sales shrank by 31 percent in Latin America – mostly in Argentina, where Amer Sports has a substantial business and has been affected by economic woes. The company said its business was very healthy in North America.
The Finnish group's winter and outdoor division lifted its sales by 7 percent in constant currencies to €174.8 million, as increases of 12 percent in EMEA and 4 percent in Asia-Pacific amply made up for a decline of 2 percent in the Americas. Sales of winter sports equipment fell by 21 percent in a seasonally low quarter. Pre-orders for winter sports equipment dropped by 4 percent, due to weaker demand for cross-country skis, mostly in the Nordic countries, but Amer estimates that the entire market has seen a sharper reduction in orders after the mild winter last year.
Among the most buoyant categories in the winter and outdoor division, footwear generated a sales increase of 11 percent despite a sizable drop in Russia. Apparel sales were up by 26 percent with a strong contribution from Arc'teryx, while sales of cycling products, driven by the Mavic brand, advanced by 14 percent. Sales of sports instruments under the Suunto brand contracted by 9 percent but that was attributed to a shift in the timing of product launches. The operating income (Ebit) for the division before one-off items amounted to an operating loss of €22 million against €27.1 million last year, due to improved sales and gross margins.
| Amer Sports Consolidated Income Statement | |||
| (Million Euros, Quarter ended June 30) | |||
| 2014 | 2013 | % | |
| Winter and Outdoor | 174,8 | 168,7 | 3,6 |
| Ball Sports | 136,2 | 144,2 | -5,5 |
| Fitness | 65,1 | 64,3 | 1,2 |
| NET SALES | 376,1 | 377,2 | -0,3 |
| Cost of Goods Sold | 211,1 | 212,9 | -0,8 |
| Licence Income | 1,0 | 1,2 | -16,7 |
| Other Operating Income | 2,6 | 1,5 | 73,3 |
| R&D Expenses | 17,7 | 19,2 | -7,8 |
| Selling & Marketing | 129,3 | 130,3 | -0,8 |
| Admin. and Other Expenses | 39,2 | 36,2 | 8,3 |
| Net Interest Expense | 7,9 | 5,3 | 49,1 |
| Pre-Tax | (26,7) | (24,0) | 11,3 |
| Tax | 7,6 | 6,0 | 26,7 |
| NET LOSS | 19,1 | 18,0 | 6,1 |
| Euro/Share, Diluted | (0,16) | (0,16) | 0,0 |
Amer Sports suffered a small underlying decline of 1 percent in ball-sports sales to €136.2 million for the quarter, as it already started to cut out unprofitable turnover. As for the fitness division, which essentially consists of the Precor brand, its sales expanded by 5 percent in constant currencies to €65.1 million for the quarter.
The whole group's gross margin for the quarter advanced by 0.3 percentage points to 43.9 percent. It suffered an operating loss of €17.6 million against €18.7 million for the same period last year before non-recurring items, which reached €1.2 million and were related to ball sports. The Finnish group ended the quarter with a loss of €19.1 million, slightly wider than the loss of €18.0 million for the same quarter last year.
For the first half of the year, sales amounted to €877.6 million, achieving a rise of 0.8 percent in euros and 5 percent in constant currencies. The gross margin crept up by 0.2 percentage points to 44.1 percent. The company's loss reached €10.9 million for the first six months, against €3.2 million for the same period last year.
The management's guidance remains unchanged as it predicts an increase of at least 5 percent in sales in local currencies and an improvement in earnings before interest and tax excluding non-recurring items for the full year.