Buoyant outdoor apparel sales fueled meager growth for the Amer Sports group in the second quarter, with unabated strong demand for Arc'teryx garments as well as double-digit growth in the turnover of Salomon's outdoor clothing.
The Amer Sports group's outdoor apparel sales jumped by 21 percent to €59.2 million for the seasonally weak quarter, up by 22 percent in constant currencies. Heikki Takala, the Finnish company's chief executive, said in a conference call with analysts that the rise had been driven by strong demand as well as geographic expansion, in China and other countries. The growth was most convincing in own retail and online stores, with both the Arc'teryx and Salomon brands reporting solid comparable store sales increases.
The uptick in apparel compares with growth of 3 percent to €100.1 million for outdoor shoes, reduced to an increase of just 2 percent in constant currencies. Takala explained that footwear sales had been affected by sluggishness in Latin America, which had a negative impact of about 5 percent for the quarter. He partly blamed market volatility in Latin America, adding that business tends to go up and down every other year. Another significant factor was a clean-up in distribution, as the company continues to adjust to its omni-channel strategy.
The group pointed to a similar trend for the first half of the year, as apparel sales went up by 17 percent in constant currencies, compared with a gain of just 2 percent for footwear. Takala added that the uptake for footwear had improved for the second half and he predicts a better year for this category in 2018.
The turnover of Amer Sports' entire outdoor division reached €283.3 million for the quarter, up by 3 percent in reported terms and in constant currencies, as increases in apparel, footwear and sports instruments were mitigated by declines in winter sports equipment and cycling.
Winter sports equipment from brands led by Atomic and Salomon suffered a sales decline of 12 percent in this small quarter but pre-orders for the coming season are up by 5 percent.
Another decline occurred in the cycling division, down by 18 percent in constant currencies. It was affected by high OEM and retail inventories, as well as a shift in the timing of product launches toward the second half. Then again, the Enve brand raised its sales by 26 percent for the quarter after its acquisition by Amer Sports enabled it to expand its distribution, and the Mavic brand is expected to stabilize in the second half. The sports instruments division and its Suunto brand delivered a 7 percent sales increase, fueled by the launch of Spartan multisport watches.
Across the whole outdoor division, sales were up by 12 percent in constant currencies in Asia Pacific and by 9 percent in the Americas, but they declined by 3 percent in Europe, the Middle East and Africa (EMEA).
The European drop mostly has to do with relative weakness in footwear and cycling. The division's operating results before one-off items amounted to an operating loss of €31.1 million, nearly twice the level of €16.0 million recorded in the same quarter of 2016.
Overall, the Amer Sports group saw its sales almost flatten and its operating loss widen in the quarter, but it remains upbeat about the second half of the year and the impact of investments to align its operations with market changes.
The group's total sales were up by 2 percent to €487.3 million for the three months. This was a rise of just 1 percent in constant currencies, combining the 3 percent increase in the outdoor division with flat sales in ball sports and a gain of just 1 percent in fitness.
Amer Sports pointed out that it was expanding at double-digit rates in four areas it has prioritized, from apparel to online sales, own retailing and China.
The group's turnover was down in the U.S. wholesale market due to the lower number of stores after retail bankruptcies, but the sell-through remains strong, the management pointed out.
The group ended the quarter with a gross margin of 44.5 percent, down by just 0.2 percentage points. It booked an operating loss before one-off items that roughly doubled to €24.8 million, and the net result was a loss of €24.0 million, compared with €14.7 million for the second quarter of 2016.
For the first half of the year, the group's sales were up by 3 percent to €1,148.9 million, with a rise of 2 percent in constant currencies. This includes a gain of 5 percent to €634.5 million for the outdoor division, up by 3 percent in constant currencies.
The gross margin dipped by 1.4 percentage points to 44.9 percent for the half-year, and operating profit before one-off items shrank to €13.4 million, down from €33.9 million. Amer reported a net loss of €4.5 million for the six months, compared with a profit of €8.5 million.
The company's guidance remains unchanged, as trading conditions are gradually improving. Amer expects its growth to be biased toward the second half. Sales for the full year are projected to go up in constant currencies, in spite of short-term market weakness. The operating profit before one-off items is anticipated to remain roughly flat, due to extra investments to adjust to market changes.
The group said that the half-year paved the way for faster growth in fitness and sports instruments, although their quarterly growth remained uneven.
It has invested in the opening of several retail stores, expanded its consumer database and built on its infrastructure in online sales and digital consumer engagement.