Outdoor financials: VF's Q1 profit plummets 33 percent, plus Amer Sports, Forzani, Under Armour, Jarden, Rocky Brands, GSI Commerce
VF's Q1 profit plummets 33 percent. Amer Sports reports 2 percent drop in Q1 sales. Forzani plans to scale back number of retail chains. New shoe line boosts Under Armour's Q1 profit. Jarden prices public offering. Rocky Brands swings to Q1 loss. GSI Commerce's Q1 net loss widens.
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VF’s Q1 profit plummets 33 percent
Shares of VF Corp (NYSE: VFC) fell as much as 14 percent on April 29 — topping the list of the NYSE’s biggest percentage price decliners of the day — after the company reported a 33 percent drop in profit and lowered its full-year guidance. VF is the parent of The North Face, JanSport and Eagle Creek, among others.
Shares fell $9.16, or 13.61 percent, to close at $58.12. It reached a day’s low of $57.25. The stock has traded between $38.22 and $84.60 during the past 52 weeks.
Net income was $100.9 million, or $0.91 per diluted share, versus $149.0 million, or $1.33 per diluted share, in 2008. VF said most of the decline was due to the higher pension expense and transactional currency impacts, in addition to foreign currency translation that reduced earnings by $0.10 per share.
Revenues decreased 7 percent to $1.72 billion, compared with $1.84 billion in the first quarter of 2008. Foreign currency translation accounted for five percentage points of the decline, which was more than the four percentage points assumed in its prior guidance.
The company said in a statement: “There is no question that global volatility and challenging economic conditions affected our businesses in the first quarter. It is important to note that our four largest and most powerful brands, which represent over 60 percent of VF’s total revenues — Wrangler, The North Face, Lee and Vans — continue to perform well in this environment, with global sales for Wrangler and The North Face up on a constant currency basis during the quarter, and Lee and Vans brand revenues up domestically.”
For the company’s outdoor and action sports segment, revenue was $605.9 million versus $636.2 million last year. Profit dropped to $92.0 million from last year’s $105. 5 million.
On a constant currency basis, VF said total revenues increased 2 percent, with revenues in its Americas businesses rising 4 percent and international revenues down 1 percent.
In Asia, the company added that the segment’s revenues grew at “a strong double-digit rate in the quarter as we continue to aggressively expand our business there.”
Global revenues of The North Face brand — VF’s second largest brand — grew 14 percent in the quarter on a constant currency basis, with healthy growth in the brand’s direct-to-consumer business, it said.
Total direct-to-consumer revenues for the segment rose 16 percent, as the company continued to open new stores and expand its e-commerce business, VF said. On a reported basis, total revenues declined 5 percent, it added.
Operating margins remained strong in the quarter, it said, although down slightly due to the transactional impacts of foreign currency exchange rate fluctuations.
Looking ahead, VF said it now expects annual revenue to fall between 5 percent and 7 percent, from previous guidance of 3 percent to 4 percent. About 4 percentage points of the decline is due to the stronger dollar, VF said.
That implies sales of $7.03 billion to $7.18 billion in 2009, compared with 2008 sales of $7.56 billion. It now expects its 2009 profit to land between $4.70 and $5 per share. It previously said it expected earnings to equal its 2008 profit of $5.42 per share.
The company did not give second-quarter guidance, but CEO Eric Wiseman said in a statement that he expects “revenue and earnings per share comparisons that are even more difficult than those of the first quarter.” He said it is the company’s seasonally smallest.
VF’s board declared a cash dividend of $0.59 per share, payable on June 19 to shareholders of record on June 9.
Susquehanna Financial Group analyst Christopher Svezia downgraded the company to “neutral” from “positive” due to its share price and uncertain outlook.
“With an upcoming seasonally difficult second quarter, continued foreign exchange headwinds, and a difficult macro backdrop, we believe the company’s earnings could be suppressed in the near-term,” he wrote in a client note. However, he added that VF has solid long-term growth potential.
Amer Sports reports 2 percent drop in Q1 sales
Amer Sports posted a 2 percent decrease in quarterly net sales for the entire company, but its winter and outdoor segment, which includes Salomon and Arc’Teryx, fared better, reporting a 16 percent increase in first-quarter sales of apparel and footwear.
“The winter sports equipment business had a good end to the winter season with sales at last year’s level. More importantly, however, due to the excellent snow conditions last winter, the sell-through of winter sports equipment was good and it has improved the preconditions for the retailers to make orders for the next season,” Roger Talermo, president and CEO of Amer Sports, said in a statement.
Net sales for the company were EUR 355.3 million (USD $469.5 million) compared to EUR 363 million (USD $479.2 million) in the same period last year. In local currencies, net sales decreased by 7 percent.
The group’s EBIT was a loss of EUR 6.9 million (USD $9.1 million) — a result of challenging market conditions particularly in the United States, the company said.
Earnings before taxes were a loss of EUR 14.4 million (USD $19.0 million) compared to a loss of EUR 6.9 million (USD $9.1 million) in 2008. Earnings per share were a loss of EUR 0.15 (USD $0.19) versus a narrower EUR 0.07 (USD $0.09) loss last year. Net financial expenses amounted to a 9 percent loss of EUR 7.5 million (USD $9.9 million) compared to last year’s loss of EUR 6.9 million (USD $9.1 million).
“The sporting goods business entered 2009 under the same cloud of uncertainty that is oppressing almost all consumer businesses. As a result, retailers have become extremely cautious about ordering new products and they have been destocking,” Talermo said in a statement. “Furthermore, besides slower consumer demand in general, consumers have also been moving to lower price points in their attempt to cut spending. The current headwinds in the trading conditions are clearly more obvious in the United States than in Europe.”
For the company’s winter and outdoor segment, which includes Salomon, Arc’Teryx and Suunto, net sales increased 1 percent to EUR 164.4 million (USD $217.2 million) versus EUR 162.0 million (USD $214.0 million) last year.
The breakdown of net sales was as follows: Apparel and Footwear 50 percent, Winter Sports Equipment 22 percent, Cycling 17 percent and Sports Instruments 11 percent. EMEA accounted for 70 percent, the Americas for 21 percent, and Asia Pacific for 9 percent of net sales. Sales in local currencies were up 5 percent in EMEA, down 8 percent in Asia Pacific, and down 8 percent in the Americas.
The EBIT of a EUR 10.9 million (USD $14.4 million) loss improved by 28 percent versus last year’s loss of EUR 14.6 million (USD $19.2 million) in local currencies. The company said the improvement reflects the lower cost level in the winter sports equipment business and the strong growth in sales of apparel and footwear — up 16 percent (18 percent in local currencies) to EUR 82.5 million (USD $109.0 million) versus EUR 71.0 million (USD $93.8 million).
Winter sports equipment had sales of EUR 37 million (USD $48.8 million) up from last year’s EUR 36.9 million (USD $48.7 million), while sports instruments’ sales dropped 14 percent to EUR 17.7 million (USD $23.3 million) versus EUR 20.6 million (USD $27.2 million) the year before.
Half of the segmental sales in the first quarter are related to the apparel and footwear business, which delivers the majority of its spring/summer collection during the first three months of the year, Amer said. The 18 percent sales growth was balanced over Salomon footwear, Salomon apparel and gear, as well as Arc’Teryx. Weakness in North America was well compensated by success in the Central European markets, it added. The sell-through of the key outdoor and trail running footwear products continues to be strong. It said the order intake for the fall/winter collection is more cautious than for the spring/summer season. Production commitments are being scaled down to reduce the inventory risks and improve cash flow, it noted.
In the winter sports equipment business, the company said the end of the season 2008/09 provided no surprises, with sales at last year’s level. The lower expense level is a result of the division’s restructuring and, Amer noted, “the industrial synergies will be visible in the 2009/10 product deliveries.” It added that the pre-order season is still ongoing, alpine Europe and Scandinavia benefiting from good winter conditions especially in cross-country skiing, while ordering in North America is slow which is impacting especially the snowboard business. The final changes to the new industrial structure were completed during the first quarter.
In sports instruments, the company said the decline in net sales reflected the economic environment, with the dive market most adversely affected. Consumer demand for the training category was good and saw double-digit growth compared to the previous year, it added.
Due to the prevailing uncertainty, Amer Sports said it has decided to give further guidance after the pre-order season in winter sports equipment is over. Its previous outlook predicted the company’s results in 2009 were anticipated to improve.
(Conversion of Euros into U.S. dollars is for information only, is not necessarily relative to earnings, and is based on the currency rate as of April 28.)
Forzani plans to scale back number of retail chains
Forzani Group (TSX: FGL) said it plans to boost sales by 10 percent a year and earnings per share by 20 percent a year over the next five years. It also said it will reduce the number of retail chains it operates but increase the size of individual stores.
During an investors’ day conference, Forzani said it is forecasting its earnings per share will be between CDN $2.25 (USD $1.84) and CDN $2.35 (USD $1.92) by 2014, up from CDN $0.93 (USD $0.76) in 2008, and its sales will be about CDN $2.6 billion (USD $2.1 billion), up from CDN $1.6 billion (USD $1.3 billion) last year.
The Canadian sporting goods retailer, which has more than 560 stores, currently operates 16 chains under such banners as Sport Chek and Coast Mountain Sports. It said it will gradually cut this to as few as nine chains, focusing on more profitable operations such as Sport Chek and Sport Mart. The end goal of reducing its banner count is to improve efficiency and reduce overlap and competition between its own outlets, it added.
Forzani said the major initiatives underway include:
– Increasing by 5,000 square feet the average size of its Sport Chek outlets, Forzani’s largest banner with 128 stores, because, it said, bigger stores deliver a better return on investment.
– Adding concept shops within many of the Sport Chek outlets, including 21 Nevada Bob’s Golf boutiques in the current fiscal year. Forzani said the strategy is capital efficient and less risky than adding free-standing Nevada Bob’s stores.
– Focusing Sport Mart, with 82 stores, more sharply on opening price-point customers to capture a much greater share of this $3.5 billion market.
– Adding vendor managed performance nutrition departments in Sport Chek and Fitness Source stores. The business has sound margins, faster inventory turns than sporting goods, and the potential to add to store visits as customers replenish supplies, Forzani added.
– Striving for average franchise retail margins in its corporate stores, which would be a 150 basis point increase in corporate store margins.
Also, the company said it would gradually buy back shares and return the capital to investors through dividends at a payout rate of about 20 percent to 25 percent of EPS.
(Conversion of Canadian dollars into U.S. dollars is for information only, is not necessarily relative to earnings, and is based on the currency rate as of April 28.)
New shoe line boosts Under Armour’s Q1 profit
Under Armour (NYSE: UA) said first-quarter profit rose 38 percent, boosted by strong sales of its new running shoe.
For the quarter ended March 31, profit rose to nearly $4 million, or $0.08 per share, in the three months ended March 31 from $2.9 million, or $0.06 per share, a year ago.
Revenue rose 27 percent to $200 million from $157.3 million a year ago.
Apparel revenue rose 2 percent to $132.2 million, while footwear revenue more than doubled to $40.3 million, from $16.6 million a year ago. Results were helped by the introduction of Under Armour’s running shoe during the quarter, as well as shipments of its Performance Training cross training shoes.
“The athletic footwear market represents an enormous growth opportunity for the Under Armour Brand,” said Kevin Plank, chairman and CEO, in a statement.
Standard & Poor’s upgraded its recommendation on Under Armour’s shares to “strong buy” from “buy.” S&P Equity Research analyst Marie Driscoll said in a client note that the upgrade reflects expectation of continued strength of its product, higher sales and earnings projects. S&P also increased its 2009 and 2010 earnings estimates, as well as its target price.
Jarden prices public offering
Jarden (NYSE: JAH), parent of Coleman, K2 and Marmot, said it has priced $300 million in 8 percent Senior Notes due 2016 at a discount to yield 8.5 percent. The closing of the offering of the notes is expected to occur on April 30.
Jarden said it expects to use the net proceeds of the offering of the notes to repay a portion of its senior credit facility term loans. Deutsche Bank Securities, J.P. Morgan and Barclays Capital are acting as joint book-running managers of the offering.
Rocky Brands swings to Q1 loss
Saying it was under pressure from a challenging economic environment, Rocky Brands (Nasdaq: RCKY) swung to a loss and posted a drop in sales for the first quarter.
The company reported a net loss of $1.1 million, or $0.20 per diluted share, versus net income of $0.3 million, or $0.05 per diluted share, a year ago.
Net sales decreased to $50.1 million versus net sales of $60.5 million in the first quarter of 2008.
Wholesale sales for the first quarter were $36.0 million compared to $39.7 million in 2008. Rocky said many accounts are choosing to operate with leaner inventory levels during the challenging economy.
Retail sales were $13.7 million compared to $18.9 million as it transitions to more Internet-driven transactions. Military segment sales were $0.3 million versus $1.8 million.
Gross margin was $20.1 million, or 40.1 percent of sales, compared to $25.9 million, or 42.9 percent, for the same period last year.
Selling, general and administrative expenses decreased 13.5 percent to $19.9 million, or 39.8 percent of sales, compared to $23.1 million, or 38.1 percent of sales, a year ago.
Income from operations was $0.1 million, or 0.3 percent of net sales, for the period compared to $2.9 million, or 4.8 percent of net sales, in the prior year.
Interest expense decreased 26.3 percent to $1.8 million versus $2.4 million last year. The company’s funded debt decreased 8.4 percent to $86.2 million compared to $94.1 million last year.
Inventory decreased 1.8 percent to $78.4 million compared with $79.8 million a year ago.
GSI Commerce’s Q1 net loss widens
With net revenue up slightly, GSI Commerce (Nasdaq: GSIC) reported a wider net loss for the first quarter.
Net loss for the quarter ended April 4 was $11.1 million, or $0.23 per share, compared to a net loss $10.8 million, or $0.23 per share, last year.
The company’s net revenues increased slightly to $196.5 million from $195.5 million. Non-GAAP net revenues increased 14 percent to $106.3 million from $93.3 million.
Loss from operations was $13.0 million compared to a loss from operations of $17.8 million. Non-GAAP income from operations was $9.3 million compared to $0.7 million.
Trailing 12-month free cash flow was $16.7 million compared to a negative $0.4 million.
For the second quarter, the company expects net revenues to be in a range of $177.0 million to $182.0 million. Loss from operations is expected to be in a range of $17.0 million to $19.0 million. Non-GAAP income from operations is expected to be in a range of $3.0 million to $5.0 million.
–Compiled by Wendy Geister
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