Lululemon Athletica Inc. (Nasdaq:LULU) continued to demonstrate that it’s gotten its groove back in the quarter, ended July 31, by growing comps, holding price and improving margins despite growing competition and lower traffic to its stores.
Still, the results disappointed investors, who had ran up the yoga lifestyle brand’s stock price from $55 to $80 from Jan. 1 to Aug. 22 on expectations the company would deliv-er even better results. As of noon September 2, the company’s shares were trading near $69.50, down about 9 percent from their close before the earnings release.
The Canadian brand, whose explosive growth earlier in the decade spurred the athleisure boom, reported net revenue in-creased 14 percent in its fiscal second quar-ter to $514.5 million. Though up 15 percent in currency-neutral (c-n) terms, it came in just below Wall Street’s consensus estimate of $515.5 million. Same-store sales, increased by 4 percent (5 percent c-n). Excluding online and other direct-to-consumer (DTC) sales, same-store sales rose 3 percent (4 percent c-n). DTC revenue, which came in at $87.4 million, was up 6 percent (7 percent c-n).
Lululemon was able to offset lower traffic to its stores by pushing up average transaction size, which it achieved in part by increasing the average number of items sold per transaction. A steady stream of new silhouettes continued to drive strong growth in women’s bottoms.
“It’s double-digit comping,” said CEO Lau-rent Potdevin. “Every time we’ve introduced new silhouette, new functionality… we see a fantastic response from our guests.”
Supply Chain Initiatives Pay OffJust as impressive was a 260-basis-point increase in gross margin, which reached 49.4 percent. The improvement demonstrat-ed Lululemon’s ability not only to hold price in an increasingly competitive market, but to deliver on supply chain savings promised in the wake of a disastrous product recall in 2013. Lululemon CFO Stuart Haselden said he expects similar gains in the current quarter as the company continues to drive down raw material, logistics, duty and other sourcing and logistics costs.
A higher mix of more expensive product sales and less discounting at retail also helped expand gross margin, he said.
“We had less markdowns that were needed in order to stay on top of our inventory move-ment,” said Haselden, adding that he expected markdowns to rise to more normal levels in the back half of the fiscal year.
Lululemon reported income from operations increased by 11 percent to $74 million during the quarter, while diluted earnings per share came in at 39 cents compared to 34 cents in the second quarter of fiscal 2015 and the 38 cent average expectation of Wall Street analysts.
The company ended the quarter with 379 stores and inventory of $277.3 million, a decline of 1 percent from a year earlier.
“Our progress in the second quarter, especially in gross margin and inventory, marks the beginning of our recovery in prof-itability and sustainable long term growth,” said Potdevin.
For the fiscal third quarter, the company expects total comparable sales to grow in the mid-single digits on a constant dollar basis.
The company lifted its guidance for the full fiscal year. It now expects net revenue to reach between $2.33 billion to $2.35 billion. Com-parable-store sales are expected to grow in the mid-single digits on a constant dollar basis.
NEWS, ANALYSIS AND INSIGHT FOR THE ACTIVE LIFESTYLE EXECUTIVE
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Smith & Wesson Holding Corp. (Nasdaq:SWHC) aggressively hiked its guidance for the year after reporting that its fiscal first-quarter earnings more than dou-bled on a 40.1 percent revenue gain.
But are firearms sales reaching their peak? Despite the stellar results, investors sent the stock down more than 6 percent September 2, with one analyst group, Craig-Hallum, saying firearm sales were “as good as it gets,” reducing its rating from buy to hold.
Smith & Wesson now projects sales for the fiscal year, ending April 2017, to be between $900 million and $920 million, well above its previous guidance calling for sales in the range of $704 million and $760 million. Wall Street’s consensus tar-get had been $777 million. Sales reached $722.9 million in the prior year.
EPS is now expected to range between $2.38 and $2.48, up from previous guid-ance of $1.83 to $1.93. Analysts expected annual adjusted earnings of $1.92 a share. Earnings on an adjusted basis were $1.83 in the prior year.
The raised guidance also incorpo-rates two acquisitions: Taylor Brands and Crimson Trace.
In its first quarter ended July 31, sales reached $207 million, exceeding the company’s guidance calling for sales in the range of $190 million to $200 million.
Firearms segment sales grew 47.7 percent to $192.4 million, driven by strong mix results and market share gains.
On a conference call with analysts, James Debney, president and CEO, said the gains were boosted by strong orders for both handguns and long guns. The
manufacturing service division also saw incremental sales and market share within the Firearms division.
Revenue from its Outdoor Products & Accessories segment was $14.6 million, down 16.9 percent from the prior year. The decline reflected an increase in pricing on many Thompson/Center Accessories as part of an internal initiative to improve the prof-itability of those items. While the change reduced sales of TCA Accessories, overall gross margins in the segment improved 500 basis points to 47.3 percent.
Company-wide gross margins improved 250 basis points to 42.3 percent due to increased production volumes and invento-ry adjustments in the Firearms segment, as well as the higher margins in the Outdoor Products and Accessories segment. These positive factors more than offset increased manufacturing spending and promotional costs.
Operating expenses were reduced to 16.9 percent of revenue from 19.7 percent due to the sales leverage. The latest quar-ter’s operating expenses included cost relat-ed to the acquisition of Taylor Brands and Crimson Trace. On a non-GAAP adjusted basis, which excludes the amortization of the one-time acquisition-related costs, operating expenses would have been 15.1 percent of sales against 19.4 percent.
Net income improved 126.4 percent to $32.6 million, or 57 cents a share. Non-GAAP earnings jumped 98.3 percent to $35.1 million, or 62 cents a share. Adjusted earnings came in well above the company’s guidance calling for earnings of 49 cents a share.
Sweden’s Peak Performance brand, which makes apparel for skiing, golf and other outdoor activities, lost more money on much higher sales in its latest quarter, as it continued to shift to a more direct-sales model.
The results reflect rapid shifts in specialty outdoor retailing in Europe, where consumers have been slower to shift their spending online.
Brand revenue reached DKK 110 million for its fiscal fourth quarter, ended June 30, up 34.1 percent from DKK 82 million in the year earlier quarter, according to parent company IC Group of Denmark. Excluding currency impact, the brand’s sales increased 36.2 percent.
Operating loss grew 13.2 percent to DKK 43 million, corresponding to an EBIT (earnings before income taxes) to net sales ratio of -39.1 percent, compared with -46.3 percent a year earlier. The improvement was aided by the reversal of previously allocated write-downs and salary related costs of approximately DKK 12 million in the year earlier quarter.
For the full fiscal year, Peak Performance’s sales declined just 1.8 percent, or -1.4 percent in currency-neutral terms, to DKK 936 million. The decline was driven by an 8.1-percent drop in wholesale revenues attributed to a “cleaned up” wholesale distribution, which IC Group undertook across all three of its core brands. The decline came despite the favorable shift of about DKK 10 million in wholesale revenues from the third to the fourth quarter.
Sales through owned retail stores, meanwhile, grew 12 percent to reach 36 percent of sales, up from 32 percent in fiscal 2014/15. The growth reflected the addition of seven full-price and three outlet stores. Same-store sales grew 17.9 percent, but the growth was driven primarily by robust e-commerce and clearance results.
Growth was even across the Nordic region and Europe, but flat in the rest of the world compared to the prior fiscal fourth quarter, due in part to those wholesale clean-up efforts. The brand derived 82 percent of its DKK 972 million in revenue from the Nordic region during the fiscal year.
Despite limiting discounts to 40 percent in its owned stores, operating profit fell 15 percent to DKK 94 million, while EBIT margin fell 120 basis points to 10 percent.
IC Group, which also owns the Tiger of Sweden and By Marlene Birger fashion brands, expects retail expansion to drive consolidated, currency-neutral net sales growth of 5 percent in the current fiscal year. Executives expect the opening of 10-15 new stores will continue to weigh on the Group’s EBIT margin, which is expected to reach 9 percent.
SHIFT TOWARD DIRECT SALES SAPS PEAK PERFORMANCE
The strong fiscal-first-quarter results come after the company saw a bounce-back campaign in its fiscal year-ended April 1 as sales gained 31 percent. The rebound was helped by a number of mass shootings, including ones in San Bernardino, CA; Paris and most recently, Orlando, FL. High-profile incidents tend to boost firearm sales due to concerns over consequent tighter gun-ownership restrictions.
Distributor inventory of the company’s firearms increased as planned by 64,000 units to a total of about 155,000 units at the end of the fiscal first quarter. Officials said the sequential rise from the fourth quarter reflected a typical seasonal increase with the upcoming arrival of fall hunting and the busy holiday shopping season.
Debney noted that even with that increase, its distributor inventory is lower than last year’s level of 177,000 units. Moreover, at the close of the fiscal first quarter, Smith & Wesson’s weeks of sales in the channel remained below its eight-week threshold.
“So it appears there was no concerning build-up of firearms inventory in the channel as we approach the busiest retail period of the year,” Debney said.
Adjusted net background checks during its fiscal quarter grew 19.2 percent year over year, while the company’s units shipped into the consumer channel for the same period were up 52.8 percent, which Debney said indicates the company is gaining market share.
In handguns, which make up about 80 percent of its total annual fire-arms units shipped, NICS checks increased 15.2 percent, while its units shipped into the consumer channel grew 42 percent. In long guns, which make the remaining 20 percent, NICS checks advanced 24.1 percent, while units shipped jumped 118.8 percent, albeit off a lower base than handguns.
Touching on the acquisitions, Debney said Taylor Brands has long produced the Smith & Wesson and M&P branded knives under a license with the company and is the owner of many other “highly regarded” knife brands, including Schrade, Uncle Henry, Old Timer and Imperial. Taylor Brand’s trailing 12-month revenue was approximately $41 million.
“This business will tuck into our Accessories Division and will provide us with the opportunity to deliver future organic growth,” Debney said.
The CEO described Crimson Trace as the “undisputed leader” in laser sighting and tactical lighting systems. Crimson Trace has also long been a key supplier to the company. Crimson Trace’s trailing 12-month revenue are $44.7 million, including $10.8 million in sales to its Firearms division.
Debby said Crimson Trace will serve as a platform for its new Electro-Optics Division. Although Crimson Trace has been narrowly focused on the laser sighting market, its management team sees a much bigger opportunity targeting the electro-optics market in its entirety. Said Debney, “This is a broad and sizable category that includes products such as various sights, aiming and ranging devices, magnifiers and scope for a variety of applications. Therefore, we believe that this division will have ample expansion opportunities, both organically and inorganically.”
Beyond growth, the acquisitions and related-growth opportunities will support diversification efforts for Smith & Wesson.
“These are busy and exciting times for our company,” concluded Debney. “We now stand at four divisions, operating in two high-growth segments with multiple opportunities for organic growth, ample resources and a robust pipeline of potential acquisition targets.”
For its upcoming fiscal second quarter, ending October 31, Smith & Wesson expects sales to come in the range of $220 million to $230 million, which compares to $147.7 million in the prior year. Earnings are projected to land in the range of 53 cents and 57 cents a share, which compares to 32 cents a year ago.
Amer Sports will accelerate openings of Arc’teryx and Salomon stores in the United States and China as part of a strategic pivot aimed at leverag-ing strong organic growth in both countries, the company told investors September 1.
Both brands will also accelerate expansion into new categories as part of the pivot, which the company revealed to investors during its annual “Market Day” presentation in Helsinki.
In May 2015, Amer Sports set a target of achieving at least €3.5 billion in net sales by 2020 through a combination of organic growth and the addition of approximately €200 million in revenue from acquisitions. On August 31, it said it expects to achieve that target through organic growth alone and that acquisitions should enable it to reach €4 billion in annual revenue within five years.
The company, which counts Salomon, Wilson and Precor among its flagship brands, said revenues from its direct-to-consumer (DTC) and China and Connected Devices and Services” are running 25 and more than 20 percent respectively ahead of year ago levels. Amer Sports also owns Atomic skis, the baseball brands Demarini and Louisville Slugger, Suunto instruments and the Mavic and ENVE Composites bicycle com-ponent brands.
Given that it can cost up to 1.3 times sales and more than 10 times EBITDA (earnings before income taxes, depreciation and amortization) to acquire brands, Amer Sports figures it’s more cost effective to fund organic growth. Because it can be funded through existing cash flow with-out taking on new debt, organic growth has the added benefit of being more sustainable, asserted the company’s President and CEO, Heikki Takala.
To leverage the momentum, Amer Sports disclosed a restructuring plan it says will free up €20 million in annual operating expenses. The plan, which should be completed by the end of 2017, calls for investing the savings to accelerate five strategic initiatives propelling its organic growth. In addition to DTC, China and Connected Devices, that list includes growing its apparel and footwear and U.S. business.
The company said Thursday it still expect its U.S. revenues to reach at least $1.50 billion in 2020, compared with $1.07 billion earned from all of the Americas last year. But to push beyond that it will reinvest savings from the restructuring plan to accelerate organic expansion.
Arc’teryx, which recently expanded into footwear, will speed expansion into categories in a bid to become a four-season brand. Salomon will speed up its expansion into running. Both brands will speed up store open-ings in North American and China. Amer Sports expects to increase its store count by at least 25 per year and accelerate online customization programs.
Amer Sports expects softgoods to represent 75 percent of Salomon sales this year compared with 50 percent in 2009, according to figures the company shared Thursday.
Other highlights include:
• At Arc’teryx – best known for its technical mountain apparel – sales are on track to grow to five times their level in 2009.• Gross margin at its legacy winter sports equipment business, which includes the Salomon and Atomic brands, to reach 46 percent this year, up from 40 percent in 2009.• The fitness brand Precor and instruments maker Suunto are on pace to report earnings before income taxes (EBIT) equal to about 10 percent of sales compared to negative EBIT in 2009. Both brands are on pace to more than doubled their sales since 2009.• At Wilson, gross margins on the sales of sports equipment have grown 600 basis points to 46 percent.• Revenues from China and direct-to-consumer (DTC) are each expected to reach €100 million and €200 million respectively this year, up tenfold since 2009.• “Acquisitions will remain in the toolbox, as our ambition is to grow toward €4 billion in net sales in the next 5-puls years,” said Takala.
Shares of Genesco Inc. tumbled September 1 –down more than 30 percent, to less than $50 a share, after the company slashed its earnings guidance for the year due to a flip in fashion trends at the Journeys chain.
Genesco now expects earnings per share for the full year in the range of $3.80-$4, down from a prior view of $4.80-$4.90. In 2015, Genesco earned $4.29 a share.
“We have experienced significant comp dete-rioration in our Journeys business over the past two months related to a fashion rotation which we expect will persist for several more quarters and, therefore, has meaningfully changed our outlook for the back half of the year,” said Bob Dennis, chairman, president and CEO, on a conference call with analysts.
The revised guidance came as Genesco de-livered second-quarter earnings that came in largely as planned and even ahead of Wall Street’s estimate, although sales at both Journeys and Schuh came in below estimates.
At the Journeys segment, operating earnings were down 51.4 percent in the second quarter to $4.5 million. Sales improved 2 percent to $252.1 million.
Dennis said that after seeing positive comps in the first quarter, May, a low-volume month, saw a decline and business turned “progressive-ly worse” in June, July and August – the peak of back-to-school (BTS) selling. Overall, Journeys comps declined 4 percent in the second quarter and upcoming third-quarter comps for the seg-ment were down 7 percent through August 27.
Dennis noted that early-summer traffic at Journeys was weaker than earlier in the year, but expected to pick up as BTS selling kicked in. While traffic did pick up toward the end of July, conversion “dropped off considerably,” indicat-ing that the fashion trends had shifted.
“We have seen the Journeys consumer shift away from several of the fashion trends that have helped fuel strong performance in recent years,” said Dennis. “We are also seeing strong
consumer interest and rapid growth in brands that are not yet at a size in our assortment to fully offset the declines in the weaker styles.”
Dennis said Journeys typically sees trends change every two-to-four years citing grun-ge, urban, surf and skate as examples. But “the speed and the intensity of the shift in this instance are more pronounced than we have ever seen in the past.”
Journeys’ problems are exacerbated because it has gone “deep and narrow” in buying around the styles that had been working well in the recent past.
Part of the lower guidance also reflects chal-lenges at Schuh, a U.K.-based chain similar to Journeys. Comps had picked up in May and June after a difficult first quarter due to the arrival of warm weather. However, consumer confidence dipped after the UK’s decision at the end of June to leave the European Union. Consequently, a drop in traffic and conversion in Schuh’s stores led to a one percent comp decline in the quarter.
Overall, Schuh’s revenues in the quarter were down 6.1 percent to $97 million. Operating in-come still improved 16.4 percent to $5.7 million.
Conversely, operating earnings at the Lids Group segment rose 27.5 percent to $7.1 million. The improvement reflects a jump in gross margins by 480 basis points driven by the decision to divest the Lids Team Sports busi-ness through a sale to BSN Sports and a lower level of promotions at retail.
Sales were down 15 percent to $188.9 million due to the sale. Comps in the second quarter were flat as Lids anniversaried last year’s ele-vated clearance sales. Positive store comps were offset by lower online sales, since e-commerce was a primary clearance vehicle a year ago. The segment was also facing tough comparisons in the year-ago period due to better full-price sell-ing with the NBA and NHL championship wins by Golden State and the Chicago Blackhawks.
For the balance of the year, Lids is expected to show flat to negative comps that will be more
than offset by gross margin increases, resulting in positive gross profit dollar gains.
The Johnston & Murphy segment also contin-ued its recent momentum in the second quar-ter. Operating earnings more than doubled to $2.3 million from $846,000, thanks to increased wholesale and direct sales and meaningful expense leverage. Sales improved 7.1 percent to $65.2 million. Comps increased 3 percent on top of the 10 percent gain a year ago.
Companywide, revenues were down 4.6 percent in the second quarter to $625.5 million. Excluding Lids Team Sports, sales were flat. Consolidated comps decreased one percent, worse than expected due to softness at Journeys and Schuh.
Gross margins for the second quarter im-proved 150 basis points to 50.3 percent. Total adjusted SG&A expenses increased 170 basis points to 48.4 percent due to the absence of Lids Team Sports.
Companywide net earnings in the quarter rose 90.8 percent to $14.5 million, or 72 cents a share. Excluding a number of special items in both periods related to a network intrusion, the sale of Lids Team Sports, asset impairment charges and payments tied to its Schuh acqui-sition, earnings were down 18.8 percent to $6.9 million, or 34 cents a share. Results topped Wall Street’s consensus estimate of 27 cents.
For the current quarter through August 27, consolidated comps are down 5 percent, and Dennis said the company’s “early reads on the other winter seasonal product for Q4 have not been as promising as we would have liked, al-though this has been on small volumes and it is still summer.”
In the Q&A session, Dennis said the compa-ny wouldn’t discuss what brands and styles were seeing strong demand in the fashion shift at Journeys due to competitive reasons. But he un-derscored that main problem in reacting to the trend change is “how sudden, in terms of tim-ing, and severe, in terms of swing,” the shift was. Vendors who have the potential to capitalize on the fashion shifts don’t have enough stock. Said Dennis, “We just can’t get any more product other than what’s on order. We’re chasing like crazy, but there’s not anything to chase.”
Dennis said it will likely take until spring be-fore Journeys mix can undergo the changeover necessary to get back on trend.
“When we drop spring, which arrives in the first quarter, we will have a pretty pronounced move beyond what we had anticipated,” said Dennis. “But between now and then we think we’re going to be a little bit challenged, selling out of what is really in highest demand and a little long on what has gone soft.”
Shoe Carnival Inc. (Nasdaq:SCVL) narrowed its sales guidance for the year due to a late start to the back-to-school (BTS) selling season. But unlike competitor Famous Footwear, officials said the delayed buys im-pacted athletic footwear sales.
The off-price shoe chain now expects an annual sales in the range of $1.012 billion to $1.016 billion, with a comparable store sales increase in the range of 1.5 to 2 percent. Previously, it expected sales to be in the range of $1.007 billion to $1.027 billion, with a comps up between 1 to 3 percent. The company maintained its EPS guidance in the range of $1.58 to $1.65, although that’s only because of its stock repurchase efforts.
Earnings for Shoe Carnival’s fiscal-2016 second quarter, ended July 30, slid 14.8 percent to $4.1 million, or 22 cents a share, missing Wall Street’s consensus target of 27 cents a share. Sales inched up 1.8 percent to $231.9 million. Comps gained 0.5 percent, missing guidance calling for an increase in the low-single digits.
Investors reacted negatively to the news sending Shoe Carnival’s stock price down more than 10 percent, September 1, following the release.
On a conference call with analysts, Shoe Carnival President and CEO Cliff Sifford, noted that the chain in the quarter benefited from a combi-nation of higher conversion rates, average sales per transaction and units per transaction, but was held back by a mid-single digit decline in traffic.
By month, May started off cool and rainy, affecting seasonal product, he said. June saw a “nice rebound” in sandals with more seasonal weather. In July, sandals continued their momentum, but adult athletics trended down low-single digits.
“As we entered the key back-to-school sales season at the end of the second quarter, we saw a strong trend where our customers shopped not only closer to the start of school, but continued to shop well after school began,” Sifford said. “This isn’t the first time customers have waited to buy their footwear closer to need; however, this year it was more pronounced than we have seen it in previous years.”
The BTS procrastination was an echo of what rival Famous Footwear noted a day earlier in its earnings report, but while Famous Footwear still reported gains in the athletic category for the second quarter, Shoe Carnival experienced slight declines.
Overall for the quarter, adult athletic was down less than one percent on a comp basis. Decreases were seen in performance running, cross training, and the skate categories “as we believe that customers waited later to make decisions on back-to-school purchases,” Sifford said. Canvas basketball and updated retro categories performed well throughout the quarter.
Women’s non-athletic for the quarter was up low-single digits on a comp basis. The increase was driven primarily through the high-single digit increase in sandals. A high-single digit gain was also seen in junior dress, driven by new offerings added over the last several years. Men’s non-athletic was slightly up on a comp basis as a mid-single digit increase in men’s dress and a double-digit increase in men’s casual boots offset weakness in men’s casual, weighed down by boat shoes. Children’s was up low-single digits, driven primarily from athletic footwear, including canvas basketball.
Gross margins for the quarter were 29 percent, compared to 29.1 percent in the second quarter of last year. This decrease was driven by a 40 basis point decrease in its merchandise margins partially offset by a 30 basis point decrease in buying, distribution, and occupancy expenses as a percentage of sales.
Gross margins are also being impacted by higher shipping charges resulting from the full-year roll out of its Shoes to You program, although the ship-to-home program has improved customer conversion rates at the store level. As a result, gross margin for the remainder of the year is expected to be essentially flat to slightly up as compared to the prior-year periods.
SG&A expenses in the second quarter increased $2.2 million to 26.1 percent of sales compared to 25.6 percent in the second quarter last year. The increase was due to new stores as well as increases in wages, advertising, other employee benefits, and equity compensation.
Shoe Carnival ended the quarter with inventory down approximately 2.5 percent on a per-door basis, in line with expectations. The goal by year-end is to reduce its per door inventories by mid-single digits.
Sifford noted that in the fourth quarter last year, retailers experienced warmer than normal weather patterns which negatively impacted the sales of seasonal product. He added, “We believe with more normalized weather patterns, we have an opportunity to end the year with less fall product inventory versus the levels we had on hand for the same time period last year.”
Discussing several key initiatives, Sifford noted that the company added approximately 1.2 million members to its Shoe Perks loyalty program in the second quarter, the second straight quarter of record enrollment. The program in total now has 11 million members who, on average, spent 20 percent more than non-members and accounted for 67 percent of sales in the second quarter. The program enables the chain to communicate special promotions and sales events to its key customers. A customer segmentation tool is being rolled out to identify high-value customers and target specific communications to increase shopping frequency and average order value going forward.
Shoe Carnival will also roll out buy-online, pick-up-in-store and buy-online, ship-to-store beginning this quarter. Drop ship ordering from key vendors will be introduced in 2017.
Looking ahead, Sifford said that August’s sales are up 1.3 percent. He said 90 percent of schools have opened with two more weeks of BTS selling to go. Added Sifford, “For the first time I can remember, footwear sales accelerated a day or two prior to school starting and continued to perform well after school began.”
In athletics, Shoe Carnival has seen a slowdown in canvas footwear overall quarter-to-date, even though strong sales gains continue in canvas basketball, especially in women’s. Other drivers of the adult athletic category are updated retro styles for both men and women’s running categories, along with men’s and women’s moderate running and men’s performance basketball.
Children’s shoes are also performing well, with kids athletic comping up mid-single digits month-to-date. On the women’s non-athletic side, junior dress, flats, sandals and the junior bootie category are performing well.
Added Sifford, “As a reminder, our sales comparison on seasonal products gets easier once we enter into the fourth quarter, and with any cooperation of the weather, we should experience a better boot perfor-mance during that important time period than last year.”
For the third quarter, Shoe Carnival expects comps to increase low- single digits. Gross margins are expected to increase slightly and SG&A to leverage slightly as a percentage of sales compared to the same period a year ago.
SHOE CARNIVAL NARROWS OUTLOOK ON WEAK BACK-TO-SCHOOL START
Super Retail Group reported same-store sales grew at all its sporting goods banners in the fis-cal year, ended July 2, and have since accelerated — indicating strengthening demand for team, outdoor, fitness and other gear in Australia.
The continent’s largest native sporting goods retailer reported sales at its Sport Retailing division grew 9 percent to AUD$910.2 million ($664 million) thanks to acquisitions and or-ganic growth. Same-store sales grew 6.3 percent with increases across all categories, but par-ticularly in footwear and apparel. Digital sales jumped 60.8 percent over fiscal 2015 due largely to a doubling of the company’s stake in online retailer Infinite Retail in November, 2015.
The Rebel and Amart Sports banners grew sales by 9.5 percent to AUD$882.4 million, thanks to total transaction growth of 3.2 percent and a 3.3-percent increase in average transac-tion size. Division earnings before income taxes (EBIT) grew 18.6 percent to AUD$77.8 million, despite a AUD$5.6 million loss related to the Infinite Retail integration.
The Sport Retailing division ended the fiscal year with 161 Rebel and Amart Sports stores and a 95-percent stake in Infinite Retail.
Ray’s Outdoor Continues To DisappointAt the Leisure Retailing division, which sells camping, fishing, hiking, paddling and
adventure travel gear, sales grew by 7.1 percent to AUD$581.9 million, with same-store-sales growth of 5.5 percent at BCF (Boating, Camping, Fishing)and 1.3 percent at Ray’s Outdoors.
BCF gained momentum in the back half as same-store sales accelerated to 8.2 percent from 3.1 percent in the preceding six months. Gross margin grew 140 basis points.
At Ray’s Outdoor, discounting, clearance activity and higher product costs resulted in a loss of about AUD$7 million and dragged down EBIT at the Leisure division 42.4 percent.
“The performance of the legacy Ray’s Outdoors stores has continued to be disappoint-ing, delivering negative same-store sales growth outside of clearance activity,” said Super Retail Director and CEO Peter Birtles.
In May, Super Retail announced it would close 21 Ray’s Outdoor stores, convert 17 others to one of its other banners and convert the remaining 12 to its new Ray’s concept at a cost of AUD$58.3 million, including a AUD$20 million non-cash impair-ment charge to reflect the lower value of the Ray’s Outdoors brand. The plan envisions the Leisure division retaining AUD$110 million of AUD$135 million in sales generated by the banner in fiscal 2016.
Those costs as well as costs incurred integrat-ing Infinite Retail resulted in Super Retail taking a AUD$46 million after-tax restructuring charge in fiscal 2016 that constrained growth in consol-idated net income to just 2.2 percent compared with fiscal 2015.
Still, improvements in operating cash flow enabled Super Retail to spend AUD$81.3 million opening and refurbishing stores. The compa-ny also reduced average net debt during the fiscal year 7 percent to AUD$405 million and held inventory per store flat with a year earli-er, despite significant increases in purchasing costs do to the weakening of the Australian dollar.
Earnings Growth AheadBirtles said the restructuring of Ray’s Outdoors, integration of Infinite Retail and completion of a supply chain initiative have addressed issues that had constrained Super Retail’s earnings growth in recent years.
In the first seven weeks of the current quarter, for instance, same-store sales growth accelerated to 10 percent at the Leisure division and about 4 percent at the Sports Division.
Super Retail plans to open about 20 stores in the coming year, in addition to the 17 Ray’s Outdoors stores that will be converted into other Group brands.
Hurt by a continuing shift to buying closer to needs for the back-to-school (BTS) selling season, Famous Footwear’s same-store sales slipped 1.1 percent in the second quarter.
On a conference call with analysts, Diane Sullivan, chairman, presi-dent and CEO of the chain’s parent, Caleres Inc., said that while Famous Footwear has seen this trend for several years, it’s “much more pronounced this year” with consumers buying at need or even beyond the traditional season.
“With roughly two-thirds of our consumer doors already back in the class room, we are deep into the heart of back-to-school and yet we’re see-ing some consumers are starting their shopping after school even more than we’ve seen before,” said Sullivan.
Overall, same-store revenue for the retailer’s 2016 BTS season currently is up about one percent. Each week showed improved performance and August comps sales rose 2.5 percent, company officials said. For the sec-ond quarter, comps were down in May, rose in June and then dropped again in July.
Net sales at Famous Footwear in the latest quarter declined 1.5 percent to $390.1 million. Operating earnings were off 17.1 percent to $5.8 million as the sales decline offset a slight improvement in gross margins to 45.5 percent from 45.3 percent.
Immune to the BTS doldrums, sales at Famous.com were up 65 percent to date for BTS with the majority of orders being fulfilled from store inventory. Among categories, Sullivan said Famous saw continued growth in lifestyle athletic and sport influence product in the quarter.
Said Sullivan, “We planned these styles up for back-to-school and they are taking shares from overall athletic and reaching into the fashion seg-ment. And as you would imagine, these are the areas we have planned up for the back half and into 2017.”
Companywide, earnings rose 17.5 percent to $19.8 million, or 46 cents a share. Results came in short of Wall Street’s consensus estimate of 50 cents
a share but shares of Caleres were trending up, ahead $1.43 or 5.9 percent, to $25.69 in mid-day trading August 30 following the release on the New York Stock Exchange.
Sullivan noted that despite the “continuing industrywide shifts,” the company improved overall gross margins, controlled expenses, kept in-ventories in line with plan and continued to invest for long-term growth.
“While the overall industry is still soft, we are actively managing the areas within our control and maintaining very disciplined focus,” said Sullivan. “Thanks to our investments and the team’s agility, we have been able to read and react to the atypical seasonal shopping patterns we have been seeing and to more rapidly respond to the consumers’ desire that we’re seeing for newness.”
At its Brand Porfolio wholesale segment, sales were down 3.8 percent to $232.8 million but operating earnings improved 9.1 percent to 17.5 million. Among its brands, Dr. Scholl’s sales were lower as the brand continued to exit some categories in the mass channel. Naturalizer also declined due to “some difficult traffic trends.” Healthy gains were seen by Sam Edelman and Franco Sarto. The segment also includes the Ryka women’s athletic brand.
Caleres maintained its guidance for the full year. It expects earnings in the range of $2.00 to $2.10, up from $2.00 the previous year. Sales are expected to land between $2.57 billion to $2.6 billion, which is essentially flat with $2.58 billion in 2015. Famous Footwear same-store-sales are projected to be flat to up to low-single digits for the year.
“Despite the current environment, we’re confident in our abili-ty to deliver consistent, profitable and sustainable long-term growth through the continued execution of our strategy,” Sullivan said. “Investments such as our supply chain and our consumer fulfillment initiatives have made it easier for us to adapt to the constant changes in the industry and at retail.”
Photo courtesy of Caleres/Famous Footwear
FAMOUS FOOTWEAR FOILED BY BACK-TO-SCHOOL PROCRASTINATORS
$40 MILLION MISSOn sales guidance at sportswear maker G-III due almost entirely to
a drop in wholesale outerwear orders, reflecting retailers’ hesitancy
to stock up after last year’s warm winter throughout much of the
country.
$74 MILLIONTotal purchase price Vista Outdoor Inc. will pay to acquire outdoor-
cooking solutions brand Camp Chef, including $60 million in cash,
and the potential for $14 million more in compensation bonuses if key
management members remain.
1.1 PERCENT SLIPIn same-store sales at Famous Footwear for its latest quarter, as more
consumers delayed their back-to-school purchases closer to school-
starting dates. Despite the the drop, officials said the retailer saw
continued growth in lifestyle athletic and sport-influence product.
20 PERCENT INCREASEIn gross margins for Lululemon, highlighting its second-quarter results
and demonstrating the brand’s ability to deliver on supply chain
savings and hold prices in an increasingly competitive athleisure
market.
30 PERCENT DROPIn Genesco’s stock price September 1, after officials lowered the
company’s earnings-per-share guidance to a range of $3.80 to $4.00,
versus a prior forecast between $4.80 to $4.90. Officials blamed the
decline on fast-changing consumer fashion demands.
111.9 PERCENT JUMPIn stand-up paddling participation, making it the fastest growing
sport in America, according to the 2016 SFIA State of the Industry
Report. Adventure racing (up 77 percent) and mixed martial arts (up
72.3 percent), rounded out the top-three big gainers. Others winners
included triathlon (non-traditional/off road), rugby, bicycling (BMX),
boxing for competition, trail running, triathlon (traditional/road) and
roller hockey.
25 NEW STORES PER YEARPlanned for Salomon and Arc’teryx in North America and China
as parent company Amer Sports accelerates its expansion plans.
Softgoods are expected to represent 75 percent of Salomon sales in
2016 compared with 50 percent in 2009, and Arc’teryx sales are on
track to grow to five-times that of 2009.
60 DAYSExtension granted by creditors to Performance Sports Group to file
its annual 10K financial report, avoiding a potential default for the
parent company to Bauer, Mission and Easton. The new deadline to
file is October 28, 2016.
BY THE NUMBERS
No rest for the weary. Vista Outdoor Inc. continued its acquisition spree within the outdoor industry, September 1, acquiring outdoor-cooking solutions brand Camp Chef for $74 million from privately owned Logan Outdoor Products LLC and Peak Trades, LLC.
The brand, which makes camp stoves, barbecue grills, pellet grills, smokers, fire pits and a full line of cast-iron cookware and accessories, is another iron in the fire for Vista’s Outdoor Products group, which it has been rapidly expanding within the past year to diversify from its mainstay shooting sports segment. Since July 2015, Vista Outdoor has acquired SUP brand Jimmy Styks, hydration leader CamelBak, bike-and-snow protec-tion brands Bell, Giro, C-Preme and Blackburn.
“The Camp Chef transaction aligns with Vista Outdoor’s strategy to deliver long-term value through acquiring complementary, market-lead-ing brands that will benefit from Vista Outdoor’s balance sheet, distri-bution network, and sales and marketing expertise,” said Chairman and Chief Executive Officer Mark DeYoung.
He praised Camp Chef ’s entrepreneurial management team and nimble and responsive product development process, which has enable the com-pany to continue to grow its market share in the outdoor cooking category.
“The brand serves many of our current consumers who are engaged in a wide variety of outdoor pursuits,” DeYoung said. “Acquiring Camp Chef strengthens our leadership position in outdoor recreation, allows us to enter the growing camping and outdoor cooking market, and the brand’s effective multi-product, multi-channel strategy increases our presence across both brick-and-mortar and e-commerce distribution platforms.”
Officials say the acquisition run isn’t over, yet, and the company recently restructured its Outdoor Products Group (including new leaders at CamelBak and Bell) into three sub groups of Outdoor Recreation, Sports Protection and Hunting and Shooting Accessories.
Vista Outdoor financed the purchase price paid at closing for Camp Chef ($60 million) using monies borrowed under its existing revolving credit facility and it expects to pay an additional $14 million on the first, second and third anniversaries of the closing date based on continued employment of key members of management as a compensation expense in future periods. Officials added that the effective purchase price is lower, “due to value created by certain tax assets resulting from the transaction and the deferred purchase price structure, leading to an effective multi-ple of approximately 6.4-times Camp Chef ’s expected calendar year 2016 EBITDA.”
Vista Outdoor expects the acquisition to be slightly accretive to its fiscal-year 2017 earnings per share, including impacts associated with transaction expenses.
Camp Chef was founded in 1990 in Logan, UT, and has approximate-ly 50 employees, led by President Ty Measom. Beyond its home smokers and grills, it has benefited from a rise in outdoor camping, tailgating and social gatherings by providing heavy-duty, yet relatively portable cooking solutions.
“Camp Chef is excited to join the exceptional family of Vista Outdoor brands,” Measom said. “The opportunity to be part of this dynamic company will provide for the future growth and success of Camp Chef as a leader in our market. The hard work and dedication of Camp Chef employees, past and present, has made Camp Chef what it is today. We look forward to the opportunities ahead.”
Americans are trying new physical activities at the expense of traditional, individual exercise and sports, according to the 2016 SFIA State of the Industry Report.
Walking, running/jogging and weightlift-ing continue to rank among the most popular sports/fitness activities in its report but the popularity is trending downward. Over the last three years participation in walking for fitness was down 3.7 percent; running/jogging was off 5.7 percent, weight/resistance training on ma-chines slumped 9.5 percent, and free weights (barbells) declined 4.9 percent.
The decline in traditional forms of exercise, however, is in line with increased interest in alternative forms of activities, SFIA noted. For example, over the same three-year period, hik-ing participation grew 7.9 percent, yoga was up 8.8 percent, and swimming for fitness expand-ed 13.4 percent.
“These activities fit well with Americans’ desires for flexible fitness – social, befitting of community and belonging with identifiable improvement in performance.”
The report explores in depth how the trends are driven by millennials who have grown into the largest and most powerful consumer segment accounting for 25 percent of the U.S. population and nearly $200 billion in annual spending.
With steep financial concerns and highly scheduled social lives, millennials are look-
ing for more flexibility in integrating fitness- related activity with social and everyday life. At the same time, millennials are placing an emphasis on experience over goods, which can make them cynical to traditional marketing approaches.
“Largely immune to traditional advertising, millennials instead seek authentic, personal-ized customer experiences that are true to their and brands’ values,” said Tom Cove, SFIA pres-ident and CEO. “To this end, we see the future of retail, whether online, brick-and-mortar, or mobile, shifting to accommodate these desires for on-brand, novel experiences that serve as the root for customer loyalty.”
Surveying the top 10 fastest growing sports not surprisingly reveals a robust interest in class-based fitness activities with strong social aspects. Consistent with fun and sociability, water and outdoor sports, which continue to grow in popularity, were well-represented.
The three fastest-growing sports over the last three years remained unchanged from last year’s Report – stand-up paddling was up 116.9 percent; adventure racing jumped 77 percent; and mixed martial arts (MMA) surged 72.3 percent. Others landing in the top-ten fastest-growing sports ranking includ-ed triathlon (non-traditional/off road), rugby, bicycling (BMX), boxing for competition, trail running, triathlon (traditional/road) and roller hockey.
Other traditional sports seeing notable par-ticipation declines over the same three-year period included camping (1/4 of a mile from vehicle/home), down 11.8 percent; golf, declin-ing 4.9 percent; and bowling, off 5.5 percent. Bicycling (road/paved surface) was off 3.8 percent, fishing declined 3.4 percent and basketball lost 1.3 percent.
The study found that as people have increasingly looked for ways to weave fitness and sports into their everyday lives, team sports participation continued to expand – with 23.8 percent of the country’s population active in a team sport, the highest rate since the SFIA began tracking participation in 2008. However, the report also found that team sports since 2007 have steadily been featuring more “casual” participants and less “core” (pro-portion of athletes playing very frequently). Core athletes, which generate the largest repeat spending on equipment, fees, etc. are seeing their largest declines in core youth athletes, particularly in staple team sports like basket-ball and tackle football.
“Youth sports participation is the foun-dation of our industry for the next 50 years,” said Cove. “The decline in core participation is alarming; if we don’t turn that decline around, the industry as a whole will face problems.”
The participation findings were based on a total of 32,658 online interviews conducted nationwide.
Photo courtesy of Boardworks.
NON-TRADITIONAL SPORTS/FITNESS ACTIVITIES EXPAND THEIR APPEAL
Adidas signed a sponsorship deal with Tim Tebow as he trains for an MLB debut, according to ESPN.
Adidas Outdoor reported that its pre-order sales for trail running footwear for spring 2017 increased more than 62 percent from last year.
Brunswick Corporation completed its acquisition of Indoor Cycling Group.
Columbia Sportswear released its outerwear line (pictured above) in partnership with Manchester United.
Compass Diversified Holdings closed on its $400 million acquisition of 5.11 Tactical.
Delta Apparel acquired substantially all assets of Coast Apparel.
Fitbit is opening its EMEA headquarters in Dublin, Ireland. In conjunction with the opening, the group appointed Des Powers as managing director.
Foot Locker Inc. celebrated the grand opening of its flagship location in New York City’s Herald Square.
Gander Mountain opened its first location in the Philadelphia market, in Warrington, PA, which is retailer’s 12th location in Pennsylvania.
GSI Outdoors signed an agreement with Nelson Sports Inc. to distribute its outdoor cook and tableware and related accessories in South Korea.
Nordstrom will sell an edited assortment of J.Crew Group Inc.’s J.Crew collection at select full-line stores and Nordstrom.com.
Kraig Biocraft Laboratories Inc. began the process of opening a new production and research center for it genetically engineered fibers, which are engineering to simulate spider silk.
Newell Brands hired Tom Sanford as VP of communications.
NuGo Nutrition acquired the sports performance brand, Promax from Promax Nutrition Corporation.
Outdoor Industry Association Political Action Committee (OIAPAC) announced the first slate of Congressional candidates it is endorsing in the 2016 elections, including U.S. Senators Kelly Ayotte, R-New Hampshire; Michael Bennet, D-Colorado; Richard Burr, R-North Carolina; and Ron Wyden, D-Oregon.
Oofos appointed Giles Cundell and Kelly Lopes Da Silva to head its International Sales Division. Both join Oofos from Deckers Brands.
Red Fox Outdoors, a European sportswear brand that entered the U.S. markets in 2014, added professional highliner Friedi Kühne as a brand ambassador.
Sahn’s Classic bicycle helmets were recalled by the U.S. Consumer Product Safety Commission. Made for urban cycling and commuting, about 2,000 helmets (in addition, about 1,600 sold in Canada) were included in the recall.
Salewa North America Inc. has recalled about 70 Wild Country Syncro climbing harnesses sold in the United States because excess materials on the left waist belt tab can cause the harness to loosen, posing a fall hazard to the user.
Sports Authority executives will receive their bonuses as a federal judge approved a modified program that will pay top executives up to $1,425,000.
Timberland, in partnership with Pur Projet, launched a program that will plant a tree for every pair of kids shoes sold.
Under Armour plans to open a 1.3 million-square-foot e-commerce distribution and warehouse facility at Sparrows Point in Baltimore County, as part of the Tradepoint Atlantic redevelopment project. The facility will open in 2018.
Zamst entered a worldwide endorsement deal with NBA All-Star Isaiah Thomas.
Performance Sports Group Ltd. has lived to tell the 10K tale another day.The parent company to the Bauer, Mission and Easton sporting
goods brands said September 1 that creditors had granted it a 60-day extension to file its annual 10K report. That gives PSG a new deadline of October 28, 2016.
On August 15, PSG had said it would be unable to file the report by the previous late-August deadline, therefore risking default if an extension couldn’t be granted. Officials said the delay was due to internal financial investigations, and on August 17 also confirmed inquiries by U.S. and Canadian securities regulators.
The extension didn’t come without cost. The company agreed to increase its interest rates by 1.5 percent under its term loan credit facility and by 0.5 percent under its revolving credit facility. PSG also plans to issue “bi-weekly default status reports in the form of news releases” and said its management would be restricted from trading in the company’s securities.
PSG also confirmed, September 1, that its board had formed a special committee of independent directors, which hired Centerview Partners LLC as its independent financial adviser to assist “in the review and evaluation of strategic alternatives and in the company’s ongoing discussions with its lenders.”
That could signal a potential sale of the company. Last week, former PSG Chairman Graeme Roustan said he is weighing a possible bid for the company, hiring Jefferies Group LLC and Canaccord Genuity to explore an offer.
PSG and its brands have faced a myriad of market pressures, including a decline in diamond-sport sales, the lingering effects of recent sporting goods retail bankruptcies and currency exchange-rate pressures.
In mid June, the company hired a new CEO, Harlan Kent, formerly of Yankee Candle, to help right the ship. Kent announced in July that PSG would consolidate its entire baseball/softball category under its existing Easton operations in Thousand Oaks, CA, closing two Combat brand facilities. Then, in early August, he said PSG would reduce its workforce by 15 percent at a severance expense of $2.8 million in the first half of fiscal 2017 for an estimated annualized savings of $5.9 million.
But with the delayed filing, investors have yet to see the full financial picture. PSG last gave a financial update with preliminary fiscal-fourth-quarter results on June 8, at the time of Kent’s hiring. It projected the quarter’s revenue down 10 percent to $133 million and fiscal-year 2016 revenue also down 10 percent to $587 million.
PERFORMANCE SPORTS GROUP GETS A SECOND CHANCE; SALE POSSIBLE
For vendors, unlike retailers, it’s never the bad winter that hurts them the most. It’s the following season that really bites.
That’s when wholesale orders pull back to work off the previous year’s leftover inventory.
Following last year’s very warm winter along the East Coast (despite cooler and snowier weather in the West), retailers are taking a conservative approach with outerwear heading into fall 2016, said officials at sports-wear and lifestyle apparel maker G-III Apparel Group (Nasdaq:GIII).
The company, which makes license and team sportswear for the NFL, MLB, NBA, NHL, MLS via various brands including Starter, in addition to its lifestyle brands Calvin Klein, Tommy Hilfiger and its recently-acquired Donna Karan and DKNY brands, could be providing a preview of what’s to come in the active-lifestyle sector, particularly relating to outerwear.
G-III officials said slumping outerwear wholesale orders and weak retail traffic at its Wilson and GH Bass stores led to it missing its fiscal 2017 second-quarter sales guidance by $40 million.
Total sales for the period, ended July 31, 2016, fell 6.7 percent to $442 million, which included a 7.7-percent in wholesale shipments to $361 million and a 10-percent drop in retail sales to $100 million. Gross margins slipped just 30 basis points to 35.2 percent, somewhat limiting the damage to the bottom line, which swung to a net loss of $1.3 million, or 3 cents per share, compared to a net profit of $12.5 million or 27 cents per share during the same period a year ago. The figure reflected about $3 million in costs (or 4 cents per share) related to its Donna Karan acquisition.
“Our second-quarter results did not meet our expectations,” G-III Apparel Group Chairman, CEO and President Morris Goldfarb told investors on the company’s August 30 conference call. He pinned the decline all on outerwear, pointing out that the company’s non-outerwear wholesale business remained strong, rising by double digits.
At retail, the brand, like its wholesale customers, had to cutback on or-ders to manage its own inventory.
GH Bass, its 160-store chain focused on outdoor lifestyle, saw comp sales fall 10 percent in the quarter. Wilsons, with 190 men’s and women’s outlet coat and accessories stores, reported comp sales down 17 percent in the quarter.
“We successfully focused on clearance, but with the traffic drop in outlet centers, we had to sacrifice some in-season business and did not make our comp goals during the quarter,” Goldfarb said. “We anticipate some improvement in the back half of the year, particularly in the fourth quarter with easier comparisons.”
But the disappointing second quarter forced the company to nar-row its guidance downward, including a projected high-single-digit decline in outerwear sales for the full 2017 fiscal year. It still expects sales to grow, albeit less-so, at 6 percent to $2.48 billion with net income between $102 million to $106 million, or $2.16 to $2.26 per diluted share, compared to a previous sales guidance of $2.56 billion and net income between $120 million to $125 million or $2.55 to $2.65 per diluted share.
That led to punishment on Wall Street, as investors drove the stock down more than 20 percent August 30, following the release, to less than $34 per share.
Company officials are forecasting the outerwear carnage to be the worse in the third quarter — with a planned double-digit percentage decrease in sales for the category — offset by continued gains in non-outerwear sales and then a better market for outerwear in the fourth quarter as retailers fill in with with outerwear re-orders.
“We think inventories are in good shape, both for us and for our cus-tomers, including in the off-price channel,” Goldfarb said. The compa-ny’s inventory is actually down 6 percent from a year ago, about in line with the sales drop. “We’ve reduced our forecast but we believe there will be an appetite for product reorders as the selling season progress-es. With the visibility we now have, we think we’ve captured the right view of the season.”
WEAK OUTERWEAR ORDERS AT G-III SIGNAL INDUSTRY HURDLES AHEAD
Samsonite International S.A. said a strong dollar that has cut into tourism spending and the rapid online migration of retail sales in China slowed its growth in the six months ended June 30.
“There are two markets where we have already documented several near term chal-lenges,” Samsonite Chairman Timothy Charles Parker wrote in a letter to shareholders. “The strong dollar has hit some of the popular tour-ist destinations hard, and the first half of the year has also been affected by timing shifts in some of the lumpier wholesale businesses. The strong U.S. dollar has also made destinations such as Hong Kong, whose currency is linked to the U.S. dollar, significantly less attractive compared to other countries, and this has had a major impact on the profitability of what is predominantly a retail business. In the Chinese market, there are significant upheavals arising from the rapid growth of e-commerce and the emergence of a more subdued pace of growth in consumption.”
Samsonite reported sales of casual bags and packs fell 5.3 percent in the six months ended June 30 as a decline in High Sierra sales and a shift to more traditional luggage in Asian markets more than offset double-digit growth in sales of Gregory packs and bags.
The company, whose shares are traded on the Hong Kong stock exchange, reported sales of Gregory packs grew 20.9 percent
SAMSONITE SEES STRONG DOLLAR CURBING TOURISM
to $21.8 million during the period, an increase of 17.6 percent in currency-neutral terms from the first half of 2015. Sales of the much larger and more moderately price High Sierra brand, however, slipped 3.7 percent (-2.7 percent c-n) to $52.4 million, due primarily to declines in the U.S. and Canada.
Samsonite’s Red brand also declined as South Korean consumers and Chinese busi-nesses shifted their spending toward more traditional luggage.
In Asia, which is the company’s largest region, net sales were flat (+3.7 percent c-n) compared with the first half of 2015. Growth was driven mainly by Japan and Austra-lia, where net sales rose by 17.3 percent and 25.4 percent, respectively in currency-neu-tral terms. Both countries saw good growth in the core Samsonite and American Tourister brands, augmented by further expansion of Gregory in Japan and High Sierra in Australia.
That growth was partially offset by sluggish performance in China and South Korea where net sales on a constant currency basis were more or less flat year-on-year due to shifts in consumers’ channel preferences. Trading conditions were especially challenging in China’s TV home shopping and department store channels as consumers continued to mi-grate online. Consumer sentiment remained weak in South Korea and net sales declined
15.6 percent in currency-neutral terms in Hong Kong and Macau due to lower Chinese tourist arrivals.
In the U.S. and Canada, net sales increased 0.2 percent (0.5 percent c-n) to $403.6 million as higher shipments to e-commerce retailers and certain other wholesale customers and the addition of 16 company-operated stores was offset by a 4.4 percent currency-neutral decline in same-store sales due to lower tour-ist arrivals to U.S. gateway cities.
In Europe, net sales grew 5.4 percent (8.6 percent c-n) on the back of 25.7 percent growth at American Tourister. With the exception of France, where business was affected by the recent terrorist attacks, all of major markets in Europe reported solid constant currency growth, with Russia lead-ing the way with net sales up 23.3 percent, followed by Italy (up 19.6 percent), Spain (up 15.3 percent), Germany (up 13.6 percent) and the United Kingdom (up 8.0 percent).
Samsonite reported net income excluding foreign currency impacts and financing costs related to its August 1 acquisition of the pre-mium luggage brand Tumi, declined 1.7 per-cent to $100.3 million. The decline was due primarily to increased spending on store open-ings, lower same-store sales in certain markets, including the U.S. and Hong Kong, and the geographical expansion of the American Tourister, Lipault and Hartmann brands.
The sophistication has come in part from investments in hires outside the industry to enhance marketing, improve supply chain capabilities to react faster to market and upgrade customer service. Added Pellegrini, “They’ve taken best practices, including sophisticated fabrics, production, IT systems and technology, and applied them across multiple sub-catego-ries of the industry and they are leap-frogging ahead of their competition.”
In the Badger Sportswear deal, the company’s founders, Jerry and Bill Carr, will reinvest a significant portion of their equity as part of the trans-action. Jerry Carr will remain CEO and will continue to serve as chairman of Badger’s board of directors.
Established in 1971, Statesville, NC-based Badger Sportswear is a pro-vider of team uniforms and performance athletic wear, including perfor-mance t-shirts, fleeces, shorts, pants and outerwear, worn by youth and adult athletes, team fans and supporters and corporate employees. It sup-plies its products to team dealers, decorators and wholesalers throughout the U.S. The company also sells its products through a growing number of collegiate bookstores and sporting goods retailers.
“We are excited about the future of the great company we have built and the opportunity to partner with CCMP,” said Jerry Carr. “We believe CCMP’s significant consumer and retail investment and operating expertise, and its longstanding history of successfully working with family-owned businesses, make them the ideal partner to help take Badger to its next level of growth.”
“We are thrilled to be partnering with the Carr brothers and their talented team to continue to build upon the strong company and brand that they have created,” said Doug Cahill, a managing director at CCMP. “Badger’s compelling proposition of outstanding product quality, innova-tion and service at value price points has led to longstanding customer relationships and a clearly differentiated position in the market. We look forward to working with the Badger team to pursue numerous avenues of future growth and continued innovation.”
The transaction is subject to customary closing conditions and is expected to close in September 2016. McGuireWoods LLP is serving as legal advisor to Badger, and Ropes & Gray LLP is serving as legal advisor to CCMP.
BADGER SPORTSWEAR DEAL POINTS TO HEALTHY M&A TRENDS
Badger Sportswear, a family-owned supplier of team uniforms, perfor-mance athletic wear and fanwear, has become the latest “best-in-class” sporting goods platform to find a buyer.
The purchaser was CCMP Capital Advisors LP. With offices in New York, Houston and London, the company specializes in middle-market buyouts and growth equity investments of $100 million to $500 million in the consumer, industrial and health industries in North America and Europe. In the active-lifestyle space the company also owns Pure Gym and Shoes for Crews.
Terms of the transaction were not disclosed.The sale comes as a string of companies in the sports and outdoor space
continue to attract interest from venture capital firms as well as strategic buyers.
In an interview, Joseph Pellegrini, managing director at Robert W. Baird, which is serving as financial advisor to Badger, said that strong interest is partly due to healthy industry fundamentals and emergence of differentiated business models combining world-class product and customer services. Beyond broad interest in team sports, health and well-ness, it also includes more female participation in sports over the years and the proliferation of sub-segments of different sports, such as tackle, touch and flag in football.
But Pellegrini believes rising expectations around equipment and soft-goods is giving the industry another premium.
“In years past, athletes just wore a cotton t-shirt,” said Pellegrini. “Today, parents and the kids are demanding not only moisture-wicking, anti-microbial and other performance features but they want comfort and style. Kids know the difference and so do their parents. And they’re paying up for it.”
On the other hand, many healthy fundamentals being earned by Badger Sportswear, as well as some other deals Baird has worked on, including Augusta Sports, Implus and 5.11 Tactical, are because many of the leading firms in niche categories have become “very sophisticated” in how they operate their businesses.
DSW Inc. (NYSE:DSW) reported that its sec-ond-quarter earnings declined, as expected, and announced a number of additional cost-saving measures to shore up its bottom line in the sec-ond half. But results overall improved over the previous quarter and management again raved about the performance and potential of its ath-letic offerings.
While overall comps slid 1.2 percent in the period, athletics grew 13.5 percent, continuing a strong trend in recent quarters.
On a conference call with analysts, Deborah Ferree, DSW’s vice chairman and chief merchan-dising officer, said athletic saw positive comps in both performance and fashion offerings but fashion is “really comping positive.” The oppor-tunity is also being supported by an athleisure influence “popping up in the women’s fashion brands and that’s a pure plus from last year.”
She added, “I look at that whole business ath-letic and athleisure as continuing on the same momentum and the trajectory and growth not slowing down at all.”
In the quarter ended August 4, earnings fell 33.4 percent to $25 million, or 30 cents a share. Excluding costs related to the Ebuys acquisition and restructuring activities, adjusted net income was $29.1 million, or 35 cents, down 22.6 percent compared to the year-ago period but ahead of Wall Street’s consensus target of 29 cents.
Sales increased 5.1 percent to $659 million due to new stores and $19.6 million from Ebuys. Sales trends were similar to the first quarter but transactions improved due to tactical local mar-keting efforts. Digital demand grew 21 percent, reflecting omnichannel investments.
By category, combined women’s athletic and non-athletic comps were in line with the overall small comp decline. With athletic’s continuing momentum, DSW increased its total athletic penetration by more than 200 basis points in the quarter in women’s, according to Ferree. It also
expanded its women’s athleisure offerings with a broad number of fashion sport brands, which added another 500 basis points of penetration toward the athletic lifestyle in the quarter.
Ferree was also encouraged by “the results and the new fashion looks in dress,” which pro-duced healthy positive regular price comps. DSW’s overall sandal business was flat as cooler weather impacted its seasonal sandal business, offsetting strength in dress sandals.
In men’s, combined athletic and non-athletic comp was also in line with the chain average, with athletic again outperforming other categories.
Ferree said DSW overall continues to shift re-sources in the key brands and styles that support the fashion casual lifestyle.
“We have assembled our strongest athletic as-sortment this fall season, including styles from some of the biggest brands in the athletic space, and we are significantly increasing the amount of exclusive merchandise this year,” said Ferree. “We are also pursuing a number of initiatives that will elevate DSW as an important destination for the fashion athletic consumer in the coming years.”
Roger Rawlins, DSW’s CEO, noted that the company “distorted” its athletic offerings at a small number of stores to double athletic pen-etration in those locations
“What we saw was when we offer more athletic choices to the customer, we sell more athletic products,” said Rawlins. “So the real challenge now is to figure out how do we max-imize the athletic assortment in our stores, without impacting the balance of the assort-ment. This is critical for optimizing future category distortions, as well as growing our kids assortment to the rest of the chain.”
While accessories comps continued to be depressed, the category’s gross margin rate improved by close to 200 basis points.
After a two-year pilot, kids was launched to close to half the chain and is performing to
plan. Ferree said the new category is leading to improvements in traffic and higher units per transaction.
DSW’s bottomline was impacted by a decrease in adjusted gross margin by 210 basis points due to lower initial markup, higher markdowns and the addition of Ebuys, which operates at a significantly lower gross profit rate than the DSW flagship business. Gross profit pressure improved slightly versus the first quarter.
Looking ahead, DSW continues to expect to earn in the range of $1.32 to $1.42 per share for the full year, which would be down from $1.54 the prior year. Comps are also still expect-ed decline in the low-single digits.
DSW is positioning lower receipts for fall to minimize markdown risk. One category taking a hit will be boots, which is being planned down slightly versus the prior year due to weather risks. Said Ferree, “I would rather go in leaner and chase with the customer wants rather than going with an aggressive plan.”
As a result, gross profit is expected to improve from the 230 basis point decline expe-rienced in the spring season to a flattish level in the back half.
In addition to buying more conservatively, a number of other newer programs are expected to support profitability. These include an order routing algorithm that continues to optimize store fulfillment of digital orders as well as improved sourcing costs through better ven-dor accountability and stronger negotiations. Increasing the depth of key item buys are expected to lower unit costs and improve in-stock levels for high-velocity items to sup-port margins. Finally, a new private brands partnership, which will include a new young, fashion-conscious men’s label as well as an affordable fashion girls one, are expected to become “more meaningfully accretive next year.”
As part of its previously-announced expense review, about $25 million of annualized cost savings from organizational realignment, pro-curement, and business process improvements was identified. Approximately 30 percent of these cost savings will benefit 2016 and the savings will reduce its operating expense growth from 8 percent year-to-date to a mid-single- digit growth rate in the fall season.
Its SG&A rate in the second half is expected to be flat, despite $9 million needed for incen-tive compensation as well as the negative low single-digit comps expected. For the back half of the year overall, earnings are expected to expand at a mid-single-digit rate.
