Less than a month into his new job, Gene McCarthy, CEO of Asics America, already has big plans to take the brand to the next level in the region. The changes include a more-focused direct-to-con-sumer effort to connect with consumers as well as an extensive marketing push to get the message out around Asic’s heritage in running. “I think this is one of the best kept secrets in the industry,” said McCarthy in an interview at Asics’ Manhattan showroom last Thursday just before the New York City Marathon. “It’s a very famous brand that a lot of people don't know enough about.”
McCarthy will look to build on the success of his predecessor, Kevin Wulff. Becoming CEO in 2010, Asics America’s sales grew from $680 million to a record of over $1 billion in 2014. Milestones for Wulff included expanding the apparel category past the $100 million mark and successfully repositioning Asics as a multi-sport brand with bigger pushes into training, tennis and golf. He trans-formed Asics' lifestyle category, restructured Asics Americas’ lead-ership team, and launched direct-to-consumer, including opening several flagship stores. Still, Wulff ’s exit became cloudy after Windsor Financial Group, which had the exclusive rights to operate Asics full-price stores in the U.S., last month filed a high-profile lawsuit against the compa-ny. In June, Asics America terminated its partnership because of undisclosed “material breaches” by Windsor, including non-pay-ment of its licensing fee. The Windsor suit charged that Asics sought to drive the licensee out of business and subsequently acquire the outlets on the cheap by reneging on promised inventory and marketing support. All 13 of Asics inline stores were subsequently closed this year. McCarthy asserted that the lawsuit has no merit, but declined to comment further. Regarding the closed stores, McCarthy said Asics’ store in the Meatpacking district on 14th street in Manhattan was reopened last Wednesday to support activations around the New York City Marathon, which Asics has sponsored for years. As far as reopening other stores, Asics is still figuring out what the exact plans will be. “Of course we want our fleet back but we want our fleet right,” said McCarthy. “They can’t just be stores; they have to be venues for consumer experiences. So as the brand is going through a refresh, the stores have to be a visual manifestation of that.” The stores also won’t be operated by a third-party this time. Said McCarthy, “We’re better off owning and operating our own stores. We’re good at it so why wouldn't we.” He felt it wasn’t his place to comment on the timing of Wulff ’s exit but also feels a different approach will be needed to expand the reach of the Asics brand. “To take a brand to hit a billion dollars is terrific but to grow it even further is completely different,” McCarthy said. “The mistakes that some brands make is they just think ‘Do the same thing but a
little more.’ So that’s one of the reasons I’m here. There has to be a dynamic shift in how we think about going to market.” Beyond making sure its stores serve more as ‘beacons for the brand,” marketing will receive an overhaul starting in 2016. Paul Miles, who formerly worked for Nissan Motor and also helped launch and expand the UNIQLO chain, has be hired as global head of marketing and is working on establishing a more youthful mes-sage around the Asics brand, although not necessarily by age. “What we would like to talk about is what is emotional age of consumers’ everywhere and how are they viewing themselves in in terms of their relationship to fitness, health and exercise,” McCarthy said. Overall, McCarthy is excited to get back firmly into the running category. As a youth, he went to Fordham on a running scholar-ship after being inspired to become a runner as a 13-year old after seeing Marty Liquori and Jim Ryun racing on the cover of a Sports Illustrated issue. After college, he wound up reaching out to Li-quori, who got him his first job in the industry, a part-time one at his sporting goods stores, Athletic Attic, in Florida. Liquori also helped McCarthy reach his goal of running a 4-minute mile, albeit the metric equivalent of one. His first vendor job was with Nike, which he joined as a tech rep in 1982 and stayed on for 21 years. McCarthy then spent three years with Reebok, became co-president at Timberland, came back to the athletic side to run footwear for Under Armour and most recently, was president of Merrell. “It’s come full circle because now I’m with a real, real running brand,” enthused McCarthy. “And there is a difference between a running brand and a brand that makes running shoes. This is a running brand.” Asics also stands out because slightly more than half of buyers are women. “A lot of our competitors can’t boast about that,” he said. “We also are acutely aware of women’s influence and their affect on everybody in their lives and their purchases. So we are gong to have a dedicated team that’s focused on the women’s business. I will describe it as ’For her, by her.’” Regarding newer categories, a big push will continue around training although McCarthy wants to his team to expand the scope of the opportunity.
“We don’t just want to participate in this industry, we want to be a leader in just about everything we do, including logistically.”
– Gene McCarthy, CEO, Asics America
A global “refresh” of the brand will be coming in 2016. Added McCarthy, “We are going to reveal it and give it personality and show you it’s heart and soul and start having a good emotional di-alogue not only with our loyal following but with consumers who may not know us or may not consider us right now.” Specifically toward runners, Asics will be taking a more con-sumer-based focus to fully engage today’s broad range of runners. Said McCarthy, “If you have a consumer focus, sales and distribu-tion will follow. So we are now paying very close attention to how consumers are behaving in their everyday life.” The range of runners runs from avid runners, which McCarthy describes as “the heart” of Asics’ current reach, to those liking to wear running shoes partly due to the prestige of an athletic brand. (Con’t Pg. 2)
“The word ‘training’ is limiting and it’s also a catchall phrase,” said McCarthy. “But again, it highlights that consumers are taking care of themselves differently than they may have 20 years ago. So training is hugely important to us.” A specific focus around training will be on apparel. Said McCarthy, “People now are taking time to look really good when they work out and there’s a physiological advantage to that when they go to the gym and they go out for a walk or a jog or a run. How they look is really important to them. It’s an emotional thing. Apparel does connect that way so we’re going to focus very heavily on apparel.” He added, “If you don't have apparel, you’re not a brand, you’re a shoe company.” McCarthy also believes Asics’ DTC efforts will be critical in fleshing out the opportunity in training. He added, “The idea of training as a category on the wall has limitations so that’s why direct to consumer is going to be a bigger play for me.” In other emerging categories, Asics has found “some good suc-cess” in tennis and golf. The Windsor lawsuit also mentioned that Asics had been planning to enter the basketball category to sup-port future growth. McCarthy said no set plans are in place to enter basketball with many different options are being explored overall in his first month on the job. Still, he pointed out that that he was involved launching the Jordan brand while at Nike and also helped launch basketball for Under Armour in 2010. Added McCarthy, “I know that market very well but right now everything is under review.” Continued investments will also be made for the company’s two retro brands, Asics Tiger and Asics Onitsuka, to expand the brand’s reach beyond core runners. Asics Tiger, which was relaunched last year with the Gel-Lyte III, is reaching a younger consumer while Asics Onitsuka stands out for its “cool slim style” and its nostalgic recall. McCarthy doesn't see any major changes in how Asics ser-vices the market but also said the brand plans to be ahead of any omnichannel shopping changes. Increased shopping via mobile phones over the next couple of years and feeding the consumer need for “instant gratification” will alter the dynamics of product distribution in the marketplace, he asserted. That includes how it’s shipped and where it’s shipped. Said McCarthy, “We don't just want to participate in this industry, we want to be a leader in just about everything we do, including logistically.” ■
DECKERS BRANDS BULLISH ON HOLIDAY
While much of its business wasn’t quite humming along in a typ-ically slower period for the company, Deckers Group’s (NYSE:-DECK) fiscal 2016 second quarter came in slightly ahead of ex-pectations and management delivered upbeat outlooks for both the holiday selling season as well as for spring. Net income in the quarter ended September 30 declined 10.7 percent to $36.4 million, or $1.11 a share, exceeding its forecast of $1.05 per share. Revenues rose 1.4 percent to $486.9 million. With its Ugg brand having a heavy international presence, cur-rency headwinds held back gains. On a currency-neutral basis, EPS increased 21.4 percent to $1.42 a share, on a 5.4 percent increase in sales. The company had expected EPS on a currency-neutral basis of $1.41 with sales expected to rise 5 percent. “Both our top and bottom line results were in line with our expectations, keeping us on track to achieve our full year guidance,” said Angel Martinez, CEO, on a conference call with analysts. By brand, Ugg’s sales for the quarter inched up 0.9 percent to $421.1 million and gained 5.3 percent on a currency-neutral basis. An increase in domestic wholesale sales offset a decrease in global direct-to-consumer (DTC) sales primarily driven by a decrease in tourist traffic in the U.S. as a result of the strengthening dollar. “Our early reads on our casual and weather boots put us in a strong position to drive sales, as we move into holiday and the rest of the fall season,” Martinez said. “Along with pre-booking more non-core product, we also took deeper inventory positions in key weather and casual styles, which will allow for reorders of this product in season.” Demand for core classics was softer than anticipated due to a “pretty warm September” across most of the United States and the strong dollar leading to a decline in foreign tourists, who often purchase multiple pairs of Uggs on visits. Hoka One One’s sales jumped 51 percent to $20.4 million, re-flecting an expansion of its running offerings, new categories such as hiking, and expanded distribution. Stated Martinez. “Runners of all types are increasingly embracing the brand, thanks to positive word of mouth, and despite a very modest marketing budget com-pared to our running shoe competitors.” As an example, he noted that Hoka was the number three most worn shoe at this year’s Iron Man World championships, up from six the prior year and ahead of brands such as Brooks and Newton. Martinez also noted that Hoka, as reported, relocated from Rich-mond, CA to Deckers’ corporate headquarters in Goleta, CA to
tap additional operational efficiencies and overall “create more synergies and opportunities.” Combined net sales of the company’s Other Brands – in-cluding Hoka One One, Ahnu and Koolaburra - increased 30.5 percent to $30.6 million. Teva’s sales fell 13.6 percent to $17.9 million, and dropped 11.8 percent on a currency-neutral basis, as expected. The de-crease in sales was largely due to the timing of orders, as more orders shifted to Q1 this year versus last year. The decline re-flected lower global wholesale and distributor sales. Strong sell-in was seen in women’s and men’s boots, which is helping efforts to extend the brand’s selling season deeper into the year. “The brand had particular strength in the women’s Delavina boot collection and the newly introduced men’s Durban boot,” Martinez said. Sanuk’s sales decreased 9 percent to $17.3 million. The de-cline was traced to fulfillment issues as the brand transitioned to Deckers’ Moreno Valley distribution center. A decline in global wholesale sales was partially offset by an increase in global DTC sales. Companywide, wholesale and distributor sales for the quar-ter increased 1.2 percent to $400.3 million and advanced 4.9 percent on a currency-neutral basis. An increase in domestic wholesale sales offset declines in international wholesale and distributor sales. DTC sales nudged up 2.1 percent to $86.6 million while growing 7.5 percent on a currency-neutral basis, led by gains at Hoka, Sanuk, and Teva. DTC’s comps were down 5.2 percent, primarily driven by a decrease in tourist traffic in the United States. Geographically, domestic sales increased 4.3 percent to $301.6 million. International sales decreased 3.1 percent to $185.3 million but gained 7.1 percent on a currency-neutral basis. Gross margins dipped to 44 percent from 46.6 percent, primarily driven by an approximately 210 basis point impact from foreign exchange headwinds. Looking ahead, Deckers’ fiscal third quarter sales, ended December 31, are expected to increase 9 percent with an EPS of $5 per share versus $4.50 a year ago. For its fourth quarter ended March 31, revenues are expected to climb 18 percent on a reported basis with EPS reaching 57 cents a share compared with 4 cents a year ago. For the fiscal year ended Mar. 31, sales are expected to rise 8 percent to $1.96 billion. EPS is expected to be $5.18, or an increase of 11.2 percent. ■
Luxottica Group S.p.A (NYSE:LUX) reported its retail sales in North America grew 22.3 percent, or 3.9 percent in currency-neutral (c-n) terms to €1.09 billion in the third quarter ended Sept. 30, despite declining traffic. “We saw lower traffic than a year ago in many cases, and many parts of the U.S. with flat traffic,” Luxottica Co-CEO Adil Khan said Octo-ber 26 during the company’s third-quarter earnings call. “The areas that were most affected were the tourist areas,” such as New York and Miami, where foreign visitors have reduced buying power against the strong dollar. Kahn attributed the growth to higher conversion rates, which he said reflected the right mix of assortments, promotions and a strong performance by retail associates. The increase was driven primarily to Sunglass Hut, where same-store sales growth accelerated to 7.8 per-cent compared to the first half of 2015. At LensCrafters, same-store sales increased by 3.8 percent compared to the first half of 2015. Sales at the North American Wholesale Division grew 24.5 per-cent (7 percent c-n) to €265 million. In addition to owning Oakley, Ray-Ban and a few fashion brands, the division designs, manufactures and distributes eyewear under dozens of licensed fashion brands to the department store, optical and luxury channels.
Oakley Integration Completed
Luxottica disclosed it would record a pretax restructuring charge of €14 million in the third quarter to reflect the costs of absorbing Oak-ley’s North American operations. As reported in late July, Luxottica took a €20 million pre-tax restructuring charge in the second quar-ter to reflect severance and other costs incurred eliminating Oakley’s global management team and 400-employee European headquarters. Khan said the integration of Oakley is now complete and on track to yield €50 million in incremental operating income by 2017. “Now that that’s behind us I think our only task on Oakley is to grow,” said Khan. “The Olympics is coming up in nine months. And so now all the energy goes into making that a real Oakley moment.” Co-CEO Massimo Vian said Luxottica is also focusing on opening Sunglass Huts worldwide and revamping its LensCrafters optical chain in North America. “I expect that when we give guidance for next year, you will see a more aggressive retail number versus the past,” Vian said. “I’m not sure if it has to come at the expense of wholesale, but certainly you’ll see a better number in retail than the past.” Luxottica total net sales in North America grew 22.8 percent (4.5 percent c-n) to €1.36 billion, or to 62 percent of total revenues, compared with 58 percent in the third quarter of 2014. ■
The Weekly Digital Magazine for the Active Lifestyle Market
Big 5 Sporting Goods Corp. (Nasdaq:BGFV) reported its third-quarter earnings arrived at the lower end of guidance while sales fell short of plan. Sales inched up 1.9 percent to $270.1 million, but same-store sales decreased 0.4 percent. Comps had been expected to grow in the low-single-digit range. Earnings in the period ended September 27 slid 17.9 percent to $6.1 million, or 28 cents a share, missing Wall Street’s consen-sus estimate of 30 cents a share. The retailer expected earnings to arrive in the range of 28 cents to 34 cents a share. Share of Big 5 slid more than 10 percent Wednesday morning after the results came out. “We were unable to overcome the drag to our business from cycling against strong soccer-related sales that were influenced by the men’s World Cup last year, as well as softer than anticipated sales of firearms-related products, and the continuing impact of the drought in our major markets,” said Steve Miller, chairman, president and CEO, on a conference call with analysts. Miller also noted that Big 5 has engaged consultants to help the company evaluate growth strategies and ways to improve profit-ability “to help ensure that we are best positioned to succeed in the constantly evolving retail environment.” By month, same-store sales were slightly negative in July and down by low-single-digit percentage points in August before im-proving to positive low-single digits in September, thanks to its 60th anniversary promotions. A low-single-digit decrease was seen in customer transactions along with a low-single-digit in-crease in average sales during the period. By category, footwear comped positively in the low-single-dig-its for the period, while apparel and hard good categories each comped down low-single digits. Merchandise margins decreased 51 basis points due to prod-uct mix shifts along with promotional efforts to drive sales. Gross margins eroded 100 basis points to 31.5 percent of sales, also im-pacted by an increase in store occupancy costs. SG&A expenses reached 27.7 percent in the quarter, down 20 basis points. SG&A expense in total increased $1.1 million year-over-year, primarily reflecting a higher employee labor expense and operating expense resulting from its increased store count, partially offset by a reduced advertising expense.
Inventories were up 3.5 percent overall and 1.6 percent on a per store basis. The company opened one store in San Jose in the quarter and closed another, ending the period with 439 stores. Construction and landlord issues have delayed any fourth-quarter openings, which are now expected to open in early 2016. Added Miller, “We are also reevaluating certain locations that we had anticipated for store openings earlier this year, as we continue to maintain a cau-tious approach toward selecting the right new store opportunities for our business in the current retail environment.” So far in the fourth quarter to date, Big 5 is comping down with sales at low-single-digit percentage points. “While October represents the lowest volume sales month of the quarter and the holiday period is always somewhat unpredictable, we feel well-positioned from a product and promotional perspec-tive for the balance of the quarter,” said Miller. “However, we do expect that this will be another highly promotional holiday period, and weather conditions over the winter selling season will be criti-cal to the performance of our winter product business, and hence, our fourth quarter results.” For the fourth quarter, same-store sales are expected to land in the low-negative-single-digit to low-positive-single-digit range and EPS to be in the range of 10 to 20 cents a share, including approximately 1 cent per share of consulting expenses related to evaluating store growth strategies and potential profit improve-ment opportunities. A year ago, fourth-quarter earnings reached 12 cents a share. Miller noted that last year, weather was not favorable over most of the quarter, but the chain will be comping against strong double-digit gains in the last two weeks as winter storms boosted year-ago sales. In the Q&A session, Miller said the store-opening delays and hiring of consultants should not signal that Big 5’s growth is slowing down. Miller noted that the retailer has long focused on “growth under control” and is not fixated on opening a certain amount of stores each year. “We’ve got some stores that were clearly delayed,” said Miller. He added that those will be opening in 2016 and the company has “other opportunities that we’re moving forward on.” ■
BIG 5 SPORTING GOODS RE-EVALUATES STORE OPENINGS AS IT MISSES Q3 EXPECTATIONS
JARDEN TO LEVERAGE ITS JOSTENS ACQUISITION TO SELL
MORE SPORTING GOODS TO SCHOOLS
Sales for Jarden Corp.’s (NYSE:JAH) Outdoor Solutions division, including Marmot, K2 and Rawlings Sporting Goods, slipped 3.6 percent in the third quarter 2015 to $654.5 million, but officials were optimistic moving ahead as the brand has solidified some produc-tion aspects. “The load-in for kind of the Columbus weekend on ski is where we wanted it to be,” Jarden CEO Jim Lillie told investors on the com-pany’s conference call. “And I’m happy to report that the new factory that we built over the last couple of years is actually outperforming the old factory at this stage from an execution and delivery stand-point. So it’s been a tough 24 months getting that up to speed while still having to deliver product but we feel good about the outlook for the business.” Despite the quarterly lower revenue, operating income for seg-ment improved to $67 million, versus $66.4 million during the same quarter a year ago. And year-over-year, Outdoor is still up 2 percent organically, minus acquisitions, Lillie added. “Outdoor was doing all the heavy lifting probably three or four years ago,” he said. “And so it speaks to the diversification and how that helps us deliver results.” Overall Jarden saw its third-quarter 2015 sales rise 9.5 percent to $2.3 billion, or 6 percent organic growth, minus acquistions. Third-quarter net income came in at $120 million, compared to a net income of $109 million for the same period in 2014. Reported gross margin was 30.7 percent for third quarter 2015, compared to 31.4 percent for the same period in 2014. The company also updated investors on its previously announced acquisition of Jostens, which is expected to close by November. Jostens will join Jarden’s Outdoor segment because of its crossover selling opportunities to schools, Jarden Executive Chairman Martin Franklin said. Jostens supplies year books, rings and other custom-izable items to high schools and colleges nationwide. “Much like the recent Waddington acquisition with its B2B strength we believe that Jostens strength in the academic and achievement channel provides a unique growth opportunity for us as we plan to leverage their channel presence to cross-sell oth-er Jarden products such as Yankee Candles and Rawlings Sporting Goods,” Franklin said. ■
BRUNSWICK FITNESS SEGMENT Q3 BOOSTED BY HEALTH CLUB GROWTH
Brunswick Corp. (NYSE:BC) reported sales in its Life Fitness Division grew 4.5 percent in the third quarter, to $197.5 million, and advanced 9 percent on a currency-neutral basis. The increase reflected growth in the U.S. at health clubs and local and federal governments, said Mark Schwabero, president and COO, on a conference call with analysts. Revenues gains internationally were led by its Europe and the Asia-Pacific regions. International sales, which represented 47 percent of total segment sales in the quarter, decreased 4 percent, but added 4 percent on a currency-neutral basis. The top-line gain reflected sales from the July acquisition of SCIFIT, which focuses on exercise equipment tailored to the needs of active aging seniors. SCIFIT contributed about 3 percent to the segment’s growth rate in the quarter. The segment also includes Life Fitness and Hammer Strength fitness equipment; Brunswick billiards tables, accessories and game room furniture; and InMovement well-being products. Said Schwabero overall, “The segment continues to benefit from new product introductions in all regions with this quarter repre-senting its 12th consecutive quarter of year over year revenue growth.” Operating earnings in the Life Fitness Division grew 7 percent to $27.6 million. The increase reflects benefits from higher sales, cost reductions and savings related to sourcing initiatives, partially offset by an unfavorable impact from foreign exchange. Companywide, Brunswick Corp. which also owns recreational boat and marine engine businesses, saw earnings from continuing operations climb 18.4 percent to $72.2 million, or 77 cents a share. Continuing earnings exclude results from its former Retail Bowl-ing and Bowling Products businesses, sold in September 2014 and May 2015, respectively. Net earnings slumped 27.3 percent to $75.9 million, or 81 cents a share. Sales rose 6.4 percent to $991.9 million and advanced 11 percent on a currency-neutral basis. ■
SEQUENTIAL BRANDS Q3 BOOSTED BY HEELYS, AVIA AND AND1
Supported by robust gains from Heelys, Avia and And1, Sequential Brands reported Q3 revenues more than doubled, to $23 million from $10 million a year ago. The company acquires brands, then licenses them out to partners. As such, most of its revenues represent royalty income. On a conference call with analysts, Yehuda Shmidman, CEO, said the Lifestyle vertical continues to be boosted by Heelys, the skate brand, which is seeing double-digit gains in the nine months. Heelys, acquired in Q1 2013, subsequently partnered with BBC International, which is led by Bob Campbell, and has since “grown exponentially” both domestically and internationally, according to Shmidman. In the Active vertical, And1 and Avia, which each reached exclusive deals to sell to Wal-Mart since being acquired in August 2014, were up a combined 14 percent in the year-to-date period. Shmidman said both brands benefited by delivering “shocking value” to the Wal-Mart shopper, marked by having a “great brand and a quality product at an incredibly compelling price point.” The Fashion vertical was led by Jessica Simpson. Other owned brands include Revo, And1 and Nevados in the sports space, as well as Caribbean Joe, Linen n’ Things, The Franklin Mint, William Rast, and Ellen Tracy. Sequential Brands recently closed on the acquisition of Joe’s Jeans, and reached an agreement to merge with Martha Stewart Living Omnimedia. With a better-than-planned performance across its portfolio, Sequential Brands increased its 2015 revenue projection from a range of $78 to $81 million to $81 to $83 million. Adjusted EBITDA projection was expanded from $48.5 to $50.5 million to $50 to $52 million. The guidance excluded the pending impact of the acquisition of Martha Stewart. ■
ELLIOTT MANAGEMENT CORP. BUYS BIG STAKE IN CABELA’S INC.
Elliott Management Corp. disclosed a significant stake in Cabela’s Inc. and said it plans to seek talks with the retailer’s board regarding a number of strategic options, including a possible sale of the company. In a filing with the Securities and Exchange Commission, the activist investor group, run by hedge-fund billionaire Paul Singer, said as of October 27 it had a stake of 11.1 percent in Cabela’s. Elliott Management said Cabela’s stock is significantly under-valued and thinks there is a “robust environment for private-equi-ty investment in retail companies” and potential strategic interest in the retailer that could provide “multiple pathways” to unlock shareholder value. The investment firm plans to hold discussions with the chain’s board and management about options that could include a sale, changing the capital structure, or reshuffling manage-ment and operations. Cabela’s didn’t respond to press inquiries. The move follows a slump at Cabela’s after the chain reported disappointing earnings last week due to “significant weakness” in its fall apparel and footwear of-ferings as well as as well as lower operating margins. Cabela’s shares had been down 37 percent this year before Wednesday’s 17-percent rally, following the latest news. According to Bloomberg, the fund agitated for changes at EMC Corp., which earlier in October agreed to be bought by Dell Inc. Elliott’s bid for software maker Novell Inc. in 2010 led to its sale to Attachmate Corp. Other Elliott Management targets have included Riverbed Technology Inc., Juniper Networks Inc., NetApp Inc. and Informatica Corp. ■
Garmin Ltd. (Nasdaq:GRMN) reported a significant drop in mar-gins in the third quarter ended Sept. 26 as the cost of keeping up with the Apple, Fitbit and other competitors cut deeply into profits at its fastest growing segment. The company reported third-quarter sales at its Fitness segment grew 23 percent year-over-year to $143.2 million compared with just 5 percent in previous quarter. The acceleration was driven by strong sales of Vivofit and Vivosmart activity trackers, multisport products such as the Forerunner and Fenix sports watches and cycling products. Despite the sales jump, gross margin at the Fitness segment plummeted 976 basis points to 54 percent, including a 360 basis point hit from foreign exchange. The remainder of the decline was due to a change in product mix and falling prices. Garmin has slashed prices on its activity trackers in a bid to gain on market leader Fitbit and a host of other brands jumping into the rapidly growing market. The competition has driven down retail prices on entry-level activity trackers such as the Garmin Vivofit below $99 and as low as $79, compared with $129 a year ago. Pemble acknowledged that its unlikely Fitness margins will ever reach the 60 percent and higher levels seen prior to 2013 given the high R&D and advertising costs needed to succeed in the market today. Garmin has had to amp up R&D in recent years to keep up with consumer expectations of connectivity. “It used to be that we could sell a device that was engineered kind of as a stand-alone unit,” Pemble said. “But today we not only have to do the device, but we also have to do the cloud and the mobile application.” Garmin ramped up spending on its Elevate technology, which enables wrist-based heart rate monitors and personalization of watch displays using different faces, custom data fields and third party apps. Garmin began shipping its first Elevate equipped activity tracker, the Vivosmart HR, on Tuesday and expects it to go on sale at Best Buy Nov. 1. It began shipping its first Elevate en-abled watch — the Forerunner 235 — October 21. It also released an upgraded version of its Garmin Connect mobile app. “The running market dynamics have changed in the past year due to the advent of the wrist-based heart rate being a key fea-ture that customers want,” noted Garmin President and CEO Cliff Pemble. “Forerunner 225 and now 235 have been a little softer in the market because of the absence of that feature.” Many core runners have been reluctant to embrace wrist-based heart sensors due to a perception that chest monitors are more
accurate. But the technology got a major boost this year when Apple used a proprietary version of the technology in its watch, which went on sale in June. Some analysts have estimated Apple will sell 15 million of the watches this year with the bulk of those sales coming in the fourth quarter.
Outdoor Scales Back Camera Ambitions
Quarterly revenue declined 5 percent to $115.3 million for Garmin’s Outdoor segment due primarily to currency transla-tion, but unfavorable exchange rates and product mix magnified the impact on the bottom line. Gross margin declined 620 basis points to 59.2 and operating margin declined 964 basis points to 32.8 percent. The Fenix 3 GPS enabled smart watch sold well and recently released color and material options are expected to spur holiday sales. However, Pemble sought to lower expectations for Garmin’s Virb video camera, which it initially positioned as an alternative to GoPro. “We’ve taken an approach there of being more of a niche play-er, particularly appealing to the other segment customers in our product line, particularly Marine and Aviation,” Pemble said. “And we feel reasonably positive about how that has been going as more of a niche category.”
Overall Results
The 23 percent rise in fitness sales couldn’t offset declines at its outdoor, auto (down 14 percent to $264.6 million) and aviation (down 5 percent to $94.2 million) segements, along with flat rev-enues (remaining at $62.3 million) for its marine sector. Overall Garmin reported a 4 percent year-over-year decline in revenue to $679.7 million. Regionally, Garmin’s net sales declined 10 percent in the Amer-icas, but that came on top of a 12 percent gain a year earlier when the company launched its first line of activity trackers. Garmin sales were flat in EMEA and grew 16 percent in APAC, thanks in part to robust sales of wearables in China and Taiwan.
Garmin revised its full-year revenue and EPS guidance down for the second time Oct. 15 due to pricing pressures and foreign cur-rency headwinds. However, with $2.4 billion in cash and market-able securities on hand at quarter’s end, the company appears well prepared to weather the competitive fight ahead. ■
Eagles Nest Outfitters Inc. (ENO) began shipping a line of hammock stands last week as part of a broader response to an incipient back-lash against the proliferation of hammocks on college campuses. College students have helped turn ENO one of the hottest brands in the outdoor industry, but concerns over safety and damage to trees has prompted a few schools to ban “hammocking’ on campus, according to an article that appeared on the front page of The Wall Street Journal on September 24. The largest of three new stands ENO began shipping this week is a redesigned version of the ENOpod, which was originally developed to hold three hammocks and up to 1,200 pounds for use at festivals. ENO had been marketing the festival version of the ENOpod to uni-versities, but was limited to focusing primarily on schools near its headquarters in Asheville, NC because the stand’s size and weight made it prohibitively expensive to ship. The new model consists of 12 pieces that can be easily shipped, assembled without tools and fit in most car trunks. Another model holds one hammock and a third can be used with a car at campsites or other locations where trees or posts are not available. “We’re excited about our new stands as they are both lighter, and way more portable than their predecessors,” ENO’s Marketing Coordinator Natalie DeRatt told The B.O.S.S. Report via email. ENO has also developed a “Hammock Lounges” guide for schools that either lack trees or wish to direct hammocking away from deli-cate landscaping. In addition to the ENOpod, the guide shows how to build hammock lounges where users can hitch their hammocks to stationary sunken posts or movable tripods. “We 100 percent want to encourage and ensure responsible hammocking,” DeRatt said. ■
Columbia Sportswear Co. (Nasdaq:COLM) sold a record amount of outdoor apparel and footwear in the third quarter and sees no signs of a slowdown in the fourth quarter, CEO Tim Boyle told analysts Thursday. “I’m actually quite optimistic about the business, frankly, and I don’t really see the deceleration,” Boyle said in response to ques-tions about recent reports of slowing traffic and rising inventories by several U.S. retailers. “We end up in this sort of quasi panic situ-ation in October frequently when it’s not minus 3 degrees as people expect. I really can’t comment about our competitors. I can tell you our position we believe is strong and expanding.” Boyle said Columbia Sportswear has shipped much more inventory to retailers than this time a year ago, but noted that retailers’ sell-through rates on that inventory are unchanged from a year ago. Columbia reported record sales, operating income and net income for the third quarter 2015 ended September 30. The out-fitter said net sales grew by $92.3 million, or 14 percent, which equated to 18 percent currency-neutral growth, with the biggest contribution coming from Sorel.
Sorel Soars
Known as a cold-weather boot brand three years ago, Sorel’s has emerged as Columbia Sportswear’s hottest-selling brand thanks in
part to its expanded offering of fashion and warm weather foot-wear. The brand’s global net sales grew 48 percent (59 percent currency-neutral) in the third quarter thanks to strong demand for its fall line, which essentially sold out a year ago, Boyle said. “The wedges and those products which don’t require snow on the ground to sell have really been spectacular,” he said. “There was a lot of pent-up demand from consumers who couldn’t buy the product last year.”
Earlier Deliveries Boost Fall Apparel Sales
Global sales of the Columbia, Prana and Mountain Hardwear brands increased 10, 22 and 12 percent respectively (14, 22 and 17 percent currency-neutral). Global Apparel, Accessories & Equip-ment net sales increased 9 percent to $596.1 million, and Footwear net sales increased 36 percent to $171.5 million. While sales of Columbia PFG and other light-weight garments performed well, earlier deliveries resulted in higher sales of insu-lated winter apparel as well. “Early in the year we can gain a couple - up to three percentage points-of sell-through even in a month as early as August or July, based on having the merchandise in the store,” explained Boyle, adding that retailers benefit from being able to sell fall and winter product at better margins. He said Columbia Sportswear deliveries of fall and winter product grew by about $40 million during the quarter compared with 2014. Mountain Hardwear continues striving to dial in products that resonate better with core alpinists, Boyle said. The brand is still searching for a permanent replacement to interim Mountain Hardwear president Scott Kerslake, who is also president of Prana. “We had a good quarter this year, but I wouldn’t read too much into that,” Boyle said. “We still have a lot of heavy lifting to do there.”
North American Growth Easily Offsets Declines In Russia And Korea
U.S. net sales grew 26 percent led by Columbia and Sorel and re-flecting the more timely delivery of increased fall 2015 wholesale advance orders. In Canada, sales grew 16 percent (39 percent cur-rency-neutral), led by the Sorel and Columbia brands.
Sales declined 11 percent (up 5 percent currency-neutral) in the Latin America/Asia Pacific region, due primarily to weaker sales of the Columbia brand in Asia. In the Europe/Middle East/Africa (EMEA) region, net sales declined 14 percent (plus 3 percent cur-rency-neutral) as a 30 percent decline in sales to Russia more than offset high-teen, constant-currency net sales growth in direct sales; mostly from the Columbia brand. Gross margin expanded 100 basis points to 46.4 percent, while operating income increased 35 percent to a record $132.3 million, or 17.2 percent of net sales. Columbia Sportswear ended the quarter with 10 percent more inventory than a year earlier, but most of it was in the fast growing North American and European markets. In South Korea, invento-ry comped down 26 percent year-over-year. Mountain Hardwear and many other outdoor brands have blamed sales declines in re-cent years to a glut of product in the country, which is Asia’s second largest market for outdoor gear after Japan. Boyle said South Korea remains profitable and that competitors are leaving the market, but it remains unclear if or when profits will return to the high levels seen earlier in the decade.
Margin Forecast Upgraded
Columbia Sportswear firmed its fiscal-year revenue guidance to 10.5 percent sales growth from low-double-digit percentage growth it forecast on July 30. In the United States sales are expect-ed to grow in the low-to-mid 20 percent range, but a repeat of last year’s fourth quarter weather would push sales higher, said CFO Tom Cusick. Operating income is now expected to grow 20-to-23 percent, compared with previous guidance of high-teens. The company nudged up its forecast for full-year operating margin to 10.4-to-10.5 percent from 10.3 percent. Net income is expected to grow 20-to-23 percent, up from July’s forecast of 17-to-22 percent. The company is on track to open 17 stores in the United States this year, including 12 Columbia outlets, two Sorel stores, one PFG store, and two Prana brand stores. Ten of those will open in the current quarter. ■
COLUMBIA SPORTSWEAR CEO SEES NO FOURTH QUARTER SLOWDOWN
Hanesbrands Inc. (NYSE:HBI) reported sales in its Activewear segment grew 21.7 percent in the third quarter to $516.8 million, driven by double-digit growth for the Champion brand and the acquisition of Knights Apparel, a college-licensed fan apparel business. Core sales, which excludes the April 2015 acquisition of Knights Apparel, inched up 2 percent in the segment. Growth of more than 33 percent for Champion in the department store, mid-tier and sporting goods channels offset destocking efforts for its C9 mark (Champion brand sold exclusively to Target). The segment also includes Gear for Sports, another fan apparel resource. Operating earnings in Activewear expanded 39 percent to $97.2 million. On a conference call with analysts, Gerald Evans, Hanes-Brands’ COO, said Champion is benefiting from new distribu-tion; gaining space at existing accounts, including expanding into adjacent categories; and a strong response its designs and innovation. He said Champion is gaining share in both men’s and women’s better activewear. The acquisition of Knights Apparel added net sales of $84 million to Activewear results in the third quarter. Evans said Knights Apparel sales “are tracking to our full-year plan, while operating profit is coming in slightly ahead of plan.” He continues to see a “significant long-term growth oppor-tunity” with the combination of Gear for Sports and Knights Apparel. Knights Apparel, with $185 million in annual sales last year, is a leading seller of licensed collegiate logo apparel in the mass channel and has a small position in professional sports licensed apparel in mass. Gear for Sports, with annual sales of approximately $270 million, sells college and professional league fan gear under the Gear for Sports, Champion and Under Ar-mour labels with a particularly strong presence in university bookstores.
“Our goal over time is to expand from the $3 billion li-censed collegiate apparel market to the broader $20 billion graphic apparel market,” Evans said. In Hanesbrands’ other segments, sales in Innerwear, in-cluding Hanes, Playtex and Maidenform, rose 2.9 percent to $667.2 million. High-single-digit growth in bras and shapewear were offset by a small gain in basics, which were impacted by inventory adjustments at a major retailer. Op-erating earnings gained 4.7 percent to $136.8 million. Direct-to-Consumer segment sales slid 5.3 percent to $106.6 million and operating earnings were down 29.3 percent to $11.8 million. International segment revenues climbed 39.7 percent to $300.4 million, reflecting the Au-gust 2014 acquisition of DBApparel; operating earnings rose 20.8 percent to $34.8 million. Companywide, sales expanded 13.6 percent to $1.59 bil-lion. Core sales, which exclude acquisitions and Target’s exit from Canada, increased 3 percent on a currency-neutral ba-sis. Net earnings climbed 36.3 percent to $162.2 million, or 40 cents a share. Adjusted operating profit - excluding pretax charges re-lated to the DBApparel and Knights Apparel acquisitions and other non-recurring actions - increased 16 percent to $251 million with adjusted EPS also increasing 16 percent to 50 cents a share. Based on year-to-date results and the outlook for the re-maining quarter of the year, Hanes lifted its full-year expec-tations for adjusted EPS to a range of $1.66 to $1.68, or 44 to 46 cents for the fourth quarter. Previous full-year guid-ance was $1.61 to $1.66. Its sales guidance for the full year was adjusted to approximately $5.85 billion versus previous guidance had been calling for revenues slightly less than $5.9 billion. ■
Altra Footwear signed on as the exclusive footwear sponsor of the Western States 100-Mile Endurance Run.
Anta Sports Products Ltd., the Chinese footwear brand, plans to launch its first soccer cleats.
Bates Accessories Inc., a manufacturer of belts, bags, wallets and sandals since 1989, purchased Custom Brand Footwear of Delevan, WI.
Deckers Brands appointed Stefano Caroti, most recently Chief Commercial Officer at Puma, as Omni-Channel President.
Gander Mountain said Derek Siddons, EVP and COO, will assume the role of President, effective on the retirement of current President Michael J. Owens on October 31.
Hudson’s Bay Co. launched Find @ Lord & Taylor, a new off-price concept catering to a younger demographic.
Island Company, a resort lifestyle retailer, sued Pacific Sunwear of California Inc. and sisters Kendall and Kylie Jenner for trademark infringement.
Jordan Brand opened its first Chicago store at 32 South State Street in a partnership with Footaction.
Kohl’s plans to open five to 10 small-format stores in 2016, as well as 10 to 15 Fila stores in outlet malls and two more Off-Aisle by Kohl’s off-price locations.
Lids will celebrate its 20th anniversary alongside customers and fans alike with special in-store events across 13 markets on Nov. 3.
Norwest Equity Partners made a significant investment in Christy Sports, a specialty retailer of ski and snowboard equipment, apparel, and accessories.
REI will close all 143 of its stores and online orders for Black Friday, encouraging its employees and customers to spend the day outside. Roots, a Canadian lifestyle brand, agreed to sell a controlling stake to Searchlight Capital Partners L.P. to raise capital for its next phase of growth.
Skechers USA Inc. opened a flagship store at the front of Times Square.
The Skechers Foundation announced it reached a new donation record for the 2015 Skechers Pier to Pier Friendship Walk, raising more than $1.4 million for children with special needs and education.
Under Armour partnered with The Trust for Public Land to support The 606, Chicago’s world-class urban park and trail system.
Victorinox Swiss Army Inc. was awarded $9.8 Million and injunctive relief in a trademark infringement suit against Dallas-based The B & F System, Inc.
In a shift from its team-sports focus, United Sports Brands last week acquired Nathan Sports, the maker of hydration, visibili-ty and performance gear largely for the running crowd. Financial details of the deal were not disclosed. United Sports Brands was established in late August in the aftermath of the April merger of Shock Doctor Sports and McDavid Inc. Shock Doctor is known as the global lead-er in mouthguards while McDavid stands as one the leaders in sports medicine and sports protection. The company also owns Cutters, known for its football and baseball gloves, and XO Athletic, a maker of athletic cups and other sports protec-tion accessories. Although McDavid offers ankle and knee braces for runners, it’s largely known in the team sports space. As such, Nathan will be United Sports Brand’s first acquisition focused squarely on the run and outdoor space. Nathan’s range includes hydra-tion vests, belts, handhelds, bottles, running packs, active visi-bility and reflective vests, and other outdoor gear essentials. In an interview with Sports Executive Weekly and The B.O.S.S. Report, Tony Armand, CEO of United Sports Brands, called Nathan “an ideal complement to United Sports Brands’ portfolio of products because of its focus on the athlete, offer-ing an array of innovative gear to help athletes run stronger and longer.” He adds, “As a category builder we were impressed with Na-than’s success in defining and building performance hydration and visibility gear in to essential categories for runners and re-tail partners.” Nathan’s principal owner and chairman, Jon Reichlin, will be an investor in United Sports Brands and remain a contrib-utor to the Nathan brand, while Bridgit Lombard, CEO of Na-than, and Tricia Papile, Nathan’s CFO, will continue in a con-sulting capacity during a transition period. Nathan, which is headquartered in Philadelphia with its dis-tribution center, is anticipated to relocate operations to United Sports Brands’ headquarters in Minnesota and California in phases beginning in 2016. Armand said United Sports Brands said Nathan’s product development team will remain in Ver-mont and are not expected to move. Efforts will also be made
to retain as many of Nathan’s sales and marketing team mem-bers in Philadelphia as possible. “Our newly combined company has positioned us for ex-pansion, allowing for the continuation of advanced innovation and technology,” Armand said. “We will provide faster custom-er delivery, a more efficient supply chain and state-of-the-art manufacturing and warehousing.” Finally, Nathan will extend United Sports Brands glob-al reach. The brand is sold running shops, outdoor retailers and sporting goods stores in 45 countries. For its part, United Sports Brands’ expertise and scale is expected to help Nathan reach its next level of growth. “Unified one-stop ordering and invoicing, along with en-hanced marketing support that partners with retailers on a broader, multi-brand category level are some of the ways we envision Nathan and United Sports Brands being able to better serve its customers,” Armand said. In a statement, Lombard, who took over as Nathan’s CEO in 2013, said the acquisition “means Nathan can focus on doing what we do best: building programs to drive retail sales and providing innovative products that help athletes run stronger and longer.” For Reichlin, the sale of Nathan follows his sale of Penguin Brands, the shoe care specialist, to Implus in 2013.Penguin Brands bought Nathan in 2004. Added Armand, “While we are still determining the exact number of relocation offers, what I can tell you is that we will offer roles to all Nathan’s sales and marketing employees at our locations in California and Minnesota in addition to the possi-bility of those that may work remotely.” The acquisition promises to make United Sports Brands a bigger play in acquisitions of other outdoor brands but inte-grating Nathan is the focus for now. Said Armand, “As part of our business strategy we contin-uously evaluate new opportunities that would grow our busi-ness and allow us to better serve customers, however, we do not have any further details or announcements to make at this time. Our immediate focus is a smooth transition for Nathan and its customers in to the United Sports Brands family.” ■
SHARPEN YOUR PERSPECTIVE SSI VantagePoint is the only weekly retail point-of-sale reporting platform exclusively for the active outdoor lifestyle industry that swiftly delivers critical
trends and detailed business data to brands and retailers.
