outdoor retailer summer market surprises on the …...real effects of last year’s winter — e.g.,...

VOLUME 1 | ISSUE 5 AUGUST 8, 2016NEWS, ANALYSIS AND INSIGHT FOR THE ACTIVE LIFESTYLE EXECUTIVE

“I think there’s a ton of energy at the show,” said Todd Spaletto, president, The North Face. “The first two days have been just really packed and the energy is high. I think what’s really ex-citing is when I’m talking to a lot of our specialty dealers is that they are really focused on the ex-perience of their stores and the connections to their communities. The ones that are referencing business being strong and are optimistic about this year, next year and beyond, they’re just de-veloping a deeper relationship with their town and their community, they’re creating experi-ences around the product, and I think they’re really defining specialty retail.”

Spaletto added that many of the recent re-tailers in the news headlines focused more on “selling stuff ” in their stores rather than engage-ment, and that partly led to their struggles.

“I think the traffic was really steady,” said Chris Miller, VP of sales, Vasque. “The first two days have been a huge success.” He echoed the sentiment that dealers appear to be “extreme-ly positive” given the challenging conditions with bankruptcies and a tough holiday season.

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OUTDOOR RETAILER SUMMER MARKET SURPRISES ON THE UPSIDE

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In a welcoming surprise, Outdoor Retailer Summer Market 2016 was busy, upbeat and optimistic.

Despite several major U.S. active-lifestyle retail bankruptcies and a mild winter that hurt the holiday season for many retailers — plus, the expected glut in inventories to follow both — the industry came out in full force to Salt Lake City this week.

The consensus is that while some retailers failed, it wasn’t for a lack of consumer demand in the space. Rather, it signals a significant shift in where the consumer is fulfilling that demand.

“If you look at outdoor retail as a big, long bridge and on one end is Walmart and on the other is your store (specialty retailers), the mid-dle has fallen out,” Grassroots Outdoor Alliance President Wes Allen told retailers at a preshow event. “And you can take some of that business. Now is the time to strike.”

Most retailers at the show told us that they have yet to see the negative effects of those going-out-of business sales. But that doesn’t mean the industry is in the clear, they cautioned.

Many added it will take more than a year for things to clear out, and bigger aftershocks may be on the horizon as inventory slated for those defunct retailers continues to arrive from long-lead-time manufacturing.

Vendors, too, face concerns. Some are licking their wounds after getting snagged in the bank-ruptcies. Others are likely to get hit come the fall/winter buying season, when they’ll see the real effects of last year’s winter — e.g., retailers placing smaller orders with plenty of leftover in-ventory in stock.

Given the overall challenges facing retail, many dealers told SGB they have become more sophisticated around inventory management and relying more on fill-in orders. The local independent retailer also continues to face challenges competing against the e-tailers, with a selling message focused on price.

The upbeat attitudes by many dealers and their ability to navigate the challenging climate was seen by many as sign of the health of the specialty model as a differentiator in the marketplace.

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NEWS, ANALYSIS AND INSIGHT FOR THE ACTIVE LIFESTYLE EXECUTIVE

Also creating some concerns for both ven-dor and retailer is the potential mega-merg-er of Bass Pro and Cabela’s.

“Then when you throw in the election in November, there’s a lot of uncertainty that’s taking place,” said Miller. “But the reality is the economy is strong, the weather has been fantastic for most parts of the country this year, and people are outdoors way more than they’ve ever been before. So our indus-try is in a good position.”

Fred Clark, CEO of Thule, noted that the outdoor industry is clearly more upbeat and “seeing more opportunities” than the bike channel. Overall, he sees retailers and dealers focused more on inventories, which tends to lead to slower orders initially and more fill-in scrambling for vendors. But he feels it’s healthier overall for the market-place.

“Guys are just looking to run their business tighter and are just trying to be smarter,” Clark said. “That’s not bad.”

“Our show’s been great,” said Mike Barker, head of product development at NRS (Northwest River Suppliers). “I was com-menting to someone yesterday that every year the show organizers say attendance is up and you’re like, “Yeah, right!” But this year I’d say I think they might be right.”

“This is my 38th show and yesterday was the busiest I can remember for an open-ing day,” said Jordan Campbell, commu-nications manager, Marmot. “I had people crashing the booth asking a lot of questions about programs we have going on. So you could feel the intensity and excitement on the floor.”

Helping Specialty SurviveSimilar to what we heard at the Grassroots Summit in June, brands are doubling down on specialty retail as big names in the mid-

dle market went bankrupt and liquidated this summer.

“I think specialty is one of the few places in the market that isn’t over-retailed,” said Mountain Khakis President Ross Saldarini. “Regional players are making acquisitions and growing. And they are well located on the main streets of America where today’s consumers are returning to shop. Nobody wants to go to the mall anymore.”

Despite some criticism from retailers of MAP policies, or more specifically their en-forcement, Saldarini said he sees them as vi-tally important in today’s online world, and agrees that brands — and retailers — would need to step up policing of MAP.

Saldarini also likes the avenue Locally.com is providing, helping brands and re-tailers match local inventory to consumers. When a customer searches for product on Mountain Khakis’ website, for example, a button gives them the option to find the product in their area, view available inven-tory and then buy it at the local store. It saves on shipping and gives local retailers the sale.

Over at the Ruffwear booth, Director of Sales Dove Gibson was excited to talk about the brand’s Latitude program, which allows retailers to make wholesale orders through-out the year when they need to with free 2 to 5 day commercial-ground shipping for $99 a year. She compared it to Amazon Prime and said it reduces the inventory risk for both the brand and retailer.

“Pre-season ordering doesn’t actually give us a good picture,” Gibson said. “We have better historical data. Let us handle the fore-casting and order when you need to. Getting retailers to do business with us six times a year instead of two is also great for the relationship, keeping conversations going year-round.”

Ross Saldarini, President, Mountain KhakisPhoto courtesy David Clucas

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3 SGB EXECUTIVE | AUGUST 8, 2016 © SportsOneSource, LLC

Sustainability Driving DifferentiationWhile “going green” and pursuing sustainable business practices have always been staples of the outdoor industry, there seemed to be a re-newed push toward the efforts this OR Summer Market — in large part to differentiate outdoor products (and place them at a higher level) from the abundant active and athleisure wear in the marketplace.

In these cases backstories are key, brands told us, and the sustainable story should begin at square one in sourcing raw materials.

Take newcomer skateboard brand Bureo, which worked with the Chilean government to set up fishing-net disposal points in 15 of the country’s coastal communities. The nets of-ten get discarded in the ocean, contributing to roughly 10 percent of the plastic pollution prob-lem in the waters. Bureo takes the old nets, chops them up and recycles the plastic to make boards.

“We own our whole supply chain from start to finish,” said Co-Founder David Stover. “It’s a durable, long-lasting product… and even after their lives as skateboards, we’ve pledged to take them back and recycle them again.”

Back To The CoreVendor executives also acknowledged the need to clean up distribution channels and SKUs.

While many brands continue to expand their outdoor lifestyle offerings, there’s also a push to pull back a notch to a brand’s core. That doesn’t mean every brand has to make extreme gear for Mount Everest, said Fjallraven North American President Nathan Dopp. Rather, they need to re-main focused on who they are as a brand.

At Black Diamond, after years of rapid ex-pansion, acquisitions and offshoring — plus the troubles those decisions came with — the brand is pulling back to its core of climbing for the spring/summer season across its apparel and

hardgoods lines. That means, for example, no more Black Diamond hiking packs, and on the flip side, an expansion into climbing ropes and kids climbing helmets and harnesses. Despite the pullback, Black Diamond will keep its head-lamp and trekking pole products, which remain the brand’s top two sellers.

We heard a similar tune at Mountain Hard-wear, where President John Walbrecht and Global Director of Product Merchandising and Design Robert Fry told media at a luncheon that the brand had lost its vision in the fog.

“If we don’t make the lightest gear or we don’t make it the most durable or most premi-um, we’re not going to make it going forward,” Walbrecht said. “Let’s do things we should, not things we could.”

Back at Fjallraven, Dopp also pointed to ef-forts to clean up distribution channels as re-tailers complain about so-called “grey market goods” — e.g., a brand’s product showing up in Costco through a third-party distributor.

“I’ve closed millions of dollars in distribution in the past six months, and it’s painful, but the

right thing to do,” Dopp said. “We have to take a long-term view for the health of the brand.” Most of the channels being cut off were online, non-brick-and-mortar and difficult-to-verify distributors, he said.

Versatility ReignsWhile the core outdoor message was making a comeback at the show, the athletic and lifestyle push into the industry remains strong. The buzz word from many was “versatility” in response to millennials, who show a preference of enjoying a great number of activities — yoga on Wednes-day, hiking on Thursday, Crossfit on Friday, etc. — versus becoming an expert in one.

“It’s not as much about carrying the 80-pound pack for eight days of suffering as it is about going out and getting it done fast, and then on to the next adventure,” said Jordan Wand, vice president, outdoor apparel at Under Armour. “What this notion of athleisure brought is that you can have performance, comfort and versa-tility. The key is making product versatile, with-out being generic,” Wand said.

Chris Lindgren, Under Armour vice presi-dent of footwear, outdoor and training, agreed and said millennial consumers are tired of hav-ing a quiver of products.

“It’s too much choice and too much money,” Lindgren said. “Give me one bike and a couple of shoes because other things — particularly experiences over product — are competing for my time.”

Women RuleFor all the flak the industry has received in the past for being too male dominated, efforts to di-versify are paying off as we see more brands not only manufacturing women’s products tailored to women, but increasingly employing and pro-moting women within their organizations, too.

David Stover and Kevin Ahearn, Co-Founders, Bureo.Photo courtesy David Clucas

Nathan Dopp, North American President, FjallravenPhoto courtesy David Clucas

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There are plenty of female athlete role models none trending bigger than Melissa Arnot who, this year, became the first woman to summit Mount Everest without supplemental oxygen (it was her sixth overall summit of Everest).

Arnot was at Outdoor Retailer in the midst of her latest challenge, summiting 50 of the high-est peaks in every state in 50 days, along with guide-in-training Maddie Miller. The women had 46 peaks down and only four to go.

The Industry’s Crystal Ball What’s to come in the outdoor industry? Talk to Cindy McNaull, brand and marketing director at Cordura. The fabric folks have at least two years of insight into what’s coming down the pipeline for the outdoor industry.

McNaull sees simplicity and style reigning high over the next few years — a driving trend coming from Japan. Ironically, she said, Jap-anese designers setting the trend are looking back to the U.S. for inspiration.

Cordura is known for its durable fabrics, so no surprise that this remains a big trend from McNaull’s perspective. But here’s the new twist, she said, “People want durability without the hard looks of durability.” Softer looks, colors and touches are in style. Need an example to follow? Watch for startup Onu out of Iceland, she said, showing off one of the brand’s active skirts with a durable but soft and supple fabric, plus a cre-ative laser-cut pattern design at the hem.

Outdoor brands better be ready for compe-tition, she said, as there’s an influx of fashion brands scooping up performance fabrics to cre-ate designer, performance clothes — from suits to dresses and runway-worthy pieces.

Specialty Retailers UniteEarlier in the week Grassroots Outdoor Alliance, Outdoor Industry Association and

Outdoor Retailer partnered to bring several ed-ucational seminars for specialty retailers — no vendors allowed — called Rise.

Guest speaker and small-business expert Rhonda Abrams of Planningshop.com greeted retailers as “survivors,” saying they were the best of the retail crop that survived the past few years of attrition and were best positioned to succeed.

“Disruption is what someone does to you,” she said. “Innovation is when you do it yourself.”

She compared outdoor retail to the indepen-dent bookstore market which, unbeknownst to many, she said, has been growing over the past five years despite the rise of Amazon. Yes, she admitted, a lot of stores closed before that, but those remaining proved they were the best and are now reaping the benefits.

“The good news is that people want to be outdoors, people want the stuff you sell… even when they’re not outdoors they want to be dressed like they are… and they are enthusiastic about it,” she said. “And when they’re enthusias-tic, they seek expertise and experiences.”

She encouraged retailers to focus on provid-ing a niche to their customers — even more of a niche than outdoor. “Don’t be an outdoor gen-eralist,” she said, “find your corner of outdoor

— maybe it’s watersports or fishing — provide depth instead of breadth. You can’t be the mid-dle to everyone.”

Every so often, retailers would break out into interactive sessions to discuss ideas that they have been working on, including what Abrams called “un-Amazonable” products and services — in other words, what online retailers and big box retailers can’t provide their customers. Same-day rental services, gear repair (one retail-er had an onsite sewer on staff), hosting meet-up groups, vendor and pint nights and onsite gear demos were a few of the ideas that sprung up — all giving the customer a reason to visit the store beyond when they wanted to make a purchase.

The event’s second session on MAP (mini-mum advertised price) policies was hampered by logistical and technical issues — speaker Ryne Misso was unable to attend and phoned in via a sometimes choppy video conference connection — but the discussion was still live-ly, with many specialty retailers complaining vendor MAP policies were unevenly enforced. Examples included the vendors themselves vio-lating their own MAP policies.

“MAP doesn’t work,” one retailer said. “The only way to talk to the vendor is about main-taining margin. So, if a margin doesn’t hold, my next conversation with them is ‘how do we get back to it, what are you going to do about it?’”

Next Up: OR Winter MarketWhile show officials will likely come out of Summer Market 2016 with their heads high, Outdoor Retailer Winter Market may be a tougher challenge.

The show’s earlier dates (right after the win-ter holidays) did not go over well with many attendees and an overall weak snow last season on the East Coast didn’t help. It all forced show officials to push back its previously planned dates for 2017 by a few days, plus shortening the trade-show portion to just three days for winter, now scheduled for January 10-12.

Mountaineer Melissa Arnot (right) and Guide-in-Training Maddie Miller (left).Photo courtesy David Clucas

Startup Onu uses a creative laser-cut pattern design at the hem of its active skirt.Photo courtesy David Clucas


Starter, as mentioned previously on its first-quarter conference call, remains soft as Wal-Mart, its exclusive license for basics, is shifting some categories from Starter to house brands. “However,” added Haugh, “we are actively developing an upstairs business in major specialty and department stores and exploring additional distribution options for the brand.”

Other brands in the men’s segment include Um-bro and Ocean Pacific. Umbro has successfully relaunched in China with a new partner, and the company is in active discussions to complete sim-ilar deals with Danskin and Starter in the country.

Overall, Haugh said he was “pleased” with the firm’s results after a challenging year, with the major focus being improving the balance sheet with the refinancing of 2016 convertible notes and the opportunistic repurchase of a portion of the 2018 convertible notes.

“Our primary goal is to position ourselves to achieve growth while at the same time improv-ing the balance sheet, and we are making prog-ress on both of those fronts,” Haugh said. “Over the past few months, we have conducted a broad strategic review of our company, our brands and the overall market. We have identified a number of opportunities that we believe will drive long-term growth that we look forward to sharing with you this fall.”

Iconix Brand Group reported earnings slumped 15.7 percent to $11.6 million, or 23 cents a share. Adjusted net income was down 34.7 percent to $13.9 million, or 27 cents per share, although still ahead of Wall Street’s consensus estimate of 23 cents.

Licensing revenues were down 2 percent to $95.7 million. Among its sports-related brands, Danskin, which is included in its women’s seg-ment, saw strong gains.

“Danskin has been a standout for us with a strong active wear business at Wal-Mart across all categories, including women’s, girl’s, foot-wear and intimates,” said John Haugh, Iconix Brand Group’s president and CEO, on a confer-ence call with analysts.

Overall, sales in the women’s segment were down 3.3 percent to $36.5 million. Excluding the Badgley Mischka business that has been sold, sales were up 1 percent. Also showing strength in the women’s segment were Material Girl and Candie’s.

In its men’s segment, which includes the rest of its athletic brands, sales were down 15.6 percent to $9.6 million.

“We continue to work on our turnaround, and while we delivered some highlights, we still have much work to do,” said Haugh of the segment.

Some positives included new partnerships with relevant influencers that have significant

digital and social reach, improvement in Ecko sales and new distribution for Ed Hardy.

The Ecko brand formed a partnership with pop star Prince Royce, including Facebook Live sessions, Snapchat posts of unseen tour footage, in-store appearances and VIP sweep-stakes to his shows. Ecko’s new men’s core license is expected to achieve a 30 percent year-over-year increase in U.S. net sales for 2016 and is poised for significant growth in 2017. Said Haugh, “This would have a positive impact on all of Ecko licensee partners as the business should buoy with the successful resto-ration of a healthy core.”

Ed Hardy, while down in the second quarter, is likewise projected to achieve growth year over year for 2016, with a strong fourth-quarter fra-grance performance expected.

Rocawear was also down in the second quarter, but comparisons become easier in Q3 and the brand is expected to start comping positively in Q4. Said Haugh, “We are working to re-establish the brand and we recent-ly partnered with DJ Khaled, a record pro-ducer and social media phenomenon with a following of 19 million. We are excited to have him as the new face of the brand and believe that culturally, he speaks to who our brand is targeted on a daily basis through social media.”

Photo courtesy Danskin

DANSKIN LEADS ICONIX’S SPORTS BRANDS IN Q2


Adidas AG reported sales grew 25.6 percent in North America in the second quarter, accelerating from a gain of 21.6 percent in the first quarter.

Also backed by near 30-percent gains in Western Europe and Greater China, Adidas AG scored its highest organic second-quarter growth rate in more than a decade, adding more than €750 million ($835.2 million) to its top line in just one quarter.

The results confirmed preliminary results released the prior week while demonstrating the widespread strength the Adidas brand is seeing. The sporting goods giant also raised its full-year forecast for a fourth time this year the previous week.

On a conference call with analysts, Adidas AG CEO Herbert Hainer said growth was driven by double-digit gains in key performance and life-style categories.

With a 7-percent topline increase, sales growth at Reebok saw a further acceleration compared to the previous quarter. Even Adidas-TaylorMade, which was put on the selling block in May, showed a recovery.

From a bottom-line standpoint, despite ongoing “severe headwinds” from negative currency effects, Adidas AG’s gross margin climbed 50 basis points to 48.8 percent, “underlying the high desirability for our brands around the globe,” Hainer said. With significant operating expense leverage, as well as an extraordinary gain related to the early termination of its Chelsea F.C. contract, operating margin improved 3.4 percentage points to 9.4 percent.

Net sales grew 13.2 percent to €4.42 billion ($4.9 billion) and gained 21 percent on a currency-neutral basis.

Consequently, net income from continuing operations grew 99 percent, reaching an all-time high during the second quarter of €291 million ($324.1 million).

“What pleases me more than the pure numbers is their composition,” added Hainer. “It is both our core performance categories, football, train-ing and running, as well as our key lifestyle sub-brands, Adidas Originals and Adidas Neo, that continue to report strong double-digit growth rates across our focus markets.”

By region, North American sales for the Adidas and Reebok brands reached €788 million ($877.6 million), growing 22.6 percent on a reported basis, according to Robin Stalker, Adidas AG’s CFO.

The Adidas brand jumped 32 percent in North America, driven by strong double-digit growth from the running, training and basketball categories, as well as Originals and Neo. The strongest growth rates were generated in running and Originals, both achieving growth rates above 60 percent.

Stalker noted that driven by the “enormous heat around our perfor-mance and lifestyle products,” the Adidas brand significantly gained mar-ket share with leading U.S. retailers. He added, “In the second quarter, the brand’s wholesale business in North America actually outperformed the growth of our own retail business by more than 5 percentage points. And this, ladies and gentlemen, is proof positive that Adidas is without doubt becoming a viable sports brand in the world’s most relevant sport-ing goods market.”

Reebok’s revenues in North America slid 3 percent due to efforts around “streamlining the business and rebuilding brand reputation in North America,” including closing outlet stores. Stalker said the smaller decline compared to recent quarters, as well as “encouraging backlogs for the sec-ond half of 2016 can be regarded as a clear sign that we are on the right track to turn Reebok around in its home market, just as we have done in the rest of the world.”

ADIDAS Q2 BOOSTED BY U.S. MOMENTUM

Photo courtesy Adidas

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Gross margin in the quarter in the North America region increased 2.1 percent percentage points, driven by an improved pricing, product and channel mix. Combined with strong operating leverage, operating margin expanded 6.8 percentage points to 9.4 percent. Stalker described it as “a margin we haven’t seen in North America for years and proof positive the brand strength and scale matters most.”

In Western Europe, sales for the Adidas and Reebok brands grew 29.2 percent on a currency-neutral basis to €1.21 billion ($1.35 billion), while expanding 26.3 percent on a reported basis. The gains were sup-ported by additional revenues generated around UEFA Euro 2016. With strength throughout all key categories, the Adidas brand grew 30 percent and Reebok increased 23 percent. The Adidas brand gains were driven by “tremendous acceleration” in running and training while Originals “was again able to gain further traction” in the quarter, said Stalker. At Reebok, growth was driven by double-digit increases in training and Classics. The U.K., Germany, Italy, Poland, France and Spain drove the gains.

Gross margins in Western Europe were down 3.2 percentage points to 44 percent due to the strengthening of the U.S. dollar. However, despite greater marketing spend around the UEFA Euro 2016, strong operating leverage and a decrease in other operating expenses led operating income to increase as a percentage of sales by 1.1 percentage points, to 17.3 percent.

In Greater China, sales for the Adidas and Reebok brands expanded 30.1 percent to €685 million ($762.9 million) and grew 21.4 percent on a reported basis. Adidas Brand sales expanded 30 percent while Reebok’s momentum accelerated further with sales up 38 percent. Said Stalker, “Growth at both brands was driven by double-digit increases in all key performance categories, as well as in the lifestyle business.”

Greater China’s operating margin was up 0.7 percentage points to 37.2 percent. A 1.4-percentage point increase in gross margin was only partly offset by higher operating expenses as a percentage of sales.

“Given our already strong brand perception in China in connection with the persistent trends around a healthier and a more sports-oriented lifestyle, we have every confidence that China will continue to be a major growth market going forward,” Stalker said. “And with our new strategic partner, Chinese real estate and sports business giant Wanda Group, we have a new ally who shares our enthusiasm for this market.”

In Latin America, sales for the Adidas and Reebok brands grew 7.9 percent on a currency-neutral basis to €379 million ($422.1 million), a pullback from the strong double-digit growth in the first quarter this year. Stalker said the softness reflected the declining purchasing power in Argentina as a result of the strong inflation of the peso. Strategic restruc-turing in some markets also impacted performance. Reported revenues were down 17 percent.

Due to major currency headwinds, the gross margin in Latin Ameri-ca declined 1.5 percentage points to 41.1 percent in Q2. Combined with higher operating expenses as a percentage of sales, the segment operating margin declined 4.6 percentage points to 10.5 percent.

Stalker noted that in the half, segment revenues increased 13 percent in Latin America, with double-digit growth in all major markets, and “we expect this sort of trend to continue throughout the remainder of this year, also with the additional support of the Olympic Games in Brazil.”

In other regions, Russia/CIS revenues for the Adidas and Reebok brands rose 7.2 percent on a currency-neutral basis to €172 million ($191.6 million), while sliding 15.9 percent on a reported basis. Japan’s sales were up 20.9 percent on a currency-neutral basis to €236 million ($262.8 million), and grew 32.4 percent on a reported basis. In the MEAA region, sales grew 14.2 percent to €572 million ($637 million) and gained 6.8 percent on a reported basis.

Globally, the Adidas brand sales gained 24.6 percent on a currency- neutral basis to €3.71 billion ($4.1 billion). Reported sales for the Adidas brand were up 16.5 percent.

Adidas Brand Gains Lead the WayElaborating on the global performance of Adidas brand, Hainer noted that the brand’s core performance categories – football, training and run-ning – as well as its key lifestyle sub-brands, Originals and Neo, contin-ued to report strong double-digit growth rates across their focus markets. Said Hainer, “This underlines that we are focused on those business areas where we can have the biggest impact on the consumer.”

Sales for the Adidas brand in global football, or soccer, expanded 17 percent, with double-digit increases in most markets. The strong perfor-mance had previously led the company in June to increase its target for the category to €2.5 billion for the current year.

Hainer said that even before the Euro 2016, Adidas’ soccer segment benefited from the victory of its sponsored team Real Madrid in the UEFA Champions League. During a summer that included Copa America and Euro 2016, Adidas claimed the title of the Most Shareable Brand on the various social media channels. Hainer said the brand benefited from le-veraging short films and images relating to federations such as Germany, Wales, Belgium and Spain, as well as key players like Paul Pogba, Mesut Ozil and Gareth Bale.

In running, the Adidas brand was up 30 percent globally, led by a 35 percent gain in footwear. The category saw strong double-digit sales growth in all major markets and benefited from the launch of Ultraboost Uncaged and Alphabounce.

Training was ahead 11 percent globally, with double-digit growth rates in all major markets. Growth was particularly strong in apparel, where revenues grew at a double-digit rate, supported by key concepts such as Climachill and Techfit. The gains were led by strong double-digit growth in women’s training.

In its lifestyle businesses, Adidas Brand’s revenues grew 50 percent in the second quarter, with strong double-digit increases in all markets ex-cept Russia, where sales grew at the high-single-digit rate.

Originals also formed a long-term partnership with Kanye West. Hainer heralded the partnership as the “most significant partnership ever created between a non-athlete and an athletic brand.” He noted that the alliance will also focus on performance-intended designs.

Meanwhile, sales of Neo expanded 31 percent in Q2, reflecting strong double-digit increases in all markets except Japan. A new comfort foot-wear concept, Cloudfoam, led to strong double-digit increases in footwear across all key distribution channels. Added Hainer, “This new comfort concept is resonating extremely well with girls, Adidas-Neo’s clear target consumer root, which was achieved through girl-specific footwear models in terms of material and color choice.”

Reebok Banks on FitnessAt Reebok, sales globally gained 6.9 percent on a currency-neutral basis to €399 million ($444.4 million), but declined 2.1 percent on a reported basis. With the exception of North America, where Reebok continues to streamline its U.S. business, the brand is growing at double-digit rates in most of its key markets, including Western Europe, Greater China, Russia and Japan.

“From a category perspective, Reebok is more and more considered as a true fitness brand, as reflected by strong growth rates posted in the all-im-portant running and training categories,” said Hainer. He noted that train-ing is expected to be supported by Reebok’s new partnership with J.J. Watt.

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In classics, another focused category of Reebok, the brand is capitalizing on strong underlying lifestyle trends in the marketplace. Said Hainer, “Reebok’s strong heritage in casual sports, together with its unique partnership around Kendrick Lamar, is not only translating into double-digit growth for the cat-egory but, more importantly, enabling the brand to win back shelf space at important key accounts, including in its home market, North America.”

The turnaround in the U.S. remains “the key for the brand” at retail, where further rationalization efforts will continue, as well as wholesale.

“So far we have seen a huge step up in more presence year-to-date, in-cluding permanent displays at Finish Line, dedicated windows at Champs and branded space at Footaction,” said Hainer. “And the feedback we’re get-ting from retailers for the upcoming spring/summer 2017 season is clearly indicating that they are excited to further engage with the Reebok brand.”

Golf on the UpswingAt its other businesses segment, which includes Adidas-TaylorMade and CCM Hockey, sales were up 6.1 percent on a currency-neutral basis to €377 million ($420 million), and grew 3.3 percent on a reported basis.

TaylorMade-Adidas Golf ’s sales were up 6.9 percent to €248 million ($276 million). The gains were led by a 24 percent increase at TaylorMade, reflecting strong double-digit growth in metal woods, where its M1 and M2 product families are seeing strong sell-through rates in the market-place, particularly North America.

“Consequently, TaylorMade remains the undisputed No. 1 golf brand in metal woods, with strong market share gains year to date too,” said Hainer, “and these operational improvements are also reflected in the financials.”

Driven by a significantly more favorable pricing and product mix, TaylorMade-Adidas Golf has seen “major gross margin improvements” during the second quarter. Along with a considerable reduction in operat-ing expenses as part of a restructuring that has taken place over the last 12 months, TaylorMade-Adidas Golf turned profitable again at the end of Q2.

Sales of CCM Hockey were down 17.7 percent to €64 million ($71.3 million), and lost 20.3 percent on a reported basis. The drop was mainly the result of declines in the licensed apparel and equipment busi-ness, reflecting the “challenging environment in the U.S. hockey market, with excess inventory at retail and two major customers having filed for bankruptcy.” Stalker said he expects CCM’s “business to normalize in the second half of the year.”

Looking AheadAs reported the prior week, Adidas now expects its sales to expand on a currency-neutral basis at a rate in the high teens, up from around 15 percent previously. The topline development will be supported by dou-ble-digit growth in all regions except Russia/CIS, where sales are now fore-casted to grow at a mid-single-digit rate.

Adidas AG’s gross margin is expected to be at a level between 48 percent and 48.3 percent, compared to the prior-year level of 48.3 percent. Less favorable U.S. dollar hedging rates and rising labor expenditures are now projected to be almost completely offset by the positive effects from more favorable pricing, product and regional mix as well as further enhance-ments in the channel mix, which are driven by the continued expansion of the company’s direct-to-consumer business.

Operating expenses as a percentage of sales are expected to decrease compared to the prior-year level of 43.1 percent, due to the stronger than expected top-line growth

Net income from continuing operations, excluding goodwill impairment, is now projected to increase at a rate between 35 percent and 39 percent, up from a rate of around 25 percent previously.

22nd Year

Grassroots Outdoor Alliance has been in operation. The group

currently stands at 61 independent outdoor retailer members, with

more than 127 doors in 31 states.

19 Percent

Rise in Nautilus’ organic retail business during Q2 (89 percent when

including its Octane Fitness acquisition), versus 8-percent growth in

direct-to-consumer.

23 Percent

Share plummet seen by Crocs Inc. (Nasdaq:CROX) on August 3, after

the footwear company missed top- and bottom-line expectations

for Q2. Crocs was quick to jump on the defense, blaming “industry

softness” and distributor challenges in China for the dramatic dip, as

opposed to overall brand health.

$100 Million

Cash Black Diamond Inc. plans to invest in the acquisition of cash-

flow-positive U.S. companies within, or even outside, the outdoor

recreation category.

4th CEO

In Sturm Ruger & Company’s 67-year history was named alongside

its Q2 reports. COO Christopher Killoy will take over for Michael Fifer

come May 2017. Fifer has headed the company for a decade. In

light of its succession announcement and robust sales, shares for the

firearms company took a hit, sliding 4.5 percent.

5 to 8 Stores

Planned to open under the Big 5 name within 2016. This number is

offset by the approximately 10 store closures projected for the same

period, which Big 5’s Chairman, President and CEO said is part of

ongoing consolidation efforts.

2/3 Total Activations

Of Fitbit’s Alta and Blaze products (released March 2016) during Q2

were by new customers, while the remaining third was charted by

previous Fitbit device consumers.

BY THE NUMBERS


Dorel Industries Inc. reported that its Dorel Sports segment showed a steep loss in the second quarter after restructuring charges.

The operating loss came to $50 million against operating income of $11.1 million a year ago.

In light of the challenging market and highly competitive conditions in the independent bicy-cle dealer (IBD) channel and foreign exchange pressure, Dorel Sports recorded a goodwill and intangible assets impairment charge of approx-imately $55 million in the second quarter. It is also planning another restructuring charge in the third quarter.

“At Dorel Sports we are making the required changes to ensure profitability and we are encouraged as our new model bicycles are being well accepted in the market,” commented Martin Schwartz, Dorel’s president and CEO.

On an adjusted basis, operating profits slumped 50.9 percent to $5.2 million due to the decrease in sales and a reduction in gross mar-gin to 20.7 percent from 22.6 percent. Those fac-tors more than offset a 5.1 percent reduction in operating expenses

Segment sales fell 5.8 percent in the quarter, to $236.5 million. The segment’s brands include Cannondale, Schwinn, GT, Mongoose, Caloi, IronHorse and Sugoi. After removing the im-pact of varying year-over-year foreign exchange rates, organic revenue declined 4.8 percent.

In the IBD channel, Cycling Sports Group (CSG) global revenue declined ver-

sus prior year “amid a soft and competi-tive North American market,” according to Dorel Industries. While Cannondale’s mar-ket share increased during the first half, continued industry-wide discounting due to excess inventories at the supplier and retailer levels impacted the segment’s profit-ability.

Caloi’s sales declined due to the continued economic challenges in Brazil, including foreign exchange rate pressures.

Dorel said Dorel Sports has begun restructur-ing activities in the third quarter that are estimat-ed at $9.5 million pre-tax, of which $5.9 million is non-cash, “to simplify and focus its business with a view to bolstering the bottom line.”

The segment’s most significant initiatives are:In the Chinese independent bike dealer

channel, the business will move distribution for its GT brand to a third-party distributor, similar to the current route to market for the brand in many other countries around the world.

By the end of Q4, the majority of Pacific Cycle’s mass market and distribution operations will be relocated from Illinois to Savannah, GA to better serve customers.

Dorel Sports will also be exiting its three U.S. “Cannondale Sports” named retail outlets.

In total, all restructuring actions will result in an approximate 4 percent reduction in Dorel Sports’ global workforce. Annualized savings of

DOREL SPORTS LOGS STEEP Q2 LOSS ON CHARGES

Photo courtesy Mongoose Bicycles

$5 million are anticipated, commencing next year. The goal of the effort is to focus on improv-ing profitability.

“Dorel Sports is taking the necessary steps to maintain its strong position in the face of a con-tinuing tough market,” added Schwartz. “Results have been affected by sustained discounting in North America and the reality of depressed for-eign exchange rates, as IBD sales outside the U.S. are significant. Nonetheless, we remain confi-dent and excited about our bicycle business.”

Schwartz noted that recently launched Can-nondale Scalpel and Quick models have been “well received” and are selling at traditional mar-gins. A new mountain bike has been introduced in Europe and will be shipped in the fourth quar-ter, and “we anticipate excellent reaction.”

Schwartz also said inventory pressures are starting to lessen in the bike channel.

“At Dorel Sports, we are seeing excess sup-plier inventory levels within the industry de-creasing, therefore the pressure on margins ex-perienced to date is now easing,” he said. “Our own inventory is at much healthier levels with far fewer prior-year models on hand. Based on enthusiastic initial dealer reaction, we are antic-ipating strong sell-through on the model year 2017 line just introduced. This will also benefit margins, and, as such, we foresee adjusted oper-ating profit to be much better than last year in the second half, which will be mostly weighted in the fourth quarter.”


Sturm Ruger & Company (NYSE:RGR) delivered another robust quarter as overall firearms sales continue to benefit from concerns over potential gun-control legislation. But shares still fell after the company surprised Wall Street with a CEO succession plan.

Michael Fifer, who has headed the company for a decade, will retire in May 2017 and will be replaced by COO Christopher Killoy. In the decade that Fifer has led the company, sales increased almost four-fold. Its market value jumped seven-fold to $1.3 billion, according to data compiled by Bloomberg.

Killoy worked at General Electric Co. and Smith & Wesson before join-ing Ruger as Executive Director of Sales in 2003. He became President and COO in 2014 and will be the fourth CEO in Ruger’s 67-year history.

“I have worked closely with Chris for 10 years, and he is well qualified to become Ruger’s fourth CEO,” Fifer said on a conference call with analysts. “He has been very successful in his 27 years in the firearms industry and has justifiably earned a great reputation. Our employees, customers and shareholders will be in good hands.”

Shares of Ruger slid 4.5 percent to $66.18 on August 3.In the second quarter, net sales climbed 19.2 percent, to $167.9 million.

Earnings rose 33.9 percent to $23.5 million, or $1.22 a share.On the same call, Killoy noted that the estimated sell-through of the

company’s products from the independent wholesale distributors to retailers, which Ruger believes is the best available measure of demand, increased 20 percent in the second quarter and 18 percent in the first half from the comparable prior-year periods.

“We believe the increase in estimated sell-through of the company’s products from the independent wholesale distributors to retailers is at-tributable to, one, the increase in overall industry demand, fueled in part by the current political climate, two, strong demand for certain new Ruger products and three, increased production of several products in strong demand,” Killoy said.

Killoy further noted that the increased sell-through of its products in 2016 compares favorably to corresponding increases in the adjusted NICS checks of 15 percent in the second quarter of 2016, and 16 percent in the first half of 2016.

Amid a series of shootings, the FBI reported that last month was the busiest July on record for background checks, putting 2016 on pace to set an annual record.

The gains were helped by a strong response to new products, which rep-resented $53 million, or 33 percent, of firearm sales in the latest second quarter. New product sales, including the American pistol, the precision rifle, the AR-556 modern sporting rifle and the LC9s pistol, reflect only major new products that were introduced in the past two years.

“New product development remains a top priority,” Killoy said.Regarding its inventory positioning, finished goods inventories during

the quarter increased 26,000 units, and the inventory of Ruger firearms at the independent wholesale distributors increased 50,000 units. The inven-tory growth was principally in seasonal products that will be in greater de-mand during the latter half of the year and is typical of inventory strategy at this time of the year.

“During the third quarter, we also hope to build inventory of products that we believe will be in strong demand after the November elections,” Killoy said. “We are working hard to increase manufacturing capacity for these products, but successfully building that inventory may be challeng-ing as current demand apparently continues to exceed our capacity, even as we work to increase it.”

Ruger is also taking a number of steps that may boost sales in the sec-ond half. Last Tuesday, it announced the Ruger Take Action campaign, which includes a $5 million “challenge grant” to benefit the NRA’s Institute for Legislative Action (NRA-ILA).

“We hope this call to action inspires our customers and all freedom-lov-ing Americans to take action in support of the Second Amendment, espe-cially in the months leading up to the November election,” said Fifer.

The campaign will also encourage customers to contact their senators, representatives and other influential politicians to support the NRA by purchasing a Ruger firearm. Ruger will donate $2 to the NRA-ILA for every gun sold through the November elections. Ruger will match con-tributions to the NRA-ILA dollar for dollar, up to $5 million in the aggre-gate, between now and the November elections. Ruger is also encouraging “customers and all Americans to have their voice heard and to vote in the November elections.”

“I have no doubt about it, the makeup of the Supreme Court is on the ballot this November, and therefore, the Second Amendment is also firm-ly on the ballot,” added Fifer. “We think the NRA, through its Institute for Legislative Action, is best positioned to support the key races in the upcom-ing elections that will affect our firearm rights for decades to come.”

Photo courtesy Sturm Ruger & Company

STURM, RUGER & CO. SURPRISES WITH SUCCESSION PLAN


CROCS’ SHARES CRASH ON REDUCED OUTLOOKShares of Crocs Inc. (Nasdaq:CROX) plummeted more than 23 percent to $8.44 on August 3, after the cushy shoe maker missed top and bottom line expectations for the second quarter and lowered its guidance for the year.

Net income attributable to common stockholders on a GAAP basis increased 21.1 percent, to $11.7 million or 13 cents per share, but missed Wall Street’s consensus target of 15 cents a share. Revenue decreased 6.3 percent to $323.8 million.

Revenues missed the Street’s target of $348.5 million, and also missed Crocs’ inter-nal guidance that had called for sales to land in the range of $340 million to $350 million. On a currency-neutral basis and excluding the sale of its South Africa business, revenue was down 5.4 percent.

“While revenue fell short of our expectations, we believe the shortfall relative to our guidance was primarily tied to industry softness in the quarter and our continued distributor chal-lenges in China rather than the overall health of our brand or specific product performance,” Crocs CEO Gregg Ribatt said on a conference call with analysts. In addition, Ribatt pointed to a number of positive signs of Crocs’ progress, including marking its fifth consecutive quarter of positive direct-to-consumer (DTC) comp performance. Gross margin showed significant sequential improvement in the quarter, expens-es were managed effectively, inventories were reduced and deals have been executed with the majority of its challenged China distributors.

Ribatt added, “As indicated on our last earn-ings call, we continue to have strong delivery performance and feedback on our new product remains very positive.” Relative to expectations, wholesale was negatively impacted by lower at-once orders, particularly in the Americas, given retailers’ caution around open-to-buy dollars. In addition, China under-performed versus expectation, with the resolution of its chal-lenged distributors taking longer than planned.

Ribatt noted that while agreements have been reached with most of its distributors, “we still

have more work to do to re-establish growth in our China wholesale business. That said, despite these challenges in the wholesale side of the business, our DTC business in China continues to be very strong.”

Gross margins were up 600 basis points sequentially from Q1 and came in approxi-mately 150 basis points better than expecta-tions due to less discounting as well as a higher mix of DTC revenue. Adjusted SG&A spend-ing came in below expectations, reflecting an $8.7 million reduction to the prior year. As a result of improved operations, inventories were reduced 7 percent to last year despite the revenue shortfall.

DTC comps were up 2.9 percent despite the continued decline in retail traffic. Retail comps decreased 3.4 percent, due primarily to declines in Asia and the Americas, as increased conver-sion and units per transaction were not enough to offset the decline in retail traffic during the quarter. E-commerce grew 19.5 percent, reflect-ing growth in all regions.

Global wholesale revenue was down 12.4 percent for the quarter versus last year. The majority of the decline in the second quar-ter was primarily due to shortfalls in its China business, resulting from changes being imple-mented with distributors in that market. For the first half, global wholesale was down 3.1 percent versus last year.

“Despite disappointing topline results in Q2, I believe our results show that we’re making significant strategic progress, including man-aging our business tightly, and we’re committed to maintaining this operating discipline going forward,” said Ribatt.

On the positive side, Ribatt noted that the better-than-expected improvement in gross margins stems from a shift to its higher margin molded product and a more disciplined approach to discounting and promotional activ-ity. With a tighter product line, a more molded product mix, less discounts and better inven-tory discipline, year-over-year gross margin improvements going forward are expected.

Also, continued SG&A improvement is ex-pected in the second half due to expense-con-trol efforts, including leveraging more efficient and effective operating capabilities while man-aging costs.

Finally, Ribatt said Crocs “will continue to manage inventory closely, balancing it with demand while delivering service at industry benchmark levels or better. Fewer SKUs, lever-aging a common global platform along with tighter processes and procedures are providing improved operational performance.”

Looking to 2017, retailer feedback on its current and spring 2017 line “is very strong,” Ribatt said.

He added that continued growth in its glob-al DTC business based on new product, strong marketing and continued operational improve-ments should continue to pay benefits. He nonetheless said that given the overall retail environment, it’s “prudent to be more conserva-tive” with company guidance.

“Our product, our marketing and our ser-vice levels are better than they have been in our recent history,” said Ribatt. “I’m proud of the work our team has done over the past 18 months to 24 months, which is showing up in our gross margins, our SG&A, our working capital and our service levels. We remain com-mitted to the pillars of the strategy that we have laid out previously. And while we’ve made sub-stantial progress in each of these areas, the work continues. And despite recent challenges, we continue to see many positive signs, which gives us confidence in the direction we’re heading and seeing the results reflected in our operating performance.”

In recognition of the soft macroeconomic conditions and the cautious retail environment, Crocs said it expects third quarter 2016 revenue in the $245.0 million to $255.0 million range, down from $274.1 million in the third quarter 2015. For the full year, the company expects rev-enue to be down low single digits, reflecting the more cautious retail environment and the slow-er turnaround in China. Previously, it expected mid-single-digit growth.

Photo courtesy Crocs


FITBIT Q2 SALES VAULT ON NEW PRODUCTS

Despite falling profits due to continued investments in research and mar-keting, Fitbit Inc. (NYSE:FIT) continued to defy critics by reporting sales that continued to surge in the second quarter.

The gains were driven by the successful introduction of its two new products, Blaze and Alta, and related accessories, which accounted for 54 percent of revenue in the quarter. Both Blaze, a smartwatch, and Alta, a wristband, were released in March. About two-thirds of the to-tal activations of Alta and Blaze were by new customers, while the rest were by those who own or previously owned another Fitbit device, the company said.

Net revenues jumped 46.5 percent to $586.5 million, reaching the high end of guidance. Analysts on average were expecting revenue to hit $578.5 million.

“U.S. unit and dollar growth accelerated over Q1 despite an unusually strong Q2 of last year that benefited the full availability of charge HR, and we demonstrated continued growth into an expanding long-term inter-national market opportunity,” said James Park, chairman and CEO, on a conference call with analysts.

“In addition, given consumer response to Fitbit Blaze and Alta so far this year, the early positive response from retailers seeing the new prod-ucts we have for the fall is increasing brand strength and distribution foot-print, the network effects from our large active user community and the continuing R&D investments we are making to integrate more deeply into the healthcare ecosystem, which will make our devices an essential part of people’s lives. I’m confident in the company’s future for the rest of this year and beyond,” said Park. “In fact, I’m so confident that I will not sell any stock until the end of the year.”

Fitbit sold 5.7 million devices in the quarter, up 27 percent year over year, its second-highest quarter behind last year’s holiday season.

In North America, U.S. devices sold were up 20 percent, while revenue was up 42 percent and showed sequential acceleration from Q1 2016. Said Park, “We continue to be comfortable with our store count in the U.S. and

Canada, and are predominantly focused on driving more volume to these outlets with our retail partners.”

Park said the company is rolling out new modular display materials inside stores, accompanied by shelf space expansion in most of its North American retail outlets. A small amount of expansion is anticipated in certain retailers in the fall for additional accessories.

“We experienced a solid Mother’s Day and Father’s Day,” added Park of Fitbit’s North America performance. “We saw no meaningful impact from the U.S. sporting goods retailer bankruptcies, primarily because these were not our highest volume outlets.”

In EMEA, devices sold were up 100 percent year over year, reflecting continued progress in several key European markets. Like North America, the EMEA region is focused on driving more through the doors it already has in Europe today with leading retail partners. EMEA benefited from investments in more localized marketing, PR and advertising. Blaze and Alta helped drive the gains.

In China, online sales make up a higher percentage of the total than they do in the U.S. “which gives us some additional optimism about the future of this relationship,” said Park.

On a reported basis, net earnings slumped 64.4 percent to $6.3 million, or 3 cents a share.

On an adjusted basis, non-GAAP earnings were down 42.5 percent to $29.5 million, or 12 cents a share. Analysts were expecting 11 cents a share. EBITDA declined 44 percent to $48.3 million.

The earnings decline reflected a hike in operating expenses to $235.3 million from $107.1 million, as spending on research and develop-ment reached a new high and investments in marketing soared.

Gross profit margin narrowed to 41.8 percent from 46.8 percent a year earlier, due to an increase in warranty charges around its legacy products — around $50 million, plus an additional $10 million for customer service. It also accounted for more than $9 million in legal expenses for its ongoing feud with Jawbone. Gross margins, however,

Photo courtesy Fitbit

(Con’t Pg. 13)


are expected to bounce back to the 48 to 49 percent level of last year for the rest of this year, due to new products like the $200 Blaze.

Park promised that several new products will be launched in the back half of the year to build on the success of Alta and Blaze. He stated, “The positive response we have received from retailers who have had the chance to preview these new products under NDA in recent weeks strengthens our confidence in our guidance for the year. Fitbit will have more new products for consumers to choose from for this year’s holiday season than we’ve ever had before.”

The company reiterated its guidance for the year. For the current quarter, Fitbit projected adjusted earnings of 17 cents to 19 cents a share on $490 million to $510 million in sales, compared with analysts’ estimate of 17 cents a share in earnings on $498.5 million in sales.

Skeptics have expected to see a slowdown at Fitbit, given the challenges at GoPro and a host of competitors coming into the wearables space, including Apple, Chinese electronics company Xiaomi, Garmin and Samsung.

Park spent time addressing the slowdown concerns. He said that with IDC predicting a 20 percent compounded annual growth rate to more than 200 million wearable devices shipping in 2020, “an opportunity of this size will naturally attract a great deal of competition.”

But he called it a “misconception” that the increasing number of com-petitors would create headwinds for Fitbit. He added, “It’s not the number of competitors that is important, but their impact on the market. The real-ity is that most of these entrants have not altered the competitive dynamics of our industry.”

He listed many advantages that Fitbit has over competitors, including its nine-year history providing a “deep understanding of what consumers want in a health and fitness device.”

He said Fitbit over that time has become “the brand of choice” in the space, a claim supported by the popularity of apps. For social reasons, Park also said people are “more likely to buy a Fitbit over a competitor because their friends and family are more likely to be already participating in the Fitbit social experience, and we believe people are less likely to leave to a competitor due to similar dynamics.”

He also pointed to the merchandising support and “good margins” it offers to retailers, as well as its commitment to spending on R&D.

But he also agreed with IDC that the overall wearable market has mas-sive potential for growth.

“We believe that smartphone penetration provides a reasonable point of comparison for addressable opportunities in different markets, as we believe a significant portion of smartphone users can become Fitbit users over time,” Park said.

He noted that this year, there are expected to be more than 2 billion smartphones in use around the world. Through the end of the second quarter 2016, Fitbit has shipped a lifetime total of 35.6 million Fitbits in the U.S., which represent only 15 percent of the approximately 230 million smartphones in the region. In its five primary European countries — UK, Germany, France, Italy and Spain — it has sold roughly 5 million Fitbits against a total potential market of approximately 200 million smartphones today. Finally, in its five primary Asia-Pacific countries — Australia, India, China, Japan, and Korea — roughly 4 million Fitbits have been sold to date against a total potential market opportunity of 1.1 billion smartphones.

Said Park, “At the pace at which we can develop these markets, we expect to have tremendous long-term opportunity and will continue to evolve and expand our products and experiences to engage consumers with their health.”

AISLE TALK

Academy Sports + Outdoors named Michelle J. Gloeckler EVP, CMO and President of Academy International Limited, its global sourcing entity.

Addaday, the massage tool brand, added runner Deena Kastor to its elite team.

Alchemy Equipment joined forces with Partners Growth in Toronto, Ontario for distribution and representation in the U.S. and Canada.

Basis, a health tracker brand owned by Intel Company, issued a safety recall of all its Basis Peak watches, recommending consumers stop wearing the devices as they can overheat and burn or blister the skin surface.

Brooks Running Company promoted Patrick Pons de Vier to SVP of Global Footwear and hired Gerald Kuhtz as Senior Design Director of Global Footwear.

Calvin Klein, Inc. named Raf Simons as Chief Creative Officer of the brand.

Fitmark, maker of sport, fitness and meal prep bags, closed another seven-figure round of funding, bringing the total raised close to $3 million.

Fleet Feet Sports will soon release Runmoji, the first emoji application designed for runners, by runners.

Groupon expanded its fitness-related deals business to include a new private-label women’s activewear clothing line, Form+Focus.

The International Olympic Committee added five new sports to the Tokyo 2020 Olympics program, including baseball/softball, karate, skateboarding, sports climbing and surfing.

K-Swiss Global Brands plans to relocate its global headquarters to the historic Pac Mutual Building in Downtown Los Angeles by January 1, 2017.

Kammok, an Austin, TX-based outdoor hammock and sleeping bag brand, promoted its COO Haley Robison to CEO.

Keen Inc. hired John Eberle to serve as GM of its outdoor, lifestyle and kids divisions. Eberle spent 13 years at Nike in various roles.

The Lenzing Group said it will invest more than €100 million over the next 20 months to expand production capacities for its wood-based specialty fibers, which are used by many outdoor and athletic apparel brands.

Lew’s, the fishing company, hired industry veteran Terry Pederson to serve as VP of Sales for the western U.S., beginning September 12.

Nike Inc. will exit the business of manufacturing golf clubs, balls and bags in favor of concentrating on golf footwear and apparel.

Nike Inc. said it acquired Virgin Mega, a 12-person startup that is part of Richard Branson’s Virgin Group.

Trijicon, Inc., an aiming solutions provider, acquired IR Defense Corporation, a manufacturer of thermal viewing and aiming systems.

Wolverine Worldwide appointed Mike Jeppesen, President of Wolverine Worldwide’s Global Operations Group, to an expanded role as President of the Wolverine Heritage Group, which includes the Wolverine, Bates, Harley-Davidson and HyTest brands.


Hanesbrands Inc. (NYSE:HBI) reported second-quarter earnings with prof-its declining in both its innerwear and activewear segments.

Although earnings just missed Wall Street’s quarterly profit targets, officials assured investors that its guidance for the full year remained in line with plans.

“Year to date, our results are right where we expected them to be in terms of sales, operating profit, earnings per share and cash flow from operations,” said Gerald Evans, Hanesbrands’ COO and CEO-elect, on a conference call with analysts.

The company reiterated its guidance for the full year, which at the midpoint calls for 8 percent growth in revenue, 11-percent growth in operating profit, 16 percent growth in EPS and $800 million in cash flow from operations.

Operating earnings on an adjusted basis in the quarter slid 7.3 percent to $245.6 million while adjusted earnings crept up from 50 to 51 cents a share. Wall Street’s consensus estimate had been 52 cents. All adjusted consolidat-ed measures and comparisons exclude approximately $72 million of pre-tax charges in the second quarter of 2016 and $126 million of pre-tax charges in the second quarter of 2015 related to acquisitions and other actions.

Overall, Hanesbrands reported profit of $221 million, or 34 cents a share, in the latest period compared with $94.9 million, or 23 cents, a year earlier.

Net sales in the second quarter slid 3.2 percent to $1.47 billion, in line with expectations.

Sales were expected to decline due to tough comparisons in basics due to the year-ago launch of Hanes X-Temp that drove mid-single-digit growth in basics a year ago. Champion also faced tough comparisons, officials said, as a shift in new program shipments in the second quarter last year from the first quarter led to a 42 percent growth in the year-ago period.

By segment, activewear sales were down 3.6 percent to $367.4 million. The sales decline was driven by its Hanes activewear business, as its

HANESBRANDS’ Q2 IMPACTED BY ACTIVEWEAR AND INNERWEAR WEAKNESS

U.S. Champion business was flat compared to last year. Looking at Champion by channel, mid-single-digit revenue growth was seen in mass and mid-teens growth in the college bookstore channel. Rick Moss, Hanesbrands’ CFO, said this was offset by declines in the sport-ing goods mid-tier and department store channels, which were impact-ed by bankruptcies and the tough year-ago comparisons.

Activewear’s operating profits were off 7 percent to $55.8 million. Operating margins held above 15 percent as SG&A controls helped to partially offset the volume decline. The segment also includes Gear for Sports and Knights Apparel.

In the innerwear segment, sales slumped 4.7 percent to $749.2 million. Operating earnings were down 10.2 percent to $181.4 million. The segment includes Hanes intimate apparel business as well as Playtex, DIM, Bali, Maidenform, Bonds, JMS/Just My Size, L’eggs and Wonderbra.

In its international segment, sales were up 1.9 percent to $269.7 million, driven by strength in Europe and Asia. Operating profits advanced 13.6 percent to $269.7 million, while operating margins expanded 90 basis points. International is expected to continue to be strong in the second half due to Hanes Europe synergies and momentum in Asia, as well as the addition of Champion Europe and Pacific Brands.

On a GAAP or reported basis, Hanesbrands said it now expects EPS to be in the range of $1.44 to $1.54 in the current year, compared with the previous range of $1.51 to $1.57. GAAP operating profit is expect-ed to be in the range of $760 million to $795 million, compared with previous guidance of $780 million to $815 million. At the midpoint of guidance, the company expects growth of 41 percent and 31 percent for EPS and operating profit, respectively.


BIG 5 FIGHTS OFF LIQUIDATION PRESSURES IN Q2Big 5 Sporting Goods (Nasdaq:BGFV) reported earnings fell 19.2 percent in the second quarter due to the impact of liquidation sales by Sports Authority and Sport Chalet, but they still came in ahead of internal expectations.

Earnings fell to $2.1 million, or 10 cents a share, ahead of guidance given when it reported first-quarter results calling for earnings in the range of break-even to 6 cents a share.

“We are pleased to exceed our earnings guid-ance for the second quarter, despite a highly competitive and promotional environment in our markets,” said Steven Miller, chairman, president and CEO, on a conference call with analysts. “While sales were pressured by the liquidation efforts of Sports Authority and Sport Chalet, our team successfully held mer-chandise margins flat with the prior-year period and maintained a healthy balance sheet.”

He noted the chain ended the quarter with per-store inventories down 9.1 percent and bor-rowings under its credit facility down 19 percent from the prior year.

“This prudent management of our business has been a hallmark of our model throughout our 60-year history and has positioned us to take advantage of the competitive rationaliza-tion that is occurring in our sector and we are already beginning to see the benefits in the start of our third quarter,” said Miller.

Partly as a sign of “our confidence in the strength of our business model,” Big 5’s board announced a new $25 million share repurchase program.

Same-store sales on a comparative week basis in the quarter decreased 1.7 percent. The west-coast chain had previously forecast that same-store sales would be in the negative low-single-digit to flat range. The chain saw a low-single-digit decrease in customer transac-tions and average sales.

By month, same-store sales were down in the low- to mid-single-digit range in April, down

low single digits in May and up slightly in June. Added Miller, “While sales throughout the period were pressured by Sports Authority’s and Sport Chalet’s going out of business sales, we believe we reached an inflection point toward the end of June when the benefit from competi-tor stores that had already closed began to offset the impact from competitors that we’re still in the process of liquidating.”

From a product category standpoint, all of its major merchandise categories were affected by the liquidation sales. Apparel and hardgoods were each down low single digits and footwear was up slightly for the period.

Net sales inched up 0.4 percent to $241.4 million. As forewarned, net sales gains were favorably impacted by the calendar shift from a 53-week fiscal year in 2015, which caused fiscal 2016 to begin one week later than fiscal 2015 and resulted in pre-Fourth of July holiday sales moving from the third quarter in fiscal 2015 to the second quarter in fiscal 2016, as well as by the calendar shift of the Easter holiday, during which the company’s stores are closed, from the second quarter in fiscal 2015 to the first quarter in fiscal 2016. These calendar shifts boosted sales in the latest quarter by $6.8 million.

Gross margins eroded to 31.6 percent of sales from 32.1 percent in the same period a year ago, reflecting an increase in distribution and store occupancy costs as a percentage of sales. Mer-chandise margins were even with the year-ago second quarter.

SG&A expense as a percentage of sales was reduced to 29.9 percent in the latest quarter versus 30.2 percent a year ago. Overall SG&A expense for the quarter decreased $0.4 million from the prior year, primarily due to its proxy contest costs in 2015, partially offset by higher employee labor and benefit-related expense. So far in the third quarter, Big 5’s comps quarter to date are up in the high mid-single-digit range, benefiting from store closures.

“We believe that these closures are leading more customers to recognize Big 5 Sporting Goods for the right mix of convenience, value and strong product assortments,” said Miller.

Miller noted that with the liquidation sales concluded last week, roughly 210 Sports Authority and Sport Chalet store locations have closed within the general trading area of a Big 5 store. The 210 competitor stores impacted approximately 250 of its Big 5 stores, or nearly 60 percent of the chain.

“Although we are well aware that some of these competitive locations ultimately will be replaced by other competitors, the playing field should be much more rational moving forward than it has been for a number of years,” said Miller.

Miller said Big 5 is “working hard” to position its merchandise mix and promotional efforts to capitalize on the disruption in the marketplace.

“Among our initiatives, we are leveraging our deep experience with opportunistic buys to take advantage of the surplus product that is becom-ing available in our sector,” said Miller. “We are also pursuing new product lines and expanded assortments where we see opportunity, while actively cultivating new vendor relationships. Additionally, we are implementing marketing plans designed to reach customers who may have been displaced by the competitive closures. We are tremendously excited about the possibil-ities for our business as we look ahead.”

Big 5 currently expects to open five to eight stores this year and close approximately ten. Miller did note that the ongoing consolidation “could create additional opportunities for us.”

For the third quarter, Big 5 expects same-store sales to be in the positive mid- to high-sin-gle-digit range and earnings to be in the range of 23 to 30 cents per share. In the year-ago period, it earned 28 cents a share. The EPS guidance reflects a charge of approximately 4 cents per share related to store closings.

In concluding his comments, Miller took the unusual step of defending Big 5’s successful track record over its more than 60 years in busi-ness and its proven ability to evolve its business model when facing past challenging periods for the sporting goods sector.

“Two of our major competitors have gone out of business this year, and we remain financially sound and stand to benefit from this rationaliza-tion,” said Miller. “As we pursue the opportuni-ties presented to us as a result of the competitor closings, we remain, as we always have, focused on continuous improvement across our busi-ness. I thank the Big 5 team for their hard work and dedication.”

Photo courtesy Big 5 Sporting Goods


Black Diamond Inc.’s (NYSE:BDE) decision to repatriate manufacturing of carabiners, cams and other climbing hardgoods from China to Salt Lake City is costing it dearly.

The company said August 1 that gross margin in the second quar-ter ended June 30 plummeted 640 basis points to 28.6 percent, reflect-ing a 240-basis-point impact from higher manufacturing costs and a 250-basis-point impact from currency translation. On a currency- neutral basis, gross margin was 31.1 percent. After also excluding higher costs incurred repatriating manufacturing activities, gross margin was ap-proximately 33.5 percent. Also dragging down margin was an unfavorable mix in lower-margin products.

“Despite record factory output levels in May and June, the manufactur-ing activities that we repatriated from China back to Salt Lake City con-tinued to operate at higher costs, further impacting gross margin,” said Mark Ritchie, Black Diamond Equipment’s brand president. “We’re active-ly engaged in activities designed to improve, manage and measure factory efficiencies, and expect to achieve higher gross margin, lower overhead and reduced response time to our customers in 2017.”

The performance was actually better than the first quarter, when prod-uct recalls and supply chain problems shaved 270 basis points off Black Diamond’s gross margin. Still, the company lowered its full-year forecast for gross margin to around 30 percent. That compared with 34.9 percent in 2015 and the 32.5 to 33.5 percent Black Diamond had forecast previously.

“If we had the sorts of availability that we had forecasted to build, we would be in a really good position,” said Ritchie, noting that he detects no weakness in specialty outdoor retail. “Our larger key dealers continue to drive strong sell-through of our products. And despite the noise in the over-all retail landscape today, we generally characterize our North American dealer base as solid. We also have a very diversified mix of retail channels like e-commerce that helps to insulate some of the challenges brick and mortar is currently facing.”

Richie said Black Diamond has caught up on the majority of backorders in North America and less in Europe.

The company also took another step toward addressing its manu-facturing issues by naming Rick Vance as director of quality, effective August 1. Vance, whose background includes stints at an orthopedic lab and the defense industry, will oversee Black Diamond’s quality policy, controls and processes, including controls and practices within Black Dia-mond’s Salt Lake manufacturing operations.

Korea and Japan Orders ReboundBlack Diamond had better topline news. Sales from continuing operations in the second quarter reached $29.1 million. While down 3 percent in reported terms, sales were up slightly in currency-neutral terms. Black Diamond earns 40 percent of its revenue overseas, primarily in the euro, Canadian dollar, Swiss franc, British pound and Norwegian krone, offi-cials said.

Growth was driven by North America, where climbing gyms are cre-ating demand and strength in Black Diamond’s global direct-to-consum-er channel. Sales to independent global distributors were up low double digits, particularly in the important Japanese and Korean markets, where retailers have begun to replenish inventory after a period of industry con-solidation and other market headwinds.

Solution, Momentum, Primrose and Couloir harnesses, the Half Dome helmet, climbing accessories, particularly the Mojo Chalk Bags, Creek climbing packs, bouldering products and rock-climbing sportswear, especially the Credo and Notion pants, drove growth. Ritchie said Black Diamond’s lighting and trekking products gained market share.

“Our spot headlamp was a real winner, benefiting from the momentum generated as a result of a key account early launch,” he said.

Countering the growth were tough conditions in Europe, where foreign exchange rates knocked 900 basis points off Black Diamond’s sales growth in the quarter.

The decline in global sales and gross margin more than offset a $2.5 million, or 18-percent, cut in selling, general and administrative expenses. Black Diamond’s net loss from continuing operations im-proved slightly to $3.2 million, or -10 cents per share, compared with a loss of 3.8 million, or -12 cents in the year-ago quarter. Excluding a laundry list of non-cash charges and non-recurring items, the figure improved to -$2.5 million, or -8 cents. Adjusted EBITDA was -$2.3 million compared to $1.9 million.

Holding Pattern on Possible AcquisitionsBlack Diamond offered no update on its hunt for acquisitions, which is focused on cash-flow-positive U.S. companies within or outside the out-door recreation industry. The company is eager to invest some of its early $100 million in cash into profitable operating companies so it can use tax credits that can be used to offset $166 million in profits.

Black Diamond reaffirmed its fiscal year 2016 sales expectation, which calls for currency-neutral sales to be flat to up 3 percent from 2015.

NEARSOURCING HITS BLACK DIAMOND’S MARGINS AGAIN

Photo courtesy Black Diamond


SUCCESS AT RETAIL DRIVES NAUTILUS’ BIG GAINS IN Q2

Nautilus Inc. (NYSE:NLS) joined its market peers in reporting strong results for the sec-ond quarter, with its sales surging 32 percent to $78.5 million. While much of those gains came from the company’s purchase of smaller rival Octane Fitness earlier in the year, it also saw growth from its existing direct and retail business, Nautilus CEO Bruce Cazenave told investors.

Better yet for the company, officials said Nau-tilus has successfully been managing the recent “disruptions” in the retail space — including changes of ownership and consolidation in the specialty retail sector and liquidations at national chains such as Sport Authority and Sport Chalet — with no major discounting planned for the fall.

In the second quarter, Nautilus’ retail busi-ness (equipment sold to third-party retailers) out-shined its direct-to-consumer channel, with retail sales up 19 percent (organically) and up 89 percent to $32.9 million with the addition of Octane Fitness. The direct business grew 8 percent to $44.9 million with more than 62 percent of its sales online, and one-third of them from mobile devices, officials said.

Inventories inched up less than 1 percent to $43 million, as of June 30, compared to the

end of the first quarter, albeit they were up 50 percent from the year-ago period due to the Octane acquisition.

“The improvement of retail net sales reflects strong double-digit growth across both the car-dio and strength components of the organic retail business, coupled with improved inter-national sales year-over-year and the addition of Octane Fitness sales to the retail segment,” said CFO Sid Nayar. “We feel our retail channel growth is outpacing industry performance, and based on our known orders and account feed-back on plans for the fall, we anticipate contin-ued retail segment growth in the second half of 2016.”

It’s quite the shift for the company, which in recent past years saw much of its growth on the direct-to-consumer side with higher margins. The DTC channel still makes up a majority of Nautilus’ sales, but acquisition of Octane helped it re-ignite the retail side of the business.

Nautilus officials said they would try to leverage the recent retail success to strengthen omni-channel strategies by using some of its di-rect-marketing channels to test a single product — the Max Trainer M3 — that will be available

for in-store purchase only through a single, yet-to-be-disclosed retailer.

“We are still reaching large segments of the consumer market who are interested in our products but will not buy unless they can try it or purchase it from a traditional retailer,” Nauti-lus COO Bill McMahon said. “We have controls in place for this effort, and we feel there is mini-mal risk to our direct business performance but potentially significant upside in terms of reach-ing incremental consumers.”

Gross margins during the second quarter im-proved by 190 basis points to 53.3 percent with help from Octane Fitness, whose product carries larger margins. Second-quarter gross margins increased 490 basis points in the direct segment to 67.1 percent and were up 1,000 basis points in the retail segment to 33.5 percent.

Second-quarter net income, including dis-continued operations, came in at $3.5 million, or 11 cents per diluted share, versus $2.4 million, or 8 cents, during the same period a year ago.

Nautilus ended the first half of 2016 with $73.5 million in cash and investments and $72 million in debt, both improving from $60.8 million in cash and $80 million in debt at the end of last year.

Photo courtesy Octane Fitness/Nautilus Inc.


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