Weaker bottom-line results for sporting goods manufacturers

NORTH PALM BEACH, Fla. – Despite a healthy rate of sales growth, and effective cost control and asset management, a reduction in gross margin attributable to pricing pressure resulted in weaker bottom line results for U.S. sporting goods manufacturers in 2003 compared to 2002, according to a recent report by the Sporting Goods Manufacturers’ Association.

Industry profitability declined slightly from 2002, and return on sales (5.2 percent), return on assets (8 percent), and return on equity (13.1 percent) all declined in 2003. This was primarily caused by a decline in gross margin from 38.6 percent in 2002 to 35.5 percent in 2003, according to the report.

SGMA International’s 21st Annual Study of Financial Performance (2004 Edition) was based on actual results reported by 61 manufacturers (publicly and privately held) in the athletic footwear, sports apparel and sport equipment segments, having combined sales of $31.1 billion in wholesale value in 2003, the association said.

The 55-page report is comprised of narrative analysis of survey results, stock price, net income and earnings per share (EPS) data for 34 publicly owned sporting goods manufacturers, as well as statistical tables for 31 financial measures from the survey shown in total and grouped by company size, major product sector and type of ownership, SGMA said.

Other key findings

– Sporting goods manufacturers’ sales growth (+6.8 percent) was strong and on par with that of 2002, but lagged behind the sales growth rate of all non-durable goods manufacturers in 2003.

– Productivity growth (sales/employee) improved in 2003 (+3.7 percent) indicating good utilization of human resources.

– Manufacturers controlled assets well as the fixed assets by total assets ratio and liquid asset turnover ratio both improved.

– There is a fairly high degree of leverage of assets which is a concern given the current healthy sales rate and the prospect of interest rate increase.

– Advertising spending increased in 2003, while R&D spending turned down.

“The industry proved resilient considering the consolidation and pricing pressures which manufacturers have been experiencing,” Sebastian DiCasoli, SGMA’s director of market intelligence, said. “There are signs that the pressure on prices are easing somewhat and, hopefully, an interest rate increase is not imminent.”

The SGMA report is available, for a fee, as a PDF download at http://www.sgma.com/reports/2004/report1084285378-3165.html.

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