First Team Sports Q2
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First Team Sports Q2
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(FOOL CONFERENCE CALL SYNOPSIS)* By Dale Wettlaufer (MF Raleigh)
First Team Sports <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FTSP)") else Response.Write("(NASDAQ: FTSP)") end if %> UNION CITY, Ca., August 30, 1996/FOOLWIRE/ --- First Team Sports held a conference call on August 28th to follow up on their earlier release that indicated they would significantly miss analyst projections for Q2.
Their quarter will end August 31,1996 and their net sales for the quarter are expected to be in the range of $15-16 million and earnings are expected to be between $0.03 and $0.07 per share which will be significantly below analyst expectations. In the prior year period, First Team posted net sales of $23.2 million and earnings of $0.32 per share.
They wanted to elaborate on the current situation, both from an industry standpoint as they see it and specifically First Team Sports' position within the industry.
The Q2 results are not a specific reflection on First Team's product acceptance or its business performance. They feel it is an industry-wide aberration, especially in the US where adverse Spring weather conditions and weak sporting goods sales at retail have combined to stall consumer purchases of in-line products, leaving excess inventory at retail. They feel this excess inventory situation in the marketplace may continue until the Christmas selling period and could affect their Q3 results.
At First Team Sports, they have taken aggressive steps to reduce their excess inventory in Q2 and have received additional Fall booking orders to further reduce this excess. These steps have been responsible in part for lower gross margins. In addition, they have implemented plans to further save on their controllable costs from an SG&A standpoint to insure a continued highly profitable fiscal year.
On a very bright note, they have had strong sell-through of their Ultrawheels brand products throughout the Spring and, to a lesser extent, in the Summer months. However, with retail shelves still full, they have not been able to capitalize fully on their success with reorders due to the limited open-to-buy situation with retailers. Their sell-through has been good, but retailers still have a lot of competitors' product in stock to sell and other sports equipment categories are also over-stocked due to the impact of Spring weather, so the stores are not restocking merchandise until they get their overall inventories down. They are, however, pleased that their Ultrawheels brand continues to grow in importance and stature in the marketplace and is a higher percentage of their overall mix of brands.
One other bright note is their international sales which have grown extremely well over the past couple of years and continues to explode. It is currently 30-32% of their business and overall the international business has always been somewhat of a lower margin business for them and affects their overall picture.
Geographically here in the US, they have done a good job of introducing new products in the specialty accounts. They have not capitalized in all of the major sporting goods retailers such as Sports Authority, SportMart, Oshman's, Big 5, and Sports & Rec. They have not been overly effective there in the past couple of years, although they have opened up Oshman's. For Spring they have increased SKUs at SportMart. They had a real disappointing year at Sports Authority but have had very good meetings with them for Spring merchandise and expect to increase their SKUs there.
They expect New York to be big. They have spokesperson Wayne Gretzky moving to New York for the Rangers and have some plans to capitalize on that relationship. Big 5 on the West Coast has been one of their strong partners and they continue to look forward to doing more business with them. The retailers are really in the driver's seat now with regard to pricing. It is a very competitive field to try to offer a better deal for Christmas for promotional purposes and that is where a lot of this merchandise is going. They are looking forward to clearing their inventory out from an industry standpoint and getting started again in Spring.
As far as the mass merchants, that has been somewhat disappointing also and they believe this is part of the maturing of the business. The overall awareness of the consumer is demanding higher specifications and better quality skates and business at the mass merchants (like Wal-Mart, K-Mart, Target, etc.) is down as much as 30% from Q2 mainly because they think there is a level of awareness that consumers are stepping up. They are placing some business with the larger mass merchants with higher-end, better specification merchandise, so they think that will come back also.
Looking toward the future, with the sport of in-line skating maturing here in the US, consumer demand of high quality products with unique styles and features is increasing and they are experiencing competitive pressures at the high end with traditional competition such as Rollerblade and new players such as K2. But they feel they have made extremely significant in-roads into this area with their strong emphasis on R&D and product development. Their new line introduced this Summer has been received exceptionally well, especially their new aggressive line of products under the Sabotage name due to be released in Q3, their line of soft boot skates due for Spring of 1997, and new versions of their successful In-Tech and DBS-related recreational skates. They feel they are and have been positioning themselves to be a leader and a premium player in a competitive field for 1997.
Although they are in the midst of an aberration in sales growth for both the industry and First Team Sports, they remain very bullish on the growth and future of the many sports of in-line skating and, by no means, have seen any backing away from SKUs, promotions, or expectations of growth from either retailers, other manufacturers, or especially there within the company.
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Copyright 1996, The Motley Fool |