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A little more intrigue in the golf sector came with the first quarter operational results from TaylorMade adidas Golf. It’s German parent company, adidas AG, divulged the golf assets delivered revenues of € 194 million versus € 191 million in the first quarter of 2009. At first glance the numbers appear more than respectable given the global economy along with comparison of Callaway Golf (-26%) and the Acushnet Company (-12.5%) as detailed in last week’s Web Street Golf Report. However, upon further investigation the 2009 results were aided by the first time inclusion of the acquisition of Ashworth (November 20, 2008), which was not a part of the 2008 numbers. The apparel business contributed €15 million in the reporting period, adidas stated. Therefore the apple-to-apple comparison between ’08 and ’09 quarters for TMaG reflects its core sales were €179 million or €12 million (-6.3%) below a year ago.
A quick look back at Ashworth’s numbers from a year ago when it was a stand alone transparent public reporting company, provides some context over its initial contributions to its new parent company. Consolidated net revenue for the quarter ended April 30, 2008 decreased 3.4% to $57.8 million as compared to $59.9 million for the second quarter of 2007. The Company reported net income of $0.9 million during that time. Looking at current exchange rates (EUR/USD approximately 1.3365) implies sales were in the area of $20 million, a huge drop off from a year ago, despite an absolute time comparison.
But the area most glaring resides at the bottom line. For its first quarter, TMaG lost €21 million compared to a year ago when it delivered a profit of €23 million. With or without the help of the inclusion of Ashworth sales, TMaG delivered respectable top line sales compared to its direct competition of Callaway and Acushnet. However, both of those companies managed a profit, be it lower than a year ago. TMaG has dug a large hole for itself starting out the year with respect to generating a profit from its business. The market conditions don’t appear to be letting up, at least anytime soon. So it remains to be seen whether the business is able to salvage the year or not.
A couple of other operational highlights for TMaG, European (€ 30 million vs. €32 million) and Asian (€ 61 million vs. €65 million) sales were off 6% in the quarter, however North America was up by 10% (€102 million vs. € 92 million).
TMaG gross profit margin decreased by 6.8 percentage points in the quarter to 39.8% compared to 46.6% in 2008. The decrease, according to adidas, was mainly a result of “price repositioning” due to the promotional environment in all regions, as well as the first time consolidation of the Ashworth business, which it said carries lower gross margins. Net operating expenses as a percentage of sales increased 15.6 percentage points to 47% in the 2009 first quarter from 31.4% in 2008. This was mainly due, according to the parent company; to integration costs (€ 5 million) related to the Ashworth acquisition and head count reductions at the apparel business. Higher marketing expenses to support new product launches also contributed, adidas said. In absolute terms, net operating expenses increased 52% to € 91 million in 2009 vs. €60 million in the 2008 first quarter.