UNDERLYING SALES UP IN ALL REGIONS EXCEPT NORTHAMERICA
Salomon sales in the third quarter of 2003 decreased 14% (—7% currency-neutral) from '¬ 230 million in 2002 to '¬ 199 million due to lower sales in winter sports categories. Year-to-date revenues declined 8% (—2% currencyneutral) from '¬ 424 million in 2002 to '¬ 390 million in 2003. All regions recorded positive currency-neutral developments except North America. From a category perspective, increases in cycling components and soft goods were offset by lower sales in winter sports and inline skates.
CURRENCY EFFECTS HAMPER GROSS PROFIT DEVELOPMENT ///Salomon gross profit decreased 18% from '¬ 109 million in the third quarter of 2002 to '¬ 89 million in 2003. As a result, gross margin declined 2.5 percentage points to 44.8% in the third quarter of 2003 (2002: 47.3%). In the first nine months, Salomon gross margin lost 0.8 percentage points from 41.5% in 2002 to 40.7% in 2003. This development was mainly driven by negative currency effects associated with sourcing products in Europe. This margin decline, coupled with lower sales, pushed gross profit for the first nine months at Salomon down 10% from '¬ 176 million in 2002 to '¬ 159 million in 2003.
OPERATING PROFIT IMPROVES BY 15% /// As a result of the weak gross profit development in the third quarter, the Salomon operating profit declined 30% from '¬ 52 million in 2002 to '¬ 36 million in 2003. For the first nine months, however, operating profit improved 15% from negative '¬ 4 million in 2002 to negative '¬ 3 million in 2003. Strict cost control drove this development. Operating expenses as a percentage of net sales decreased 0.9 percentage points from 42.4% for the first nine months of 2002 to 41.5% in 2003. Salomon operating margin slightly improved by 0.1 percentage points from negative 0.9% in 2002 to negative 0.8% in 2003. The negative operating profit in the first three quarters of the year, where expenses as a percentage of net sales are disproportionately high, reflects the seasonality of Salomon’s business.
Q4 SALES TO BE IMPACTED BY CURRENCY AND DIFFICULTMARKET CONDITIONS /// Because of the strong seasonality of Salomon’s business and the often short-term nature of orders within the winter sports industry, we do not provide backlog information for the Salomon family of brands. However, year-to-date performance supports our outlook of stable to slightly negative currency-neutral sales development for the full year. Fourth quarter sales development in comparison to the prior year is expected to be impacted by negative currency effects and continued difficult market conditions in the winter sports sector.
Salomon /// SALES FOR THE FIRST NINE MONTHS DECREASED8% FROM '¬ 424 MILLION IN 2002 TO '¬ 390 MILLIONIN 2003. ON A CURRENCY-NEUTRAL BASIS, SALES WERE DOWN2%. GROSS MARGIN DECLINED 0.8 PERCENTAGE POINTS TO40.7% IN 2003 (2002: 41.5%), DUE TO NEGATIVE CURRENCYEFFECTS ASSOCIATED WITH PRODUCT SOURCING IN EUROPE.OPERATING EXPENSES WERE REDUCED SIGNIFICANTLY. AS ARESULT, SALOMON OPERATING PROFIT ROSE BY 15% FROMNEGATIVE '¬ 4 MILLION IN THE FIRST NINE MONTHS OF 2002TO NEGATIVE '¬ 3 MILLION IN 2003. FOURTH QUARTER SALESDEVELOPMENT IN COMPARISON TO THE PRIOR YEAR IS EXPECTEDTO BE IMPACTED BY NEGATIVE CURRENCY EFFECTSAND CONTINUED DIFFICULT MARKET CONDITIONS IN THEWINTER SPORTS SECTOR.