FILA Holdings
The author is an analyst for NH Investment & Securities. She can be reached at jiyoony@nhqv.com -- Ed.
FILA Holdings delivered an earnings surprise for 1Q23 thanks to sound results for Acushnet. But, given reduced 2023 guidance, the timing of FILA rebranding and an earnings turnaround now look to unfold later than previously expected. Viewing inventory depletion as being the priority, we believe that more time is needed for an earnings recovery to appear.
Company trims down 2023 annual guidance
Downgrading our investment rating from Buy to Hold, we lower our TP on FILA Holdings to W37,000 (from W42,000), reflecting a 10% cut in our 2023 consolidated OP estimate made in light of trimmed down FILA US and Korea (excluding DSF) 2023 OP guidance. Both Acushnet’s stable earnings and management's firm commitment to shareholder return limit share price downside. But, given the unclear earnings visibility of the FILA Holdings’ main business for this year, the trigger pressure for a short-term share price rebound looks restricted.
1Q23 review: Acushnet OP reaches 97% of FILA Holdings
FILA Holdings announced consolidated 1Q23 sales of W1,108.6bn (+3% y-y) and OP of W160.4bn (-5% y-y), with OP topping our estimate and consensus thanks to both strong Acushnet performance and a strong dollar.
FILA recorded sales of W233.5bn (-32% y-y) and OP of W4.1bn (-91% y-y). Won-denominated sales growth (y-y) clocked at -32% for Korea (excluding DSF), -43% for the US, +10% for royalties, and +7% for China (DSF). Design commissions and royalties are showing stable performance, but domestic OP continued to plunge (-99% y-y) on slowed consumption and continued narrowing in wholesale/home shopping portion. US domain GPM fell 5.8%p (-21%p y-y) due to outlet discount sales from end-2022, resulting in operating losses of W28bn. As of end-April, about 20% of the previous year's inventory had been consumed—the goal is to reduce it by 50% by end-2023. As a result, FILA US is to see annual losses of around W100bn, with new product launches to be set in 2024.
Acushnet delivered an earnings surprise for 1Q23, recording sales of W875.1bn (+20% y-y) and OP of W156.2bn (+27% y-y) thanks to new product launches for Titleist Ball and Club.