Remember snowboards? Wall Street does. Painfully.
And that pain continues. Hopes for a winter snowboard renaissance have petered away as heavy inventories and cutthroat pricing have diminished industry profit prospects. And a shift to a new-fangled Alpine ski has only added to the woe of firms like
Both stocks are trading near all-time lows and no swift turnaround is in sight. Morrow, with a $30 million market cap, is trading at 7 1/8, down from 16 1/2 in January, and Ride, with an $80 million market cap, is at 6 7/8 after hitting 35 7/8 in January.
As sales of snowboards have begun to melt, dropping to a 15% growth rate for the 1996 season from 20% in previous years, ski sales, which were flat last year, are up 15%, according to John Packer, a research manager with
Ski Industries America
, a trade group. Shaped skis, which make turning easier and more effortless, now account for 55% of ski sales.
On the supply side, the trouble for snowboard manufacturers started in Japan last season when the sport lost its trendy edge; the resulting inventory gluts eventually made their way back to the United States. Snowboarding at one time had been so popular in Japan that people who didn't even snowboard put them on their car roofs, an analyst noted.
While snowboarding has gone beyond fad status in the United States, it is feeling growth pains related to the typical product cycle. Until last year manufacturers were able to sell as many boards as they could produce, but low barriers to entry have resulted in a saturated market with as many as 350 companies competing for slower growing demand. Now many faltering companies are flooding the market with discounted boards.
When Morrow announced last week that revenues for the fourth-quarter would be well below analysts' estimates, the cheap boards were cited as a main cause. The Salem, Oregon-based company had been counting on retailers to sell out their old inventory and place orders for between $4 and $7 million worth of Morrow snowboarding products. New projections for reorders are significantly lower, between $2 and $2.5 million, says Mark T. Leslie, an analyst with
(an underwriter of Ride's secondary offering last year). Following the disappointing news, Morrow's stock tumbled more than 20%, from 8 3/4 to 7, and Leslie lowered his rating from buy to hold.
Ride got hit the worst by the Japanese snowboard meltdown. Its main distributor in Japan canceled an order in the spring, leaving Ride with an inventory oversupply. "They took their eye off the ball and weren't aware of the buildup problem," says Leslie, who adds that the Preston, Washington-based company has since restructured and hired a new CEO.
Before Morrow and Ride can return to health the industry will have to consolidate to wring excess supply out of the distribution channels, says Leslie.
One competitor that has been able to weather the storm is
, whose strong brand name and diverse product line have buffeted it from harm. K2's stock has stayed steady, closing up 1/2 today to 26 3/8.
Phone calls to Morrow and Ride for comment were not returned.
By Avi Stieglitz