'1 Trillion Won Deficit'... Fila Owner 2nd Generation Exiting US Business [Why&Next]

Yoon Geun-chang, CEO of Fila Holdings, Accelerates Business Restructuring
Temporarily Pauses US Operations, Focuses on 'Cash Cow' Acushnet
Secures Cash Through Subsidiary Dividends...Suspicion of Succession Funds for CEO Yoon

Yoon Geun-chang, CEO of FILA Holdings, is accelerating the restructuring of the business structure. He is restructuring the underperforming U.S. business and focusing efforts on the golf apparel business, which has emerged as the company's cash cow. CEO Yoon is the son of Yoon Yoon-soo, chairman of FILA Holdings, and has been leading the global sports brand FILA since 2018.

According to the Financial Supervisory Service's electronic disclosure system on the 6th, FILA Holdings revised its earnings forecast, projecting that the annual operating loss of its U.S. corporation (covering the U.S., Canada, and Mexico) will reach between 50 billion and 70 billion KRW. This is an increase from the previously expected operating loss forecast of 40 billion to 60 billion KRW.

Including one-time costs (-8 billion KRW) related to the restructuring of the U.S. corporation, the operating loss for this year is expected to range from 68 billion to 88 billion KRW. Although the average exchange rate of the Korean won against the dollar rose by 70 KRW compared to before, the U.S. business's poor performance was worse than anticipated.

Restructuring of the Loss-Making U.S. Business

FILA Holdings is rapidly downsizing by reorganizing the businesses and corporations it established in the U.S. During the third quarter, FILA Holdings dissolved 'FILA Online,' a subsidiary of FILA's U.S. corporation, and merged it into the FILA U.S. corporation. This company was an online mall selling FILA products in the North American region but is currently not operating. Distribution of FILA products to large retailers such as Costco and discount department stores like Ross Stores has also been completely halted.

The company's U.S. business came under the control of Chairman Yoon Yoon-soo when he acquired FILA Global in 2007. FILA is a sportswear brand that started in Italy in 1911. Chairman Yoon acquired FILA Korea in 2005 and absorbed the FILA headquarters two years later. CEO Yoon joined the U.S. corporation in 2007, served as Chief Financial Officer (CFO), and managed to turn the U.S. corporation profitable within three years.

However, in recent years, FILA's performance in the U.S. has declined annually. To clear inventory, products were sold through low-margin distribution channels, which damaged the brand image and led to operating losses. The FILA U.S. corporation recorded an operating loss of 66.2 billion KRW in 2022, which expanded to 142 billion KRW last year.

FILA Holdings aims to rebuild its image as a premium brand through the restructuring of its U.S. corporation. It also expects to improve its financial structure by discontinuing certain businesses.

Expanding the Cash Cow: Acushnet Business

FILA Holdings currently operates Acushnet, a golf equipment business, alongside FILA. While restructuring the underperforming U.S. business, FILA Holdings has unveiled plans to expand Acushnet, which accounts for more than 75% of total sales. This move is intended to offset the decline in sales from the U.S. business. Acushnet is a company that manufactures and sells equipment and apparel for golf specialty brands such as Titleist, FootJoy, and PG Golf. Magnus Holdings, a 100% subsidiary of FILA Holdings, holds a 51% stake in Acushnet. Acushnet's sales continue to grow, with total sales from the first to third quarter this year reaching 2.7218 trillion KRW, about 200 billion KRW more than last year's 2.5604 trillion KRW. Among the brands, Titleist's sales are the highest, exceeding 2 trillion KRW.

In August, Acushnet established its Vietnam corporation in Ho Chi Minh City. Currently, Acushnet has corporations in the U.S., Europe, South Korea, and Japan to manage and sell brand products. It also operates factories in the Netherlands and Thailand for the production of Titleist and FootJoy products. The Vietnam corporation is believed to have been established not as a production facility like in Thailand but to explore opportunities for expanding the golf business in the Southeast Asian market.

A FILA Holdings official said, "Decisions related to the business are made by Acushnet, so it is difficult to grasp the global business strategy in detail. Acushnet has been very helpful in strengthening FILA Holdings' foundation, and we see its growth potential as high."

Building Cash Reserves... FILA Second Generation Focuses on New Businesses

Recently, FILA Holdings has accumulated cash reserves through dividends from subsidiaries. As of the third quarter cumulative basis this year, the company received 113.1 billion KRW in dividends. This was paid by GLBH Holdings, a 100% subsidiary. This company holds a 15% stake in 'Full Prospect,' a joint venture established by FILA Holdings and Chinese company Anta Sports for FILA's China business, through its subsidiary FILA Luxembourg. FILA Holdings earns dividends and 3% of net sales from Full Prospect, and the dividend amount has significantly increased this year.

Last year, FILA Holdings did not receive quarterly dividends from this company in the third quarter. During the first three quarters of this year, cash generated from operating activities was about 500 billion KRW, of which one-fifth came from dividends from the Chinese joint venture.

Additionally, since last month, the company received 100 billion KRW in interim dividends from Magnus Holdings (Acushnet) and 48 billion KRW from FILA Korea. The Magnus Holdings dividend is understood to have been received as an interim dividend by recovering capital from investment stocks in subsidiaries.

FILA Holdings is expected to use funds for new business expansion and shareholder returns. In 2022, FILA Holdings announced the 'Winning Together' project, pledging to use 1 trillion KRW by 2026 for shareholder returns (55%) and brand value reestablishment (24%). The maximum amount allocated for shareholder returns is about 600 billion KRW.

New businesses include distributing domestic designer brands in the Chinese market and launching new brands. To this end, FILA Holdings established a 100% subsidiary, 'Misto Brand Holdings,' in Hong Kong in August last year. This company has two subsidiaries: 'Mantova Brand Management' and 'Misto Brand Management.' Mantova handles the distribution of domestic designer brands such as Mardi, Matang Kim, and Marithe in China, while Misto plans to launch new brands. To support this new business expansion, FILA Holdings also conducted a paid-in capital increase of 5 million USD (7 billion KRW) in Misto Brand Holdings.

Some speculate that FILA Holdings is preparing succession funds for CEO Yoon through the expanded dividends. As of the third quarter, FILA Holdings paid 15.8 billion KRW in dividends to its largest shareholder, Piemonte. This is about 4 billion KRW more than the 12 billion KRW paid to Piemonte in the third quarter of last year. Looking at Piemonte's shareholder structure, Chairman Yoon Yoon-soo, father of CEO Yoon Geun-chang, holds 75.18% of the shares, followed by Careline (20.77%) and CEO Yoon Geun-chang (4.05%). CEO Yoon is also the largest shareholder of Careline, holding 60.2% of its shares.