SCOTTSDALE, AZ-Newly merged Bell Sports and American Recreation, hammered by plummeting gross margins on helmets coupled with a drop in demand, are reporting first ever yearend losses.

After years of record growth, a disappointed Terry Lee, Bell's chief executive officer, is predicting a continuing weak market for helmet sales through the first quarter of 1996.

"Over the last 12 months we have laced the toughest year in bicycle helmet history. We believe the trend of weak retail demand and lower average selling prices for bicycle helmets will continue into the first quarter and cause overall sales to be relatively flat compared to a year ago," he said.

Sales for the year dropped to $103 million, down from last year's $116.1 million-an 11 percent decline. Bell's fiscal year ended July 1. Fourth quarter sales posted a 29 percent drop, declining from $40.4 million to $28.8 million.

Overall declines in sales and other onetime charges, including Bell's merger with American Recreation, led the company to post a $3.4 million loss, or 42 cents per share, for its fiscal year.

At American Recreation, for the three month period ending June 30, net sales fell 4 percent to $47.5 million from $49.5 million when compared to the same period a year ago.

For the three month period the company had a net loss of $1.5 million, or 17 cents per share before onetime merger charges.

Weak helmet demand and the costs of merging the two largest suppliers of helmets to independent retailers and the mass market, will result in losses in the first quarter, Lee predicts.

"Bell Sports, however, has implemented strategic actions that we believe will strengthen our competitive position during the next 12 months," he said.

The merger with American Recreation has been completed and the company is embarking on an $8 million marketing and promotional campaign, the most aggressive in the company's 40year history.

Mary George, Bell's newly-named president of its specialty retail division, said retailer reaction at Interbike to the company's 1996 line was excellent.

While many retailers were angered by Bell's decision to put its brand name into the mass market, retailers at Interbike were pleased to see the product differentiation between Bell's new Pro series and helmets slated for mass market sale.

Driving the company's poor financial performance has been a major erosion in gross margins, dropping to 30 percent compared to 41 percent a year ago. In the fourth quarter alone, margins declined to 25 percent from 40 percent.

Other factors affecting the company's financial performance has been the cost of its merger with American Recreation and a significant decline in the number of children covered by mandatory helmet legislation.

In 1994, states and localities enacted helmet legislation that affected 13.3 million children. This year such legislation affects about 1.9 million youths.

Besides the decline in sales, the market also has seen average retail prices for helmets drop 20 percent. The fall off in volume has increased factory overhead.

Bell also announced that its board of directors has authorized the company's management to repurchase up to 10 percent of its outstanding shares of common stock.

Copyright 1995 by Miller Freeman, Inc, Santa Fe, New Mexico. All rights reserved.

This page was last revised on: November 13, 2003.

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