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Fitness financials: Amer sales up but earnings down despite Precor's gains, plus Sara Lee, Hibbett, Big 5, adidas, Sports Club Co., Health Fitness, Bally

Fitness financials: Amer sales up but shows earnings loss despite Precor's gains. Champion parent posts Q4 profit. Hibbett lowers Q2 guidance. Big 5 sees rise in Q2 profit. adidas reports second-quarter results. The Sports Club Company posts slight bump in revenue. Health Fitness reports Q2 financial results. Bally re-aligns financials when CEO Toback resigns.

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Amer sales up but shows earnings loss despite Precor’s gains
Amer Sports, parent of Precor and its ClubCom and Cardio Theater sub-divisions, reported that net sales for January to June 2006 grew by 7 percent to Euro 739.2 million (USD $946.7 million), compared to Euro 689.9 million in 2005. In local currencies, net sales grew by 4 percent.

Gross profit was Euro 285 million (USD $365 million), compared Euro 264.8 in the same period of 2005. Earnings before interest and taxes (EBIT) amounted to a loss of Euro 7.4 million (USD $9.4 million) compared to a loss of Euro 14.2 million the year before and a loss of earnings per share of Euro 0.19 (USD $0.24) compared to a loss of Euro 0.23 for the same 2005 period.

“The earnings trends of Salomon and Precor were particularly positive in the review period,” said CEO Roger Talermo, in a statement. “The factors underlying the improvement in Salomon’s earnings were sales growth and better cost control. Precor’s EBIT also rose substantially thanks to growth in sales and improved sales margins.”

Despite overall company financials, Precor’s net sales were up 12 percent in local currency terms, with the Americas generating 80 percent of those sales. The Precor division’s EBIT also rose to Euro 16.1 million (USD $20.7 million).

According to the statement, fitness club operators who are consolidating their operations increasingly value fitness equipment manufacturers – such as Precor, its parent Amer pointed out – that offer end-to-end solutions including cardio and strength training equipment as well as services and entertainment systems. Demand for entertainment systems, in particular, is on the rise in all market areas, the statement said.

In the home arena, the report noted that total growth in the market for home fitness equipment leveled off; however, demand for elliptical trainers has remained solid.

The company is estimating that its net sales in 2006 will amount to Euro 1.8 billion (USD $2.3 billion). Earnings per share in 2006 are expected to come in at Euro 0.95-1.05.

(Conversion of Euros into U.S. dollars is for information only, is not necessarily relative to earnings, and is based on the currency rate as of Aug. 9.)

Champion parent posts Q4 profit
Sara Lee (NYSE: SLE), parent of numerous brands including Champion, reported a fourth-quarter profit but said it does not believe it will hit long-term targets in sales and operating margins by 2010 as previously expected.

The company earned $8 million, or a penny per share, in the three months ended July 1 compared to a loss of $148 million, or $0.19 per share, a year ago.

Results include $0.08 per share in net charges, as costs relating to the recognition of trademark impairments, severance and other business transformation were offset in part by gains on the sale of businesses. Additionally, an increase in the provision for income taxes reduced earnings by $0.22 per share.

The company’s revenue was up nearly 2 percent to $4.1 billion, from $4.03 billion last year. Analysts, on average, expected higher revenue of $4.23 billion.

Sara Lee is in the process of selling some businesses to focus on large branded divisions it believes can contribute to strategic growth, including core food, beverage, and household and body care businesses. It plans to spin off its Hanesbrands apparel business, which includes Champion, in September. Champion has a licensing agreement with Lamar Fitness for Champion-branded equipment.

Yet because fiscal 2005 and 2006 came in weaker than Sara Lee’s initial expectations, the company announced it is altering its long-term guidance. It warned it does not believe it will hit its previously expected 12 percent operating margin and $14 billion in sales in fiscal year 2010.

For the year, profit declined to $555 million, or $0.72 per share, from $719 million, or $0.90 per share, a year ago. Annual revenue edged down nearly 1 percent to $15.94 billion from $16.03 billion last year.

Hibbett lowers Q2 guidance
Hibbett Sporting Goods (Nasdaq: HIBB) lowered its second-quarter earnings guidance, saying it was hit with lower-than-expected sales as a result of a large shift in customer traffic to the third quarter.

Shares closed up $0.06 at $19.99 on the Nasdaq, but fell $1.29, or 6.5 percent, to $18.70 in aftermarket trading on the INET electronic exchange.

Hibbett said sales for the 13 weeks ended July 29 increased 11 percent to $104.4 million from $94 million last year. Sales at stores open at least one year, or same-store sales, edged up 0.6 percent.

“Our sales results reflect a shift in sales during the last two weeks of the second quarter into the third quarter that was nearly twice what we had expected,” said Mickey Newsome, chairman and CEO, in a statement. “The state of Georgia moved its tax-free shopping holidays from late July to early August, while Alabama, Tennessee and Virginia introduced tax-free holidays for the first time in early August.”

This shift “reinforces our belief that the timing of these tax-free holidays and their influence on consumer buying behavior had a more pronounced effect on the second quarter than we had originally anticipated,” Newsome added.

Based on these sales results, the company said it now expects to report quarterly net income of $0.12 to $0.13 per share, compared with higher previous guidance of $0.14 to $0.16 per share, including equity award expenses.

The company said that during the first 10 days of the third quarter, same-store sales increased approximately 11 percent.

Also, Hibbett opened 12 stores during the second quarter, bringing the chain to 572 stores.

Big 5 sees rise in Q2 profit
Big 5 Sporting Goods (Nasdaq: BGFV) said Thursday that its second-quarter profit rose 21 percent, and soundly beat both internal and Wall Street expectations, prompting the company to raise its full-year outlook.

Net income grew to $7.4 million, or $0.33 per share, from $6.1 million, or $0.27 per share, a year ago. The company said results were down by $0.02 per share for stock options expenses. Revenue rose 7 percent to $211.8 million from $198.1 million last year, as same-store sales increased 2.9 percent. Analysts had expected earnings of $0.26 per share on revenue of $212.3 million.

Looking ahead, Big 5 forecast third-quarter earnings of $0.32 to $0.36 per share, including $0.02 in stock options costs, with same-store sales growth in the low to mid-single digit range. For the full year, the company raised its earnings projection to $1.26 to $1.33 per share, including $0.06 per share in options costs, on same-store sales growth in the low to mid-single digit range.

The company also declared a regular quarterly cash dividend of $0.09 per share. It will pay the dividend Sept. 15 to stockholders of record on Sept. 1.

adidas reports second-quarter results
For the second quarter of 2006, the adidas Group (ADSG.DE) reported that sales increased 59 percent on a currency-neutral basis, driven by the consolidation of the Reebok business segment, as well as higher than anticipated double-digit growth of both adidas and TaylorMade-adidas Golf.

Sales for the adidas Group excluding Reebok increased 20 percent on a currency-neutral basis, with double-digit sales increases coming from all regions. In euro terms, group revenues grew 60 percent to Euro 2.428 billion (USD $3.109 billion) in the second quarter of 2006 from Euro 1.516 billion in 2005. Sales for the adidas Group excluding Reebok grew 20 percent in euro terms to Euro 1.812 billion (USD $2.320 billion) from Euro 1.516 billion in the prior year.

Its new Reebok business saw orders decline by 16 percent, which adidas mainly blamed on a weak footwear business and a transfer of the license sales rights for the U.S. basketball league NBA to adidas. The company bought Reebok for $3.8 billion to take on Nike but has launched a revamp to tackle falling orders.

While adidas said Reebok would help improve 2006 group earnings, analysts are split over whether the U.S. acquisition will pay off.

“You cannot turn around Reebok in one quarter or two,” CEO Herbert Hainer said in a conference call.

In April, Adidas said it expected the takeover to generate annual cost synergies of Euro 175 million (USD $224 million) from 2009, up from Euro 125 million (USD $160 million) originally targeted.

(Conversion of Euros into U.S. dollars is for information only, is not necessarily relative to earnings, and is based on the currency rate as of Aug. 9.)

The Sports Club Company posts slight bump in revenue
For the second quarter, The Sports Club Company (Pink Sheets: SCYL), which operates and owns fitness complexes under the brand name The Sports Club/LA, said revenues from continuing operations for the second quarter were $14.7 million compared to $14.3 million in 2005 — an increase of 3.2 percent.

After Preferred Stock dividends of $500,000 and $495,000 for the second quarter ended June 30, 2006 and 2005, respectively, the net loss attributable to common stockholders for the 2006 second quarter was $1.8 million, or $0.09 per basic and diluted share, compared to a net loss of $797,000 or $0.04 per basic and diluted share the year before.

During the past six months, the company sold five of its nine sports and fitness clubs to Millennium Partners, a major stockholder of the company. The net sales proceeds in excess of the carrying value of the sold assets of $24.8 million, was recorded as a capital contribution.

Health Fitness reports Q2 financial results
Health Fitness Corp. (HFIT.OB), a provider of fitness and health management services to corporations, hospitals and communities, posted a 13.9 percent increase in second-quarter revenue — $15.6 million compared to $13.7 million in the same period last year. Gross profit during the quarter increased 20.6 percent to $4.1 million, from $3.4 million last year. Operating income fell 22.1 percent to $686,773, from 2005’s $881,669. Net earnings applicable to common shareholders increased 46.0 percent to $727,474, from $498,183 last year. Net earnings per diluted share fell to $0.02, from $0.03 for the same period last year.

Bally re-aligns financials when CEO Toback resigns
Bally Total Fitness Holding Corp. (NYSE: BFT) has reported due in substantial part to continued softness in member joins compared to prior periods, the company’s prior indication as to potential growth in “cash contribution” in 2006 versus 2005 will not be achieved. The company anticipates the amount for 2006 will be 10 percent to 20 percent lower than the $120 million cash contribution previously disclosed for 2005.

However, the company continues to anticipate that its cash flow and availability under its senior secured credit facility will be sufficient to meet its liquidity needs for working capital and other cash requirements through the first quarter of 2007. The 2005 cash contribution is reconciled to operating income at the end of this press release.

Bally Total Fitness also stated that its previously announced process to evaluate strategic alternatives, which had focused on a sale or merger of the company, is now expected instead to focus on exploring other financing alternatives, such as a recapitalization, private placement, underwritten rights offering or other corporate restructuring. In light of the developments noted above, and the fact that its discussions with potential interested parties have not to date resulted in any proposal, agreement or transaction involving a sale or merger of the company, the Strategic Alternatives Committee of Bally Total Fitness has determined, after consultation with its outside financial advisors, that other alternatives should now be pursued.Bally Total Fitness cautions that there can be no assurance as to the outcome of the strategic alternatives process, and Bally does not undertake any obligation to provide further updates.

Bally also announced that while the company will not be filing its Quarterly Report on Form 10-Q for the three months ended June 30, 2006. in a timely manner, it expects to file that report before the September 11, 2006 expiration of the initial waiver period previously obtained from the company’s senior bank lenders and bondholders. On August 10, 2006, the company filed a Form 12b-25 pertaining to this delay in filing the second quarter Form 10-Q.

The company also announced the resignation of Chairman, CEO and President Paul Toback, and its appointment of Don Kornstein as interim chairman and Barry Elson as acting CEO.

Additionally, Liberation Investments and its related affiliates on Aug. 11 acquired 200,000 shares of Bally for $2.88 each, increasing their holdings to 11.18 percent, according to a filing with the U.S. Securities and Exchange Commission.

The investment firm said it told Bally on Aug. 13 that it wanted to enter a confidentiality agreement that would allow it to review the fitness club’s private financial records. It also wants to arrange or participate in talks with third parties about a potential purchase of Bally’s assets, a reorganization or investment, according to the SEC filing.

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