Fitness financials: Analyst tells investors to wait on Nautilus, plus Cybex, Johnson Health Tech, Dick's, Hibbett, Sara Lee, Foot Locker, Finish Line, Winmark/Play it Again, Town Sports, Wal-Mart

For May 16-22

Analyst issues concerns, tells investors to wait on Nautilus
Analyst Merriman Curhan Ford on May 17 issued a newsletter that SNEWS® obtained expressing concern over the quality of earnings for Nautilus as well as trends in the balance sheet. The group concluded by telling investors to “remain on the sidelines and wait for more visible signs of improvements before jumping into the stock.”

MCF analysts Eric Wold and Brian Murphy summarized company concerns:

>> Quality of earnings – When they said they analyzed the company’s financial statements with the recent 10Q filing, “we are not convinced the quality of earnings in 1Q was as strong as initially reported.”
>> Curious late-quarter drop in inventories – Management had said there would be a minimal drop in 1Q, but a late quarter “significant drop” coincided with a jump in DSOs (Days Sales Outstanding) to the highest level in the company’s history. “We are concerned with the higher-than-necessary inventory levels in the channel,” they wrote.
>> Doubtful accounts adjustment boosts EPS – MCF said that adjustments by management helped to boost EPS, but without those adjustments “the company would have missed estimates.”

In conclusion, the company said it maintains its neutral rating and stressed “heightened concerns about earnings quality.”

Cybex prices offering at $5.50 per share
Cybex International (AMEX: CYB) has priced its public offering of 3.5 million shares at $5.50 per share, saying that it expects to raise about $19.3 million.

Of the total shares being offered, 1.75 million shares will be issued by Cybex and 1.75 million shares will be sold by the selling stockholders, including UM Holdings Ltd., CEO John Aglialoro and business partner Joan Carter. Cybex will not receive any proceeds from the sale of the shares by the selling stockholders. Cybex and the selling stockholders have also granted the underwriters an option to buy 525,000 additional shares of common stock.

“This offering will provide capital to fund Cybex’s growth initiatives, including facilitating the development of new products aimed at specific market segments and the expansion of our manufacturing capacity,” Aglialoro, Cybex’s chairman and CEO, said in a statement. “In the near-term, pending such use, the proceeds will be used to substantially pay down our indebtedness.”

The company recently announced plans to replace its 210,000-square-foot plant in Owatonna, Minn., with a new 350,000-square-foot facility.

Investment banks Stephens Inc. of Little Rock, Ark., and Roth Capital Partners LLC of Newport Beach, Calif., will co-manage the offering and Oppenheimer & Co. Inc. of New York will serve as book-running manager.

Johnson Health Tech reports first-quarter sales increases
Johnson Health Tech, parent company of Matrix, Vision and Horizon, reported that first-quarter sales of commercial fitness products were up 42.8 percent. The company is listed on the Taiwan Stock Exchange as JHT (1736).

Net sales for all categories were up 16.15 percent to USD $75.5 million, compared to 2005 first-quarter sales of USD $65 million. Net income was USD $11.88 million, compared to USD $10 million, an increase of 18.88 percent.

The company said commercial sales are expected to accelerate with the launch of its H5x Hybrid Cycle Demo program in June. “The new Hybrid Cycle has been well received in both domestic and international markets; we are now expecting Hybrid sales to exceed our original planned target for 2006,” said Kevin Mast, product manager, in a statement.

Dick’s Q1 store sales up 6.5 percent
Dick’s Sporting Goods’ (NYSE: DKS) first-quarter profit was in the black as revenue increased by 13 percent and same-store sales grew.

Quarterly profit was $11.4 million, or $0.21 per share, compared with a loss of $7.3 million, or $0.15 per share, during the first quarter last year. Revenue grew 16 percent to $645.5 million from $570.8 million. Results for the 2005 quarter included a $32.5 million merger integration charge. Analysts, on average, predicted a profit of $0.17 on revenue of $636.9 million.

Same-store sales grew 6.5 percent on increases in the company’s merchandise categories. The former Galyan’s stores, which Dick’s acquired in 2004, will be included in the comparable store base beginning in the second quarter of 2006.

Dick’s said it expects to post a second quarter profit of $0.43 to $0.44 per share, including a stock-option expense of $0.07 per share. It expects same-store sales to increase 3 percent to 4 percent for the quarter.

The company raised its 2006 guidance to earnings of $1.81 to $1.85 per share, compared with previous guidance of between $1.77 to $1.81 per share, including a stock option expense of $0.27. It expects same-store sales to increase 3 percent during the year.

Also, the retailer said it plans to open five new stores in the second quarter and 40 new stores during the year.

Hibbett reports flat store sales
Hibbett Sporting Goods (Nasdaq: HIBB) said first-quarter profit rose 8 percent on higher sales, while same-store sales were flat.

Its earnings were up to $11.5 million, or $0.35 per share, from $10.7 million, or $0.31 per share, in the prior-year period. Sales rose 11 percent to $126.9 million from $114.8 million a year ago. Analysts surveyed by Thomson Financial expected earnings of 35 cents per share on sales of $131.1 million.

Sales at stores open at least one year were virtually flat — 0.07 percent — down significantly from 8.2 percent a year ago. Same-store sales during the quarter were hurt by an anticipated decline in sales of NBA pro-licensed apparel and Baller Bands. Sales of footwear were surprisingly weak as well, Hibbett said.

For the second quarter, the company projects earnings of $0.14 to $0.16 per share, which includes $0.01 to $0.02 in stock compensation costs. Same-store sales are seen increasing 1 percent to 2 percent. For the year, earnings are expected to range from $1.08 to $1.12, including $0.07 to $0.09 in equity compensation.

Hibbett opened 11 new stores during the first quarter. It plans to open 80 to 85 new stores in fiscal 2007, including approximately 15 to 18 stores in the second quarter.

Sara Lee amends stockholder-rights plan
Sara Lee (NYSE: SLE) has moved up the expiration date of its stockholder-rights plan to Sept. 1, 2006, from May 25, 2008. The company said it also changed its corporate governance guidelines so the board of directors must obtain stockholder approval prior to adoption of a new stockholder-rights plan. But if a majority of independent directors believes adopting a new stockholder-rights plan is in the best interest of Sara Lee and its stockholders, they can act on their own to implement it. In this case, the board will submit a new plan to stockholders for ratification within a year. If it is not approved, it will be ended after the vote is certified. Sara Lee is the parent of Champion, which has a licensing agreement with Lamar Fitness for exercise equipment.

Foot Locker’s Q1 profit inches up
Foot Locker (NYSE: FL) reported that first-quarter profit rose slightly, as strong business in North America offset European declines.

The company reported profit of $59 million, or $0.38 per share, compared with $58 million, or $0.37 per share, in last year’s first quarter. Sales fell less than 1 percent to $1.37 billion from $1.38 billion. Same-store sales increased 0.5 percent, the company said.

The company said total sales in the quarter were lower than its initial expectations, but profitability was enhanced by lower than planned markdowns that benefited its gross margin rate.

Finish Line revises Q1, FY guidance
Finish Line (Nasdaq: FINL) has revised its sales and earnings forecast for the first quarter and full year as a result of double-digit drops in sales of women’s running shoes and children’s footwear.

The company said it expects to report consolidated net sales for the first quarter in the range of $285 million to $290 million, compared to $291.3 million reported for the first quarter ended May 28, 2005. It also expects same-store sales results for the quarter to be down 7 percent to 9 percent. Finish Line also said it expects to earn between $0.08 and $0.10 a share for the quarter, down from a previous forecast of $0.18 to $0.20 a share. For the full year, it expects to earn $0.84 to $0.95 per share. It had previously forecast earnings of $1.35 per share to $1.39 per share.

The company added that it has reduced the planned opening of Finish Line stores from 50 to 45 for the current fiscal year, while its plans for Man Alive and Paiva store openings have not changed.

Play It Again Sports parent buys back 420,000 shares
Winmark Corp. (Nasdaq: WINA), parent of Play It Again Sports, bought 420,000 shares of its stock from Rush River Group at $23.55 per share under its existing repurchase plan. The purchase brings the company’s total number of outstanding shares to about 5.7 million.

The company’s board authorized a share repurchase program in 1995 with no expiration date, which a current limit of 3.5 million shares, according to its annual report filed March 27. At that time, the company said it had repurchased all but 519,458 shares under the program.

Town Sports International sets IPO price
Ranked as the third-largest fitness club operator in the United States, Town Sports International Holdings is readying for its public debut this week having set its IPO at 10 million shares with an estimated price of $16 to $18 per share.

The New York-based company said it is planning to sell 7.65 million shares, and stockholders would sell an additional 2.35 million shares in the IPO, according to an amended filing with the U.S. Securities and Exchange Commission.

Town Sports estimates that it will receive about $115.6 million from its share sale in the IPO. It plans to use the funds to consummate the tender offer for up to $85 million aggregate principal amount of TSI Inc.’s senior notes, redeem senior discount notes, and to pay related fees and expenses.

With 145 fitness clubs in the United States and Switzerland, Town Sports runs its facilities under brand names that include New York Sports Clubs, Boston Sports Clubs, Washington Sports Clubs and Philadelphia Sports Clubs. Fittingly, the company intends to list its stock on the Nasdaq under the symbol “CLUB.”

Credit Suisse, Deutsche Bank Securities, William Blair & Co., Piper Jaffray and RBC Capital Markets are underwriting the offering.

The company reported a first-quarter net loss of $135,000 on revenue of $104 million, compared to net income of $179,000 and revenue of $94 million in the year-ago period.

Wal-Mart’s Q1 U.S. store sales up 3.8 percent
Wal-Mart Stores said cost-cutting moves and improvement in its merchandise mix helped the world’s largest retailer post a 6.3 percent increase in its first quarter profit. The results beat Wall Street estimates and sent its shares modestly higher.

Wal-Mart earned $2.615 billion, or $0.63 per share, in the quarter, up from $2.461 billion, or $0.58 a share, a year earlier. In the first quarter a year ago, one-time items involving taxes and a legal settlement drove up profits by $145 million, or $0.03 per share. Its overall revenue rose to $80.47 billion from $71.68 billion a year ago. U.S. same-store sales rose 3.8 percent in the first quarter.

The company said it expects per-share profits of between $0.70 and $0.74 per share in the second quarter and $2.88 to $2.95 for the fiscal year. Wal-Mart said it expects same-store sales to be up between 2 percent and 4 percent for the second quarter.

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