Fitness financials: Bally contacts court after Liberation files suit, plus The Sports Authority, Dick's, Hibbett, Nike, Foot Locker, Health Fitness, GSI

Bally contacts court after Liberation files suitÂ
In response to Liberation Investments L.P.’s suit against Bally Total Fitness (NYSE: BFT) in Delaware’s Chancery Court in New Castle County to release private company records, Bally’s legal representatives filed a lengthy petition to the court and a short note to Liberation.

Liberation is Bally’s second-largest shareholder with a nearly 13 percent stake. It has been hammering Bally to release its private records about the company’s recent adoption of a Stockholders Rights Plan takeover defense plan, how it appointed directors to the board, and retention of Russell Reynolds Associates to find independent directors.

Bally’s lawyer, Raymond DiCamillo, from Richards, Layton & Finger delivered a letter on Nov. 14 to Judge William B. Chandler on behalf of Bally in connection with Liberation’s filing, opposing the fund’s motion for expedited proceedings.

Included in DiCamillo’s letter to Chandler, it said: “Plaintiffs (Liberation) filed the action after rejecting Bally’s reasonable offer — an offer that they fail to disclose to the Court — to provide a substantial portion, but not all, of the documents requested in their overly broad demand. …Plaintiffs seek a trial in this action this week. …There is no basis for the emergency proceeding that plaintiffs have requested. Indeed, to the extent there is any emergency, it is an emergency of plaintiffs’ own making. Accordingly, the Court should set a more typical schedule, with a trial at least thirty days from now.”

DiCamillo also pointed out that Bally had agreed to permit Liberation to inspect certain requested materials, if a confidentiality agreement was signed. Bally’s offered board and board committee minutes and any materials presented to the board and any board committee related to the rights plan and the independence of the directors who adopted the rights plan.
     
DiCamillo added that Bally is not willing, however, to provide information regarding any directors who resigned before the adoption of the rights plan.

“Such information is completely irrelevant to the investigation of the rights plan that Liberation purports to want to conduct. Indeed, it is nothing more than an impermissible ‘fishing expedition.’…,” he wrote. “Bally is also not willing to permit the inspection of the requested stocklist materials at this time. Liberation concedes that it is simply ‘weighing running a proxy contest.’ Unless and until Liberation announces an intention to run a proxy contest, it is not entitled to stocklist materials.”

In the Nov. 15 letter to Liberation’s Emanuel Pearlman, Bally acknowledged that its board of directors had received the fund director’s letter on Nov. 11 and asked Marc Bassewitz, Bally’s senior vice president, secretary and general counsel, to respond.

Bassewitz wrote to Pearlman: “As you know, the Board is currently being advised by highly qualified legal and financial professionals. The directors will rely on those professionals, rather than Liberation, to advise them in connection with their fiduciary duties. Liberation and all Bally stockholders can be certain that the directors are well aware of and, as always, will act in accordance with their fiduciary duties in connection with any and all matters that come before the Board.”

Bally’s annual meeting of stockholders will be held on Jan. 26, 2006, in the Chicago area. The record date for stockholders entitled to vote at the annual meeting will be Dec. 20, 2005.

In addition, Wattles Capital Management recently revealed it now owns 10.1 percent of Bally stock. The Las Vegas-based investment group has not said whether it intends to support the management challenges by both Liberation and Pardus (14.4 percent).

The Sports Authority posts Q3 profit
Strong sales of active apparel and fitness products helped The Sports Authority (NYSE: TSA) get a profit boost into the black for the third quarter.

Net income for the third quarter was $3.5 million, or $0.13 per diluted share, compared with a net loss of $2.8 million, or $0.11 per diluted share, in the prior year’s third quarter due to Gart Sports’ merger integration costs. Excluding the effect of after-tax merger integration costs of $2.9 million, or $0.11 per diluted share, net income for the prior year’s third quarter was $200,000, or $0.01 per diluted share.

Total sales for the third quarter increased 2.8 percent to $560 million compared with $545 million last year. Analysts said they’d expected the company to earn, on average, $0.09 per share on $561.91 million. Third-quarter same-store sales increased 1.2 percent.

“Our ability to exceed earnings expectations for the third quarter was driven by significant improvements in merchandise gross margins along with well controlled expenses. Our top-line benefited from strong sales of active apparel, fitness, golf, ski apparel, and team sports,” CEO Doug Morton said in a statement.

For the fourth quarter, the company projected between $730 million and $740 million in sales, and a 1 percent to 2 percent same-store sales increase. It added that it is “comfortable” with analysts’ estimates of $1.07 per share for the quarter. For the full year, it expects same-store sales to grow by 1 percent, and it expects to earn $2.03 per share, based on approximately 26.7 million shares outstanding.

The company opened five stores during the third quarter bringing its total number of stores in operation to 397 stores in 45 states under The Sports Authority, Gart Sports, Sportmart and Oshman’s names.

Shares of Sports Authority, which have traded between $23.36 and $34.36 over the last year, closed up $0.37 at $31.74 on the New York Stock Exchange.

Dick’s Q3 profit up 56 percent
No longer weighed down by merger costs, Dick’s Sporting Goods’ (NYSE: DKS) net income skyrocketed 56 percent to $4.2 million, reversing the $2 million loss from the year before.

Earnings per share for 2005 are $0.08 compared to a reported loss of $0.04 last year. Dick’s said that without the merger and store closing costs, the retailer would have reported a net income of $2.7 million, or $0.05 earnings per share, in the 2004 quarter.

Net sales for the quarter increased 8 percent to $582.7 million from $541 million. Analysts had expected a profit of $0.07 per share on $582.7 million. Same-store sales increased 2.9 percent. The former Galyan’s stores will be included in the same-store base beginning in the second quarter of fiscal 2006.

Fourth-quarter earnings are expected to range from $0.95 to $1 per share, excluding one-time items, with same-store sales growing 1 percent to 2 percent. For the year, Dick’s said it’s maintaining its estimate for income of $1.70 to $1.75 per share, or $1.27 to $1.32 per share before items. Same-store sales are forecast to increase by 2 percent.

During the third quarter, Dick’s opened 16 stores, relocated three stores and remodeled one store, which completes the new store openings for the year. It now operates 255 stores in 34 states.

On the New York Stock Exchange, Dick’s shares closed at $33.75 on Nov. 15, up $3 from the previous day.

Hibbett posts strong Q3, ups guidance for FY2006
Double-digit gains in footwear sales led the way for an 8.4 percent increase in same-store sales for Hibbett Sporting Goods’ (Nasdaq: HIBB) third quarter. It also reported a 34 percent increase in earnings, prompting it to raise its 2006 earnings guidance.

Net income increased to $8.2 million, or $0.24 per share, from $6.1 million, or $0.17 per share, in the same quarter last year. Revenue also grew 20 percent to $110.6 million from $92.1 million in the year-earlier period. Analysts were looking for earnings of $0.22 per share on sales of $105.1 million.

The company attributed the results to “a strong comparable-store sales performance from all three product categories, continued improvement in margins and the benefit of post-hurricane sales.”

Looking ahead, Hibbett raised its per-share earnings target for fiscal 2006 to $0.96 to $0.98, from a prior view of $0.91 to $0.95, adjusted for its 3-for-2 stock split in September. Also, it expects same-store sales in the mid single-digit range. For the fourth quarter, the company expects to report per-share earnings between $0.27 and $0.29, with same-store sales rising between 3 percent and 5 percent.

Hibbett opened 19 new stores and closed one store during the third quarter, bringing the store base to 526 in 22 states. The company plans to open a net of approximately 65 to 70 new stores in fiscal 2006, including a net of approximately 21 to 26 stores in the fourth quarter.

Shares of the company’s gained $1.27, or 4.2 percent, to $29.95 in aftermarket activity, after closing up $0.97, or 3.5 percent, at $28.75 on the Nasdaq. Shares have traded in a 52-week range of $14.95 to $28.

Nike declares dividend, names new board member
Nike’s (NYSE: NKE) board of directors has declared a quarterly cash dividend of $0.31 per share on the company’s outstanding Class A and Class B Common Stock. The dividend, which is payable Jan. 3, 2006, to shareholders of record at the close of business Dec. 12, 2005, is a 24 percent increase over the previous quarterly rate of $0.25 per share.

Also, Nike has appointed Timothy D. Cook, Apple Computer’s chief operating officer, to its board of directors. Cook is the board’s 11th director, nine of which are independent, and is expected to serve on the compensation committee of the board. In addition to heading Apple’s Macintosh division, Cook is responsible for all of Apple’s worldwide sales and operations, including end-to-end management of the company’s supply chain, sales activities, and service and support in all markets and countries.

Q3 profit for Foot Locker falls 11 percent
Foot Locker’s (NYSE: FL) third-quarter net profit fell 11 percent, as the company funneled extra marketing money to European promotions. Net income for the quarter was $66 million, or $0.42 per share, compared with $74 million, or $0.47 per share, in the third quarter of last year.

Income from continuing operations for the third quarter was $0.41 per share, or $65 million compared to $0.47 per share, or $74 million last year. Foot Locker said the latest quarter’s results included a benefit of $0.01 per share from an income tax settlement and charges of $0.02 per share related to the impact of the hurricanes, the potential insolvency of one of its insurance administrators and a litigation settlement.

Quarterly sales rose to $1.41 billion from $1.37 billion a year ago. Third-quarter same-store sales increased 2.7 percent.

Foot Locker opened 18 new stores, remodeled/relocated 57 stores and closed 58 stores during the third quarter. It now operates 3,886 stores in 20 countries in North America, Europe and Australia. It also entered its 16th European country during the third quarter with a new store in Greece.

Separately, Foot Locker said its board raised its fourth-quarter dividend by 20 percent to $0.09 per share. The dividend, which is payable on Jan. 27, 2006, to shareholders of record on Jan. 13, 2006, is equal to $0.36 per share annually.

Health Fitness Q3 revenue lower than proceeding six months
Health Fitness Corp. (HFIT), a provider of health improvement management services to corporations, hospitals, universities and communities, reported a 2.4 percent revenue growth of $13.4 million from $13.1 million last year.

Despite the quarter-over-quarter increase, its revenue is down compared to the first six months of the year. The company attributed the decrease to revenue lost from contract terminations exceeding revenue added from new contracts.

Gross profit increased 4.5 percent to $3.5 million from $3.3 million for the same quarter last year. Net earnings were also up 8.9 percent to $506,488, or $0.03 per diluted share, from $465,164, or $0.03 per diluted share.

The company said it also completed a $10.2 million private placement of equity securities with institutional investors. It anticipates using approximately $5.1 million of the proceeds from the financing to redeem all of its outstanding shares of Series A Convertible Preferred Stock. The remaining proceeds are expected to be used for working capital and to finance growth of the company’s business.

GSI reports Q3 earnings after accounting delays
After delaying its third-quarter filing to resolve past accounting issues, GSI Commerce (Nasdaq: GSIC) reported results for the third fiscal quarter ended Oct. 1 on Nov. 15 posting a net loss of $4.5 million, or $0.10 per share, for the third quarter of 2005. That compares to a net loss of $3.0 million, or $0.07 per share, in the same period last year.

Net revenues were $84.9 million, a 24 percent increase compared to $68.6 million in the same period in 2004. Merchandise sales were $126.6 million, a 26 percent increase over 2004’s $100.2 million.

Net revenues from sporting goods category sales were $38.1 million, a 28 percent increase compared to $29.8 million for the same period last year. Merchandise sales from the sporting goods category were $46.5 million, a 29 percent increase compared to $36.1 million last year.

GSI said it has resolved its accounting issues, but the changes will cause it to report a loss of $337,000 for the 2004 fiscal year, instead of the profit of $340,000 it previously posted. For fiscal 2003, the company said its loss was narrower than previously reported — $11.9 million instead of $12.1 million. The company also said it restated previous results for the first two quarters and first half of the 2005 fiscal year, and for the corresponding periods last year.

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