Fitness financials: Bally reports Q1 net loss, plus Gaiam, adidas-Salomon, TSI, Everlast, Costco, Sears, Wal-Mart

Bally reports Q1 net loss and low cash flow
Bally Total Fitness Holding Corp. (NYSE: BFT) reported a net loss for the first quarter ended March 31, 2004, of $13.8 million or $0.42 per share, compared to a net loss for the first quarter of 2003 of $635.2 million, or $19.50 per share. The 2003 loss before cumulative effect of changes in accounting principles was $54.1 million or $1.66 per share, which included a $50.5 million ($1.55 per share) adjustment to establish valuation reserves against previously recognized deferred tax assets. Loss from continuing operations before income taxes was $13.5 million ($0.41 per share) in the first quarter of 2004 versus $2.8 million ($0.08 per share) in 2003.

Free cash flow — cash flow from operations ($9.4 million) less cash used in investing activities ($10.1 million) — was a deficit of $700,000 for the 2004 quarter compared to last year’s free cash flow of $9.5 million. This decrease was primarily due to a $10.6 million increase in interest paid during the 2004 quarter resulting from the timing of interest payments on the refinancing of a portion of Bally’s long-term debt in the third quarter of 2003.

Despite the losses, Bally’s 2004 first-quarter net revenues increased 2 percent to $244.7 million compared to net revenues of $240.2 million in the prior year period. The number of new joining members increased 33 percent in the first quarter to 325,000 from 244,000 in the 2003 first quarter. Gross committed membership fees originated for the first quarter increased 21 percent to $375.6 million compared to $309.8 million in the prior year period.

“We made significant progress toward our 2004 objectives this quarter, specifically in the most important area, membership sales,” said Bally’s Chairman and CEO Paul Toback, in a statement. “Our most significant challenge was to turn around the downward sales trend we had experienced over the past few years. This quarter, we saw a 21-percent increase in gross committed revenue and a 33-percent increase in new members joining.”

Gaiam’s direct-to-consumer segment boosts Q1 earnings
For the first quarter ended March 31, 2004, Gaiam Inc. (Nasdaq: GAIA) revenues increased to $23.8 million from 2003’s $23 million due to increases in the direct to consumer segment, the company reported May 6. For the first three months of 2004, Gaiam generated a $2.7 million cash contribution from its operations, compared to $1.5 million in 2003. Gaiam ended the first quarter with $11 million in cash, up from $8.4 million at Dec. 31, 2003, no debt and full availability of its $15 million line of credit. Gaiam reported a lower operating loss of $329,000 versus 2003’s $497,000, and a lower net loss of $329,000 compared to $353,000, or $0.02 per share for both quarters. Revenues in its direct-to-consumer segment were strong, with an internal growth rate of 12.8 percent for Q1 2004. “The first quarter results were generally in line with our expectations. Gaiam generated positive internal growth of 5 percent for the quarter reversing the negative growth in last few quarters. The $2.7 million cash contribution generated from our operations in the first quarter was above our expectation,” said Jirka Rysavy, chairman and CEO, in a statement.

adidas-Salomon sales decline in North America
For the first quarter of 2004, adidas-Salomon’s (Other OTC: ADDDF.PK) group sales increased 3 percent on a currency- neutral basis. In Euro terms, revenues declined 3 percent to Euro 1.623 billion (USD $1.927 billion) in 2004 from Euro 1.669 billion (USD$ 1.982 billion) in 2003. The adidas segment drove top-line growth in the first quarter with a currency-neutral sales increase of 3 percent, perpetuated by solid development in the Sport Performance division. Currency effects from a strong Euro, especially versus the U.S. dollar, negatively impacted sales at all brands in Euro terms. As a result, adidas sales in Euro terms declined 2 percent to Euro 1.378 billion (USD $1.636 billion) in the first quarter of 2004 from Euro 1.405 billion (USD $1.668 billion) in 2003.

From a regional perspective, group sales in Europe grew 4 percent on a currency- neutral basis, boosted by increases in France, Iberia, the U.K. and the emerging markets. In North America, though, group sales declined 7 percent on a currency- neutral basis due to a decrease in footwear sales in the adidas Sport Performance division. In Asia, currency-neutral sales increased 6 percent driven by double-digit growth in Japan, China and Australia. In Latin America, where revenues are generated predominately by adidas, currency-neutral sales increased 43 percent in the first quarter, making it the fastest growing region within the group. Higher sales in Argentina, Brazil and Mexico were the main drivers of this improvement.

In Euro terms, currency translation effects negatively impacted sales in the first three months in all regions. Sales in Europe increased 2 percent in Euro terms to Euro 951 million (USD $1.13 billion) in the first three months of 2004 from Euro 933 million (USD $1.1 billion) in the prior year. In North America, sales in Euros declined 19 percent to Euro 328 million (USD $389 million) in 2004 versus Euro 405 million (USD $481 million) in 2003. In Euro terms, sales in Asia were down 2 percent to Euro 276 million (USD $328 million) in 2004 from Euro 281 million (USD $334 million) in 2003. In Latin America, sales in Euros grew 36 percent to Euro 49 million (USD $58 million) in 2004 from Euro 36 million (USD $43 million) in the prior year. SNEWS(r) provides USD translations for financial reports given in currencies other than dollars to add additional perspective. However, these translations are estimates only, are based on today’s currency values, and should not be used to make financial or investment decisions.

TSI reports decrease in Q1 revenues
Town Sports International Inc. (TSI), the owner of 132 health clubs on the East Coast, announced for the quarter ended March 31, 2004, that revenues for the three months were $86.5 million, a decrease of $0.4 million, or 0.5 percent over the same quarter of 2003. Excluding the effect of the business interruption settlement of $1.3 million received in the first quarter of 2003, revenues improved $0.9 million. During the quarter, TSI’s clubs in operation for 24 months or longer experienced a slight decrease in revenue of 0.5 percent or $0.4 million when compared to the prior year’s first quarter. These decreases were offset by revenue increases at newer clubs. Operating income for the first quarter of 2004 was $5.0 million compared to $14.1 million in the first quarter of 2003, while net interest expense increased to $6.5 million from $4.2 million. The company’s EBITDA decreased by 28.4 percent to $16.1 million this quarter from $22.4 million in last year’s quarter. “This has been a difficult quarter for us with many expense line items increasing while revenue remained fairly flat year over year. While our membership retention efforts have come with a cost, we believe they will prove to benefit the results of the company over the long term,” said CFO Richard Pyle, in a statement.

Everlast net sales up 14 percent
Everlast Worldwide Inc. (Nasdaq: EVST) reported its financial results for the first quarter ended March 31, 2004, with net sales of $14.1 million, representing an increase of $1.7 million, or 14 percent over 2003. Net licensing revenues increased 26 percent to $2.1 million. Combined, net revenues were $16.2 million representing an increase of 16 percent, or $2.2 million over the 2003 period. The May 3 results also showed that Everlast achieved operating income of $1 million, an increase of 131 percent, while EBITDA increased to $1.4 million, representing a 77 percent increase over the 2003 comparable period. Net income available to common stockholders was $188,000, $0.06 per basic share, as compared to $16,000, $0.01 per basic share, in 2003.

Sears reports April comparable store sales
Sears, Roebuck and Co. (NYSE: S) reported today that comparable domestic store revenues decreased 1.8 percent for the four weeks ended May 1, 2004. Total domestic store revenues were $1.94 billion for the four-week period in April 2004, down 2.8 percent compared with the four weeks ended May 3, 2003.

Costco sales on the rise
Costco Wholesale Corp. (Nasdaq: COST) reported net sales of $3.56 billion for the four weeks ended May 2, 2004, an increase of 13 percent from $3.14 billion in the same four-week period of the prior fiscal year. Same store sales increased 10 percent. For the first 35 weeks of its 2004 fiscal year ended May 2, 2004, the company reported net sales of $31.35 billion, an increase of 14 percent from $27.47 billion during the similar 35-week period of the prior fiscal year.

Wal-Mart same store sales up 4.4 percent
Wal-Mart (NYSE:WMT) reported a 4.4 percent gain in April sales at U.S. stores open at least a year, matching its expectations. The retailer added that total sales in the four weeks ended April 30 reached $20.77 billion, up 11.7 percent from a year earlier. For May, Wal-Mart forecast same-store sales growth in the range of 4 percent to 6 percent.

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