Fitness financials: Bally taps new chief marketing officer, plus Life Time Fitness, Puma, GSI Commerce, Russell

Bally taps new chief marketing officer
The revolving door continues at troubled health club leader Bally Total Fitness Holding Corp. (NYSE: BFT). The latest high-priced member of its revamped senior management team is Jim McDonald, a 28-year brand, marketing and advertising veteran, who has been appointed chief marketing officer.

McDonald, a multi-unit retail specialist, comes to Bally Total Fitness from RadioShack, where he most recently served as chief brand officer and chief marketing officer. Over his career McDonald has worked on many major brands, including Pizza Hut, Ford, Lincoln-Mercury, Chevron, The Westin Hotels, Gulf, IBM, Stouffer’s, Wurlitzer, Compaq, RCA, Sprint and MSN, according to the company.

“This is a critical role in the transformation of our company and our brand,” said Paul Toback, chairman and CEO of Bally Total Fitness, in a statement. “Jim brings a high level of professionalism and a directly relevant skill set built from working with some of the biggest brands in the world to help us achieve our goals. He joins us at an exciting time in our development, and I am confident he will be an integral part of our success.”

McDonald will receive an annual base salary of $350,000 and an annual incentive payment of up to 50 percent of his base salary based on performance criteria established by Bally’s board of directors, according to papers filed by Bally with the Securities Exchange Commission, SNEWS® has learned. In addition, for the calendar year 2005, he will receive a guaranteed minimum bonus of $150,000 payable in March 2006 and will also receive a $25,000 signing bonus in the first pay period following the commencement of employment.

McDonald replaces Martin Pazzani, who left the company at the end of 2004 for what was called “personal reasons.” He had been with Bally for 18 months and launched several high-profile TV and advertising campaigns. When he came aboard, he told SNEWS® he saw nothing but opportunity and fun.

“I am very excited to join Paul and his team and am committed to growing the brand in tandem with the rejuvenation of the company’s business strategy,��€ McDonald said in a statement about his appointment. “There is a lot to look forward to at Bally Total Fitness and I’m pleased to have the opportunity to be part of turning around this great brand.”

SNEWS® View: McDonald will need all of his marketing savvy to help rebuild the image of Bally with the public and investment community. We know he has a lot to look forward to, although it may not be all the kind of fun and creative things that one usually looks forward to. If McDonald does pull it off and help the Bally ship tack in the right direction, he will have earned every penny of the six-figure salary for which the company has signed him. Problem is, it’s not all about what he can do.  

Membership growth drives up Life Time Fitness Q1 revenue
Life Time Fitness’ (NYSE: LTM) first-quarter revenue in 2005 grew 20.4 percent to $89.3 million from $74.2 million during the same period last year. Net income during the quarter grew 43.8 percent to $8.1 million, or $0.23 per diluted share on 35.9 million shares, compared $5.6 million, or $0.19 per diluted share on 29.2 million shares, for Q1 2004.

Total revenue for the first quarter grew 20.4 percent to $89.3 million, driven primarily by growth in membership dues and in-center revenue. Membership dues revenue grew 23.0 percent to $60.5 million from $49.2 million in 2004. Enrollment fee revenue for the first quarter grew 3.9 percent to $4.7 million, from $4.5 million in 2004. In-center revenue for the first quarter grew 31.4 percent to $22.7 million, from $17.3 million in 2004. Same-center revenue increased 8.2 percent during the first quarter compared to the prior-year period.

Total operating expenses during the first quarter totaled $72.0 million compared to $60.2 million in 2004, driven primarily by increased expenses to support new centers, membership growth and presales activities at five locations. Total operating margins were 19.4 percent this year, up from 18.9 percent in the prior-year period.

Net income during Q1 2005 grew 43.8 percent to $8.1 million from $5.6 million in Q1 2004, driven by continued revenue growth, efficient use of capital and operating cost leverage. Net income margin for Q1 2005 was 9.1 percent, up from 7.6 percent in Q1 2004.

Puma sales up, but orders down
Puma (PUMG.DE) lifted its first-quarter profit by 13.5 percent, driven by growth in all regions due to a boom in lifestyle fashion and shoes. Net income rose to Euro 91 million (USD $118.9 million), which was slightly below the Euro 94 million (USD $121.6 million) expected by analysts. Quarterly sales were up 11.9 percent to Euro 497 million (USD $642.8 million). The key gross profit margin increased by 170 basis points to 53.4 percent.

Accessories posted the fastest growth rise, with sales up 30.1 percent, while footwear sales rose 10.6 percent to Euro 338 million (USD $437.2 million). Orders rose 4.6 percent, or 6.2 percent at constant currencies, to Euro 812 million (USD $1.05 billion).

European orders fell by 5.5 percent due to the subdued consumer climate. Adding further to its woes, the growth of overall orders slowed to 4.6 percent at the end of March, much lower than the 13.9 percent seen three months earlier.

CEO Jochen Zeitz declined to give a forecast for Europe for the full year, but said the firm will not join “a price discount war” seen currently in the German retail sector.

Puma also said it bought back another 80,000 shares as part of its buyback program. At the end of March, Puma owned 4.1 percent of it capital and Zeitz said the firm wanted to continue its buyback as reward for investors.

(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 April 26.)

GSI’s sporting goods revenues increase 19 percent
In first-quarter 2005, GSI Commerce Inc. (Nasdaq: GSIC) reported that net revenues increased 38 percent to $91.4 million from 2004’s $66.3 million. Its 2005 net loss was $1.7 million, or $0.04 per share, compared to a net loss of $4.0 million, or $0.10 per share in 2004 — an improvement of 58 percent. For the same comparable quarterly periods, the company recorded adjusted EBITDA of $1.1 million, which was a $2.2 million improvement from 2004’s fiscal first quarter adjusted EBITDA loss of $1.1 million. The company’s merchandise sales rose 59 percent to $136.2 million.

Net revenues from product sales generated by the company’s sporting goods category were $39.8 million for the first quarter of 2005, which was a 19 percent increase compared to $33.5 million for the first quarter of fiscal 2004. Merchandise sales from the sporting goods category increased 35 percent in the first quarter of fiscal 2005 to $47.5 million compared to $35.1 million in the first quarter of fiscal 2004.

Net revenues from product sales generated by the company’s other merchandise categories were $36.9 million for the first quarter of fiscal 2005, which was a 58 percent increase compared to $23.4 million for the first quarter of fiscal 2004. Merchandise sales from the company’s other merchandise categories increased 75 percent in the first quarter of fiscal 2005 to $88.7 million from $50.8 million in the first quarter of fiscal 2004.

Service fee revenues increased 57 percent to $14.7 million in the first quarter of 2005 compared to $9.4 million in 2004.

Also, GSI Commerce intends to file a registration statement with the SEC for a proposed public offering of approximately 1,500,000 shares of its common stock to be sold by the company and approximately 1,500,000 to 2,500,000 shares of common stock to be sold by certain selling stockholders, including Michael Rubin, chairman and CEO of the company, Softbank Capital Partners and Rustic Canyon Partners. In addition, the company and the selling shareholders expect to grant the underwriters of the offering an over-allotment option to purchase up to an additional 450,000 to 600,000 shares of common stock.

The registration statement will also cover a proposed public offering of approximately $50 million aggregate principal amount of a new series of convertible debentures, subject to market and other conditions. In addition, the company expects to grant the underwriters of the offering an over-allotment option to purchase up to an additional $7.5 million principal amount of convertible debentures. The interest rate, maturity, conversion rate and other terms of the debentures have not yet been determined.

Russell Q1 net sales set record
Russell Corp. (NYSE: RML) reported fiscal 2005 first-quarter net sales of $313.2 million, a 24 percent increase over the comparable period last year — a new sales record for the first quarter. The company reported first-quarter earnings of $2.2 million, or $.07 per diluted share, versus earnings of $0.5 million, or $.02 per diluted share, in first quarter 2004.

Sales for the quarter reflect a 3 percent increase in the company’s ongoing businesses, in addition to $54 million of incremental sales for acquisitions owned for less than a year. Company-wide organic sales were up 5 percent over a year ago.

Gross profit was $85.9 million, or a 27.4 percent gross margin, for the 2005 first quarter versus a gross profit of $64.6 million, or a 25.7 percent gross margin, in the prior year. Lower manufacturing costs and contributions from acquisitions positively impacted gross profit during the quarter.

Selling, general and administrative expenses (“SG&A”) for the 2005 first quarter were $73.5 million, or 23.5 percent of net sales, versus last year’s $56.5 million, or 22.4 percent of net sales in the comparable period last year. SG&A increased primarily due to the higher relative SG&A expenses associated with recent acquisitions. The first quarter of 2005 includes approximately $.02 cents per share in extra expenses associated with the compliance and testing of Sarbanes-Oxley 404.

The company said it is reaffirming its 2005 fiscal year guidance for sales and earnings, expecting sales in the range of $1.50 billion to $1.52 billion versus $1.298 billion last year. It also reaffirmed its quarterly ongoing earnings guidance issued earlier this year. “We continue to see positive results from our expansion in all three categories of the sporting goods business: sports apparel, sporting goods equipment and performance footwear,” said Jack Ward, chairman and CEO.

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