Fitness financials: Brunswick stock drops 13 percent as it lowers yearly forecast, plus Big 5, Saucony/Stride Rite, Nike, Russell, Sport Chalet, Cybex, Forzani, NRF, Finish Line, Reebok, consumer index, Amer, Wal-Mart

Brunswick stock drops 13 percent as it lowers yearly forecast
As its marine division moves into the off season, Brunswick Corp. (NYSE: BC) said it has “tempered the assumptions behind our previous earnings estimates” as it sees how the economy pans out after the triple whammy of high fuel prices, lower consumer confidence and Hurricane Katrina.

The company said it is cutting production rates among its boat brands to prepare for this expected slackening of demand, adding that it can speed up production if the expected drop-off in marine demand does not occur. George Buckley, Brunswick’s chairman and CEO, added, “We continue to see strong performances from our fitness, electronics and bowling and billiards businesses, which are heading into their stronger seasons.”

Brunswick had formerly estimated that diluted earnings per share for 2005 would be in the range of $3.30 to $3.40. It is adjusting that range to $3.20 to $3.25. For the quarter ending Sept. 30, 2005, it’s estimating diluted earnings per share in the range of $0.70 to $0.74, which compares to $0.65 in the year-ago third quarter, excluding a $0.10 tax benefit in 2004.

The company noted that estimates for 2005 exclude a $0.32 per diluted share gain on the sale of securities recorded in the first quarter of the year, as well as anticipated tax adjustments, which are estimated to be in the same order of magnitude as the $0.10 per diluted share tax benefit recorded in the third quarter of 2004.

As a result of the lowered earnings outlook and reduced production, its stock sank 13 percent or $5.52 to close at $36.98 on the New York Stock Exchange. The stock had traded as high as $49.85 last fall, though it has recently traded in the low-$40 range.

Big 5’s SEC filings up to date, hopes to regain BGFV symbol
After many fits and stalls, Big 5 Sporting Goods (Nasdaq: BGFVE) had filed reports for the first and second quarters of 2005, setting the stage for it to comply with Nasdaq listing rules. Now current with its SEC filings, the company said it expects the fifth character “E” will soon be removed from its ticker symbol on Nasdaq and its trading symbol will be restored to “BGFV.”

The company said it expects that changes in the application of accounting methodologies as part of the restatement may continue to have an impact on previously issued earnings guidance for the remainder of fiscal 2005. As a result, previously issued full-year guidance should not be relied upon, it said.

Restated net income for the first quarter of 2005 decreased to $6.4 million, or $0.28 per diluted share, compared with previously restated net income of $7.9 million, or $0.34 per diluted share, in the year earlier quarter. Before the restatement, originally the company had reported preliminary first quarter net income of $7.2 million, or $0.32 per diluted share.

For the second ended in June 2005, net income decreased to $6.1 million, or $0.27 per diluted share, for the fiscal 2005 second quarter, compared to restated net income of $7.7 million, or $0.34 a diluted share, in the year-ago period.

The latest first-quarter results included pretax charges of around $800,000, or $0.02 per diluted share, for legal and audit fees related to the company’s restatement along with a flood loss at one of the company’s store locations.

These results were hurt by new allowances to cover returned inventory. The application of these new allowances and the volume of returned goods inventories cut pretax first quarter 2005 earnings by about $600,000, or $0.02 per diluted share. However, 2004 first-quarter pretax results were boosted by about $900,000 or $0.02 per diluted share.

Net income for the 2005 first quarter was boosted by revised inventory capitalization accounting methods by about $400,000, or $0.01 per diluted share. The same change added $800,000, or $0.02 a diluted share, to 2004’s first quarter.

Net income for the 2004 second quarter included a pretax charge of about $800,000, or $0.02 per diluted share, tied to the redemption of $15 million principal amount of the company’s 10.875 percent senior debt.

Second-quarter 2005 results included pretax charges of $1.9 million (pretax), or $0.05 per diluted share, tied to legal and audit fees related to the restatement and other matters. It also reflected another roughly $700,000, or $0.02 per diluted share, tied to the recognition of rent and other costs for starting the transition of operations to the company’s new distribution center. The company had previously had believed it would not be required to recognize rent for the new distribution center until the third quarter of 2005.

Looking ahead, the company also said it expects to realize same-store sales growth in the low to mid-single digit percentage range for the third quarter of fiscal 2005.

Saucony parent reports 4 percent increase in net sales
The Stride Rite Corp. (NYSE: SRR), parent of newly acquired Saucony and Hind, reported a 4 percent increase in third-quarter net sales, which were $146.2 million versus $140.4 million last year. The results beat Wall Street estimates and the company’s shares climbed almost 5 percent in pre-market trading to $12.95.

Operating income was $11.1 million, an 18 percent increase from the prior year’s quarter. Net income for the third quarter totaled $7.7 million, or $0.21 per diluted share, an increase of 24 percent compared to the net income of $6.2 million or $0.16 per diluted share in the third quarter of 2004.

Operating expenses in the third quarter of 2005 increased 13 percent compared to the same period last year, mostly due to higher advertising costs and the Stride Rite Children’s Group retail store expansion. Excluding those costs, operating expenses increased 3 percent versus last year.

Stride Rite completed the sale of Saucony and its brands in mid-September and is moving ahead quickly to implement its integration plans.

Nike’s Q1 easily beats analyst estimates
First-quarter earnings for Nike (NYSE: NKE) were up 32 percent to $432.3 million, or $1.61 per share, and well ahead of analyst expectations of $1.42 per share. Last year’s earnings were $326.8 million, or $1.21 a share.

Concerns that soft back-to-school sales among some of Nike’s retail partners, such as Foot Locker and Finish Line, and higher gas prices could crimp consumer spending didn’t materialize.

Revenue gained 8 percent to $3.86 billion from $3.56 billion in the same period a year earlier. Worldwide futures orders for athletic footwear and apparel scheduled for delivery from September through January totaled $4.9 billion, an 11 percent increase from a year ago.

Nike recorded growth across all regions, as well as throughout its portfolio of goods. In the United States, quarterly pretax income increased 7 percent to $345.2 million on 8 percent revenue growth to $1.5 billion. Footwear revenue gained 11 percent to $1 billion, while apparel added 1 percent to $395.5 million and equipment sales added 4 percent to $92.3 million.

Pretax income from Europe gained 34 percent to $330.2 million, while revenue advanced 5 percent to $1.22 billion. Favorable currency exchange added 1 percentage point to revenue growth. Footwear revenue expanded 3 percent to $685.1 million, apparel rose 1 percent to $435.2 million and revenue from equipment gained 14 percent to $97.2 million.

The Asia-Pacific region posted a 44 percent rise in pre-tax income on a 32 percent rise in revenue, while the Americas business saw pre-tax income more than double on 32 percent revenue growth.

Nike stock shot up 6.4 percent, or $4.99, to close at $83.45. Shares traded as high as $85.25 earlier in the session.

Russell stock drops, hobbled by several factors
Shares of Russell Corp.’s (NYSE: RML) stock fell 14 percent — a 52-week low — after lowering its third-quarter forecast and trimming its guidance for the year as a result of delayed passage of trade legislation and the effects of Hurricane Katrina.

Russell shares fell $2.51 to $15.48 in morning trading on the New York Stock Exchange after hitting a new 52-week low of $15.02. Company shares are down nearly 21 percent so far this year.

Russell said it now estimates third-quarter earnings per share of $0.50 to $0.60, down from $0.62 to $0.70 per share, and full-year earnings per share of $1.25 to $1.35, down from $1.40 to $1.48. The lowered estimates, though, do not include expected costs of $0.16 to $0.20 per share from disruptions caused by Katrina.

Russell partly attributes its woes to the delay in passage of the Central American Free Trade Agreement, forcing it to still pay higher-than-expected duties. The company expects passage of the legislation in January. Also, Hurrican Katrina disrupted Russell’s primary port of entry for finished goods in Gulfport, Miss., and resulted in the loss of more than 40 containers of product that cannot be replaced to customers by the fall season. The use of other ports such as Miami have only elevated costs.

Sport Chalet shareholders get down to business at annual meeting
Sport Chalet (Nasdaq: SPCH) had an eventful annual meeting of stockholders, resulting in an election of Class 1 directors, a stock dividend and a new Class B ticker symbol, among other things.

At the meeting, the stockholders approved an amendment of the company’s Amended and Restated Certificate of Incorporation that increases the authorized number of shares of all classes of capital stock from 17 million to 50 million, consisting of 46 million shares of Class A Common Stock, 2 million shares of Class B Common Stock and 2 million shares of preferred stock. The amendment establishes the rights, preferences and privileges of, and the restrictions on, the Class A Common Stock and the Class B Common Stock, and reclassifies each outstanding share of Common Stock as 0.25 share of Class B Common Stock.

It also elected Al McCready, Eric Olberz and Frederick Schneider as Class 1 directors to hold office until the 2008 meeting; approved a transfer of shares of Class B Common Stock by The Olberz Family Trust to Craig Levra, chairman and CEO, and Howard Kaminsky, CFO; approved amendments of the company’s 1992 Incentive Award Plan and 2004 Equity Incentive Plan; and ratified the appointment of Moss Adams LLP as the company’s independent registered public accounting firm.

The board also declared a stock dividend payable on Sept. 29, 2005, to stockholders of record on Sept. 22, 2005. Under the terms of the stock dividend, each stockholder received seven shares of Class A Common Stock for each share of Class B Common Stock held on the record date.

Sport Chalet also announced that its Class B common stock will trade under a new ticker symbol — SPCHB. The commencement of trading of Class B Common Stock follows the approval of the company’s recapitalization plan at the annual meeting of stockholders which resulted in the reclassification of each outstanding share of common stock into 0.25 shares of Class B Common Stock. Sport Chalet anticipated that on Sept. 30, 2005, the Class B Common Stock will start trading ex-dividend of the Class A Common Stock dividend. After Sept. 30, 2005, the Class A Common Stock will trade under the ticker symbol SPCHA.

Cybex downgraded
Cybex (AMEX: CYB) was downgraded by Adams Harkness on Oct. 3. The company formerly had a “buy” rating which has been changed to “market perform.”

Forzani reports strong back-to-school sales
Sales for the Forzani Group (TSX: FGL) during the six-week back-to-school period rose 20 percent on strong sales and margins over last year. Taking out the recent additions of Nevada Bob’s and National Sports, retail system sales were up 8.4 percent.

Overall comparable store sales for the six-week period increased 5.0 percent, compared to a 3.9 percent decrease last year. Corporate comparable store sales were up 4.7 percent compared to a 6.2 percent decrease last year, while the franchise network enjoyed solid results for the same period, with comparable store sales up 5.6 percent versus 2 percent last year. The company said corporate store margins rebounded strongly, as expected, and were considerably higher than the prior year, driven by its Sport Chek stores.

The Forzani Group Ltd. is Canada’s largest national retailer of sporting goods, operating stores under four corporate banners: Sport Chek, Coast Mountain Sports, Sport Mart and National Sports. It had announced last year a fitness specialty concept it would open earlier this year but has told SNEWS® it has been delayed a number of months.

NRF forecasts jolly holiday season for retailers
Total holiday retail sales are expected to increase 5 percent over last year, bringing holiday spending to $435.3 billion, according to the National Retail Federation. In comparison, holiday sales in 2004 rose 6.7 percent to $414.7 billion — the strongest holiday season in five years.
 
“A combination of many factors, including energy prices, the job market, disposable income, and consumer confidence, will ultimately affect retailers’ sales this holiday season,” said NRF Chief Economist Rosalind Wells. “Though it might be easy to label gas prices as the make-or-break factor for the holidays, it is crucial for analysts to look at the big picture instead of isolating one economic indicator to project sales.”Â
 
One-fifth of retail industry sales (19.9 percent) occur during the holiday season. This year, retailers will struggle with tough comparisons over 2004, which will make significant gains more difficult to achieve, NRF said. Additionally, the effects of Hurricane Katrina and high prices at the pump play a role in the tempered outlook. However, NRF maintains that steady consumer spending and strong second- and third-quarter gains indicate potential for a solid holiday season.
 
NRF added that retailers are expected to be aggressive in their pricing strategies throughout the entire holiday season, planning holiday sales and promotions. But, NRF added, discounted prices won’t have a negative effect on profits.

Finish Line’s Q2 slips
Finish Line’s (Nasdaq: FINL) second-quarter profit fell 8 percent on weaker back-to-school sales but was still in line with Wall Street expectations.

Net income slipped to $18.9 million, or $0.38 per share, from $20.5 million, or $0.42 per share, a year ago. Sales were $341.6 million, up 9 percent from $312.2 million a year ago. Same-store net sales decreased 2 percent for quarter compared to the 6Â percent increase reported last year. The company said that it expects business to remain challenging during the second half of the fiscal year.

On average, analysts said they expected earnings of $0.38 on slightly higher sales of $343.3 million.

Reebok shareholder files class-action lawsuit over sale to adidas
A Reebok (NYSE: RBK) shareholder has filed a lawsuit against the company and its directors, claiming a $3.8 billion buyout offer by German sporting goods maker adidas-Salomon AG (ADSG.DE) is “grossly inadequate.”

The proposed class-action lawsuit by Bryan Jennings, filed Aug. 12 in Norfolk County, Mass., alleges Reebok directors failed to determine sufficiently the true value of the company through a market check or open bidding, the company said in a recent filing with the Securities and Exchange Commission. No word on how many shares Jennings actually owns.

adidas plans to buy the outstanding shares of Reebok for $59 per share in cash. Reebok’s shares, currently trading at $56.38 on the New York Stock Exchange, jumped 30 percent on news of the merger in early August. The merger is expected to be complete by the first half of 2006.

In a preliminary proxy statement filed with the SEC, Reebok said that the complaint alleges that directors “breached their fiduciary duties” and that the payment to shareholders “is unfair and grossly inadequate.”

The complaint, which seeks unspecified damages, asks the courts to stop the merger agreement and direct the company to sell or auction Reebok for the highest possible price. Reebok said in its SEC filing that it planned to vigorously defend itself against the lawsuit, which it said was without merit.

Amer’s acquisition of Salomon delayed
Amer Sports said the completion of its acquisition of the Salomon business segment from adidas-Salomon AG has been delayed until mid-October. The sale was originally expected to close in September. Amer said the change is due to the EU competition authorities’ revised processing schedule and will not impact the financial terms of the transaction. Salomon consolidation within Amer is still expected to start on Oct. 1.

Consumer confidence index hits a new low
The consumer confidence index fell to 86.6 in September from 105.5 in August, according to the Conference Board, a consumer research center. It’s the lowest level since October 2003. The decline was larger than expected, as economists were expecting the index to decline to 94.9. Other consumer surveys, including the University of Michigan survey, have shown dramatic declines in consumer confidence because of Hurricane Katrina.

Economists said it would be premature to conclude that consumer spending will follow confidence down. The key to the spending outlook are higher energy prices. Fuel prices have remained high in the wake of Katrina and Hurricane Rita. This will curb spending in the short run, the Conference Board said. As rebuilding efforts take hold and job growth gains momentum, consumers’ confidence should rebound and return to more positive levels by year-end or early 2006, it added.

Wal-Mart releases preliminary September sales report
Wal-Mart Stores (NYSE:WMT) estimated that its U.S. same-store sales for September rose 3.8 percent, near the high end of its forecast range. Demand for hurricane recovery supplies like bottled water and clothing, as well as higher prices for the gasoline sold at its Sam’s Club warehouse stores, boosted sales in the five weeks. Excluding higher gasoline prices, sales at stores open at least a year — or same-store sales — would have been up 3.2 percent, Wal-Mart said. The world’s biggest retailer had forecast a 2 percent to 4 percent increase in September same-store sales. Wal-Mart will issue its final September sales report on Thursday.

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