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Fitness Financials: Dick's hits rough spot, slashes guidance, plus The Sports Authority, Hibbett, Russell, Foot Locker, Sport Chalet, Health Fitness Corp., Reebok/SEC, Nike, Wal-Mart

Fitness financials: Dick's slashes full-year guidance. TSA doubles Q2 profit. Hibbett offers stock split. Russell eliminates president/COO position. Foot Locker profit Q2 cut in half. Same-store sales increase boosts Sport Chalet's Q1 '06. Health Fitness gets a Q2 boost from two divisions. Intricate web of insider trading alleged in Reebok deal. Nike declares dividend. Wal-Mart reports record sales.

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Dick’s hits rocky patch as it slashes full-year guidance
Although its second-quarter profit was up 24 percent, Dick’s Sporting Goods (NYSE: DKS) cut its outlook for the year, subsequently causing its stock to fall. Higher revenue and added sales from its 2004 acquisition of Galyan’s stores didn’t save Dick’s from losing as much as 16 percent on the New York Stock Exchange, closing at $32.90 on Aug. 16. The stock has traded in a 52-week range of $26.75 to $40.42.

Dick’s net income grew to $22.1 million, or $0.41 per share, from $17.9 million, or $0.34 per share, a year ago. Excluding merger and store closing costs, earnings were $24.2 million, or $0.45 per share, in line with the company’s estimates. Revenue rose 50 percent to $622 million from $416.1 million last year, boosted by added revenue from Galyan’s stores and a same-store sales increase of 0.5 percent. Analysts expected earnings per share of $0.45 on revenue of $654.3 million.

Reverting to an older guidance for the year, Dick’s said it’s forecasting third-quarter earnings per share of $0.06 to $0.08. It lowered its full-year outlook to $1.70 to 1.75 per share — its guidance from June 2004 coinciding with the announcement of the Galyan’s acquisition — from its most recent guidance of $1.82 to 1.87. Excluding merger expenses and other one-time charges, the company expects full-year earnings per share of $1.27 to $1.32. Analysts expected earnings per share of $0.17 for the third quarter and $1.85 for the year.

Dick’s said the reason it cut sales expectations is that stores acquired in the takeover of Galyan’s have lagged.

“We still think it was the right move to buy them as it allowed us to get into a number of markets that would have been extremely difficult and expensive to get into, or we wouldn’t have gotten into them at all,” Ed Stack, Dick’s chairman and CEO, said in a conference call with analysts.

During the second quarter, Dick’s opened three stores and relocated one store. As of July 30, the company operated a total of 239 stores. When it announced its acquisition of Galyan’s, it operated 169 stores and Galyan’s had 47 stores.

TSA doubles Q2 profit, partly on higher fitness sales
The Sports Authority’s (NYSE: TSA) second-quarter profit more than doubled on higher sales in several key categories, including active apparel and fitness, surpassing Wall Street projections.

Quarterly profit rose to $14.2 million, or $0.53 per share, compared with $6.8 million, or $0.26 share, last year. Sales rose 2 percent to $617 million from $605 million. It exceeded analysts’ expectations of $0.49 per share, but missed their projected sales of $623.9 million. Same-store sales rose 0.2 percent.

“We exceeded earnings expectations for the second quarter driven by improvements in gross margin and effective management of our operating expenses,” CEO Doug Morton said in a statement. “We were pleased with the sales performance of several key categories including active apparel and fitness; however, the impact on our top line performance was greater than expected due to our decision not to repeat certain promotional events.”

He added that the decrease in promotional events resulted in an improved gross margin rate and higher gross margin dollars, which helped boost earnings per share performance during the quarter.

In the third quarter, it expects to earn $0.09 a share on sales of $565 million, in line with analyst estimates. Same-store sales are expected to increase 1 percent to 2 percent over 2004. For fiscal 2005, the company is lifting its earnings forecast to a range of $1.96 to $2.01 a share from its previous estimate of $1.90 to $1.97 a share.

Hibbett offers stock split
Hibbett Sporting Goods’ (Nasdaq: HIBB) second-quarter net income was $4.9 million, or $0.21 per diluted share, compared with restated net earnings in the year-earlier period of $2.9 million, or $0.12 per diluted share. Net sales increased 15 percent to $94 million compared with $81.8 million in the same period last year. Same-store sales were up 3.1 percent year over year.

The company also announced that its board has declared a 3-for-2 stock split, in the form of a 50-percent stock dividend. The new shares will be distributed by Sept. 27 to stockholders of record on Sept. 9. Following the effective date of the split, the company will have approximately 35.7 million shares of common stock outstanding.

Hibbett opened 16 new stores and closed one store during the second quarter, bringing its store total to 508. The company said it plans to open about 70 new stores in fiscal 2006.

Russell eliminates president/COO position
In a move aimed at “flattening” its organizational scheme, Russell Corp. is eliminating the position of president and chief operating officer. Current President and Chief Operating Officer Jon Letzler, who has filled that position since July 2001, will leave the company immediately.

Russell Chairman and CEO Jack Ward said in a statement that eliminating the position will help speed processes and create “more accountability” within the company’s business units. In July, Russell reported what Ward termed “disappointing” second-quarter earnings, and warned that it might “take certain actions to improve organizational effectiveness and reduce administrative costs which could result in special charges.”

In a SEC filing, Russell said it would pay Letzler a prorated portion of the bonus for which he is eligible for 2005, at the rate the bonus is earned but not less than 50 percent of his 2005 salary. For two years, he will be paid his final salary of $440,000 a year and bonus of $220,000. Options held by Letzler to buy 300,000 shares of the company’s common stock will remain exercisable for three years, or, if earlier, until their normal expiration date.

Russell said it expects to take a charge in the third quarter tied to Letzler’s departure and benefits he is entitled to under his employment agreement. The charge is expected to total $0.05 to $0.06 per share in the third quarter.

Foot Locker profit Q2 cut in half
Foot Locker (NYSE: FL) took a big hit from weak European sales, watching its second-quarter profit fall to $44 million, or $0.28 per share, from $82 million, or $0.53 per share, a year earlier. The year-ago results included an income tax benefit of $37 million, or $0.24 per share, from discontinued operations. Excluding that item, the latest results fell 3 percent compared with earnings from continuing operations of $45 million, or $0.29 per share, a year ago. The company said a higher tax rate this year also hurt its earnings comparison by $0.07 per share. Sales grew 3 percent to $1.3 billion from $1.27 billion last year, with same-store sales up 1.3 percent in the latest quarter.

Foot Locker said its Champs Sports division posted good results and it expects its Footaction business to contribute “meaningfully” to results through year-end. The company said it expects earnings per share from continuing operations to increase 2 percent to 12 percent in the third and fourth quarters. In May, Foot Locker said it expected income per share from continuing operations to increase in the 10 percent to 20 percent range for the balance of the year.

Same-store sales increase boosts Sport Chalet’s Q1 ’06
Sport Chalet (Nasdaq: SPCH) saw its first-quarter 2006 sales increase 17.2 percent from last year’s $61.5 million to $72.1 million this year. The retailer said the increase is the result of opening five new stores as well as a same-store sales increase of 4.9 percent — boosted by strong performance in the footwear category.

Net income increased $252,000, or 183.9 percent from $137,000, or $0.02 per diluted share for the quarter ended June 30, 2004, to $389,000, or $0.06 per diluted share for the same quarter this year. Gross margin increased from 28.9 percent to 29.5 percent, primarily due to the increase in same store sales which reduced the need for markdowns, it said.

Health Fitness gets a Q2 boost from two divisions
Health Fitness Corp.’s (HFIT) revenue was up 4.2 percent for the second quarter as a result of a 1.5 percent increase from its fitness management business and a 14.8 percent increase from its health management business. Revenue was $13.6 million compared to last year’s $13.1 million. Gross profit increased 0.2 percent to $3.45 million from $3.44 million. Net earnings increased 5.8 percent to $498,183, from $470,754 for the same quarter last year. Net earnings per diluted share of $0.03 remained unchanged from $0.03 for the same quarter last year.

Intricate web of insider trading alleged in Reebok deal
It seems the heads of Reebok International (NYSE: RBK) and adidas-Salomon (ADS.F) weren’t the only ones hoping to make a killing off the sale of the Canton, Mass.-based, shoemaker to the Germany-based company, with as many as nine people being charged by U.S. authorities with insider trading in Reebok share options.

First on the radar was Sonja Anticevic, a 63-year-old woman living in the small city of Omis on the Croatian coast. She is a retired tailor who sometimes works as a cleaning lady to supplement her monthly pension of 1,600 kuna ($263). The U.S. Securities and Exchange Commission said Anticevic allegedly purchased $130,000 worth of call contacts — options to purchase Reebok stock at set price. When Reebok shares rose after its $3.8 billion acquisition by adidas-Salomon was announced, Anticevic exercised the options, buying Reebok shares at the lower price, and then reselling them at the higher market price for a profit of $2 million. The SEC said the timing was enough to raise suspicions and led to the freezing of Anticevic’s assets while the SEC investigates.

Since that time, the SEC said it won a court order freezing brokerage accounts holding “more than $6 million in illicit gains” to prevent the money from being wired out of the United States. The new SEC charges widen an unusual case of trading misconduct and phony identities allegedly orchestrated through a network of personal and online connections stretching from Croatia, Germany, Denmark and Austria to New York and London.

Central to the scheme, the SEC said, was David Pajcin, a 28-year-old former broker from Clifton, N.J., and, conincedentally, Anticevic’s nephew. In various reports, Anticevic said she knew nothing of the SEC charges or stock markets. The SEC has been looking into whether the Anticevic account at CyberTrader Inc., a Charles Schwab Corp. unit, was set up and managed in the woman’s name by someone else.

The SEC said in a court filing that Pajcin “placed some of the Reebok trades at issue himself, or directed, recommended, or tipped some or all of the other defendants to place Reebok trades as part of a common trading scheme.”

Besides Pajcin, the SEC said other defendants added to the case included three New York area residents: Henry Siegel, Monika Vujovic and Elvis Santana. Also charged were two residents of Zagreb — Ilija Borac and Zoran Sormaz — as well as Perica Lopandic, a resident of Reinbek, Germany, the commission said.

Nike declares dividend
Nike’s (NYSE: NKE) board of directors declared a cash dividend of $0.25 per share on its outstanding Class A Common Stock and Class B Common Stock payable on Oct. 3, 2005, to shareholders of record at the close of business on Sept. 12, 2005.

Wal-Mart reports record sales
Wal-Mart Stores (NYSE: WMT) reported record second-quarter net sales of $76.8 billion, an increase of 10.2 percent over the second quarter of fiscal 2005. Net income for the quarter was $2.8 billion, an increase of 5.8 percent from $2.7 billion in the second quarter of fiscal 2005. Earnings per share were $0.67, up from $0.62 per share in the same prior year quarter. Its Wal-Mart Stores division had a sales increase of 10.4 percent to $51.809 billion from last year’s $46.914 billion. Total U.S. comparable sales for the quarter increased 3.5 percent, with a 3.6 percent comp increase for the Wal-Mart Stores division.

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