Fitness financials: Dick's to restate annual reports after accounting review, plus TSA, Visa/MC increase interchange

Dick’s adjusts numbers based on accounting review
Dick’s Sporting Goods (NYSE: DKS) has completed the review of its accounting for leases, tenant and construction allowances and found that they are not consistent with generally accepted accounting standards and is restating past annual reports.

Dick’s said that previously reported earnings per share is unchanged from the $0.79 and $1.30 for the quarter and year ended Jan. 29, 2005, respectively. However, Dick’s said it is restating the previously issued consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended Jan. 31, 2004, and all years presented, and intends to restate the Form 10-Q’s filed for the first three quarters of fiscal 2004. The effect of the restatement will be to increase earnings reported in the most recent period ended Jan. 29, 2005, due to restating prior years rather than including the prior year’s effect in the current reporting period.

As previously reported, the fourth quarter ended Jan. 29, 2005, included an after-tax cumulative charge of $2.6 million, or $0.05 per share of which $471,000, or $0.01 per share related to fiscal 2004. Due to Dick’s decision to restate previously issued consolidated financial statements, only the current year income statement effect will be recorded in 2004 and the effect remains $0.01 as previously reported. Its earnings per share for the quarter and year ended Jan. 29, 2005, have each increased by $0.04, and are now $0.79 and $1.30, respectively.

Dick’s said there will be an increase in net income of $2.0 million for the fiscal year ended Jan. 29, 2005, and a reduction of net income of $0.4 million, $0.1 million and $0.2 million for the fiscal years ended Jan. 31, 2004, Feb. 1, 2003, and Feb. 2, 2002, respectively. The impact on previously released earnings per share will be an increase of $0.04 for the fiscal year ended Jan. 29, 2005, and a reduction in earnings per share of $0.01 for each of the fiscal years ended Jan. 31, 2004, and Feb. 2, 2002, with no change in earnings per share for the fiscal year ended Feb. 1, 2003.

Dick’s said the restatement of previously issued consolidated financial statements will not have an impact on total net cash flows during any of the periods amended.

TSA execs talk to analysts about effects of Gart merger
Executives from The Sports Authority met with financial analysts and institutional investors to discuss its progress and developments since its 2003 merger with Gart Sports. Although CEO and Chairman Doug Morton noted it was a merger of equals with similar strategies, the challenge was to develop a new strategy for the merged entity and improve distribution. Despite delays in getting the system up and running, brands that were taking 35 days to replenish supplies to its store are now being delivered in eight to 10 days. Morton said this has had “a big impact on our inventory turnover and a big impact on our in-stock merchandise, which is a key concern going forward.”

The retailer has also spent time streamlining distribution and the supply chain. “We began 2004 with zero percent of our goods being shipped to a distribution center and already packed for a store,” Morton said. By February that had changed to 35 percent of merchandise shipped to its distribution centers was being packed to go directly onto store shelves. Within the next 12 to 18 months, it wants to increase that to 50 percent to 60 percent. Also, by next year it plans to operate all stores under the Sports Authority name. It has been changing Gart Stores to The Sports Authority in waves to gauge customer reaction and impact.

Major credit card companies increase interchange
As of April 1, both Visa and MasterCard have increased their interchanges. Interchange is a percentage of each transaction — sometimes accompanied by a flat fee — that banks collect from retailers every time a credit card or debit card is used to pay for a purchase, adding up to billions of dollars each year. The National Retail Federation (NRF) said an average is difficult to calculate because of the complicated fee structure, but the increases range from 2.7 percent for Visa Consumer Standard Credit to 9 percent or more on typical retail purchases for MasterCard Corporate Face-to-Face transactions. In addition, some transactions are being moved into new categories, having the effect of a rate increase for merchants even where published rates are unchanged. Fees for a few categories of transactions will decrease slightly, but most will increase.

The April increases are part of a long-term trend in rising interchange rates, the NRF said. A recent Morgan Stanley report found that the weighted average for Visa and MasterCard interchange had increased from 1.58 percent in 1998 to 1.75 percent in 2004 and is forecast to grow to 1.86 percent in 2010. Dollar volume has grown from $9.4 billion in 1998 to $17.4 billion and is projected to reach $32.4 billion in 2010.

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