Fitness financials: Forzani Group denies rumors about takeover, plus Everlast, Payless/Stride Rite, Foot Locker, Big 5, Costco

Forzani Group denies rumors about takeover
Forzani Group Ltd. (FGL.TO), Canada’s largest retailer of sporting goods, said it was not in talks with any party about a takeover, though it receives inquiries about acquisitions from time to time.

Forzani said it has received such inquiries more frequently recently, but none has resulted in a firm offer. It said there is no assurance that such talks, if entered, will result in a transaction.

The company made the statement after a newspaper report said U.S. private equity firms Cerberus Capital Management and Apollo Management were interested in the retailer.

Forzani said it does not discuss rumors and would make no further comment on the speculation.

Analysts noted that the timing of a takeover is not ideal because of Forzani’s current high valuation and unstable cash flow history. Typically, private equity firms buy public companies and reorganize or rebuild operations so they can later be sold at a profit.

Forzani, Canada’s largest sporting goods chain, has reported improved financial results as efforts to revamp its stores have paid off with bigger revenue and profit margins.

“There isn’t much that they (private equity) would have to do to come in and clean it up,” Canaccord Adams analyst Benoit Caron told Reuters in an interview. “Forzani is paying down all the debt on the balance sheet, all the big capital expenditure outlays are behind them. So it’s clear seas ahead, for at least two or three years.”

Forzani is the owner since early 2006 of Canada specialty fitness retailer Fitness Source.

Everlast agrees to investment group buyout for $146 million
Everlast Worldwide has agreed to be bought by a New York-based investment group for more than $146 million in cash, putting the boxing and sporting goods maker into private hands.

A consortium led by The Hidary Group will pay $26.50 per share, a 14.5 percent premium over the May 31 closing price. The per-share offer represents a 30 percent premium over Everlast’s average closing price over the last month, the company said.

The all-cash transaction, which was approved by the Everlast board in a special meeting, must still be approved by Everlast’s stockholders. The company said the transaction is expected to close in the third quarter.

Hidary is sponsoring the deal with additional investment by Gracie Capital, Ore Hill Partners and Seneca Capital.

Aquamarine Capital Management LLC, an investment firm with a 2.3 percent stake in Everlast, said it will vote against the buyout offer because it believes the price is too low.

It said the $26.50 per share takeover bid by The Hidary Group represents a “modest” premium of 14 percent over the previous day’s closing price, and less that 12 times its fiscal 2007 outlook for earnings before interest, taxes, depreciation and amortization.

Everlast recently has been conservative with its earnings forecasts, so the actual multiple could be 10 times EBITDA or even lower, Aquamarine said. It added that other fast-growing athletic and performance oriented consumer brands with lesser brand recognition, are valued at multiples which are 2x-3x greater.

Aquamarine highlighted Everlast’s strong name recognition, which is associated with boxers including Muhammad Ali, Mike Tyson and Jack Dempsey, as well as on-screen fighters such as Sylvester Stallone, Russell Crowe and Hillary Swank. It said such “extensive media exposure” allows Everlast to compete with much larger sportswear companies such as Nike, adidas and Puma.

A name synonymous with boxing, Everlast gloves and gear have been worn by fighters for decades. The company also produces or licenses its name for sports apparel, footwear and boxing bags and equipment.

Payless Q1 profits rise 8 percent
Payless ShoeSource (NYSE: PSS) said first-quarter profits rose 8 percent on stronger sales. The company recently signed a definitive agreement to buy Stride Rite, parent of Saucony and Hind.

The company reported earning $38.9 million, or $0.59 per share, during the period that ended May 5, compared with $36 million, or $0.53 per share, during the same period a year ago.

Revenue during the quarter increased 4.9 percent, from $694.5 million to $728.6 million. Same-store sales rose 5 percent during the quarter

The Topeka-based company announced last week that it plans to buy Stride Rite Corp. for $800 million and would then change the overall company’s name to Collective Branding Inc.

If approved by shareholders, Payless said it expects strong pro-forma financials:

>> The transaction is expected to be earnings per share accretive in fiscal year 2008.
>> The 2006 to 2009 compound annual growth rate in operating profit is expected to be in excess of 20 percent.
>> The debt leverage ratio for the new company is expected to return to Payless’ pre-transaction level within two to three years of the acquisition’s consummation.

The Payless business unit of Collective Brands should continue to achieve low single-digit positive same-store sales on a consistent basis through successful execution of its merchandising strategies, it said.

Payless also announced Tuesday the departure of William E. May, who was named chief operating officer last month. The company said he was resigning for personal reasons, effective immediately. The company didn’t have any immediate plans to replace May.

Genesco rejects Foot Locker’s second bid, open to sale
Genesco rejected Foot Locker’s (NYSE: FL) most recent conditional buyout offer of $51 per share following consultation with its financial adviser, Goldman Sachs & Co. The new bid followed the company’s rejection of a $46 per share takeover offer from Foot Locker last month.

Genesco said it was open to selling itself and invited Foot Locker to join in the process. But Foot Locker announced that it is no longer pursuing a takeover of the company.

In a note to investors, J.P. Morgan Securities analyst Robert Samuels wrote that Genesco “is worth substantially more” than both Foot Locker offers. “Even at $51, GCO is being valued at less than 8.5x EBITDA – a large discount to recent transactions in the space,” he wrote.

Big 5 switches accounting firms
Big 5 Sporting Goods (Nasdaq: BGFV) said it switched accounting firms, dismissing KPMG LLC and hiring Deloitte & Touche LLP, according to a filing with the SEC. The company said there were no disagreements with KPMG. But the company said KPMG did advise that it lacked staff with adequate technical accounting expertise to ensure the preparation of financial statements. Also, KPMG told the company it did not maintain effective controls in relation to the division of duties and user access to business process applications on the company’s primary information systems.

Costco Q3 profit Declines 5 percent
Costco’s (Nasdaq: COST) fiscal third-quarter profit fell 5 percent as the company continued to factor in the higher cost of product returns it discovered during an internal study this year. However, sales at the warehouse retailer advanced at a double-digit pace.

Earnings for the quarter ended May 13 slid to $224 million from $235.6 million. Per-share profit was unchanged year-over-year at $0.49.

The company’s third-quarter results included a $30.3 million after-tax charge reflecting the changes. Excluding the charge, profit totaled $0.56 per share.

Sales rose 10 percent to $14.34 billion from $13.01 billion. The increase in the returns reserve cut sales by $228.2 million.

Total revenue rose 10 percent to $14.66 billion. Same-store sales rose 7 percent.

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