Fitness financials: Icon faces 1Q sales declines, plus Bally, Forzani Group, Winmark (Play it Again Sports), Gaiam

Icon ends quarter with sales declines lower than expected
Stumbling backward, Icon Health & Fitness reported sales for the first quarter of its 2005 fiscal year of $170.3 million, down $27.5 million (13.9 percent) over the first quarter of fiscal 2004, but nearly identical to its first quarter 2003 sales of $170.2 million.

EBITDA (“earnings before net interest expense, income taxes, depreciation and amortization”) for the first quarter of fiscal 2005 was negative $18.6 million compared to $10.2 million for the first quarter of fiscal 2004 (5.2 percent of net sales). That compares to first quarter 2003 EBITDA of $6.3 million, or 3.7 percent of net sales.

Gross profit in the first quarter of fiscal 2005 was $35.4 million, or 20.8 percent of net sales, compared to $63.6 million, or 32.2 percent of net sales, in the first quarter of fiscal 2004. For the first quarter of 2003, gross profit was $43.4 million, or 25.5 percent of net sales.

In the company’s 10-Q statement filed with the Securities and Exchange Commission, the company blames the decrease in sales and profits in part on increased commodity prices, particularly steel, plastics, wood and paper products, plus increases in transportation costs and unfavorable manufacturing variances.

Net loss for the first quarter of fiscal 2005 was $20.8 million, compared to a net loss of $1.7 million for the first quarter of fiscal 2004. Going back to first quarter of 2003, net loss was $3.4 million. Net loss before taxes for the first quarter of fiscal 2005 was $30.7 million, compared to a net loss before taxes of $1.3 million for the first quarter of fiscal 2004, and of $4.6 million for first quarter 2003.

Sales of the company’s cardiovascular and other equipment in the first quarter of fiscal 2005 decreased $15.3 million, or 9.6 percent, to $143.4 million. Sales of strength-training equipment in the first quarter of fiscal 2005 decreased $12.3 million, or 31.4 percent, to $26.8 million. Those decreases compare to increases in sales in the first quarter of 2004: $12.0 million, or 8.2 percent, to $158.7 million, for cardiovascular, and $15.6 million, or 66.4 percent, to $39.1 million for strength-training equipment.

In addition, working capital decreased to $89.4 million at the end of this quarter, compared to $109.9 million at the end of the previous quarter. The company stated the decrease was attributable to an increase in the current portion of long-term debt and accounts payable due to build up of inventory for the upcoming busy season.

To the entire 10-Q, click here.

Bally’s pending class-action lawsuit still pending
The 10 law firms involved in a class-action lawsuit against Bally Total Fitness (NYSE: BFT) entered replies in U.S. District Court for the Northern District of Illinois late last week to their requests to be appointed as lead plaintiff. In September, each of the firms asked the judge to appoint their plaintiffs as leads. In the replies the firms filed last week, lawyers re-stated the reasons their clients should be named as the lead. There are currently 10 law firms representing shareholders of Bally stock. After the lead plaintiff is chosen, the case will be consolidated, and one or two firms will manage the case for all shareholders involved. According to legal sources, Bally will probably file for dismissal of the case after the lead plaintiff is chosen, as is normally done in such cases. No court dates have been set yet for these actions. Shareholders initiated the case in late spring after Bally restated revenue numbers (see SNEWS® story summarizing the case, June 4, 2004, “Bally faces shareholder class-action suit after revenue restatement”). Plaintiffs charge that they paid artificially inflated stock prices.

Forzani Group stock getting analysts’ raised eyebrows
CANADA — In a report in the Toronto Globe and Mail newspaper after the Forzani Group announced scaled-back guidance and a rough third quarter, it was noted that the company is still making money, but “the slowdown has the Street starting to get used to the idea of underperformance.” The paper quoted George Hartman of Dundee Securities Inc. who said he had put a “market underperform” on the stock, with a target of $8.50. Forzani stock (TSX: FGL) closed on Oct. 15 at $10.45. Hartman also told the paper, “These results reflect deeper problems in strategy and inventory management.”

Play It Again Sports’ parent has a low quarter
Winmark Corp. (NasdaqNM: WINA), a franchiser of used-merchandise retail stores including Play It Again Sports, reported its third-quarter earnings fell 8 percent on lower revenue. For quarter ending Sept. 25, 2004, the company reported earnings of $1 million, or 15 cents per share, compared with $1.1 million, or 17 cents per share in the year-ago quarter. The results were based on revenue of $6.5 million, down 18 percent from $8 million last year. Quarterly merchandise sales were $2 million, compared with $3.6 million a year ago. The decrease was offset by increased revenue from royalties, which totaled $4.1 during the quarter, up from $3.9 million last year. “Our third quarter saw an increase in revenues from royalties, as our franchisee partners continue to improve despite an unpredictable retail environment,” Chairman and CEO John Morgan said in a statement. At the end of the quarter, the company had 811 stores in operation and an additional 34 franchises awarded but not yet open.

Gaiam hires new accountant
Gaiam’s (NasdaqNM: GAIA) audit committee has hired Ehrhardt Keefe Steiner & Hottman PC (EKS&H) to serve as its independent accounting firm for the fiscal year ending Dec. 31, 2004. The accounting firm’s service begins with the filing of Gaiam’s Form 10-Q for the quarter ended Sept. 20, 2004. Based in Denver, Colo., EKS&H is the third largest accounting firm in the Rocky Mountain region.

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