Fitness financials: Icon records $110 million year-end loss and negative EBITDA, plus Forzani, Big 5, Bally, Finish Line, Amer, Nautilus, Costco, Wal-Mart

Icon Health & Fitness, which filed its year-end and quarterly statement a few days late after requesting a filing extension saying it needed extra time due to discontinued operations, reported net sales for the year ended May 31, 2005 were down 9.5 percent, or $94.1 million, to $898.1 million, from the previous year’s net sales of $992.2 million

Net loss for the year was $110.0 million, compared to net income of $23.4 million for the year ended May 31, 2004. Net loss before taxes for the year ended May 31, 2005 was $66.3 million, compared to a net income before taxes of $44.3 million for the previous year. Interest expense, including amortization of deferred financing fees, for the nine months ended May 31, 2005 was $28.9 million versus the prior year’s comparable period interest expense and amortization of deferred financing fees of $26.0 million. The loss from discontinued operations for the year ended May 31, 2005 net of a tax benefit of $19.4 million was $31.7 million compared to a loss on discontinued operations of $3.1 million net of tax benefit of $1.9 million for the year ended May 31, 2004.

Although the company lost income in two of the last three years, the loss in the third year exceeded the accumulative income in the previous two years, it reported in its filing to the SEC on Sept. 6.

In addition, for the year, the Logan, Utah-based company reported EBITDA for fiscal 2005 decreased $102.6 million (or down 112.7 percent) to a negative $11.6 million compared to $91.0 million for the previous year. Expressed as a percentage of net sales, EBITDA was a negative 1.3% in fiscal 2005 compared with 9.2% in fiscal 2004. In fiscal 2004, EBITDA decreased $7.5 million, or 7.6 percent, to $91.0 million. Expressed as a percentage of net sales, EBITDA was 9.2 percent in fiscal 2004 compared with 10.6 percent in fiscal 2003.

The company said the decrease in sales could be attributed to a consolidation of customers in the department store channel of distribution, the timing of buying patterns in that channel and a decline in the direct to consumer channel. Gross profit for fiscal 2005 was $227.7 million, or 25.3 percent of net sales, compared to $318.0 million, or 32.1 percent of net sales in fiscal 2004. This 28.4 percent was attributed by the company to changes in product mix, distribution channel mix, manufacturing inefficiencies, late release of products and increases in freight and commodity prices, such as steel, plastic and wood.

By segment, Icon also reported that sales of cardiovascular and other equipment in fiscal 2005 decreased $22.9 million to $764.2 million, while sales of strength training equipment in fiscal 2005 decreased $71.2 million to $133.9 million.

Quarterly report — For the three months ended May 31, 2005, Icon reported net sales of $190.7 million, compared to $199.0 million for the three months ended May 31, 2004, which represents a $8.3 million, or a 4.2 percent decrease over the year-ago quarter. Net loss for the three months ended May 31, 2005 was $70.3 million, compared to net loss of $8.5 million for the three months ended May 31, 2004. Net loss before taxes, minority interest and discontinued operations for the three months ended May 31, 2005 was $42.2 million, compared to a net loss before taxes, minority interest and discontinued operations of $8.0 million for the three months ended May 31, 2004. EBITDA for the three months ended May 31, 2005 was negative $27.4 million compared to $2.5 million for the three months ended May 31, 2004.

Discontinued operations and customers — During the second quarter of fiscal 2005, the company discontinued its JumpKing, Inc. subsidiary and it sold its spa division in early 2005 to Keys Fitness.Â

In fiscal 2005, Sears accounted for approximately 40.4 perce t of net sales, a 3.6 percent6 increase from fiscal 2004. Other large customers include Wal-Mart, Sam’s Club, The Sports Authority, Dick’s Sporting Goods, Costco, Home Depot, Target, Home Shopping Network, Gold’s Gym and 24 Hour Fitness. Although Sears still accounts for a substantial portion of sales, not withstanding the small percentage increase this past year, the percentage of net sales to Sears has decreased over the past decade from a high of approximately 68 percent in 1989. Nevertheless, the dollar amount of net sales to Sears has increased during this time period.

For perspective, Icon’s sales have risen steadily from $747.8 million in 2001 to a high of $992.21 million in 2004 before a loss in fiscal 2005. Also, net income went from $13.3 million in 2001 and rose steadily before it first dropped in 2004 to $23.4 million until it experienced a loss of $110 million in fiscal 2005.

To view the entire 10K filing, click here.

Canada’s Forzani Group posts Q2 net loss
The Forzani Group (TSX: FGL), Canada’s largest retailer of sporting goods and fitness, reported a second-quarter net loss of CDN $2.3 million (USD $1.9 million) for the second quarter, or CDN $0.07 per share (USD $0.05), compared to a profit of CDN $2.0 million (USD $1.7 million), or CDN $0.06 per share (USD $0.04), in the prior year.

Retail system sales for the quarter were CDN $305.1 million (USD $257 million), an increase of CDN $48.7 million (USD $41.1 million), or 19.0 percent from 2004’s CDN $256.4 million (USD $217 million). The company said the increase was partly due to the addition of the Nevada Bob’s franchise retail sales and the National Sports corporate retail volume, a result of their acquisition by Forzani. Without these volumes, the existing retail business generated system retail sales of CDN $270.1 million (USD $228.2 million), a 5.3 percent increase over last year.

Revenue was CDN $243.6 million (USD $206 million), up CDN $27.2 million (USD $23 million), or 12.6 percent over the comparable period last year — also partly driven by the Nevada Bob’s and National Sports revenues. Excluding these two, the revenues were CDN $221.3 million (USD $187 million), a 2.3 percent increase over the prior year. Same-store sales from corporate stores were up 0.2 percent, while franchise comparable store sales increased by 4.6 percent. The corporate store performance was driven by a decline of 4.3 percent in the Sport Mart banner. The Sport Chek/Coast Mountain Sports stores generated positive comparable store sales of 1.3 percent for the quarter. The consolidated corporate store increase was the first quarterly comparable store sales increase in 10 quarters.

Combined gross margin for the 13 weeks ended July 31, 2005 was 34.2 percent of revenue, or CDN $83.2 million (USD $70.3 million), down 2.1 percent from the previous year. On an absolute dollar basis, margin increased by CDN $4.6 million (USD $3.8 million). Store operating expenses of CDN $55.2 million (USD $47 million) were up CDN $10.1 million (USD $8.5 million), or 28.8 percent of retail revenues versus CDN $45.1 million (USD $38.1 million), or 27.7 percent in the prior year.

(Conversion of Canadian dollars into U.S. dollars is for information only, is not necessarily relative to earnings, and is based on the currency rate as of Sept. 1.)

Big 5 misses deadline…again
Big 5 Sporting Goods (Nasdaq: BGFVE) may be in big trouble, alerting the Nasdaq oon Aug. 31 that its accounting firm has not completed its final review and audit of the company’s 2004 annual report. KPMG LLP, Big 5’s accounting firm, is completing its final review and audit of the forms and needs an additional “few days” for the work to be completed. Big 5 said its previous announcements regarding the expected impact of all known restatement items remain unchanged.

So far, Big 5 is asking Nasdaq for an additional extension request, but there was no news as of Sept. 6. If the request is not granted, its shares may be de-listed from the Nasdaq National Market. If so, Big 5 said it expects that its shares would trade in the over-the-counter market and it would apply for relisting of its shares on Nasdaq as soon as its SEC filings were current.

Bally gets OK from bondholders
On Aug. 31, Bally Total Fitness Holding (NYSE: BFT) said it received consent from bondholders for the waiver of default on financial reporting covenents on certain debt. Bally said the waiver was granted by a majority of the holders of its 10 1/2 percent senior notes due 2011 and 9 7/8 percent senior subordinated notes due 2007, and extends through Nov. 30. Shares of Bally last traded at $3.31.

Finish Line lowers forecast for year
While Finish Line’s (Nasdaq: FINL) second-quarter net sales of $341.6 million rose 9 percent over last year’s $312.2 million, across the board, the company has lowered its forecast for each quarter.

Its second-quarter earnings per share forecast is $0.37 to $0.39, down from $0.48 to $0.50, as same-store sales fell 2 percent because of sales weakness that began in late June and lasted until the end of August. Finish Line also said results will be hit by a charge of $0.02 per share related to allegations the company violated California wage and hour laws.

In the third quarter, the company said it expects to post a loss per share of $0.01 to $0.03 on flat same-store sales and total sales of $262 million. The company had previously forecast a profit of $0.05 to $0.07 per share. It lowered its estimate for fourth-quarter earnings per share to $0.56 to $0.58, from $0.64 to $0.66, on expectations of flat same-store sales and total sales of $401 million. For the year, the company forecast earnings per share of $1.16 to $1.21, down from last year’s reported earnings per share of $1.24, on sales of $1.3 billion.

Amer increases program
Amer Sports said it increased the size of its Commercial Paper Program to Euro 500 million (USD $624.5 million) from Euro 200 million (USD $250 million). The program arrangers, OKO Bank, Nordea Bank and Sampo Bank, remain unchanged. Under the terms of the program, Amer Sports is in a position to issue commercial papers of up to one year of maturity, it said. The funds raised will be used for general corporate purposes.

(Conversion of Euros into U.S. dollars is for information only, is not necessarily relative to earnings, and is based on the currency rate as of Sept. 1.)

Nautilus upgraded
Nautilus (NYSE: NLS) was upgraded by DA Davidson on Sept. 1 from “neutral” to “buy.” Its stock was down $0.29 to $25.52 at day’s end.

August good sales month for Wal-Mart, Costco
August was a good month for retail chains as they reported solid August sales, but analysts predict the good times won’t last in September after the devastation Hurricane Katrina recently wrought. Retail Metrics reported that its index of major retail chains posted an overall same-store sales gain of 3.8 percent in August from a year earlier, beating its estimate for an increase of 3.7 percent. It said 68 percent of the companies included in its index beat Wall Street’s expectations.

Retail Metrics attributed some of the strength to easy comparisons, as well as lowered expectations in the wake of disappointing second-quarter earnings reports. But, it noted, consumers were displaying durability in their spending habits.

Wal-Mart (NYSE: WMT) reported its same-store sales were up 3.3 percent at U.S. stores in August from the same month last year, hitting the low end of its estimated range. Its total sales in August were up 10 percent to $23.33 billion. It expects its comps to rise between 2 percent and 4 percent in September.

Costco (Nasdaq: COST) said its August same-store sales rose 9 percent, beating Wall Street’s estimates of 7.9 percent. Its international stores saw August same-store sales rise 11 percent, while domestic same-store sales were up 9 percent. Costco’s total sales increased 12 percent to $4.09 billion for the month.

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