Fitness financials: Icon's net sales and profits down, plus NRF reports March retail sales, Winmark, The Sports Authority

Icon’s cardio sales up, strength sales down for quarter
Icon Health & Fitness reported another quarter dominated by red ink, with net sales for the three months ended Feb. 26 down $5.6 million, or 1.8 percent, to $301.3 million from last year’s $306.9 million. Increased sales of cardiovascular equipment over the year-ago quarter weren’t enough to offset the trend, the SEC filing reported: The quarter’s sales of its cardiovascular and other equipment increased $26.7 million, or 11.2 percent, to $264.6 million, while sales of its strength training equipment decreased $32.2 million, or 46.7 percent, to $36.7 million.

Gross profit for the quarter was $72.0 million, or 23.9 percent of net sales, compared to $98.2 million, or 32.0 percent of net sales, last year. Logan, Utah-based, Icon said the decrease in gross profit margin was primarily due to increased transportation costs and commodities (steel, plastics and wood), unfavorable manufacturing variances and the inability to pass on the full impact of these increases to the consumer. In addition, its direct-to-consumer business, with normally higher margins than retail, was a smaller portion of its overall sales mix this quarter compared to the quarter last year, likely due partly to the ongoing legal battles with Nautilus now entering their third year. Trials for two are now pending for late June 2005 in the Washington State case filed in December 2002, August 2005 for the Utah case filed in 2002, and January 2006 for the second Washington case over the Crossbar name.

EBITDA was $17.8 million for the quarter compared to last year’s EBITDA of $38.3 million. Selling expenses decreased $5.3 million, or 13.8 percent, to $33.0 million, reflecting reduced advertising and trade show expenses. Expressed as a percentage of net sales, selling expenses were 11.0 percent compared to 12.5 percent last year. General and administrative expenses increased $0.4 million, or 1.6 percent, to $24.7 million. The income from operations was $11.2 million in the last three months compared to income from operations of $32.2 last year.

During the nine months ended Feb. 26, 2005, net sales decreased $72.8 million, or 9.3 percent, to $707.4 million from $780.2 million in the corresponding nine-month period last year. Icon said due to the historically high sales in the nine-month period ended Feb. 28, 2004, and weak demand, sales were lower this year. Sales of its cardiovascular and other equipment in the last nine months decreased $15.0 million, or 2.4 percent, to $598.7 million. Sales of its strength training equipment in the last nine months decreased $57.8 million, or 34.7 percent, to $108.7 million.

Icon said its three largest customers together accounted for approximately 53.1 percent, 53.8 percent, 56.4 percent and 53.2 percent of revenues in fiscal years 2002, 2003, 2004, and the first nine months of fiscal 2005, respectively. Its largest customer, Sears, Roebuck and Co., accounted for 44.5 percent, 39.3 percent, 38.7 percent and 41.9 percent of our revenues in fiscal years 2002, 2003, 2004, and the first nine months of fiscal 2005, respectively. With Sears’ merger with Kmart, the company said it isn’t yet possible to determine the potential impact of this merger on Sears’ purchases as an Icon customer.

In its second quarter, ended Nov. 27, 2004, red on the balance sheet meant a 10.9 percent drop in net sales, and a fifth the income and less than a third the EBITDA from the same quarter a year ago. At that time, CEO and Chairman David Watterson told analysts and media in a conference call that he was disappointed but remained optimistic.

To see the full 10Q report for the second quarter of 2005, click here.

NRF reports March retail sales
According to the National Retail Federation (NRF), retail industry sales for March (which exclude automobiles, gas stations, and restaurants) rose 6.8 percent over last year but dropped 0.1 percent seasonally adjusted from February, the first seasonally adjusted dip since last June. First quarter retail industry sales rose 5.4 percent over 2004. March retail sales released today by the U.S. Commerce Department show that total retail sales (which include non-general merchandise categories such as autos, gasoline stations and restaurants) rose 0.3 percent seasonally adjusted from February and increased 7.3 percent unadjusted year-over-year. Sales at gasoline stations, a category that NRF does not include in its retail sales calculation, rose 17.8 percent over a year ago.

Play It Again Sports’ parent, Winmark, sees net income fall 49 percent
Winmark Corp. (Nasdaq: WINA), parent of Play It Again Sports, reported first-quarter net income fell 49 percent from a year ago, hurt by lower royalties from its franchise business, and increased selling, general, and administrative expenses. The company reported earnings of $699,900, or 11 cents per share, down from about $1.4 million, or 21 cents per share, a year ago. Total revenue fell 6 percent to $7.1 million from $7.6 million. Winmark’s selling, general, and administrative expenses rose 22 percent to nearly $4.1 million from $3.3 million. As of March 26, it had 410 Play It Again Sports.

TSA’s income decreases after restatements
In restating its earnings for changes in lease accounting, The Sports Authority (NYSE: TSA) said it will decrease earnings per share by 1 cent in its fiscal fourth quarter ended Jan. 29. For fiscal 2004, the earnings per share were reduced by 2 cents after previously estimating earnings per share of 8 cents. The restatement adjustments reduced net income for 2003 by $100,000, or 1 cent per share, 2002 by $200,000, or 1 cent per share, and 2001 by $300,000, or 2 cents per share, the company said. The company added that its fiscal 2005 forecast, including the impact to lease accounting, is $1.85 to $1.92 per share.

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