Fitness financials: Life Fitness-parent Brunswick reports fitness turnaround, Life Time Fitness, Puma, Bally, Saucony, Russell, GSI, Reebok, Wal-Mart

Life Fitness’s parent earnings up 27 percent, notes fitness turnaround
Brunswick Corp. (NYSE: BC) reported a 27 percent increase in net earnings on 12 percent sales growth and a 23 percent improvement in operating earnings for the second quarter of 2005. Net earnings totaled $114.1 million, or $1.15 per diluted share, for the second quarter, compared with net earnings of $90.1 million, or $0.93 per diluted share, for the year-ago quarter. Although the company noted that acquisitions contributed to the company’s 12 percent overall sales increase, its organic growth was still 10 percent.

Net sales increased 12 percent to $1.6 billion, up from $1.4 billion in 2004. Operating earnings rose 23 percent to $171.7 million compared with $139.5 million in the year-ago quarter, and operating margins improved to 10.7 percent from 9.8 percent.

“We kept our heads down in the quarter, tried not to get too distracted by the economic confusion and worry out there and worked solidly on delivering our promises to Wall Street,” CEO and Chairman George Buckley said in the July 27 call with analysts.

Buckley noted good news in the fitness segment, which had been as he called it on the call “our biggest operational challenge of late.”

Sales in the Life Fitness division, which includes Life Fitness, Hammer Strength and ParaBody fitness equipment, increased 2 percent in the quarter, excluding sales from the Omni retail stores, which were sold in late 2004. Segment sales in the second quarter of 2005 reached $120.4 million, down from $122.3 million in the year-ago quarter, which included Omni retail sales. Fitness segment operating earnings for the quarter totaled $5.1 million, up 76 percent from $2.9 million in the second quarter of 2004, and operating margins advanced 180 basis points to 4.2 percent from 2.4 percent a year ago.

“Increases in steel, plastics and transportation costs, along with mix shifts and weak pricing in the U.K. had all pressured Life Fitness margins,” Buckley said. “As we had forecast thought, that trend now is turning positive.”

Brunswick said the increase in fitness equipment sales was driven by strong demand in the domestic commercial markets. Double-digit growth in the United States was partially offset by a decline in European sales where the company said it continued to face competitive pricing pressure.

“Peter Hamilton has begun to work his disciplined magic at Life Fitness, and we see this unit already showing signs of good operational improvement. Our many efforts to improve productivity and operating results within the fitness segment are beginning to bear fruit, with improvement in operating margins evident during the most recent quarter,” Buckley said. “By concentrating on manufacturing and supply chain efficiencies, as well as expense control, we have been able to improve our margins and operating performance at Life Fitness.”

Buckley added in the company’s conference call that the company expects the fitness segment’s net margins to progressively improve as the year unfolds and close out the year at, or close to, double-digit operating margins.

For the company overall, Brunswick is raising its estimate for the year to $3.62 to $3.72 per diluted share, which includes the $0.32 gain on the stock sale. This compares with $2.77 per diluted share for 2004.

Life Time Fitness Q2 income up 42.7 percent
Revenue for Life Time Fitness’ (NYSE: LTM) second quarter grew 24.8 percent to $95.6 million from $76.6 million during the same period last year. Net income during the quarter was also up — 42.7 percent to $10.3 million, or $0.28 per diluted share on 36.2 million shares. This compares to net income of $7.2 million, or $0.25 per diluted share on 29.1 million shares, in 2004.

Total revenue for the second quarter grew 24.8 percent to $95.6 million, driven primarily by growth in membership dues and in-center revenue, the company said. Membership dues revenue for grew 26.1 percent to $64.3 million from $51.0 million in 2004. Enrollment fee revenue was up 7.5 percent to $5.5 million, from $5.1 million last year. In-center revenue grew 34.6 percent to $24.0 million, from $17.9 million. Same-center revenue increased 7.0 percent during the second quarter compared to the prior-year period.

Total operating expenses during Q2 2005 totaled $75.2 million compared to $60.2 million for Q2 2004, as a result of increased expenses to support new centers, membership growth and presale activities at six locations, it said.

In a report issued by RBC senior analyst Ed Aaron, RBC reiterated its “outperform” rating. “We continue to view LTM as a core small cap growth holding and are reiterating our Outperform rating and $40 price target,” the RBC report noted. “Recent strength notwithstanding, we believe valuation levels are still reasonable given its long-term growth opportunity.

Puma stock on the decline after expansion strategy announced
Despite a strong second quarter, shares in Puma (PUMG.DE) have been on the decline as banks cut ratings or earnings estimates on concerns that the company will spend too much on its new expansion strategy. The stock has been down about 10 percent.

Puma unveiled its new strategy statement and said it plans to spend Euro 500 million (USD $601 million) to overtake U.S. rival Reebok and enter new sports categories such as golf in the next five years.

As a result, Puma said it expects its operating profit to decline in 2006, fuelling worries among analysts that it will lose appeal after 10 strong years. Since the strategy statement, however, several banks have cut their ratings, price targets or estimates for Puma. The latest came from Germany’s Commerzbank, which downgraded the stock to “hold” from “buy.”

Reporting its second quarter earnings, Puma said worldwide branded sales, including consolidated and license sales, totaled Euro 529 million (USD $635.7 million) during the second quarter — a 14.3 percent increase on a currency-neutral basis or 13.9 percent in euro. During the first six months branded sales grew 16.4 percent currency-neutral. In euro terms, growth was 15.2 percent to Euro 1.2 billion (USD $1.4 billion). Footwear sales rose currency-neutral by 16.3 percent (in euro 14.5 percent) to Euro 676 million (USD $812 million), apparel by 14.5 percent (12.7 percent) to Euro 393 million (USD $472 million) and accessories by 34.4 percent (32.6 percent) to Euro 99 million (USD $118 million).

In the second quarter, consolidated sales grew 13.2 percent currency-neutral or 12.3 percent in euro reaching Euro 395 million (USD $474 million) and well ahead of expectation, Puma said. Within the segments, footwear rose by 16.7 percent currency-neutral (in euro 15.7 percent), apparel increased 1.7 percent (1.6 percent) and accessories jumped 23 percent (22.5 percent).

Currency-neutral sales for the first six months grew by 13.4 percent, also significantly better than expected, the company said. In euro terms, sales increased 12.1 percent to Euro 892 million (USD $1.07 billion). Footwear was up 14.1 percent currency-neutral (in euro 12.8 percent) to Euro 603 million (USD $724 million), apparel 7.3 percent (6.7 percent) to Euro 224 million (USD $269 million) and accessories 27.9 percent (26.4 percent) to Euro 65 million (USD $78 million).

(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 July 28.)

Bally senior notes expire
Bally Total Fitness’ (NYSE: BFT) previously obtained waiver through July 31, 2005, of the financial reporting covenant default under the indentures governing its 10-1/2 percent Senior Notes due 2011 and 9-7/8 percent Senior Subordinated Notes due 2007 has expired. Bally said it has extended the consent date for holders of its Senior Notes and Senior Subordinated Notes to Aug. 5. The company continues to negotiate with several significant holders of Senior Subordinated Notes to reach approval of the consent.

The record date for determining noteholders eligible to submit consents remains July 12, 2005. Noteholders who previously submitted letters of consent are not required to take any further action in order to receive payment of the initial consent fee. As previously announced, Bally has retained Deutsche Bank Securities Inc. to serve as its solicitation agent and MacKenzie Partners, Inc. to serve as the information agent and tabulation agent for the consent solicitation.

For additional background on recent happenings in the continuing saga of Bally and its finances, see SNEWS® story, July 25, 2005, “Bickerin’ at Bally’s as Liberation Group looks for changes at the top.”

Saucony net sales and income dip in Q2
Saucony (Nasdaq: SCNYA and SCNYB), parent of Hind, said its net sales for the second quarter dropped 8.8 percent to $40.1 million, compared to $44.0 million in 2004.

The company’s gross margin in the second quarter also decreased to 40.4 percent compared to 41.1 percent last year. Selling, general and administrative expenses as a percentage of net sales increased to 33.4 percent in the second quarter of 2005 compared to 2004’s 29.2 percent. In absolute dollars, selling, general and administrative expenses increased 4.5 percent, due primarily to $802,000 in transaction costs related to the evaluation of its strategic alternatives and the sale of the company and $150,000 in costs related to the settlement of a patent infringement lawsuit, offset in part by lower incentive compensation.

Net income decreased 44.4 percent to $1.7 million, compared to $3.0 million in 2004, primarily because of lower revenues and the transaction costs, the company said. Diluted earnings per share decreased to $0.22 per Class A share and $0.24 per Class B share in the second quarter of 2005, compared to diluted earnings per share of $0.41 per Class A share and $0.45 per Class B share for the comparable period in 2004.

Stride Rite is in the process of buying Saucony, pending shareholder approval.

Russell Q2 earnings plummet 54 percent
Russell (NYSE: RML) said its second-quarter earnings fell 54 percent because of operational issues and high costs, particularly in its activewear business. The company said second-quarter net income fell to $4.7 million, or $0.14 per share, from $10.2 million, or $0.31 per share, a year earlier.

Sales rose 18 percent to $342.1 million, a gain driven largely by acquisitions. But, excluding revenue generated by those purchases, sales rose only slightly.

Looking ahead, the operational issues that hurt its second quarter earnings will continue into the third quarter, it said. For the year, it expects to earn between $1.40 and $1.48 per share. It added that it expects to earn between $0.62 and $0.70 per share in the third quarter and between $0.52 and $0.60 per share in the fourth quarter. The company added that it expects fiscal 2005 sales between $1.50 billion and $1.52 billion.

And, Russell’s board also declared its regular quarterly dividend of $0.04 per common share, payable Aug. 24, 2005, to shareholders of record on Aug. 10, 2005. This represents the 169th consecutive quarterly dividend paid by the company, it said.

GSI Q2 boosted by new partnerships
GSI Commerce (Nasdaq: GSIC) said its second quarter was highlighted by strong operating results, continued new partner momentum and the addition of international capabilities. Net revenues were $91.7 million for the second quarter, a 42 percent increase compared to $64.7 million in the same period in 2004. Net revenues from product sales in the sporting goods category were $41.9 million for the second quarter of fiscal 2005, a 25 percent increase compared to $33.6 million for the same period last year. Merchandise sales were $136.8 million, a 53 percent increase compared to 2004’s $89.6 million. Merchandise sales in the sporting goods category were $51.4 million for the second quarter, a 36 percent increase compared to 2004’s $37.9 million.

GSI operates the e-commerce for the likes of The Sports Authority and Dick’s, among others.

Reebok declares cash dividend
Reebok International’s (NYSE:RBK) board of directors declared a semi-annual cash dividend in the amount of $0.15 per share to all common stockholders of record as of Aug. 19, 2005. The dividend, which would equate to $0.30 per share on an annual basis, is payable on Sept. 2, 2005.

Wal-Mart expects strong July sales
Wal-Mart (NYSE: WMT) reported that July same-store sales are expected to rise 4.4 percent from a year ago, at the high end of its previous range of 3 percent to 5 percent. In June, Wal-Mart’s same-store sales rose a 4.5 percent from a year earlier. Wal-Mart announced its monthly sales five days ahead of the rest of the industry and was considered a harbinger of a strong June in which overall sales growth was about 5.3 percent, according to analysts.

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