Fitness financials: Nautilus letter urges shareholders to vote against Sherborne proxy, plus Gaiam, adidas, Sport Chalet, Puma, Under Armour, Health Fitness, Iconix, Costco, Wal-Mart

Nautilus letter urges shareholders to vote against Sherborne proxy

Nautilus (NYSE: NLS) urged its shareholders to vote against a proposal from Sherborne Investors LP and its affiliates to replace a majority of board members with Sherborne nominees.

In a letter mailed to shareholders, Nautilus called Sherborne a dissident investor who is trying to gain control of the board by launching a proxy fight. Sherborne and its affiliates hold 7.4 million shares of Nautilus.

Nautilus said the board offered Sherborne representation on its board in proportion to its ownership in Nautilus. The board also offered Sherborne representation on a new, significant board committee, which would be formed to help oversee the company’s turnaround efforts.

Nautilus wrote in a letter to its shareholders: “Despite all of (the) board’s and management’s efforts to work constructively with Sherborne, Sherborne chose not to accept the board’s offers. Instead, Sherborne is seeking to have its nominees gain control of over 57 percent of the board seats, while only owning 25 percent of the shares of our common stock. If Sherborne is successful in having its nominees take control of (the) board, Sherborne expects to have one if its nominees named executive chairman by the reconstituted board of directors and to have its nominees cause Nautilus to hire a new chief executive officer with input coming directly from Sherborne.”

It added, “Considering that (Nautilus’) board’s search to hire a new CEO concluded only weeks ago, (the) board is troubled by Sherborne’s desire to immediately remove Bob Falcone without cause, which would cause Nautilus to suffer the further disruption of a third CEO within a six-month period.”

As of June 30, Nautilus had some 31.7 million shares outstanding.

To read the full letter, click here.

Gaiam Q3 revenue up 36 percent

Gaiam (Nasdaq: GAIA) reported a 36-percent jump in its third-quarter revenue — $70.3 million versus the $51.8 million recorded in the same period last year. The internal growth rate was 34 percent, it added.

Net income was $2.9 million, or $0.12 per share, as compared to net income of $1.7 million, or $0.06 per share, for the third quarter of 2006. Gaiam repurchased 2.5 million shares of its stock in February 2007. Depreciation and amortization for the third quarter of 2007 was $3.3 million.

Gross margin expanded 260 basis points to 65.6 percent of revenue in the third quarter of 2007, from 63.0 percent in the same period last year. The increase over 2006 was primarily due to higher margin international sales and subscriptions, the company said.

Operating expenses as a percentage of revenue decreased to 59.7 percent in the third quarter of 2007, from 61.0 percent in the comparable period last year even after increased expenses related to Gaiam’s expanding community business.

Operating income for the third quarter of 2007 increased 315 percent to $4.2 million, or 6 percent of revenue, compared to operating income of $1.0 million, or 2 percent of revenue, a year ago.

According to Nielsen’s VideoScan, Gaiam’s market share in the fitness/wellness DVD category for the quarter increased to 53 percent compared to 46 percent for the third quarter of 2006.

Also, Gaiam filed a registration statement with the SEC to periodically sell up to 5 million Class A shares. It said it plans to use the proceeds from the offering to fund expansion of its business. Under a shelf registration, a company may sell securities in one or more separate offerings with the size, price and terms to be determined at the time of sale.

adidas’ Q3 profit rises, U.S. sales slip

adidas AG reported a 22 percent rise in third-quarter profit even as sales in North America, including the key U.S. market, slid nearly 9 percent.

The company earned EUR 298 million (USD $438.72 million) in the July-September period compared with EUR 244 million (USD $358.5 million) a year earlier. The results were lifted by combining adidas’ and Reebok’s purchasing agreements with suppliers, resulting in lower costs.

The company said the adidas brand had the highest backlog growth in over nine years. The order backlog is a key barometer for analysts because it can indicate future sales trends. For the adidas brand, the company said the backlog was up 16 percent in the third quarter. Orders for Reebok were down 2 percent.

Sales slipped 0.3 percent to EUR 2.94 billion (USD $4.33 billion) from EUR 2.949 billion (USD $4.332 billion) as gains by adidas-brand products were offset by a 6.5 percent drop in sales of Reebok goods and a 2.2 percent drop in TaylorMade-adidas Golf products.

By region, the company posted an 8.9 percent drop in sales in North America, with revenue totaling EUR 819 million (USD $1.2 billion) compared with EUR 900 million (USD $1.322 billion) a year earlier. That was countered by a 30.4 percent rise in Latin American sales to EUR 174 million (USD $256.16 million) from EUR 133 million (USD $195.4 million) a year earlier.

In Asia, where soccer products are growing in popularity, sales were up 9.2 percent to EUR 579 million (USD $852.4 million) from EUR 530 million (USD $778 million) in 2006. In Europe, the company reported a modest uptick of 0.3 percent to EUR 1.339 billion (USD $1.97 billion) from EUR 1.335 billion (USD $1.961 billion) a year earlier.

The company said it expects its overall net profit to rise 15 percent for 2007.

Separately, the company said that Henri Filho, 76, resigned as chairman of the company’s supervisory board, the equivalent to a U.S. board of directors, for personal reasons. He was replaced by Hans Friderichs, 76, the board’s deputy chairman.

(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 Nov. 8.)

Sport Chalet reports lower Q2 FY08 profit numbers

Sport Chalet (Nasdaq: SPCHA and SPCHB) said its net income for the second quarter of FY08 — $739,000, or $0.05 per diluted share, compared to $1.7 million, or $0.12 per diluted share, for the same period last year — was impacted by a challenging economy, particularly in California where the majority of its stores are located

Sales for the quarter increased 7.0 percent to $97.7 million compared to $91.3 million for the second quarter of FY07.

The company said seven new stores not included in same-store sales contributed $8.0 million in sales for the quarter, while same-store sales decreased 2.2 percent. Sales were negatively impacted by softer macroeconomic trends, costs related to new store openings and competitors opening new stores in existing markets.

Gross profit as a percent of sales was 30.4 percent compared to 32.2 percent for the second quarter of last year, hit by increased rent as a percent of sales in newer stores, which take time to reach operating efficiency, and increased promotional activity.

Selling, general and administrative expenses (SG&A) as a percent of sales improved to 28.8 percent from 29.1 percent last year, as a result of reduced existing store and overhead costs, it added.

Puma’s Q3 profit post increase, sales fall

Puma earned EUR 89.1 million (USD $130.9 million) in the three months ended in September, up from EUR 87.1 million (USD $127.9 million) a year earlier — a period that coincided with the 2006 soccer World Cup.

But Puma said overall net sales fell 4.1 percent to EUR 670.4 million (USD $984.9 million) from EUR 699.2 million (USD $1.02 billion) a year earlier. The decline was steepest in the Americas, where sales dropped 8.8 percent to EUR 166.7 million (USD $244.9 million).

The overall revenue decline was led by a drop in shoe sales, which fell 6.9 percent to EUR 376.3 million (USD $552.8 million), while apparel, such as shirts and shorts, rose 8.7 percent to EUR 246.3 million (USD $361.8 million).

The company added that a decline in business in the United States in the third quarter is likely to last into next year.

Earlier this year, French luxury goods company PPR took over Puma, acquiring more than 62 percent of the company’s shares. But Puma will continue to report separately and keep its stock market listing. Puma ranks behind Nike and adidas AG among the world’s biggest sporting goods and apparel companies.

(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 Nov. 8.)

Under Armour executives sell shares

The CEO and two top executives at Under Armour (NYSE: UA) sold more than $130 million company shares. The sales, which were transacted late last week, were disclosed just minutes after the closing bell on Nov. 5, a day when heavily shorted shares of Under Armour fell more than 8 percent on heavy volume.

The sales and stock movement came as analysts have expressed concerns about Under Armour’s inventory, and despite Under Armour reporting better-than-expected results and upping its guidance.

>> Founder, Chairman, President and CEO Kevin Plank sold 1.5 million shares at $59, decreasing his holdings to 12.5 million shares of Class B stock, or a 25.7 percent stake.

>> Senior Vice President of Retail Scott Plank sold 765,000 shares at $59, decreasing his holdings to 2.62 million shares, or a 5.4 percent stake.

>> Senior Vice President of Outdoor Kip Fulks sold 150,000 shares at $59, decreasing his holdings to 578,500 shares.

Shares of Under Armour fell almost 8.4 percent on Nov. 5, closing at $51.37 and putting the stock down about 19.4 percent since the close on Oct. 30 and a little more than 30 percent from its August, all-time high of $73.40.

Health Fitness reports decline in Q3 gross profit

Health Fitness Corp. (OTC Bulletin Board: HFIT), a provider of integrated employee health management programs, reported a 7.5 percent drop in its third-quarter gross profit.

Gross profit during the quarter was $4.9 million compared to $5.3 million for the same period last year. The company said it includes a $300,000 benefit related to a refund of workers compensation premiums for the 2005 plan year.

Revenue increased 5.0 percent to $17.2 million versus $16.3 million for the same period last year.

Operating income decreased to $200,000, from $2.0 million for the same period last year. Net earnings decreased to $200,000, or zero cents per share, from $1.2 million, or $0.06 per share, in the prior year period.

Fitness management segment revenue declined 0.9 percent to $10.6 million, from $10.7 million for the same period last year.

Iconix signs license deal for Danskin brand

Iconix Brand Group (Nasdaq: ICON) said it signed four separate license agreements, one of which was for its Danskin brands. Its licensing agreement with Grupo Zipora calls for the company to handle the manufacturing and distribution of Danskin items in Mexico.

Costco October same-store sales climb

Costco Wholesale (Nasdaq: COST) said its October same-store sales rose 9 percent. U.S. same-store sales increased 7 percent. Excluding gasoline price inflation, U.S. same-store sales rose 5 percent for the month.

International same-store sales surged 17 percent as the company benefited from strong foreign exchange rates particularly in the U.K. and Canada. Excluding the favorable impact of foreign exchange rates, international same-store sales climbed 4 percent.

Total October sales rose 13 percent to $5.21 billion from $4.63 billion a year ago.

Wal-Mart reports flat October same-store sales

Wal-Mart Stores (NYSE: WMT) said its October U.S. same-store sales climbed 0.4 percent. Wal-Mart Stores results were flat, while Sam’s Club same-store sales increased 2.7 percent.

Total sales for the four-week period ended Nov. 2 grew 8.4 percent to $27.92 billion. Wal-Mart Stores sales gained 5 percent to $17.44 billion, while Sam’s Club sales rose 5.3 percent to $3.3 billion. International sales soared 19.2 percent to $7.19 billion.

The company said it expects November same-store sales at its U.S. operations to be between flat and up 2 percent.

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