Fitness financials: Nautilus' Q4 net income down whopping 80 percent, plus Brunswick, Icon, Hibbett, adidas/Reebok, Sara Lee, Amer, Costco, Wal-Mart

Nautilus’ Q4 net income down whopping 80 percent
After delaying its conference call two days, Nautilus (NYSE: NLS) released fourth-quarter results marred by an 80 percent plunge in net income, pulled down by the company’s failure to launch six new products during the holiday season.

The call on Friday, Feb. 3, at 5 p.m. EST was described by one analyst as a “happy hour conference call — not so happy.”

Nautilus reported earnings of $2.8 million, or $0.08 a share, down from $14.2 million, or $0.42 cents a share, a year earlier. Analysts, on average, expected earnings of 10 cents a share. Nautilus had already lowered its fourth-quarter earnings guidance range to $0.07 to $0.12 a share on Jan. 18, from its previous range of $0.44 to $0.48 a share.

Net sales for the fourth quarter were $181.3 million compared to $169.6 million for the corresponding period last year, up 6.9 percent.

The company said it was “very disappointed” in its fourth-quarter results, the same word used by RBC Capital Markets analyst Ed Aaron in another way: “Unfortunately, management’s forward guidance (or lack thereof) was disappointing.”

Nautilus said it has now launched four of the six products, and the remaining two products are undergoing refinements. Its manufacturing and go-to-market processes were not able to manage the introduction of the new products which accounted for the majority of its revenue shortfall, the company added during the call.

“Our team has identified the causes of these operational issues, and we are focused on correcting these processes during the first half of 2006. We are making a number of improvements in our manufacturing and go-to-market process, including the requirement of on-site sub-supplier inspections for each new product going forward. We are also working closely with key suppliers to move more of our work upstream to free capacity in our distribution centers and manufacturing plants,” said Gregg Hammann, chairman and CEO of Nautilus.

For the 2005 fiscal year, Nautilus generated $630.6 million in net sales and diluted earnings of $0.70 per share.

It is estimating net sales in the $180 million to $185 million range for the first quarter of 2006, but declined to give guidance for the rest of 2006. The company also said it expects earnings of $0.14 to $0.18 per diluted share, including an estimated $0.02 per share charge for stock option expensing as required by FAS 123(R) in 2006.

“While we still believe management is targeting this ($1.15) range (the hurdle number underlying recent executive stock option grants is $1.15 for 2006), this was not evident in its Q4 earnings release,” Aaron added in his analysis. “Management elected not to give full-year guidance for 2006, and provided Q1 guidance ($0.14-$0.18) below expectations.”

Aaron called the earnings report “not the news we were looking for,” and reduced RBC’s price target from $19 to $17 after having raised it from $15 to $19 just days earlier.

Nautilus said it repurchased approximately 638,000 shares of stock during the 2005 fourth quarter. For the full year, it purchased 831,000 shares at an average price of $18.82 for an investment of $15.6 million. It has a three-year authorization of $100 million that began in 2005. In addition, its board declared a regular quarterly dividend of $0.10 per common share, payable March 10, 2006, to stockholders of record as of Feb. 20, 2006.

As a result of what the company said, as well as what it did not say, RBC reported it was lowering its 2006 estimates: “This outcome reduces our confidence in Nautilus’ ability to earn $1.15 this year. Lack of full-year guidance suggests lack of conviction on management’s part, and lower-than-expected Q1 guidance makes the year overly back-end loaded. As a result, we are lowering our 2006 estimate by $0.10 to $1.05.”

Brunswick’s fitness segment reports status quo sales
Life Fitness’ parent Brunswick Corp. (NYSE: BC) reported a 50 percent earnings increase in the fourth quarter, partly due to some tax-related gains. But based on sluggish retail demand, its 2006 results fell far short of expectations, causing shares to drop to a two-year low.

The company said net income rose to $88.3 million, or $0.90 a share, from $58.8 million, or $0.59 last year. Excluding the gains, diluted earnings per share for the fourth quarter would have been $0.73, a 24 percent increase from the year-ago quarter. Sales were up 12 percent to $1.49 billion from $1.33 billion.

For the full year, net income rose to $385.4 million or $3.90 a share from $269.8 million or $2.77, as sales were up 13 percent to $5.92 billion from $5.23 billion.

Fourth-quarter sales for the fitness segment — comprised of Life Fitness, Hammer Strength and Parabody — totaled $176.0 million, up 2 percent from $173.2 million in the year-ago quarter, which included revenue from the since sold chain of Omni retail stores. Operating earnings increased 24 percent to $30.6 million from $24.7 million, and operating margins improved by 310 basis points to 17.4 percent from 14.3 percent in the fourth quarter of 2004.

For 2005, the fitness segment reported sales of $551.3 million, down 1 percent from $558.3 million in 2004. Excluding sales from the Omni retail stores, equipment sales in 2005 increased 2 percent. Operating earnings in 2005 increased 25 percent to $56.3 million from $45.2 million, and operating margins were up 210 basis points to 10.2 percent from 8.1 percent a year ago.

“With its expanding global manufacturing footprint, Life Fitness continues to make significant progress toward improving its operating performance,” said Dustan McCoy, Brunswick’s chairman and CEO. “Effective cost management is a large part of the improvement in operating margins at Life Fitness, as well as more efficient manufacturing and a more favorable sales mix toward higher-margin cardiovascular equipment versus strength equipment.”

Brunswick forecast first-quarter earnings of $0.56 to $0.60 per share and pegged full-year income at $3.25 to $3.45 per share. Both estimates were well below those of analysts, who were predicting $0.73 per share in the first quarter and $3.88 for the year. The gloomy outlook sent Brunswick’s shares down $4.97, or 12 percent, to $36.47 in afternoon trading on the New York Stock Exchange after falling as far as $34 — their lowest level since January 2004. The stock is down more than 25 percent from last April’s all-time high, adjusted for a stock split, of $49.77.

Quarterly product sales down for Icon
Across the board for the quarter, Icon Health & Fitness reported decreases in product sales, saying the drops were primarily due to lower customer demand for certain products and the availability of product mix.

Net sales for the three months ended Dec. 3, 2005, decreased $18.0 million, or 6.4 percent, to $265.4 million from $283.4 million in 2004. Sales of its cardiovascular and other equipment decreased $5.1 million, or 2.1 percent, to $233.1 million. Sales of its strength training equipment were down $12.9 million, or a negative 28.5 percent, to $32.3 million.

Gross profit was $67.9 million, or 25.6 percent of net sales, compared to $71.8 million, or 25.3 percent of net sales, last year. This slight increase in the gross profit percentage was primarily due to the timely release of products, manufacturing efficiencies and reductions in air freight, it said.

Selling expenses decreased $8.8 million, or 23.2 percent, to $29.2 million. This decrease reflected reduced advertising, salaries and wages and bad debt expense of approximately $13.2 million offset by increases in freight, warranty and other costs of approximately $4.4 million. Expressed as a percentage of net sales, selling expenses were 11.0 percent compared to 13.4 percent in 2004.

Research and development expenses were $2.8 million, compared to 2004’s $3.1 million. General and administrative expenses increased $0.4 million, or 1.7 percent, to $24.0 million.

Hibbett reports record sales in Q4
For the fourth quarter, Hibbett Sporting Goods’ (Nasdaq: HIBB) net sales increased 12.8 percent to $120.8 million, a new company record, compared with net sales of $107.1 million for the previous year. Comparable store sales for the fourth quarter increased 2.5 percent over the prior-year period.

For the 52-week fiscal year ended Jan. 28, 2006, net sales increased 16.6 percent to $440.3 million, compared with $377.5 million for the 52-week period ended January 29, 2005. Comparable store sales for the year increased 5.6 percent over the prior-year period.

For the quarter, Hibbett opened a net of 23 new stores. For the year, it opened a net of 67 new stores, bringing the total to 549 stores in 22 states. Hibbett said it expects to open a net of approximately 80 to 85 new stores in fiscal 2007.

Reebok and adidas clear final hurdles in acquisition
Reebok shareholders overwhelmingly voted in favor of the sale of the company to adidas for $3.8 billion — a deal that seeks to challenge Nike’s market leadership. The deal will create a company with combined annual sales of nearly $12 billion.

Reebok said more than 98 percent of the votes were cast in favor of the transaction. adidas’ price would give Reebok shareholders a 34 percent premium over Reebok’s share price before the deal was announced.

Reebok shareholders’ approval was the final hurdle for a deal that won European Union regulatory approval the day before. U.S. regulators did not raise any antitrust objections after Reebok and adidas announced the friendly takeover on Aug. 3.

The companies now expect to close the deal by Jan. 31. Reebok said it had been hoping for a speedy conclusion in part because the company acknowledged three months ago that uncertainty surrounding the deal and the companies’ integration plans had hurt sales and orders to retailers.

Sara Lee reports Q2 sales
Second-quarter net sales for Sara Lee Corp. (NYSE:SLE) were down 1 percent to $4.45 billion compared to $4.51 billion in the prior year. Diluted earnings per share were $0.57 for the second quarter of fiscal 2006, compared to $0.41 for the year-ago period. A gain on the divestiture of the direct selling business and a related tax benefit increased fiscal 2006 second quarter diluted earnings per share by $0.28 and $0.07 per share, respectively. However, charges related to the implementation of the company’s transformation plan and business exit activities reduced second quarter diluted earnings per share by $0.08 per share. Sara Lee is the parent of Champion, which has a licensing deal with Lamar Health, Sports & Fitness.

Amer shareholder’s holdings exceeds 5 percent
Pursuant the Finnish Securities Market Act, Amer Sports has been notified that the total number of shares held by the mutual funds and separate accounts managed by the affiliated investment adviser of Franklin Resources represents 5.02 percent the company’s share capital and voting rights. Amer Sports’ capital consists of 71,467,710 shares in issue.

Costco and Wal-Mart report January sales
Costco (Nasdaq: COST) said same-store sales increased 9 percent in January. Costco reported net sales of $4.12 billion for January, up from $3.67 billion a year earlier.

Wal-Mart (NYSE: WMT) reported a 4.7 percent increase in same-store sales for January. Total sales were $22.68 billion, up 14.5 percent from $19.8 billion.

For more information about these companies or their financial reports, as well as to view stock prices updated every 15 minutes, visit the SNEWS® Stock Market Updates. Click on:www.outsidebusinessjournal.com/cgi-bin/snews/stock_report.html