Fitness financials: Nautilus sales flat but considers acquisitions, plus TSA, Hibbett, Dick's, Big 5, Gold's, Reebok, Finish Line

Nautilus 2Q sales flat, but considering acquisitions in 2005
The Nautilus Group Inc. (NYSE:NLS) has announced second-quarter net sales were flat for the period ended June 30, 2004, at $100.2 million compared to $100.6 million for the corresponding period last year. Net income was down, at $1.9 million, or $0.06 per diluted share, compared to $4.7 million, or $0.14 per diluted share, for the second quarter of 2003.

“We have a lot of work to do, but we’re making great strides,” said Gregg Hammann, CEO and president, in a conference call. “We will continue to face challenges in our turnaround plan, but I believe we are on course.”

For the six months ended June 30, 2004, net sales, however, eked up to $231.1 million compared to $230.1 million for the comparable period last year. Net income during the period was down more than 50 percent — $8.4 million, or $0.25 per diluted share — compared to $18.4 million, or $0.56 per diluted share, in the same period last year.

With a good-sized bankroll, CFO Rod Rice also told analysts the company could consider acquisitions. “We are in a position to make acquisitions if the right opportunity were to present itself,” Rice said in the call. To an analyst’s question, he said the company has more than it needs currently; once it’s further along in its turnaround, it will define what it may want to do with the cash, and it would “look at some acquisition opportunities in 2005.”

Meanwhile, the company with a beefed-up R&D budget has been and will continue to churn out new product. On the docket are its first Bowflex-branded treadmills for specialty and sporting goods channels to come in the third quarter this year.

“This is the start of the Bowflex brand diversification strategy,” Hammann said.

He said the company’s surveys have shown the Bowflex is more than a product, and the company will begin to leverage the brand in other categories.

In addition, another new, to-be-announced direct product will come in the latter part of the fourth quarter that Hammann said was patented and has been tested extensively. Five high-end Nautilus strength pieces will come, and the variable-stride Nautilus ellipticals will be arriving at specialty.

Also on the list is an expansion of the TreadClimber product not only for retail but also in a commercial version, with that newer technology also doubling back to be incorporated into an updated direct version. In the second quarter, TreadClimber brought in $12.7 million in revenues, and Rice said the company is on track to reach its projection for 2004 of $60 million in revenues from the product.

When it comes to Bowflex sales, 27,000 were sold direct in the second quarter of 2004 and 15,000 at retail, compared to 31,000 direct and 11,000 at retail in the same period last year. That means that 41 percent of the company’s revenues are from Bowflex products.

Hammann explained that with its product diversification between channels, it will be working with The Sports Authority very closely starting later this year. That chain has been “pushing real hard to reinvent its fitness floor,” Hammann said, “and we’re going to play a pretty key role in that.”

Regarding the future, Rice said that for the third quarter this year, the company is looking at revenues between $110 million and $120 million and for the fourth quarter, revenues should be between $155 million and $165 million.

Stock prices closed on July 23 at 18.41, or up 3.43 percent on a volume of 639,000. RBC Capital Markets analysts reported that there have been “positive trends” since Hammann has taken the lead at Nautilus so it has raised its 2004/2005 estimates to $0.83/$1.07 from $0.79/$0.84. “In light of the seasonally-slow quarter, we would like to revisit our rating upon further visibility of revenue and earnings in the back-half of the year,” the analysis said. In addition, RBC maintained a rating for the company of “underperform” with speculative risk.

TSA anticipates Q2 decline
The Sports Authority Inc. (NYSE: TSA) expects a decline of 4 percent to 5 percent in same-store sales for the second quarter of 2004. The company also announced fully diluted earnings per share of $0.41 to $0.48, excluding merger integration costs. “Our sales results for the quarter were negatively impacted by the unusually cool and wet weather in many of our key markets,” Doug Morton, chairman, president and CEO, said in a statement. “We remain cautiously optimistic about the third and fourth quarters…the third quarter will be the first quarter since the merger that we will have complete cold weather assortments, including ski and snowboard equipment, apparel and accessories in the company’s Sports Authority stores.” According to Morton, the company intends to give updated guidance for fiscal 2004 when complete results for the second quarter are reported on Aug. 26.

Hibbett looking at lower Q2 earnings
Hibbett Sporting Goods Inc. (NasqdaqNM: HIBB) also revised sales and earnings expectations for the second fiscal quarter that ends July 31, 2004. The company now anticipates 2 percent to 3 percent increases in comparable store sales instead of 5 percent to 6 percent . Earnings per share are expected to be in the range of $0.13 to $0.15 per diluted share instead of $0.18 to $0.20. “Although we started off the quarter with sales above our expectations, for the last few weeks we have experienced a slowdown in two areas — licensed apparel and fitness equipment,” Mickey Newsome, president and CEO, said in a statement. “Our comparable store sales were impacted by rainy weather in June. We have responded with more aggressive markdowns in both licensed apparel and fitness equipment.” Updated guidance for fiscal 2004 and guidance for the third quarter are expected with complete reported results for the second quarter on Aug. 19.

Dick’s re-affirms Q2 numbers
With The Sports Authority and Hibbett Sporting Goods’ posting lower than anticipated numbers, Dick’s Sporting Goods, Inc. (NYSE: DKS) re-affirmed on July 22 its forecast for the second fiscal quarter of 2004. Originally stated in its Q1 earnings, the second quarter outlook is: Based on an estimated 52.5 million fully-diluted shares outstanding, EPS for the second quarter is expected to be $0.32 to $0.33 per diluted share, a 3 percent to 6 percent increase over the prior year’s second quarter EPS of $0.31. Last year’s second quarter included $0.02 per fully-diluted share of gain from the sale of stock of its third-party Internet commerce service provider, while this year’s second quarter estimate includes $0.01 per fully-diluted share of expenses for the relocation of a store. Net income is expected to be $16.8 million to $17.2 million, compared to last year’s net income of $15.5 million in the second quarter, an increase of 8 percent to 11 percent. Comparable store sales are expected to increase 2 percent to 3 percent.

Big 5 backs Q2 numbers, reports sales
Following in Dick’s steps, Big 5 Sporting Goods Corp. (Nasdaq: BGFV) confirmed previously announced earnings guidance for the 2004 second quarter and reported sales results for the same period. Net sales for the second quarter ended June 27, 2004, increased 8.5 percent to $184.5 million from $170.1 million in the second quarter of fiscal 2003. Same store sales increased 3.9 percent for the quarter, representing the company’s 34th consecutive quarter of same store sales growth. Second quarter earnings per diluted share are expected to be in the previously issued guidance range of $0.34 to $0.36. Results exclude $0.02 per diluted share, which will be recorded in the second quarter, related to a charge associated with the redemption of $15.0 million principal amount of the company’s 10.875 percent senior notes. For the six-month period ended June 27, 2004, net sales increased 9.2 percent to $365.5 million from $334.6 million in the same period last year and same store sales increased 4.5 percent. Big 5 will report its full financial results for the 2004 second quarter on Aug. 4.

Reebok Q2 beats Wall Street expectations
Reebok International (NYSE: RBK) reported a 15 percent drop in second-quarter earnings because of sluggish sales of sports apparel and a one-time tax charge, but favorable currency exchange rates and cost-control measures helped it beat Wall Street expectations.

On the cusp of celebrating its 25th anniversary, Reebok reported net income of $21.8 million, or 35 cents per share, for the April-June period. That compared with a profit of $25.6 million, or 41 cents per share, for the same period last year. Sales increased to nearly $814 million from about $803 million a year earlier. This year’s second-quarter results were hurt by a $7 million tax charge the company took for retiring some debt early. Excluding that charge, Reebok earned 46 cents per share, beating analysts estimate of 40 cents per share.

U.S. apparel sales for Reebok-branded products decreased by 18 percent in the second quarter to $90 million. “The decline is in line with our previous guidance that sales of U.S. apparel may decline in the second and third quarter of 2004,” said Paul Fireman, Reebok’s chairman and chief executive. International sales of Reebok-branded products grew 9 percent to $312 million, with U.S. footwear sales growing 3 percent to $279 million. But sales for its other brands dropped from $136 million a year ago to $133 million in this year’s second quarter. Those brands include Rockport, Ralph Lauren Footwear and The Greg Norman Collection.

The company said it was on target to meet sales and earnings goals for the year, not counting the effect of the $7 million debt-related tax charge. Net sales for the 2004 second quarter increased to $814 million, as compared with 2003’s second quarter sales of $803 million. Foreign currency exchange rate fluctuations favorably impacted sales comparisons. On a constant dollar basis, second quarter sales declined by approximately 1 percent as compared with the prior year’s second quarter sales.

Gold’s Gym sale finalized
Brockway Moran & Partners, Inc., along with key investors Kirk and John Galiani, said that the sale of Gold’s Gym International Inc. to a group led by TRT Holdings, Inc. has closed. The purchase price was $158 million. Brockway, Moran & Partners, Inc. is a Florida-based private equity firm. TRT Holdings, Inc.’s assets include oil interests and the Omni Hotel chain. “Gold’s Gym is truly an iconic brand in the health and fitness industry and has been a wonderful investment for our firm,” Peter Brockway, managing partner of Brockway, Moran & Partners, said. Terrell Philen, CFO of TRT, said that the company looks forward to partnering with Gold’s Gym CEO Gene LaMott and his management team.

Sears takes a big tumble
Sears, Roebuck and Co. (NYSE:S) earnings dropped 83 percent from 2003’s $309 million, or $1.04 per share, to $53 million, or 24 cents per share, in the second quarter ended July 3, 2004. Earnings for the latest quarter include charges of 24 cents per share for severance costs and depreciation. Excluding those one-time items, analysts, on average, expected a profit of 71 cents per share. Analysts had already lowered their quarterly earnings forecasts after Sears posted disappointing spring sales. Just four weeks ago, the average estimate stood at 78 cents.

Finish Line stockholders approve reincorporation
The Finish Line’s (Nasdaq: FINL) board of directors has instituted a quarterly cash dividend program of $0.05 per share of Class A and Class B common stock. The first quarterly cash dividend will be payable on Sept. 15 to stockholders of record on Sept. 1. Its board also authorized a new stock repurchase program to repurchase up to 2.5 million shares of the Company’s Class A common stock, or approximately 10 percent of the aggregate Class A and Class B common stock outstanding. Under the stock repurchase program, it can purchase shares through December 31, 2007. Finish Line said it sees the repurchase program as a viable use of excess cash. Finish Line’s stockholders approved a reincorporation of the company, changing its state of incorporation from Delaware to Indiana. The reincorporation will be accomplished through the merger of the company with and into a newly formed and wholly-owned Indiana subsidiary, effective July 29.

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