Fitness financials: Precor drives Amer Sports growth, plus Nautilus, Bally, Sports Authority, Crocs, Gaiam, Foot Locker, Wal-Mart, Costco

Amer’s Precor posts 17 percent sales increase
Driven by “particularly good growth” with its Precor business segment, Amer Sports reported net sales growth of 8 percent for the January to March first quarter — Euro 417.4 million (USD $527.4 million) in 2006 compared to Euro 385.0 million in 2005. Comparable net sales in local currencies were up 3 percent.

As announced a week ago, Amer Sports revised its segment reporting, dividing business segments under titles that coincide with the lead company name, including segments now called Precor(instead of fitness) as well as Salomon, Wilson, Atomic and Suunto. In the Precor business segment, net sales were up 17 percent; in local currency terms, it was up 15 percent.

The company’s EBIT amounted to Euro 1.6 million (USD $2.02 million), while earnings before taxes were a loss of Euro 3.3 million (USD $4.1 million). Earnings per share were a loss of Euro 0.03. Net financial expenses added up to Euro 4.9 million (USD $6.2 million).

“The trend in the sports and leisure markets was favorable in the first months of the year,” said CEO Roger Talermo in a statement.

Amer said Precor’s year got off to a very good start, reporting net sales of Euro 72.9 million (USD $92.1 million) — a 15 percent increase in local currencies — compared to Euro 59.0 million last year. Of the net sales, the Americas generated 82 percent, EMEA 12 percent and Asia Pacific 6 percent. Sales rose by 14 percent in the Americas, 16 percent in EMEA and 18 percent in Asia Pacific.

The company said that although the trend in the global demand for fitness equipment was positive, growth in the number of fitness clubs leveled off in North America. Precor’s sales to fitness clubs outperformed average growth in the field. The growth was fueled particularly by Precor’s ability to deliver what they call a “total product” that addresses commercial facilities’ business needs, including all equipment and entertainment. The market for residential ellipticals grew, and the company said it will continue to bolster its position in home product categories.

Precor’s EBIT grew to Euro 12.0 million (USD $15.1 million). Amer said EBIT was increased by sales growth and improved profitability in the units supplying strength equipment and entertainment systems.

Amer estimates that the trend in demand for sports equipment will be favorable in 2006, and net sales are expected to be Euro 1.8 billion (USD $2.2 billion) up fro 2005’s Euro 1.73 billion. Earnings per share in 2006 are expected to come in at Euro 0.90 to 1.05 (USD $1.13 to $1.32).

(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 May 3.)

Nautilus net sales up, net income drops
Stressing that manufacturing inefficiencies that slowed product delivery and revenues were past, Nautilus Inc. (NYSE: NLS) reported increased net sales but a decrease in net income.

“The manufacturing issues that slowed our performance in the fourth quarter are behind us, with all six new cardio products now in production,” CEO Gregg Hammann said in an official statement. “Our enterprise resource planning system conversion is in the business implementation phase this year for our commercial, specialty, retail and portions of our direct business. Although we are still getting used to the new system, it is helping identify additional areas for operational improvement and we expect it to improve our accounting close process.”

Net sales for the three months ended March 31, 2006, were $185.0 million, compared to $156.4 million for the year-ago quarter, or up 18.3 percent. Net income for the quarter, however, was down — $5.2 million, or $0.16 per diluted share including about 1.5 cents for stock option expensing, down from $9.4 million, or $0.28 per diluted share, for the first quarter of 2005.

However, a balance sheet also reports that the cost of sales was up over a year ago by $26 million or nearly as much as the $28.6 million increase in net sales. That means that gross profit was up by $2.6 million — $79.3 million for the current quarter compared to $76.7 million for the year-ago quarter.

Hammann also noted that the company’s inventories were down about $20 million from the level at the end of 2005 to $76 million. He said earnings were in line with current company guidance. For the second quarter, Nautilus said it estimated net sales will be in
the $145 million to $150 million range, with expected earnings of $0.04 to $0.07 per diluted share, including about 1.5 cents per share for stock option expensing as required by FAS 123R in 2006.

In other news, Wedbush Morgan upgraded Nautilus to buy from hold.

Deutsche Bank offering financing for Bally sale
According to a May 4 report in TheDeal.com, Bally Total Fitness (NYSE: BFT) is working with Deutsche Bank AG to provide ready-made debt financing in Bally’s auction, sources close to the bank and company said, not J.P. Morgan Chase & Co. and Blackstone Group LP, the banks running the sale of the fitness chain.

Deutsche is offering about $700 million in financing, sources said, made up of senior bank debt and subordinated debt. The choice of an independent debt source was made by a special strategic alternatives committee of Bally’s board, but outside counsel had recommended finding a third bank to provide the debt financing to avoid the potential impression of a conflict of interest, TheDeal.com reported.

J.P. Morgan started contacting strategic and financial buyers in early March about Bally, and a number of confidentiality agreements have been signed, and TheDeal.com weighed in on the possible contenders for Bally. Among the possible bidders are British private equity company BC Partners, which is in talks to buy Town Sports International Holdings and already owns U.K. chain Fitness First; Life Time Fitness; buyout shop Forstmann Little & Co., which bought 24 Hour Fitness Worldwide for $1.6 billion in May; real estate developer Related Cos.; and Wattles Capital Management, the hedge fund run by former Hollywood Entertainment Corp. CEO Mark Wattles.

The names of Wellspring Capital Management, TRT Holdings and Brunswick Corp. have also surfaced, TheDeal.com reported. It added that bidders who lost out on 24 Hour Fitness may be eyeing Bally, such as Leonard Green & Partners, Texas Pacific Group, Bain Capital, Thomas H. Lee Partners, Invus Group Ltd. and Golden Gate Capital.

The Bally auction began in earnest after Pardus succeeded in having three candidates elected to Bally’s nine-person board. The new directors promised to press for a sale. TheDeal.com said that sources close to Pardus say the firm is likely to launch another proxy fight at Bally’s annual meeting next year if the chain hasn’t found a buyer.

Sports Authority shareholders approve acquisition
Stockholders of The Sports Authority approved the acquisition of the company by Leonard Green & Partners, a private investor group, and some of the company’s managers. Sports Authority’s common stock, formerly traded on the New York Stock Exchange, will no longer be publicly traded.

About 81 percent of the company’s shares voted on the deal at a special meeting on May 2, according to a preliminary tally. Of those, 99 percent voted for the deal — 21.3 million shares out of 21.5 million. The company said the $1.3 billion cash-and-debt acquisition, announced in January, was completed the following day. Under the deal, stockholders will receive $37.25 in cash for each Sports Authority share. The Sports Authority remains headquartered in Englewood, Colorado under existing management.

Crocs quadruples Q1 profit
Crocs (Nasdaq: CROX) reported that its first-quarter profit more than tripled and set its guidance for second-quarter and full-year profits above analyst expectations on improved sales.

The company reported net income of $6.4 million, or $0.17 per share, up from $2 million, or $0.06 per share, in the year-ago quarter. Revenue more than quadrupled to $44.8 million from $11 million. Excluding stock-based compensation, the company said it earned $0.20 per share in the quarter. Analysts said they were expecting a profit of $0.14 per share off $36.2 million in revenue.

Gross profit for the quarter was $23.7 million, or 52.8 percent of sales, compared to gross profit of $6.8 million, or 62.4 percent in 2005. Selling, general and administrative expense was $13.7 million, or 30.6 percent of sales, compared to $4.7 million, or 42.6 percent of sales in the corresponding period a year ago.

For the year, Crocs said it expects earnings per share to be between $0.77 and $0.79, including stock-based compensation, on revenue of between $200 million and $205 million. For the second quarter, it expects earnings between $0.21 and $0.22 per share, on revenue of $53 million to $55 million. Analysts have lower expectations: earnings of $0.70 per share for 2006, on revenue of $176.5 million, and project $0.19 per share for the second quarter, with revenue of $45.4 million.

Gaiam revenue surges 97 percent in Q1, announces follow-on offering
Gaiam (Nasdaq: GAIA) reported a whooping 97 percent increase in revenue for the first quarter — $51.8 million compared to $26.3 million last year. It said the leap in revenue was the combined result of strong internal growth of 27.8 percent and sales of media titles acquired from GoodTimes Entertainment in September 2005.

In the quarter revenues for Gaiam’s overall direct to consumer segment, including growth from acquisitions, increased 96.1 percent to $26.1 million and Gaiam’s business segment, including growth from acquisitions, grew to $25.6 million, an increase of 97.1 percent over the 2005 quarter.

Gross margin increased 1190 basis points to 64.1 percent in the quarter, compared to 52.2 percent in the same period last year and 270 basis points from 61.4 percent reported in the fourth quarter of 2005. Gaiam said the increase was primarily due to increased media sales, the leverage on purchasing discounts associated with higher DVD sales volume and the establishment of a direct sales relationship with certain retailers previously supplied through distributors.

Selling and operating expenses increased to 55.9 percent of revenue in 2006 from 44.4 percent in the comparable period last year, as a result of expenses from the GoodTimes Entertainment asset acquisition. General and administration expenses decreased to 6.3 percent of revenue in the first quarter from 6.7 percent in the comparable period last year.

Operating income was $1.0 million, compared to $287,000 in 2005. Net income for the first quarter was $890,000, or $0.04 per share, as compared to $116,000, or $0.01 per share for 2005.

Also for the quarter, according to Nielsen’s VideoScan, Gaiam was ranked fourth in overall U.S. non-theatrical DVDs with 8.9 percent market share, up from the fifth position and 6.8 percent market share in 2005. Gaiam’s market share in the fitness/wellness DVD category in the first quarter increased to 42.4 percent, which is more that three times larger than the next competitor. Gaiam said it has five titles in the top 10 best selling fitness DVDs year-to-date.

Also, Gaiam said it intends to make a follow-on offering of 5,000,000 shares of its Class A common stock. Proceeds from the offering will be used for general corporate purposes, including expansion of the business. Thomas Weisel Partners is the lead manager for the offering, with Craig-Hallum Capital Group and Jefferies & Company as co- managing underwriters.

Foot Locker lowers first-quarter profit forecast
Foot Locker’s (NYSE: FL) same-store sales rose 0.5 percent, as strength in North America was offset by weaker European results. As a result, the company trimmed its earnings forecast for the first quarter. Total sales for the first quarter fell 0.9 percent to $1.36 billion from $1.38 billion a year earlier. Excluding the effect of foreign currency fluctuations, total sales increased 0.2 percent, it said. The company now expects to earn now expects to earn $0.36 to $0.37 per share in the first quarter, compared with its March forecast for income between 37 cents and 40 cents per share.

Wal-Mart’s April sales up 16 percent
April net sales for Wal-Mart Stores (NYSE: WMT) were up 16 percent for the entire company — $25.8 billion versus $22.3 billion in 2005. For the four weeks ending April 28, its net sales for its U.S. stores were $16.8 billion compared to $14.8 billion last year. U.S. same-store sales for the Wal-Mart division were up 7.3 percent. Wal-Mart estimates U.S. comparable sales for May to be in the 2 percent to 4 percent range.

Costco reports April sales
For the month of April, Costco Wholesale (Nasdaq: COST) reported net sales of $4.39 billion, an increase of 11 percent from $3.94 billion in the same four-week period of the prior fiscal year. Same-store sales for its U.S. stores and the total company were each up 7 percent.

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