Fitness financials: Precor-parent Amer expects 2004 growth, plus Dick's Sports, Life Time Fitness, Hibbett, Foot Locker, Equinox, Wal-Mart

Precor parent Amer expects 2004 growth; fitness division has strong sales
Growth in net sales in Amer Group’s fitness equipment division lead by Precor was 18 percent over the same period last year, while total company sales were down slightly to Euro 519.1 million (USD $642 million) in the January to June 2004 period from 2003’s Euro 530.8 million (USD $657 million). Exiting from the tobacco business improved the Finnish company’s EBIT by Euro 14.2 million (USD $17.6 million), but reduced net sales by 6 percent compared to the first half of last year. EBIT amounted to Euro 52.5 million (USD $65 million) in the first six months of 2004 compared to Euro 35.2 million (USD $43.4 million) in 2003. Profit before taxes and minority interest was Euro 51.6 million (USD $43.5 million), a huge step up from 2003’s Euro 31.1 million (USD $38.4 million), with earnings per share also up to Euro 1.49 (USD $1.84) over 2003’s Euro 0.95 (USD $1.17).

In the fitness equipment division, the company saw net sales of Euro 101.4 million (USD $125.4 million) compared to 2003’s 85.8 million (USD $106.1 million). According to a statement by the company, the division continued to grow with net sales in local currency terms increased 31 percent and EBIT increased 16 percent during the period under review. The fastest-growing product categories were elliptical cross-trainers and stationary cycles. Sales growth was boosted by the acquisitions made in January 2004 of FPI (Icarian brand), with annual sales of approximately USD $13 million, and ClubCom, with annual net sales of approximately USD $15 million. The increase in the company’s goodwill related to these acquisitions was Euro 23.5 million (USD $29.1 million) as of June 30.

“Activity in the current year has started more positively in the sports equipment market than was the case last year,” said CEO Roger Talermo, in the financial statement. “Demand for sports equipment has strengthened and this has also been reflected in Amer Group’s business. Growth in fitness equipment has been especially strong with net sales in local currencies growing by 31 percent in the January-June period.” For more, go to www.amersports.com.

(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 Aug. 18.)

Analysts grill Dick’s about Galyan’s buyout during Q2
With just three days of full ownership of Galyan’s, Dick’s Sporting Goods (NYSE: DKS) reported its second-quarter results and fielded numerous questions about the integration of Galyan’s during its earnings conference call.

Net income for the quarter ended July 31, 2004, increased 16 percent to $17.9 million from 2003’s $15.5 million, operating income increased 23 percent to $30.8 million from 2003’s $25.1 million, and earnings per share increased 10 percent to $0.34 per diluted share as compared to 2003’s $0.31 per diluted share. Total sales for the quarter increased 18 percent to $416.1 million. Comparable store sales increased 2.9 percent. The second quarter 2004 results included $1.2 million of pre-tax store relocation expense, while the prior year’s second quarter included a $1.2 million pre-tax gain on sale of investment. Adjusting for these two items, earnings per share increased 21 percent, from $0.29 per diluted share to $0.35 per diluted share.

Dick’s CEO Ed Stack said Dick’s management has visited every Galyan’s store and plans to finish re-branding and re-merchandising them by early 2005. Analysts listening to the conference call were curious about the direction Dick’s would take, but management was purposefully vague because of the recent completion of the acquisition. A few tidbits of information pried by analysts were: Dick’s sees opportunities in certain categories for expansion, such as golf and team sports. Inventory control is important and it hopes to get Galyan’s former stores turning quicker. It will continue to service Galyan’s stores with its Indianapolis distribution center for the rest of the year. Galyan’s private label had been cut back since the sale announcement and Dick’s expects the inventory to run out by October.

When asked about Galyan’s liquidation, Stack said, “We don’t feel we need to liquidate aggressively. Galyan’s merchandising group had been doing a good job reducing receipt of goods we wouldn’t feature. The goal is to synchronize merchandising assortments.”

Stack noted that sales for its exercise equipment, licensed under the name Fitness Gear, continued to grow. When questioned by an analyst about Dick’s success while others are seeing drops, Stack said the retailer had found ways to mitigate sales and do well, but did not want to give away what it was specifically doing to tip off competitors.

During the second quarter, the Company opened four new stores and relocated three. The four stores had previously been expected to open at the beginning of the third quarter.

Equinox revenue up 22 percent for quarter
Equinox Holdings Inc., an operator of upscale, full-service fitness facilities, reported revenue increased 22 percent to $36.5 million compared to $30 million in 2003 for the quarter ended June 30, 2004. Revenue from comparable fitness clubs rose 7 percent for the period. Net income was $1.2 million versus $948,000 in the comparable period of 2003. While shares of the company’s stock are not publicly traded and does not have a ticker symbol, Equinox has publicly traded debt. The company said it plans to continue to develop regional clusters of Equinox fitness clubs in the New York City, Los Angeles and Chicago metropolitan areas, and in similar markets. It also is looking at increasing the number of our fitness clubs from 22 to 40 by the end of 2006. www.equinoxfitness.com

Life Time Fitness considering new HQ, gets outperform nod
Life Time Fitness (NYSE: LMT) is eyeing a plot of land in Chanhassen, Minn., to be not only a health club but also its corporate campus headquarters. It has an agreement to purchase a 22-acre site in the Arboretum Business Park in the southeast quadrant of the intersection of highways 5 and 41. If all goes well with the city council, Life Time could purchase the site and start constructing a 109,000-square-foot health club as early as this summer. It’s estimated that the club could cost $22 million. It would also build two 100,000-square-foot office buildings, the first of which having a 2007 move-in date with 400 employees. The second building, slated for 2012, could provide additional expansion space or be a multi-tenant office building. Life Time is acting as the developer on the project and has hired Minneapolis-based Alliant Engineering Inc. as its architect, though it has an in-house staff for the health club part of the project.

Also, William Blair & Company said it initiated research coverage of Life Time with an outperform rating and company profile of aggressive growth. It estimated that the company would earn $0.87 per share in 2004 and $1.02 per share in 2005. William Blair said it believes Life Time, with 35 clubs presently, has a relatively open-ended growth opportunity. “Management’s initial target is 225 clubs, and our saturation analysis suggests potential of closer to 300 clubs. In any case, with club growth likely to approximate 15 percent to 20 percent per year, we estimate that Life Time has at least 10 more years of growth before hitting its goal of 225 clubs,” it said.

Foot Locker Q2 earnings double
In the quarter ended July 31, 2004, Foot Locker (NYSE: FL) earned $82 million, or 53 cents a share, on revenue of $1.27 billion. In the same second-quarter period last year, it earned $36 million, or 24 cents a share, on revenue of $1.12 billion. The latest quarter included an income tax benefit of $37 million, or 24 cents a share, from discontinued businesses. The quarter also included a loss of $10 million, or 7 cents a share, from Footaction, acquired in May; however, Footaction contributed $104 million to the latest quarter’s sales, Foot Locker said. The New York-based shoe retailer also expects earnings per share for the third and fourth quarters to improve upon last year’s numbers.

Hibbett 2Q earnings fall 6 percent
Hibbett Sporting Goods (NasdaqNM: HIBB) reported that its second-quarter results dropped 6 percent year-over-year due to weaker licensed apparel and fitness-equipment sales. For the 13-weeks ended July 31, 2004, the company reported earnings of $3 million, or 13 cents per share, compared with $3.2 million, or 14 cents in the year-ago period. Analysts had predicted earnings of 15 cents per share. “The second-quarter sales and earnings results were influenced by the weaker sales in pro- and college-licensed apparel and fitness equipment, as well as the unusual amount of rainy weather in markets served by the company during June,” said Chairman and CEO Mickey Newsome in a statement. “The aggressive markdowns initiated brought our inventory levels in line with our expectations, but as anticipated, brought our gross margins below the levels we are accustomed to achieving.” Sales for the quarter rose 14 percent to $81.8 million compared with $71.7 million in the year-ago period. Same-store sales increased 2.5 percent in the quarter, during which the company opened 19 new stores and closed three, bringing the store base to 449 as of July 31. Hibbett said it plans to open about 65 new stores in fiscal 2005. Also, the company said its board approved a buyback of up to $30 million of the company’s outstanding common stock starting Aug. 19. About 23.4 million shares of Hibbett common stock are outstanding.

Record 2Q sales and earnings for Wal-Mart
Wal-Mart Stores (NYSE: WMT) reported net sales were $69.7 billion, an increase of 11.3 percent over the second quarter of fiscal 2004. Income from continuing operations for the quarter ended July 31, 2004, was $2.7 billion, an increase of 16.1 percent from $2.3 billion in the second quarter of fiscal 2004. Diluted earnings per share from continuing operations were $0.62, up from $0.52 per share in the same prior year quarter. Its Wal-Mart Stores segment, including Supercenters, had operating profit of $3.685 billion, an increase of 11.1 percent compared with $3.317 billion in the second quarter of fiscal 2004.

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