Fitness financials: Q3 sales flat for Brunswick's LF division, plus Amer, Life Time Fitness, Russell, GSI, Sara Lee, The Sports Club

Brunswick reports flat Q3 sales for Life Fitness division
Third-quarter profit rose 21 percent for Brunswick Corp. (NYSE: BC), parent of Life Fitness, Hammer Strength and Parabody, aided by a large reduction in the company’s tax provision.

For the quarter, net sales increased 13 percent to $1,434.6 million, up from $1,273.2 million a year earlier. Operating earnings rose 7 percent to $105.9 million compared with 2004’s $99.3 million, and operating margins were down slightly to 7.4 percent from 7.8 percent. Net earnings totaled $88.4 million, or $0.89 per diluted share, up 21 percent from $72.9 million, or $0.75 per diluted share, for the third quarter of 2004. The company said that net earnings and diluted earnings per share in both 2005 and 2004 benefited from lower tax provisions.

The quarter’s results were aided by a change in Brunswick’s tax strategy, as the company said it would indefinitely invest some foreign subsidiaries’ earnings overseas and made other changes related to research and foreign export tax benefits. The tax changes bolstered earnings by about 16 cents per share.

Stripping out the benefit from the lower tax provision, earnings matched analysts’ consensus view of $0.73 per share on sales of $1.41 billion.

Fitness equipment sales in the Life Fitness division were flat for the quarter, excluding sales from the Omni retail stores that were sold in late 2004. Segment sales in the third quarter of 2005 reached $127.4 million, down from $132.2 million in the year-ago quarter, which included Omni retail sales. Fitness segment operating earnings for the quarter totaled $14.2 million, up 69 percent from $8.4 million in the third quarter of 2004, and operating margins advanced 470 basis points to 11.1 percent from 6.4 percent a year ago.

“We are very pleased with the margin improvement at Life Fitness. The significant increase in operating margins was primarily due to a higher sales mix of cardiovascular equipment versus strength equipment, improved manufacturing efficiencies and ongoing effective cost management,” Brunswick Chairman and CEO George Buckley said. “Further, our expanded manufacturing plant in Hungary is giving us access to lower material and labor costs, as well as reduced shipping costs and improved delivery times to our European customers.”

Brunswick’s board of directors declared a regular annual dividend on its common stock of $0.60 cents per share payable Dec. 15, 2005, to shareholders of record on Nov. 22, 2005.

In May 2005, the board authorized the discretionary repurchase of up to $200 million of the company’s outstanding common stock. The company said that during the third quarter of 2005, it repurchased 375,000 shares of Brunswick common stock at an average price of $41.90 per share. To date in the fourth quarter of 2005, the company has repurchased an additional 1 million shares of common stock at an average price of $37.80 per share.

“So between this dividend and our share repurchases to date, we have returned $111 million to our shareholders, and we will continue to pursue additional share repurchases, as well as acquisitions, to maximize shareholder value,” Buckley added.

The company projected earnings between $0.68 to $0.73 per share in the fourth quarter, and affirmed its full-year view of $3.20 to $3.25 per share, excluding items.

Amer Sports’ Precor-led fitness division yields fastest sales growth
The Precor-led fitness division of Amer Sports (AMEAS.HE) was the largest contributor to the company’s growth in net sales of 4 percent for the first nine months of 2005. That division’s net sales increased by 16 percent, in local currency, compared to 10 percent in team sports, the next highest division.

Amer’s net sales were Euro 805.2 million (USD $977.4 million) for the nine months, compared to last year’s Euro 774.9 million (USD $940.6 million). Earnings before interest and taxes totaled Euro 69.1 million (USD $83.8 million), while earnings before taxes were Euro 65.5 million (USD $79.5 million). Earnings per share were Euro 0.63 (USD $0.76).

For the 2005 three month-period of July to September, consolidated net sales rose by 5 percent in local currency terms and totaled Euro 294.2 million (USD $357.1 million), up from Euro 278.4 million (USD $337.9 million) last year. Earnings before interest and taxes were Euro 35.5 million (USD $43.1 million), and earnings before taxes were Euro 34.7 million (USD $42.1 million).

The fitness equipment division had net sales of Euro 171.4 million (USD $208.1 million) up from the 2004 nine-month period’s Euro 151.5 million (USD $183.9 million). EBIT was Euro 17.5 million (USD $21.2 million), from Euro 16.3 million (USD $19.7 million) in 2004. Of the net sales, 77 percent were generated in the Americas, where sales were up 16 percent. Sales grew by 18 percent in Europe, Middle East and Africa and by 11 percent in Asia Pacific.

Amer said sales increased in all fitness division’s main product groups. In local currencies, the division’s EBIT grew by 11 percent. The division was able to partly pass in the increased costs of steel and freight in its selling prices.

In 2005, Amer’s comparable net sales in local currencies — exclusive of recently acquired Salomon — are expected to grow by 5 percent compared with last year. As of Oct. 19, the sale of Salomon was complete and will be consolidated into Amer’s figures as of Oct. 1, 2005.

(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 Oct. 28.)

Life Time reports strong Q3, RBC maintains ‘outperform’ rating
Life Time Fitness (NYSE: LTM) reported a 28.3 percent increase in third-quarter revenue — $101.6 million from $79.2 million during the same period last year. The company attributed the double-digit percentage boost primarily to growth in membership dues and in-center revenue.

Net income during was $10.7 million, or $0.29 earnings per diluted share compared to $7.9 million, or $0.22 per diluted share, in 2004, driven by continued revenue growth and efficient use of capital, the company said. Total operating expenses during the third quarter were $80.4 million compared to 2004’s $61.8 million, driven primarily by increased expenses to support new centers, membership growth and presale activities.

RBC Capital Markets noted that Life Time’s third-quarter earnings of $0.29 was $0.02 higher than its estimate and a penny better than consensus. Revenues also exceeded its estimate of $99 million. RBC said its is maintaining its “outperform” rating for the company due to its strong underlying business trends, rapid growth and high earnings visibility, adding that it’s raising Life Time’s price target to $41 from $40.

Membership dues revenue for the third quarter grew 28.8 percent to $67.6 million from $52.5 million in 2004. Enrollment fee revenue was up 1.8 percent to $5.3 million from $5.2 million. In-center revenue increased 40.4 percent to $25.7 million from $18.3 million. Same-center revenue increased 7.9 percent during the third quarter compared to the prior-year period. Life Time said other sources of revenue for the quarter included media division advertising, its restaurant and event sponsorships, and totaled $3.1 million compared to $3.2 million in the prior-year period.

Life Time added that it expects 2005 full-year total revenue to grow 22 percent to 24 percent — $381 million to $387 million — driven by new center growth, membership ramp at new and existing centers, and in-center revenue growth. 2005 full-year net income is expected to grow 34 percent to 36 percent — $38.7 million to $39.3 million — with diluted earnings per share up 22 percent to 24 percent — $1.06 to $1.08.

During the quarter, it opened new centers in Chanhassen, Minn.; Austin, Texas; and Romeoville, Ill., for a total now of 44 centers nationally.

Hurricanes slam Russell’s Q3
Third-quarter profit for Russell Corp. (NYSE: RML) declined due to “significant economic losses” from the impact of hurricanes Katrina and Rita, higher fiber prices and the elimination of a top executive position, the company said.

Net income totaled $15.8 million, or $0.47 per share, down 42 percent from $26.9 million, or $0.82 per share, last year. Excluding the 7-cent-per-share impact related to the hurricanes and the 6-cent-per-share charge for eliminating the chief operating officer position, the company said it would have earned $0.60 per share. Revenue was $424.6 million, up just half a percent from last year’s $422.7 million. Analysts were expecting earnings of $0.49 per share on sales of $453.8 million.

For the full year, the company reaffirmed its view of earnings excluding hurricane-related and other charges of $1.25 to $1.35 per share. It did trim its revenue projection to $1.45 billion to $1.46 billion from a prior forecast of $1.5 billion to $1.52 billion.

Also, its board of directors declared a regular quarterly dividend of $0.04 per common share, payable Nov. 23, 2005, to shareholders of record on Nov. 9, 2005. It is the 170th consecutive quarterly dividend paid by the company.

GSI postpones Q3 earnings report, shares drop
GSI Commerce (Nasdaq: GSIC) canceled its planned earnings release on Oct. 26 and forecast a bigger loss for the third quarter than expected, sending its shares tumbling more than 35 percent. The company cited potential accounting discrepancies and a problem in its bookkeeping system for the delay.

Shares of the company dropped as low as $6.55 to $12.50 on the Nasdaq, then settled to close at $16.46 — $2.59 lower than the previous day’s closing. The stock has traded between $9.08 and $21.25 over the past 52 weeks.

GSI’s preliminary results, which don’t include changes it could make in light of its accounting issues, call for a wider-than-expected loss of $4.2 million to $4.5 million, or about $0.10 per share. In July, GSI forecast a loss of $2.5 million to $3 million.

GSI said the estimated profit shortfall stems from higher costs for partner launches than it anticipated, and to a lesser extent, delays in the actual launches. Net revenue for the third quarter is expected to range from $84 million to $85 million, versus an earlier view of $79 million to $84 million. It also lowered its full-year profit to between $5.5 million to $6.5 million, down from previous expectations of $9.5 million to $10.5 million. GSI cautioned that its actual results could turn out differently.

The company said that in August, its internal auditor found potential discrepancies with certain credits the company recorded for its 2004 fourth quarter, but which possibly should have been recorded in 2005. The credits amount to about $283,000. In addition, GSI said it has found a problem in its system for reconciling its accounts payable and couldn’t validate its general ledger as a result. GSI said it could take an estimated charge of up to $300,000, or a gain of up to $1.2 million, related to the issue, depending on how its ongoing review of the issue goes.

GSI said it is aiming to release its third-quarter results by Nov. 10.

Barnes named chairman of Sara Lee at stockholder meeting
At Sara Lee’s (NYSE:SLE) annual meeting of stockholders, management reviewed the company’s fiscal 2005 activities and highlighted Sara Lee’s strategies for increasing its growth and returning value to its stockholders via its transformation plan. Among Sara Lee’s brands is Champion, which has a license agreement with Lamar Health, Fitness & Sports.

During the meeting, company stockholders ratified the appointment of PricewaterhouseCoopers LLP as Sara Lee’s independent auditors for fiscal 2006 and approved the company’s new international employee stock purchase plan. In addition, company stockholders re-elected 10 incumbents and elected one new nominee — Jonathan P. Ward, chairman and CEO of The ServiceMaster Company — to serve one-year terms on Sara Lee’s board of directors.

Also, Sara Lee’s President and CEO Brenda C. Barnes was named chairman of the board, succeeding C. Steven McMillan, who has served as chairman since 2001 and led Sara Lee as CEO from 2000 until February, 2005, when his retirement was announced.

The Sports Club to sell six clubs, changes stock symbol
On the heels of changing its stock symbol, The Sports Club Company (SCYL.PK) has signed a definitive asset purchase agreement to sell six of its nine sports and fitness clubs to an affiliate of Millennium Entertainment Partners — a principal stockholder in the company– for $65 million.

Subject to post closing adjustments, The Sports Club will receive approximately $57.2 million in cash from the sale and will receive a note from Millennium for the remaining $7.8 million. Simultaneously with the consummation of the asset sale, The Sports Club intends to finance The Sports Club/LA – Los Angeles. The proceeds from the asset sale and refinancing will be used to retire its $100.0 million Senior Secured Notes that are due in March 2006.

The clubs to be sold include its three facilities located in New York City and single clubs in each of Boston, Mass.; Washington, D.C.; and San Francisco, Calif. Also, the management agreement covering the Miami, Fla., club will be assigned to Millennium. It has 30 days to decide if it wants to sell the Rockefeller Center club in New York, which would substantially raise the sale price. The deal is set to close on Dec. 31.

The company’s symbol change became effective Oct. 28 to coincide with its move from the American Stock Exchange to the OTC Pink Sheets.

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