Fitness financials: Q4 sales for Brunswick's fitness segment drop 20 percent, plus Under Armour, Sport Chalet

Q4 sales for Brunswick’s fitness segment drop 20 percent

Brunswick Corp. (NYSE: BC) posted a fourth-quarter loss as sales in its core boat market continue to slide amid decreased demand for big-ticket recreational items. Its fitness division didn’t fare any better, posting a 20-percent drop in fourth-quarter sales.

For the quarter ended, Dec. 31, Brunswick reported a loss of $66.3 million, or $0.75 per share, compared with a profit of $6.8 million, or $0.08 per share, a year ago.

Quarterly results included $0.34 per share in restructuring charges and $0.54 per share in non-cash tax charges, which was partially offset by a $0.56-per-share gain related to a reversal of variable compensation accruals.

Sales plunged 42 percent to $837.7 million from $1.44 billion last year.

“The reality of the global economic conditions places Brunswick in a harsh operating environment. Demand is down and there are no factors on the near horizon which will improve demand,” said Chairman and CEO Dustan McCoy in a conference call transcript provided by Seeking Alpha.



For the year, Brunswick posted a loss of $788.1 million, or $8.93 per share, compared with a profit of $111.6 million, or $1.24 per share, in the previous year. Earnings from continuing operations in 2007 totaled $79.6 million, or $0.88 per share. Sales dropped 17 percent to $4.71 billion from $5.67 billion.

Fourth-quarter sales for Brunswick’s fitness segment, which includes Life Fitness and Hammer Strength, were $171.8 million, down 20 percent from $214.5 million in the year-ago quarter.

International sales for the fitness segment, which represented 49 percent of total segment sales in the quarter, declined by 18 percent on a year-to-year basis. Operating earnings declined 21 percent to $25.6 million from $32.4 million. The segment recorded $1.2 million in restructuring charges during the fourth quarter of 2008.

For FY ’08, the fitness segment reported net sales of $639.5 million, down 2 percent from $653.7 million in 2007. International sales, which represented 49 percent of total segment sales in 2008, increased by 3 percent on a year- to-year basis. Operating earnings in 2008 declined 13 percent to $52.2 million from $59.7 million. The segment recorded $3.3 million in restructuring charges for the full year during 2008.

The company said commercial equipment sales, which account for the largest percentage of fitness segment sales, declined by double digits in the quarter as gym and fitness club operators were cautious about ordering equipment in the final months of the year.

Also, consumer sales also were down double digits year-over-year, reflecting the effects of the weakening economy, while international sales were off, particularly in Europe, due to increasing economic pressures during the quarter.

“The fourth-quarter results reflect continued weakness in the consumer portion of the business, but were more impacted by a slowing in the commercial portion of the business as clubs, schools and hotels, proper back spending for new equipment as the year ended,” McCoy said in a Seeking Alpha transcript.



As for the future, McCoy said in a statement, “Although we have limited visibility to a very volatile marketplace entering the year, we expect our revenues to be lower in 2009 with higher relative percentage declines occurring in the first half of the year. Our expectation of lower revenues reflects our view that retail demand will continue to decline, at least through the first six months of the year, and we are planning for production at rates well below the retail rate of decline.”

On Jan. 29, Brunswick’s stock shed $0.37, or 11.2 percent, to close at $2.93 on a volume of 2.16 million as the broader market fell amid fresh economic worries. Over the past year, the stock has traded in a range of $1.82 to $19.63.

Under Armour’s Q4 profit plummets 51 percent

Under Armour (NYSE: UA) said its fourth-quarter profit dove 51 percent rattled by a stronger dollar, tough economy and higher expenses.

Earnings were $8.3 million, or $0.17 per share, from $16.9 million, or $0.34 per share, last year. Sales rose 3 percent to $179.3 million from $174.8 million.

The company said fourth-quarter sales in its apparel business were impacted by a slowdown in the U.S. wholesale business primarily due to lower levels of at-once orders and increased cancellations and returns on a year-over-year basis. Net revenues in the direct-to-consumer channel grew 47.4 percent during the fourth quarter, helping to offset the impact of the wholesale channel, it added.

Selling, general and administrative expenses rose to $68.1 million from $62.6 million in the prior year, mostly because of costs to expand its direct-to-consumer channel.

For the fourth quarter, operating income totaled $22.9 million compared with $28.3 million in the prior year’s period. Gross margin for the fourth quarter of 2008 was 50.7 percent compared with 52.0 percent in the prior year’s quarter partially impacted by the higher proportion of lower gross margin footwear sales.

For the year, profit declined 27 percent to $38.2 million, or $0.77 per share, from $52.6 million, or $1.05 per share, a year ago. Sales rose 20 percent to $725.2 million from $606.6 million.

Operating income for the year totaled $76.9 million compared with $86.3 million in 2007. Gross margin for 2008 was 48.9 percent compared with 50.3 percent in the prior year.

Additionally, Under Armour debuted its new running footwear line on Jan. 31, saying it spent about $15 million to support the launch.

Also, the company has entered into a new three-year revolving credit facility with PNC Bank as the lead arranger. The new facility provides for an initial commitment of $180 million and replaces the existing $100 million facility.

Sport Chalet reviews options with financial advisor

Sport Chalet (Nasdaq: SPCHA and SPCHB) has retained Wedbush Morgan Securities as a financial advisor to evaluate its “strategic alternatives” amidst the challenges posed by the “unprecedented macroeconomic difficulties” in its core market areas of California, Nevada and Arizona.

The company said the review process may include such alternatives as raising additional capital, amending or replacing the company’s current bank credit facility, further reducing expenses, or continuing to execute its current operating plan.

No timetable has been set for completion of the review. Sport Chalet said it has no commitment or agreement with respect to a sale of the company.

Additionally, Sport Chalet said it and its wholly owned subsidiary, Sport Chalet Value Services LLC, entered into a second amendment with Bank of America, which has agreed to extend the period during which it will forbear from exercising its rights with respect to certain defaults by the company under its credit facility from Jan. 31 to March 2.

–Compiled by Wendy Geister

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