Fitness financials: Quarter of "disappointing" losses for Icon in sales and margins, plus The Sports Authority, Amer Group, Nautilus, U.S. retail sales

Icon posts disappointing second quarter
Icon saw red on its balance sheet for the second quarter of 2005, ended Nov. 27, 2004, with a 10.9 percent drop in net sales, and a fifth the income and less than a third the EBITDA from the same quarter a year ago.

“Although I’m disappointed in the second quarter,” CEO and Chairman David Watterson told analysts and media in a Jan. 13 conference call, “I remain optimistic about the future. Icon is a great company.”

Second quarter sales for the Logan, Utah-based, company were $275.4 million, compared to $309 million a year ago. Net loss was $18 million, with the same quarter a year ago showing a net gain of $15.4 million. EBITDA was $12.6 million, compared to $40.9 million for the second quarter of 2004.

For the previous six months, sales were $406.1 million, with sales for the same six months a year earlier being $473.3 million, which the company called “historically high.” That was a drop of 14.2 percent. Net loss for the previous six months was $38.8 million, compared to a net gain of $13.7 million the same period a year ago. EBITDA for the six months was down $2 million compared to a gain of $50.4 million for the previous six months. Last September, Icon discontinued its Jumpking operations (see SNEWS® story, “Fitness: Did you hear?…,” Oct. 12, 2004), which included trampolines, spas and other “outdoor recreational” products. The outdoor recreational equipment operations have been classified as a discontinued operation and its expenses are not included in the results of continuing operations, the company reported.

On the two-hour earnings call, Watterson blamed the drops on an increase in commodity prices such as steel and plastic, an increase in transportation costs, and a change in the sales force. CFO Fred Beck added that a particularly weakened demand in direct-to-consumer sales also pushed the losses, with nearly two-thirds less in sales of strength equipment adding to the quarter’s woes. Legal fees were also slightly lower than a year ago, but still “higher than what they are historically,” Beck said.

“Even though operations have been challenging and difficult this year, from a liquidity standpoint, the company is in very good shape,” Beck said. The company’s loan balance is now about $242 million of a possible $275 million, but Beck said he expects the balance to be down to about $120 million by the end of this fiscal year.

“I really do believe we’re in a good position,” Beck said.

In answer to various questions by analysts, the company said that the business with Sears was not off, and there was good growth in the commercial segment with FreeMotion Fitness, although sales to department stores, such as Target, and sporting goods stores, such as Academy and Dunham’s, were off.

“There have been some channel shifts going on,” Beck said, “and we believe we’re positioned right in those multiple channels.”

Sears remains Icon’s single largest customer, accounting for 44.5 percent, 39.3 percent, 38.7 percent and 42.2 percent of revenues in fiscal years 2002, 2003, 2004, and the first six months of fiscal 2005, respectively.

In response to questions about ongoing legal battles with Nautilus that are now more than two years old, company legal counsel Brad Bearnson said a previously scheduled April trial in the infringement case stemming from a December 2002 suit filed against Icon by Nautilus may be delayed since the judge has not yet issued a ruling from the Markman hearing from September.

He declined to speculate on possible damages since “they’ll have their theories of damages and we’ll have ours,” Bearnson said. “Those will be diametrically opposed.”

In terms of Icon’s category-specific sales, its strength business was down nearly $26 million, or 26.2 percent, in the last six months, and its cardiovascular equipment business was off just over $41 million, or 11.1 percent, both compared to the same period a year ago. The drops were nearly evenly split between the first two quarters of the 2005 fiscal year.

Despite its negative quarter, Watterson said the fitness industry in general was strong.

“The industry…will continue to grow,” Watterson said. “This bodes well for the future.”

To see the full 10Q report for the second quarter of 2005, click here or paste in the following link:
http://www.sec.gov/Archives/edgar/data/934798/000093479805000006/e10q2qf05.htm.

TSA stock rises despite lowered forecast
Despite lowering its fourth-quarter earnings forecast, The Sports Authority’s stock went up 10 percent with the prediction that pending snow could bring increased wintersports equipment sales. The sporting goods retailer (NYSE: TSA) said it now expects to earn between 90 cents and 95 cents per share in the fourth quarter, down from earlier estimates of $1.08. It also said same-stores sales may decline 2 percent, rather than being flat as it had predicted earlier. CEO Doug Morton said that “prior to Christmas, our planned sales improvements in the winter product categories, in most of our cold weather markets, did not materialize as these markets experienced significantly less snowfall amounts than normal. In addition, sales of hunting and camping merchandise and holiday driven categories, such as table games and scooters, were below plan.” Shares of the Sports Authority were up $2.37 at $26.84 on Jan. 13, a day after the announcement. The company plans to provide updated guidance for fiscal 2005 when it reports complete results for the fourth quarter and fiscal 2004 in March.

Amer Group offers stock options
Amer Group announced that stock options related to the year 2002 stock option arrangement for the company’s key staff will be subject to trading on the Helsinki Stock Exchange main list starting Jan. 18. The total number of stock options is 519,100. Each stock option entitles the holder of the stock option to subscribe for three shares of Amer Group with a value of Euro 4 (USD $5.29) per share. The subscription price for stock options is Euro 10.79 (USD $14.27) per share. The share subscription period for stock options began on Jan. 1, 2005, and it will end on Dec. 31, 2007. As a result of the subscriptions, the number of shares of Amer Group can increase by a maximum of 1,557,300 new shares and the share capital can increase by a maximum of Euro 6,229,200 (USD $8,236,871).
 
(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 Jan. 14.)

Nautilus CEO joins Plantronics board
Gregg Hammann, chairman, president and CEO of Nautilus Group, has joined the board of directors of Plantronics Inc., maker of lightweight headsets. Ken Kannappan, Plantronics’ president and CEO, said, “Our consumer business continues to increase and many promising opportunities are being presented to us. Now, adding Gregg to our board of directors, with his extraordinary track record of success with a variety of consumer brands, will provide us with helpful guidance to realize our potential.”

Retail sales up 1.2 percent in December
On Jan. 13, the Commerce Department estimated that retail sales increased a seasonally adjusted 1.2 percent in December. Excluding a 4.3 percent rise in auto sales, retail sales gained 0.3 percent, as expected. The total sales figure was slightly ahead of expectations for an increase of 0.9 percent. It was the biggest gain in sales since September’s 1.6 percent rise. Sales in December were up 8.7 percent from December 2003. Sales in 2004 increased 8 percent from 2003, the biggest annual increase since 1999.

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