Fitness financials: Same-store sales increases boost Sports Authority's bottom line, plus Bally, Big 5, Dick's, Hibbett, Stride Rite, Nike

Same-store sales boost Sports Authority’s bottom line
Fourth-quarter earnings for The Sports Authority (NYSE:TSA) rose 18 percent — $29.8 million, or $1.10 per diluted share, compared with $25.3 million, or $0.96 per diluted share in the prior year’s fourth quarter — aided by higher sales (including in fitness), cost controls and better margins.

Total sales for the fourth quarter were $741.1 million compared with $713.8 million last year, a 3.8 percent increase. Same-store sales increased 2.4 percent.

“We exceeded our comparable sales expectations for the fourth quarter due to strong sales performances in active and outdoor apparel, fitness and team sports,” CEO Doug Morton said in a statement. “The favorable sales combined with improved gross margins and continued expense controls resulted in earnings exceeding our previous guidance.”

Net income for the full year was $55.4 million, or $2.06 per diluted share, compared with net income of $33.5 million, or $1.27 per diluted share, including merger integration costs, in the prior year. Excluding the effect of after-tax merger integration costs of $13.2 million, or $0.50 per diluted share, net income for the prior year was $46.7 million, or $1.77 per diluted share. Total sales for the fiscal year increased 3 percent to $2.509 billion compared with $2.436 billion in the prior fiscal year. Same-store sales for the year increased 1.5 percent.

The Sports Authority announced Jan. 23 that it had entered into a definitive agreement to be acquired by an investor group led by Leonard Green & Partners, L.P., and including members of The Sports Authority’s senior management team. They would take the company private for $37.25 per share, in a cash and debt deal worth about $1.3 billion. It’s expected to close in the second fiscal quarter.

Looking ahead, The Sports Authority forecast fiscal 2006 earnings of $2.35 to $2.40 per share, on a 2 percent gain in same-store sales. The forecast doesn’t include the impact of Sports Authority’s plans to go private in a management-led buyout.

The company, operating under The Sports Authority, Gart Sports, Sportmart and Oshman’s names, opened two new stores, relocated one store and closed one store during the fourth quarter to arrive at a total number of stores in operation as of Jan. 28, 2006, of 398 stores in 45 states.

Bally reports two new employee’s stock option grants
Bally Total Fitness (NYSE: BFT) reported the grant of stock options to new employees Guy Sellars, CPA, assistant vice president, operation accounting, and Darrell Fox, CPA, manager, corporate accounting. Sellars received 6,000 stock options and Fox received 1,500 stock options. These inducement stock options vest in three equal annual installments on the anniversary of the grant date and are subject to forfeiture in the event of resignation or termination for cause prior to vesting. In accordance with New York Stock Exchange rules, these inducement stock option grants require a public announcement of the awards and written notice to the NYSE.

Big 5 lowers 2006 guidance, shares sink to new low
Warmer weather in California and parts of the Southwest knocked Big 5 Sporting Goods’ (Nasdaq: BGFV) fourth-quarter profit down. Additionally, the retailer issued 2006 earnings guidance well below analysts’ expectations, ultimately causing its shares to tumble to a new 52-week low.

Big 5 stock was down $1.29 or 6.4 percent, to $18.94 in heavy morning trading March 10 on the Nasdaq. Shares earlier changed hands as low as $16.91, a new 52-week low, eclipsing the prior low of $19.98 reached in January.

For the fourth quarter, net income was $7.7 million, or $0.34 per diluted share, compared with net income of $9.5 million, or $0.42 per diluted share, for the fiscal 2004 fourth quarter. Net sales were $218.9 million versus net sales of $217.6 million in 2004. Net sales for the quarter increased by $12.4 million, or 6.0 percent, and same store sales increased 1.5 — its 40th consecutive quarter of positive same store sales comparisons.

In addition to unfavorable winter weather, the quarter included the impact of about $4.5 million of expenses linked to a transition to a new distribution center, which lowered quarterly profit by $0.12 per share. Sales of non-winter-related products were generally in line with the company’s expectations for the quarter.

Analysts, on average, projected fourth-quarter profit of $0.33 per share, including $0.06 to $0.07 per share in expenses for the distribution center, on $218.4 million of revenue.

For the 52 weeks ended Jan. 1, 2006, net sales increased by $31.8 million, or 4.1 percent, to $814.0 million from $782.2 million for the corresponding 53-week 2004 fiscal year. Net sales for the year increased by $45.9 million, or 6.0 percent, and same store sales increased 2.4 percent. Net income for fiscal 2005 was $27.5 million, or $1.21 per diluted share, versus net income for fiscal 2004 of $33.5 million, or $1.47 per diluted share.

Looking ahead, Big 5 projected earnings between $1.23 to $1.33 for the year, including stock option expenses and charges related to the new distribution center and other costs, compared with Wall Street expectations of $1.62 per share. Analysts’ estimates typically do not include one-time charges. The company expects to realize same store sales growth in the low to mid-single digit range for the first quarter and full year of fiscal 2006.

Analysts were reportedly alarmed by the fourth-quarter pretax charge of $4.5 million from its new distribution center. Big 5 also cited expenses related to its efforts to comply with Sarbanes-Oxley in 2005. The retailer expects those expenses to continue into 2006, giving Wall Street another cause for concern.

“Big 5 Sporting Goods continues to be hampered by distribution center inefficiencies and higher accounting/auditing costs. It remains unclear when distribution center problems will be corrected,” Stephens Inc. analyst Rick Nelson wrote in a research note. Stephens maintained its “Equal-Weight,” or “Hold,” rating of Big 5 Sporting Goods.

Big 5 opened 10 new stores during the fiscal 2005 fourth quarter, bringing its year-end store count to 324 stores. The company said it anticipates opening two new stores during the first quarter of 2006, and opening a total of approximately 20 new stores during fiscal 2006.

Dick’s fourth-quarter profit rises 28 percent
Now that its Galyan’s acquisition is settling in, Dick’s Sporting Goods’ (NYSE:DKS) fourth-quarter earnings grew 28 percent, helped by a modest upswing in same-store sales and fewer charges from store closings and the acquisition.

Fourth-quarter profit rose to $54 million, or $1 per share, from $42.3 million, or 79 cents, the year before. Sales for the period totaled $849.5 million, an 8 percent increase from $788 million a year earlier. Same-store sales were up 4.1 percent.

For the year, Dick’s had net income of nearly $73 million, on revenue of more than $2.6 billion. That was up from income of $68.9 million, on revenue of $2.1 billion in 2004. Year-over-year earnings per diluted share were up 5 cents, to $1.35.

Dick’s said it continues to make the transition of integrating 48 Galyan’s stores, after acquiring the chain in 2004. The company expects to begin reporting its converted Galyan’s locations among its same-store sales earnings in the second quarter of 2006.

Edward Stack, chairman and CEO of Dick’s, called the last 18 months the most active in the company’s history. During that span, Dick’s opened 45 of its own new stores, in addition to the Galyan’s acquisition. He believes Dick’s handled the major new growth and change successfully.

“Meaningful comp store sales gains and earnings improvement signify that the Galyan’s conversion is completed,” Stack said. “We are well positioned to enter 2006, executing a plan of strong organic growth.”

Looking forward, Dick’s forecast first-quarter profit of $0.15 cents to $0.17 per share — including $0.07 of stock-option costs and $0.04 of store relocation expenses — and same-store sales growth of 3 percent to 5 percent. For all of 2006, the company also targeted profit of $1.77 to $1.81 per share and same-store sales growth at about 3 percent.

Hibbett reports best fiscal year in company’s history
For the fourth quarter, Hibbett Sporting Goods’ (Nasdaq: HIBB) profit grew 22 percent, helped by a nearly 13 percent rise in sales.

Net sales for the quarter increased 12.8 percent to $120.8 million compared with $107.1 million last year. Income for the quarter was $9.9 million, or $0.29 per share, up from $8.1 million, or $0.23 per share, last year. Same-store sales increased 2.5 percent in the fourth quarter of fiscal 2006.

Net sales for the 52-week period ended Jan. 28, 2006, increased 16.6 percent to $440.3 million compared with $377.5 million for the previous 52-week period. Income for the year was $33.6 million, or 98 cents per share, up from $25.1 million, or 70 cents per share, last year. Comparable store sales increased 5.6 percent in fiscal 2006.

The company said comparable store net sales data reflects sales for its Hibbett Sports and Sports Additions stores open through the 13-week and 52-week periods and the corresponding periods of the prior fiscal year.

“Fiscal 2006 was our best year ever with a 40.0 percent increase in earnings per diluted share, a 5.6 percent comparable store sales increase and an operating margin that reached 11.8 percent,” Mickey Newsome, Hibbett’s chairman and CEO, said in a statement. “Despite a tough comparison to last year’s fourth quarter, we were able to reach the top end of our quarterly earnings guidance. Our comparable store sales increase primarily came from footwear and activewear. Stronger-than-planned product margin was the primary driver behind achieving the 26.1 percent earnings per diluted share increase in the fourth quarter.”

Looking forward, the company said it expects to earn $0.32 to $0.35 per share for the first quarter, including $0.02 to $0.03 in stock-option expenses. Excluding stock options, the company projected earnings per share of $0.34 to $0.38. Full-year earnings are expected to come in around $1.04 to $1.08 per share, including $0.10 to $0.13Â per share in stock-option expenses, or $1.14 to $1.21 per share, excluding stock options.

Hibbett said it opened 23 new stores during the fourth quarter for a total of 67 net new stores in fiscal 2006, bringing the store base to 549 in 22 states as of Jan. 28, 2006. The company plans to open a net of approximately 80 to 85 new stores in fiscal 2007, including approximately 10 to 15 stores in the first quarter.

Saucony and Hind parent appoints senior staff
The Stride Rite Corp. (NYSE: SRR) has promoted Michael Metcalfe to general manager of Saucony, and Shawn Neville to group president of Saucony and Keds, effective immediately. Also, the parent company has appointed Todd Dalhausser as Hind’s general manager, effective March 13. Other appointments include the promotion of Hind industry veteran Patty Kelly to director of product and the appointment of Thom Gridley as senior designer.

Most recently, Metcalfe was senior vice president of sales for Saucony since the technical running brand’s acquisition by Stride Rite in September 2005. As Saucony’s GM, he will oversee all major functions including operations, product development, marketing and sales.

Neville, president of Keds since 2004, is an industry veteran who brings a wealth of general management, sales and marketing experience to Saucony. His career consists of executive leadership roles, including president and CEO of Footstar’s athletic division and positions at Reebok, Visa USA and Procter & Gamble.

As Hind’s general manager, Dalhausser will oversee all major functions including operations, product development, marketing and sales. Prior to joining Hind, Dalhausser served as director of Eastpak North America, and before that as global product manager of apparel and accessories for Reebok International.

Kelly steps into her new role as director of product with an in-depth knowledge of the performance apparel industry. While working for eight years with Saucony’s Canadian division, Kelly oversaw the global launch of Saucony apparel in the spring of 2005. Gridley, Hind’s new senior designer, is the brand’s first in-house designer. He joins Hind after previous roles with Reebok, and most recently, as head of apparel design for New Balance.

Analyst downgrades Nike in anticipation of weaker Q3 sales
Shares of Nike fell on March 6 following an analyst downgrade in anticipation of weaker international sales when the company reports its quarterly earnings later this month.

John Shanley, an analyst at Susquehannna Financial Group, downgraded Nike to “Neutral,” on concern about sales in Europe and Asia. While keeping his third-quarter earnings estimates at $1.08 per share on projected sales of $3.5 billion, Shanley lowered his 2006 fourth-quarter profit forecast to $1.38 from $1.40, and reduced its fourth-quarter sales estimate to $3.88 billion from $3.9 billion.

Shanley reported that European retailers said sales of the higher-priced Nike footwear continues to be stagnant, while Japanese athletic footwear market have said the environment for Nike’s products continues to soften, as rival adidas recently gained the No. 1 share in that marketplace for the first time in a decade. He lowered its 2007 full-year profit estimate to $5.43 from $5.50.

Shares of Nike dropped $2.22, or 2.6 percent, to $84.70, in afternoon trading on the New York Stock Exchange. The stock has traded in a 52-week range of $75.10 to $91.54.

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