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Fitness financials: Town Sports plans IPO, plus Saucony/Stride Rite, Sport Chalet, Brunswick, Nautilus/Pearl Izumi, Fitness First, Costco, Wal-Mart

Fitness financials: Town Sports plans IPO. Stride Rite Q2 profit down. Sport Chalet initiates 4-for-1 stock split. Moody's raises Brunswick's long-term debt ratings. Nautilus finalizes Pearl Izumi purchase. UK's Fitness First looking to sell? Costco and Wal-Mart June sales.

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Town Sports plans IPO
Town Sports International Holdings Inc., which operates 140 fitness clubs throughout the United States and Switzerland, said it’s planning to initiate an initial public offering (IPO).

The company, which operates New York Sports Clubs, Washington Sports Clubs and Boston Sports Clubs, plans to sell as much as $172.5 million in common stock, according to a U.S. regulatory filing. Town Sports has applied to list its shares on the Nasdaq under the symbol “CLUB.”

The New York-based company said as of March 31 it owned and operated 138 fitness clubs and partly owned and operated two fitness clubs, with a total of 398,000 members.

It said it intends to use the net proceeds to redeem a portion of its existing senior discount notes. It said it will not receive any shares sold by holders.

As of March 31, Town Sports had a total of about $138.7 million in principal amount of redeemable debt. In the first quarter, it had revenue of $93.8 million, compared with $86.1 million in the same quarter of 2004, according to the SEC filing. First-quarter net income rose to $179,000 from a net loss of $2.8 million in the first quarter of 2004, the filing shows.

Credit Suisse First Boston, Deutsche Bank Securities and Goldman, Sachs & Co. are listed in a preliminary prospectus filed with the U.S. Securities and Exchange Commission as underwriters.

Potential Saucony parent Stride Rite Q2 profit down
Footwear maker Stride Rite Corp. — which is in the process of buying Saucony — said that profit slipped 1 percent in its second fiscal quarter as sales of its Keds and Tommy Hilfiger brands slumped. However, the company backed its year-end outlook for earnings growth of at least 5 percent.

For the second quarter, Stride Rite earned $11.8 million, down from $11.9 million a year ago. Per-share earnings rose to 32 cents from 30 cents because of a decrease in the number of outstanding shares, it said. David M. Chamberlain, Stride Rite’s chairman and CEO, said the company’s brands posted “solid success” in premium department and specialty stores, though mid-tier retail sales were slower than expected. He attributed the drop to higher prices.

Stride Rite said it continues to expect year-end earnings to increase between 5 percent and 10 percent as sales grow between 3 percent and 5 percent.

In June, Stride Rite announced it would buy Saucony (NasdaqNM: SCNYB) for $170 million in cash in order to double international sales and enter into specialty markets. The deal is expected to close this summer and add to Stride Rite earnings in 2006, although at least one Saucony shareholder, Fairview Capital Investment Management LLC, has said it will vote against the merger. Fairview, which is based in San Francisco, holds about 2.6 percent of Saucony stock.

Sport Chalet initiates 4-for-1 stock split, reports year-end results
In a move to transition control from its founder and principal stockholder to the company’s management, Sport Chalet (Nasdaq: SPCH) initiated a 4-for-1 stock split. The company said the shift will also increase the financial flexibility for the company and its shareholders.

The company said founder Norbert Olberz will transfer a portion of his ownership to CEO Craig Levra and CFO Howard Kaminsky. Olberz founded the company in 1959, and currently holds a 65.2 percent stake in the company with 4.4 million shares.

After the reverses split, Sport Chalet will establish two classes of common stock. Each share would be reclassified into a new share of class B common stock, and the company would issue a nontaxable stock dividend of seven shares of class A common stock for each outstanding class B common share. The transaction will also allow the company to potentially issue additional common stock in the future for corporate purposes, including financing acquisitions and employee compensation.

In other news, Sport Chalet also announced its fourth-quarter and year-end financial results.

For its fiscal year ended March 31, 2005, Sport Chalet’s sales increased 17.0 percent, from $264.2 million last year to $309.1 million this year. The retailer said the increase was the result of opening five new stores this year and three last year, as well as a same-store sales increase of 5.7 percent. Net income increased 32.9 percent from $4.6 million, or $0.66 per diluted share last year, to $6.2 million, or $0.88 per diluted share this year.

For the fourth quarter, sales increased 14.1 percent, from $69.4 million last year to $79.2 million this year — also attributable to the new store openings and a same-store sales increase of 4.4 percent. Its net income shot up 118.8 percent, from $330,000, or $0.05 per diluted share, to $722,000, or $0.10 per diluted share, this year.

Shares rose 20 cents to close at $16.50 on the Nasdaq.

Moody’s raises Brunswick’s long-term debt ratings
Moody’s Investors Service raised Brunswick Corp.’s (NYSE: BC) long-term debt ratings on July 8, citing the company’s improved credit quality and market position. Moody’s raised the company’s senior unsecured and secured debt to “Baa1,” three notches above junk status, from “Baa2.” Ratings upgrades can decrease a company’s borrowing costs. Moody’s said the outlook is stable.

Nautilus finalizes Pearl Izumi purchase
On July 8, Nautilus (NYSE: NLS) said that it has closed its previously announced acquisition of Pearl Izumi USA. The purchase price was $68.6 million plus $5.4 million of assumed debt. For more details on the sale, see SNEWS® story, June 20, 2005, “Nautilus calls Pearl Izumi acquisition ‘pure-play in fitness’.”

UK’s Fitness First looking to sell?
UNITED KINGDOM — London-based Fitness First might be priming itself for a GBP 800 million sale (USD $1.5 billion), according to articles in various U.K. news sources, including the Manchester Evening News. Reportedly, it has appointed UBS bankers to review the options of its 430-gym empire. Private equity owner Cinven paid GBP 400 million (USD $731 million) for it just two years ago.

U.K. news sources also said the deal would mark a windfall for deputy chairman Michael Balfour, who founded the business in 1993 with business partner Christopher Pearce. Fitness First started off as a single health club in Bournemouth and now has around 430 outlets in 15 countries, including seven in Scotland.

Profits are said to have almost doubled since it was taken off the stock exchange by Cinven in 2003. Cinven paid just over GBP 400 million (USD $731 million), including GBP 200 million (USD $365 million) of debt, but hopes it will fetch GBP 800 million (USD $1.5 billion) including debt if it goes ahead with a sale. A deal would also mark a windfall for other managers such as CEO Mike Metcalf.

Potential bidders may include American buyout firm Forstmann Little & Co, which bought California-based 24-Hour Fitness chain last month.

(Conversion of British pounds into U.S. dollars is for information only, is not necessarily relative to earnings, and is based on the currency rate as of June 28.)

Costco gets boost in June from Independence Day
Costco Wholesale (Nasdaq: COST) reported that same-store sales were up 9 percent in June, compared with a year ago, beating the consensus estimate of 7.6 percent. But the 9 percent figure is deceptive, as a shift in the timing of the Fourth of July holiday added 2 percent to 3 percent to the figure, Costco said in a press release. Net sales for the month ended July 3 were $5.22 billion, an increase of 12 percent over the same period a year ago. That figure also was affected favorably by the calendar shift, Costco said.

Wal-Mart cites big June gains, maintains July guidance
Wal-Mart Stores (NYSE:WMT) maintained its forecast for a 3 percent to 5 percent increase in July same-store sales at its U.S. stores. It said Hurricane Dennis spurred demand in the Southeast as customers stocked up for the storm. It also confirmed that its June sales rose 4.5 percent at U.S. stores open at least a year — its biggest monthly gain since May 2004.

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