Fitness financials: Town Sports sinks to new 52-week low following analyst downgrades, plus Nautilus, Under Armour, The Sports Club, Big 5, Iconix, Crocs

Town Sports sinks to new 52-week low following analyst downgrades

Despite increases in its third-quarter sales and profit, Town Sports International Holdings (Nasdaq: CLUB) came in below analyst expectations, prompting several downgrades. Its stock tumbled to a new 52-week low on Nov. 2.

Town Sports reported its third-quarter profit rose to $5.1 million, or $0.19 cents per share, compared with $785,000, or $0.03 per share, a year ago. Revenue rose to $118.9 million from $109.4 million. Analysts, though, predicted higher net income of $0.20 per share on sales of $120.2 million.

The company also lowered its 2007 profit outlook to a range of $0.75 to $0.77 cents per share from a forecast for earnings between $0.79 and $0.83 per share. The estimate excludes a charge of $0.28 per share related to the early repayment of debt.

Town Sports also trimmed its revenue prediction to a range of $473 million to $475 million, from a prior forecast of $475 million to $480 million. Analysts expect full-year net income of $0.81 per share on higher revenue of $477.7 million.

Edward Aaron of RBC Capital Markets wrote in an investors note that Town Sports is likely to come under pressure in the near to intermediate term due to high leverage and weakening demand. He expressed concern over a slowdown in revenue growth at clubs open at least a year, which climbed just 4.1 percent in the quarter compared with a 5.7 percent increase in the second quarter.

Aaron added that he wasn’t pleased with a conference call in which management indicated some mature club softness and an increase in attrition. He lowered his rating to “Sector Perform” from “Outperform.”

“While management has not seen a specific instance of regional weakness in the portfolio, we believe concerns surrounding the economic environment (particularly in New York) could overhand the shares near term,” wrote Deutsche Bank North America analyst Beth McNellis. She downgraded the stock to “Hold” from “Buy.”

Additionally, an analyst with CIBC World Markets Corp. lowered ratings to “Sector Performer” from “Sector Outperformer” and a BB&T Capital Markets analyst downgraded to “Hold” from “Buy.”

Shares of Town Sports International slid $3.24, or 23.5 percent, to $10.57 in afternoon trading on Nov. 2. The stock hit a new low of $10.05 earlier in the session. It closed the day at $11.25.

Nautilus adopts shareholder rights plan

The board of directors for Nautilus (NYSE: NLS) has adopted a shareholder rights plan, a provision that would make hostile takeovers difficult.

The company said the acquisition of 20 percent or more of its outstanding shares without the board’s approval would trigger the rights plan, diluting the voting power of the person or group involved. Existing shareholders who currently own more than 20 percent of the voting power will trigger a dilutive event only if they acquire additional shares.

“A shareholder rights plan protects the interests of all shareholders from takeover or control tactics that do not offer all shareholders a fair premium,” said Bob Falcone, Chairman and CEO of Nautilus, in a statement. “The plan is not intended to prevent an offer that the board concludes is in the best interest of Nautilus and its shareholders.”

The plan will continue in effect until Oct. 28, 2010, unless earlier terminated or redeemed by Nautilus. The board has also resolved to submit the continuation of the plan to a shareholder vote within the next 12 months.

Under Armour Q3 earnings up 25 percent

Third-quarter earnings for Under Armour (NYSE: UA) rose 25 percent primarily from strength in the apparel business.

For the quarter that ended Sept. 30, Under Armour earned $20 million, or $0.40 per share, compared with $16 million, or $0.32 per share, in the same quarter last year.

Under Armour said its revenue rose to $186.9 million from $127.7 million.

Under Armour said its men’s apparel sales rose to $113 million from $79.2 million in the same quarter last year, while its women’s apparel sales increased to $39.5 million from $26.5 million. Youth apparel sales increased by about $5.6 million to $16.6 million.

The company said compression, or tight fitting, and training categories led to the most apparel growth, and golf products and recently launched mountain products helped as well.

It raised guidance for income from operations to between $81.5 million and $83 million, compared with an earlier estimate between $79 million and $81 million. The company expects revenue between $590 million and $600 million, better than its prior range of $580 million to $590 million.

The company said inventory more than doubled year over year to $151.8 million — a concern to some analysts.

“This is likely to keep investors questioning if the company can ‘sell-through’ the higher inventory levels over the next three to four months,” wrote Wachovia Capital Markets LLC analyst John Rouleau in a note to investors.

Shares rose $4.98, or 8.5 percent, to close at $63.71 on Oct. 30. The stock has traded between $41.37 and $73.40 during the past 52 weeks.

The Sports Club Company posts Q3 net loss

The Sports Club Company (Pink Sheets: SCYL), which operates and owns sports/fitness complexes nationwide under The Sports Club/LA name, posted a net loss for the third quarter.

The net loss for the quarter was $1.164 million, or $0.06 per diluted share, compared to a net loss of $1.611 million, or $0.08 per diluted share, for the same period last year.

Third-quarter revenue was up 5.5 percent to $15.3 million compared to $14.5 million in 2006.

The weighted average number of diluted shares outstanding for the 2007 third quarter was 20.7 million shares compared to 19.5 million the year before.

Big 5 Q3 earnings rise on higher revenue

Big 5 Sporting Goods’ (Nasdaq: BGFV) third-quarter profit rose 7 percent, helped by higher sales and savings from a new distribution center.

Net income rose to $8.4 million, or $0.37 per share, from $7.8 million, or $0.34 per share in the prior-year quarter. Revenue rose 4 percent to $231.3 million from $223.3 million in the year-ago quarter. Same-store sales edged up 0.2 percent.

The company previously predicted earnings per share between $0.27 and $0.35 per share for the quarter. It noted results were helped by lower distribution-center costs due to operational efficiencies at the company’s new distribution center.

But Big 5 offered a fourth-quarter earnings guidance range mostly below analyst estimates. The company predicted earnings between $0.36 and $0.46 per share for the quarter, while analysts predict a profit of $0.42 per share. Big 5 expects same-store sales growth to be in the negative low single digits to the positive low single digits.

For the year, Big 5 expects earnings between $1.33 and $1.43 per share, while analysts expect a profit of $1.32 per share. The company expects same-store sales growth in the same range as the fourth quarter. It said full-year guidance reflects lower distribution center expenses offset by a reduction in inventory cost capitalization and higher administrative expenses.

Iconix Q3 earnings more than double

Iconix Brand Group (Nasdaq: ICON), which owns and licenses brands including Danskin Fitness, said its third-quarter income more than doubled as licensing and commission revenue rose.

For the quarter, Iconix earned $17 million, or $0.28 per share, compared with $7.9 million, or $0.18 per share, in the same quarter last year. The company used a larger number of shares to calculate its per-share earnings in the most recent quarter.

Iconix reported licensing and commission revenue rose year over year to $42.7 million from $22.1 million.

The company reiterated its 2007 earnings outlook, saying it expects earnings of between $0.96 and $1 per share. The company also predicted it will come in at the high end of its 2007 revenue guidance of between $150 million and $160 million.

Iconix predicted earnings of between $1.35 and $1.40 per share in 2008 on revenue between $240 million and $250 million.

Crocs Q3 profit, sales more than double, shares tank in after-hours trading

Crocs (Nasdaq: CROX) said its third-quarter profit more than doubled, helped by strong global demand. But a revised 2007 earnings guidance range mostly below analyst estimates sent shares down in after-hours trading.

The company reported income of $56.5 million, or $0.66 per share, compared with $21.5 million, or $0.27 per share, in the year-ago period. The earnings-per-share amounts have been adjusted to reflect the two-for-one stock split that took effect in June, the company said.

Revenue more than doubled to $256.3 million from $111.3 million.

Crocs attributed its third-quarter earnings growth to exceptionally strong global demand throughout the summer. Subsequently, Crocs was able to expand its gross margins 240 basis points to 61 percent.

The company said the opening of a new 320,000-square-foot distribution center in Europe will enable it to support future growth in that region.

On Oct. 31, Crocs shares rose $2.66, or 3.7 percent, to end regular trading at $74.75. The stock hit an intraday high of $75.21, eclipsing a 52-week high of $73.75. But in aftermarket trading the shares dived $15.01, or 20 percent, to $58.74.

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