Outdoor financials: Gander Mountain securities class action lawsuit dismissed, plus Russell, adidas/Reebok

Gander Mountain securities class action lawsuit dismissed
On Jan. 17, Gander Mountain (Nasdaq: GMTN) said the U.S. District Court for the District of Minnesota has dismissed in its entirety and with prejudice the consolidated securities class action complaint filed against the company and certain officers and directors. Plaintiffs have 30 days from the date judgment is entered in which to file a notice of appeal.

Russell’s new restructuring plan includes plant closures, 2,300 layoffs
In a move that it says will improve its long-term competitiveness, Russell (NYSE: RML) plans to cut about 2,300 jobs and freeze retirement benefits to cut costs and save as much as $40 million on a pretax, annualized basis. In the United States, 1,700 positions will be cut with approximately 1,200 eventually replaced in Honduras and Mexico.

The parent of Brooks and Moving Comfort said the after-tax cost of the restructuring is expected to be $45 million to $52 million, with projected annualized pre-tax cost savings in the $35 million to $40 million range, or approximately $22 million to $26 million on an after- tax basis. About half of the charges are expected in the 2006 fiscal year, with approximately 20 percent of the savings expected to be realized in 2006, approximately 80 percent in 2007, and the full impact in 2008 and beyond, it added.

The restructuring game plan announced on Jan. 19 will be combined with “focused marketing efforts, improved asset utilization and efficiency improvements, which should lead to increased sales, higher margins and improved profitability,” the company said in a statement. It added: “The goal of these actions is to favorably impact ongoing financial results in 2006 and, more importantly, to better position the company for 2007 and beyond.”

Russell’s plans are focused include the continued shift offshore of textile/apparel manufacturing operations, expected to result in pre-tax savings of $22 million to $25 million annually. It will also see reductions of $8 million to $10 million in overhead costs, pre-tax.

Also, it plans to expand its newest textile facility in Honduras; eliminate of all knit textile capacity in Alexander City, Ala.; complete the movement of sock production offshore; close a higher-cost sewing operation in Mexico; and move production offshore to a current supplier. Additionally, Russell will complete operational changes to Huffy Sports’ backboard business, projected to reduce costs by approximately $5 million on a pre-tax basis and eliminate remaining Huffy Sports domestic production.

It will also reorganize the sales and marketing within the Russell Athletic Group, and eliminate 90 positions in corporate and division offices. Additionally, the company is changing in its retirement program, freezing the current benefit plan and improving the 401(k) employee savings plan, effective April 1.

The company said larger manufacturing facilities will be more efficient, creating lower- cost operations, which are expected to increase its gross margins. Coupled with overhead reductions from eliminations in certain support areas, these improvements should lead to higher operating margins, while allowing for a greater investment in building the company’s brands long term, it added.

Russell said it now expects GAAP earnings for 2005 to fall in the range of $0.83 to $0.89 per share on sales of approximately $1.435 billion. For 2006, it expects mid-single digit growth and sales in the $1.450 billion to $1.480 billion range. Plus, it expects earnings per fully diluted share in the $1.10 to $1.25 range for 2006, excluding restructuring charges of approximately $0.66 to $0.78 per share associated with its announcement.

Shares of Russell rose $1.24, or 9.2 percent, to $14.68 on the New York Stock Exchange, where it was among the biggest percentage gainers in midday trading. Its stock price hit a 52-week low of $12.31 in October last year.

Sun Trust Robinson Humphrey initiated coverage on Russell on Jan 19 with a cautious report. By Jan. 20, it had switched its initial assessment from “neutral” to “buy,” saying the plan will improve Russell’s profit outlook for the next two years. It set a $20 price target.

Sun Trust Robinson Humphrey said in a client note: “When we initiated coverage two days ago, we indicated the stock looked washed out after three earnings per share reductions and was near a 52-week low. Now that the announcement has been made, which we view as positive long term, we are upgrading to ‘buy.'”

adidas close to EU approval of Reebok acquisition
It looks like the way is almost clear for the biggest takeover of adidas’ (ADSG.DE) history — the planned $3.8 billion acquisition of U.S. rival Reebok (NYSE: RBK) — in its attempt to go head-to-head with industry leader Nike.

On Jan. 24, the routine one-month antitrust review of the European Commission ends, a long-awaited step toward closing the deal. Analysts expect Brussels to approve the transaction without launching a longer review. U.S. antitrust authorities have already approved the takeover, which will create a firm with combined annual sales of around $11 billion. One analyst noted that he doesn’t expect any problems because both firms have a much larger combined dominance in North America than in Europe where Reebok is weak.

Despite reigning as the world’s second largest maker of sporting goods, adidas hopes with the takeover to increase its market share in the United States, where it has failed to pose any serious competition to Nike. Reebok has a much stronger position there due to key license sponsoring agreements with U.S. sports leagues.

Just a day after the Commission’s review period ends, Reebok shareholders will decide at a general meeting on the acquisition. adidas has said it would buy all outstanding Reebok shares for $59 each. One analyst is confident Reebok shareholders will say yes, adding that
they’ll never get such a good offer again after the firm recently reported weak sales. Reebok shares came under pressure after it posted an 11 percent decline in third-quarter sales but have rebounded to levels at around adidas’ offer of $59 as investors anticipate an approval.

In the past few weeks, investors have become more upbeat on the takeover, which originally caused concern that adidas was taking on too much. But reportedly it has allayed some fears with forecasts that the deal will boost earnings by a double-digit percentage rate in the medium term by complementing the strength in its classic three-striped sportswear with Reebok’s successful lifestyle clothing.

adidas shares have gained 13 percent since the deal was announced in August, helped by a 28 percent rise in third-quarter net income, regaining ground after initially falling. Fifteen analysts out of 22 tracked by Reuters Estimates have a “buy” or “outperform” rating on the stock, while six have a “hold” and just one analyst an “underperform” rating.

Reebok said in a recent regulatory filing the takeover could be concluded by Jan. 31.

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