Outdoor financials: K2 '05 guidance drops stock, plus Johnson Outdoor, Dick's, Timberland, West Marine, Sportsman's Guide, Wellman

K2 nets $1.2 billion in FY ’04, but stock plummets on ’05 guidance
Even though fourth-quarter earnings were up for K2 Inc. (NYSE: KTO), a cautious outlook for 2005 shot its stock down and caused some analysts to downgrade the stock to “neutral” status.

K2 shares dropped in after-hours trading, down $2.55, or 17 percent, to $12.40, after rising 62 cents, or 4.3 percent, in the regular session on the New York Stock Exchange.

Net sales for the fourth quarter were $338.9 million, an increase of 75 percent from $193.8 million in the prior year, and diluted earnings per share of $0.18, a 157 percent increase over 2003. Operating income in the fourth quarter of 2004 was $21.5 million, a 294 percent increase from the 2003 comparable period, and net income was $8.8 million, a 310 percent increase from 2003.

Net sales for FY 2004 were $1.2 billion, an increase of 67 percent over 2003’s $718.5 million, and diluted earnings per share of $0.86, an increase of 95 percent. Operating income was $81.0 million, a 153 percent, and net income was $38.9 million, a 241 percent increase.

“2004 was an excellent year for K2 as evidenced by organic sales growth of approximately 9 percent, excluding the previously forecast decline in in-line skate sales, and dramatic growth in margins and profitability,” Richard Heckmann, K2’s chairman and CEO, said. “Our acquisitions of Volkl and Marker have significantly strengthened our global winter products business, and Marmot and Ex Officio are the cornerstones of our technical apparel platform.”

K2 reported that sales of skis, snowboards, in-line skates, bikes, snowshoes and paintball products totaled $178.4 million in the fourth quarter of 2004, an increase of 130.1 percent over the 2003 fourth quarter. Growth was driven by double digit increases in sales of K2 skis and snowshoes, improved sales of snowboards, and the acquisitions of Volkl and Marker at the beginning of the third quarter of 2004. In 2004, approximately 28 percent of net sales of K2 were from winter products.

In the apparel/footwear division, Earth Products, Ex Officio and Marmot had sales of $43.9 million in the fourth quarter of 2004, an increase of 437.4 percent over the 2003 period. The increase was due to 58.4 percent growth in technical skate footwear and apparel and the acquisitions of Ex Officio and Marmot in the second and third quarters, respectively, of 2004.

During K2’s earning call, Heckmann said Ex Officio is spending $40,000 to open a travel store in the Seattle/Tacoma airport. If it’s a success, it will consider more airport-based shops. Also, in 2005, it will introduce a Buzz Off lawn and garden collection, and expects Buzz Off sales to be up 35 percent this year.

K2 estimates earnings guidance of $0.04 to $0.06 per share for the first quarter and $0.87 to $0.91 for FY 2005, while analysts had predicted $0.27 a share for the first quarter and $1.03 for the year. The lower-than-expected guidance from K2 caused analysts to switch their outlook on the stock to neutral.

Johnson to cut 70 positions, firm recommends shareholders vote for merger
Last week, Johnson Outdoors (Nasdaq: JOUT) announced it is cutting its workforce down due to a decrease in military tent sales, and a proxy advisory firm has recommended to shareholders to vote for Johnson Outdoors’ proposed merger with JO Acquisition Corp.

Johnson Outdoors is eliminating 70 positions at its Binghamton, N.Y., facility due to a significant decline in military tent sales. At one time, military tents contributed $55 million, or nearly 16 percent, to the company’s 2004 net sales of $355 million.

“While we knew military tent sales would decline, we now know the rate of decline is greater than previously expected,” said Jerry Perkins, president and COO of Johnson Outdoors, in a statement. “With no indication that new orders or decisions on new contracts are coming soon, military tent sales will decline at least 40 percent this year, and significantly more than that in fiscal 2006.”

Johnson Outdoors had projected higher tent sales into its future financial projections, which are now being affected by the decline. The company now anticipates that military tent sales may contribute as little as $8 million to $10 million in annual revenue unless new contracts are secured in future years. The decrease in revenue is expected to reduce net income by $5 million in 2006, from $14.7 million to $10 million.

Also, Institutional Shareholder Services (ISS), the nation’s leading independent proxy advisory firm, has recommended that Johnson Outdoors shareholders vote for Johnson Outdoors’ proposed merger with JO Acquisition Corp. at its special shareholder meeting on March 22.

ISS said in its March 2 report: “Based on our review of the terms of the transaction … in particular the premium paid to current shareholders and the procedural safeguards taken in negotiating the terms, we believe that the merger agreement warrants shareholder support.” (Permission to use quotation neither sought nor obtained.)

Johnson Outdoors’ board had already approved a definitive merger agreement with JO Acquisition Corp. under which JO Acquisition Corp. will acquire all of Johnson Outdoors’ outstanding shares for $20.10 per share in cash. It represents a 21.2 percent premium to the average closing price of Johnson Outdoors Class A common stock for the 30 days prior to the Buy-Out Group’s initial $18 offer and a 53.7 percent premium to the 52-week average closing price prior to the Feb. 20, 2004, announcement of the offer. To merge, it needs 66 2/3 percent of the votes to be cast by shareholders.

Dick’s reports 4Q, FY04 earnings
Dick’s Sporting Goods (NYSE: DKS) saw its fourth-quarter net income shoot up to $43.4 million, or $0.81 per share, from $26 million, or $0.50 per share, in the 2003 fourth quarter. Results include the operating results for the recently purchased Galyan’s for the third and fourth quarters of 2004, but not for 2003 as Galyan’s was acquired in July 2004. After taxes and charges, Dick’s net income for the quarter was $39.9 million, or 75 cents a share.
 
Total sales for the quarter increased 66 percent over last year to $788.0 million due to a comparable store sales increase of 1.1 percent, the opening of new stores and the inclusion of Galyan’s operations in this year’s quarterly results. Galyan’s stores will not be included in the comparable store base until 13 months after the completion of the re-branding and re-merchandising effort expected to occur by the end of the second quarter of 2005.

During the fourth quarter, the company opened five stores and closed four stores (one Dick’s store and three Galyan’s stores) bringing the total stores opened for the year to 29 and the total stores closed for the year to six (three Dick’s stores and three Galyan’s stores).

FY 2004 net income, excluding merger integration and store closing costs, gain on sale of investment, and a lease accounting charge, was $75.1 million, or $1.42 per share. After taxes and charges, net income was $66.9 million, or $1.26 per share, compared to 2003’s net income and earnings per share, excluding gain on sale of investment, was $50.7 million, or $1.01 per share. Total sales for the year increased 43 percent to $2,109.4 million. Comparable store sales increased 2.6 percent. Galyan’s stores will not be included in the comparable store base until 13 months after the completion of the re-branding and re-merchandising effort expected to occur by the end of the first half of 2005.

Chairman and CEO Edward Stack said in a statement that in regards to the Galyan’s conversion, it has switched the point-of-sale systems in the stores, re-signed the stores, converted the warehouse management system in the former Galyan’s distribution center, closed the corporate office and converted all activity onto Dick’s systems. “We have also made progress on re-merchandising stores to place more of an emphasis on sporting goods,” Stack added.

As of Jan. 29, 2005, Dick’s operated 234 stores with approximately 13.5 million square feet, in 33 states.

Timberland board OKs stock split
Timberland’s (NYSE: TBL) board of directors approved a 2-for-1 split of its Class A and Class B common stock for shareholders of record on April 14 and be distributed on May 2. The board also approved the retirement of 10.0 million class A Treasury shares. To reflect the impact of the stock split, Timberland also said its board approved a 100 percent increase in shares remaining under its previously announced repurchase program as of April 14. The increase will be effective after May 2. After the announcement, Timberland shares went up 3.1 percent, or $2.16, to $73 in recent trading, after reaching a high of $74.10 earlier in the session.

West Marine reports 2004 earnings after delay
West Marine (Nasdaq:WMAR) reported net income (unaudited) for FY 2004 of $25.5 million, or $1.20 per share, an increase of 27.1 percent, compared to net income of $20.1 million, or $0.99 per share, in 2003. Net loss (unaudited) for the fourth quarter was ($3.4 million), or ($0.16) per share, compared to a net loss of ($1.6 million), or ($0.08) per share, last year.

Net sales for FY 2004 were $682.4 million, up 3.2 percent from $660.9 in 2003. Comparable store net sales for 2004 increased 0.3 percent compared to 2003. Net sales for the fourth quarter were $117.5 million, a decrease of 6.0 percent from $124.9 million in 2003. Comparable store net sales decreased 3.3 percent.

Its earnings release was delayed as it reviewed its lease accounting practices. After readjusting based on the SEC’s guidelines, cost of sales in fiscal year 2004 would have been about $0.3 million higher, reducing earnings by $0.01 per share. The cumulative increase in cost of goods sold arising in all prior years combined is approximately $1.6 million, or $0.05 per share in fiscal year 2004.

West Marine said it has included the entire $1.9 million cumulative charge in its fourth quarter 2004 results, which are unaudited. The company has not been told whether or not a restatement of its prior period financial statements is required. None of the preceding years’ earnings would have been impacted in a restatement by more than $0.01 per share, it said. It expects that applying this modified treatment in 2005 will reduce its previous earnings guidance by about $0.01 per share.

’04 sales for Sportsman’s Guide up 19 percent
Sales for the fourth quarter for The Sportsman’s Guide (Nasdaq: SGDE) were $92.5 million, a 29 percent increase over the $71.7 million last year. Fourth-quarter net earnings were $4.6 million, or $0.85 per fully diluted share, compared to $3.8 million, or $0.71 per share, in 2003.

For FY 2004, sales were $232.5 million, a 19 percent increase over the $194.7 million reported for 2003. The Sportsman’s Guide recorded net earnings of $7.6 million, or $1.43 per fully diluted share, for the year, compared to net earnings of $6.2 million, or $1.16 per share, in 2003.

Also, its board of directors has declared a 3-for-2 stock split in the form of a 50 percent stock dividend. The split shares will be distributed on April 15, 2005, to shareholders of record March 25, 2005.

Wellman to up price of fiber
Wellman, Inc. (NYSE: WLM) announced it will increase the price of all polyester staple fiber products by 3 cents per pound, starting with April 3 shipments. This increase will be implemented on all shipments to the apparel, home furnishings, nonwovens, industrial and fiberfill markets. A Wellman spokesman attributed the need for the increase to the continued upward price movement of polyester raw materials and their feedstocks.

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