Outdoor financials: Kellwood reports 12.5 percent drop in sales, plus InSport acquired by Vital Apparel Group , Phoenix Footwear, Quiksilver, Forzani, Amer

Kellwood reports 12.5 percent drop in sales
Amidst restructuring initiatives, Kellwood (NYSE: KWD) reported a 12.5 percent decline in third-quarter sales. Separately, accounting issues are causing the parent of Sierra Designs and Kelty to restate financial statements from 2002 to 2005.

Sales from continuing operations for the third quarter decreased $84 million to $587 million, as compared to $671 million last year. Net earnings for the third quarter were $16.2 million or $0.60 per diluted share. For the third quarter, on an ongoing basis — excluding the impairment, restructuring charges, repatriation tax benefit and losses from businesses that it plans to exit — net sales totaled $549 million, declining $70 million from $619 million in 2004, while net earnings were $17.1 million, or $0.64 per diluted share.

By segment, on an ongoing basis for the third quarter sales were down 11 percent in women’s sportswear to $346.6 million and down 19 percent in men’s sportswear sales to $131.6 million. This was partially offset by a 6 percent increase in other softgoods sales to $71.2 million.

The company said its third-quarter results were in line with its expectations, adding that during the quarter it made solid progress toward meeting its restructuring and brand goals. Its third-quarter restructuring charge was $20 million below its forecast, and it believes that upon completion of the restructuring program, costs will be well within the $225 million charge it announced in August.

Also, Kellwood said it’s restating results for the first two quarters of 2005, as well as the preceding three years because methods used at a regional accounting center caused liabilities to be understated. The error led to a cumulative overstatement of net income of $5 million as of July 30, and reduced net income in the first two quarters of 2005 by less than $0.01 per share, Kellwood said.

For the fourth quarter, Kellwood estimates sales of approximately $525 million, compared to actual sales of $592 million in the fourth quarter last year. Net loss for the fourth quarter of fiscal 2005 is currently expected to be $38.0 million, or $1.47 per diluted share.

For the fiscal 2005 year, it expects sales of $2.35 billion, which includes $288 million in discontinued/exited businesses. This compares to actual fiscal 2004 sales of $2.56 billion. Its current sales guidance for the year includes sales from divisions and brands that will be exited or restructured. Sales for Kellwood’s ongoing operations are forecasted to be $2.07 billion versus $2.2 billion last year.

It closed the day $0.08 down at $23.76 on the New York Stock Exchange.

InSport acquired by Vital Apparel Group
InSport International, a Beaverton, Ore.-based, company specializing in the manufacture of technical running and cycling apparel was acquired by New York-based Vital Apparel on Nov. 22. InSport will continue to operate from Beaverton and sell products under its brand name and no layoffs or changes are expected for the company’s 22 employees. Vital Apparel produces branded and private-label athletic wear for the mass market, distributing through The Sports Authority and other big-box retailers.

Though terms of the sale were not released, InSport has been caught in a bit of a sales rut for the last four years, hovering around $11 million in annual sales. Vital’s annual sales are expected to exceed $25 million in 2005. InSport gets access to Vital’s overseas network of factories and distribution contacts, which will help the company grow and lower production costs and increasing profits. Vital gets a high-end running and cycling apparel brand that has factories in Oregon and Washington, strengthening domestic production ties, necessary for offering product to the U.S. military and other government organizations.

Phoenix Footwear resolves American Stock Exchange non-compliance
Phoenix Footwear Group (AMEX: PXG), parent of Royal Robbins, received notification from the American Stock Exchange that its additional listing application for the shares of common stock issued as part of the purchase price in its acquisition of the Chambers Belt Company had been approved, resolving a compliance deficiency. On Nov. 18, Phoenix had received a warning letter from the exchange that it was not in compliance with Section 301 of the exchange’s company guide because the shares of common stock issued in connection with the Chambers Belt Company acquisition were issued without approval from it. On Nov. 21, Phoenix filed an application for listing the additional shares. In the approval letter, the exchange advised that it would not initiate a further continued listing evaluation and considered the matter to be closed.

Quiksilver appoints new board members
Quiksilver (NYSE: ZQK) has appointed Laurent Boix-Vives, Timothy Harmon and Charles Exon to its board of directors effective Dec. 1. Douglas Ammerman was previously appointed to the board on June 3.

Boix-Vives served as chairman and CEO of Skis Rossignol S.A. until Quiksilver bought it earlier this year for $320 million and assumed $160 million in debt. His board position carries a yearly salary of $20,000 plus stock options. Quiksilver has also signed him to a five-year consulting contract worth approximately $4.6 million at current exchange rates. Quiksilver said it wanted to tap into 79-year-old’s Boix-Vives’ storehouse of knowledge in preparation for marketing and branding the company for its coming 100th anniversary, as well as for the 2006 Winter Olympics in Italy — all of this despite the fact that sales and profits at Rossignol have been declining for several years now.

Harmon served as Pacific Sunwear’s president and chief merchandising officer from October 1997 until July 2005. Exon joined Quiksilver in August of 2000 and has served as secretary, general counsel and executive vice president, business and legal affairs – international since that time. He is also a director of the Quiksilver Foundation, a non-profit organization. Ammerman is a Certified Public Accountant and was admitted to the KPMG partnership in 1984 and formally retired from KPMG in 2002. He has served as the chairman of the Quiksilver’s audit committee and as a member of the nominating and governance committee since his appointment to the board in June 2005.

Acquisitions bolster Forzani’s Q3 bottom line
Boosted by its Nevada Bob’s franchise and National Sports, the Forzani Group (TSX: FGL) posted third-quarter sales of CDN $307.6 million (USD $263.3 million), a 19.5 percent increase over last year’s CDN $257.4 million (USD $220.3 million). Without the two acquisitions, the existing retail business generated sales of CDN $279.0 million (USD $239 million), an 8.4 percent increase over last year.

Revenue, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, was CDN $305.4 million (USD $261.4 million), up CDN $39.7 million (USD $34 million), or 14.9 percent over the comparable period last year. Excluding Nevada Bob’s and National Sports, revenues were CDN $283.1 million (USD $242.3 million), a 6.5 percent increase over the prior year. Earnings were CDN $6.5 million (USD $5.6 million), or $0.20 per share, an 11.1 percent increase, compared to $0.18 per share in the prior year.

Same-store sales from corporate stores were up 3.2 percent, while franchise same-store sales increased by 8.1 percent. Among the corporate stores, Sport Chek / Coast Mountain Sports sales increased 4.2 percent while Sport Mart went down 0.9 percent.

Combined gross margin was 33.1 percent of revenue, or CDN $101.1 million (USD $86.6 million), up from 31.1 percent, or CDN $82.6 million (USD $71 million) in the previous year. The margin rate improvement was driven principally by results in the hockey equipment, athletic/casual/outdoor clothing, and footwear categories.

Store operating expenses, at 26.9 percent of corporate store revenues were flat with the prior year. The absolute dollar increase, from CDN $47.4 million (USD $41 million) in fiscal 2005, to CDN $56.5 million (USD $48.3 million) in fiscal 2006, was due to the addition of 19 National Sports stores coupled with the opening, in the past year, of 11 corporate stores (net of closings).

During the quarter, Forzani opened two Sport Chek stores, closed two Sport Mart stores and assumed the operation of one franchise store. At the end of the third quarter, it had 256 corporate stores and 198 franchise locations.

(Conversion of Canadian dollars into U.S. dollars is for information only, is not necessarily relative to earnings, and is based on the currency rate as of Dec. 2.)

Amer signs a multi-currency credit facility
Amer Sports reported that it signed a five-year Euro 575 million (USD $680 million) multi-currency credit facility on Dec. 1. The new facility consists of a Euro 250 million (USD $295 million) term loan facility and a Euro 325 million (USD $384 million) revolving credit facility. The facility was heavily oversubscribed, Amer said. The facility will be used to refinance existing Euro 300 million (USD $355 million) bridge facility put in place to finance the acquisition of Salomon as well as for general corporate purposes. The facility pays a margin of 0.25 percent to 0.40 percent based on Amer’s net gearing. The lead arrangers were Barclays Capital, Nordea and OKO Bank.

(Conversion of Euros into U.S. dollars is for information only, is not necessarily relative to earnings, and is based on the currency rate as of Dec. 1.)

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