2005 woes follow Bally into the New Year
Bally Total Fitness (NYSE: BFT) rang in the New Year with an amendment to its third-quarter 10-Q filing, a delay of the sale of its Crunch Fitness chain until mid-January, and an accusation that its two largest shareholders may be conspiring against the fitness club company with the accusations being heard from both sides in courts. Â
On Dec. 21, Bally said it amended its quarterly report for the third quarter ended Sept. 30, 2005, to correct the cash amount of membership revenue cited for the quarter. It said that the amendment did not change the previously reported consolidated balance sheets, statements of operations or statements of cash flows. The amount of cash collections of membership revenue had inadvertently included personal training revenue, it added.
Then on Dec. 22, Bally reported that it was delaying to Jan. 17 the sale of its 21 Crunch Fitness gyms, as well as two Gorilla Sports gyms and two Pinnacle Fitness clubs in San Francisco. The sale of the chain to a group composed of Marc Tascher, the founder and former chairman of rival Town Sports International Holdings, and the private equity firm Angelo, Gordon & Co. was to be completed by late 2005.
In a statement, Bally did not provide a reason for the delay, saying only that the companies “continue to work diligently to satisfy closing conditions” and are “hopeful” that all will be resolved by the new deadline.
All this news seems fairly tame, though, compared to the latest reports coming out of the Bally camp via official statements and court filings in the federal system between Dec. 23-27.
In its latest move to fend off investors clamoring for new management, Bally said that its two largest shareholders — Liberation Investments and Pardus Capital Management — may be in cahoots, which could trigger the company’s Stockholder Rights Plan and allow Bally to essentially reduce their ownership stakes.
Liberation Investments and Pardus Capital Management have called for the overhaul of Bally’s board of directors and the ouster of CEO Paul Toback.
Bally said in a statement it was considering petitioning a court to determine whether its shareholder rights plan was triggered as a result of Liberation and Pardus acting together.
Bally’s plan, triggered when a person or group acquires more than 15 percent of the company’s shares, enhances the board’s ability to defend itself from hostile acquirers. It allows the company to issue discounted shares to all stockholders except the acquirers, thereby diluting the acquirer’s stake and voting rights.
Bally said it has evidence of ties between Liberation and Pardus, which indicates that the two shareholders, whose combined holdings exceed 15 percent, are acting together and could trigger the plan. According to Bally, Liberation’s General Manager Emanuel Pearlman has longtime ties to Don Kornstein, whom Liberation had suggested be nominated as a candidate on the slate of Pardus European Special Opportunities Master Fund. But Liberation said Bally management had understood the relationship and approved Kornstein’s nomination.
Pearlman responded by saying the shareholders “have no agreements, arrangements or understandings with each other with respect to the voting of Bally shares and management has no reasonable basis to claim otherwise.”
In a letter to Bally’s board, Liberation said triggering the plan would “profoundly damage” shareholder value and make it impossible to sell the company until resulting litigation was resolved. Bally recently put itself up for sale.
A federal court dismissed Bally’s motion for a preliminary injunction preventing Liberation from presenting a shareholder proposal at Bally’s upcoming annual meeting.
Meanwhile, despite the squabbling and despite complaints about Bally and its management by both Liberation and Pardus, in the days prior to and after the Christmas holiday both acquired even more shares of the company’s stock. As of the end of the day Dec. 30, Liberation and its associated companies and manager owned just over 4.4 million shares while Pardus had upped its portfolio to 5.5 million.
Nike future orders fall short in Q2 report
Shares of Nike (NYSE: NKE) dropped 5 percent after the company reported future orders that fell short of expectations in its second-quarter 2006 financial results.
Nike said currency exchange rates “significantly reduced growth” in future orders, which increased 2.5 percent to $5.2 billion compared to the same period last year.
By region, futures orders for the United States increased 9 percent; Europe (which includes the Middle East and Africa) declined 6 percent; Asia Pacific grew 2 percent; and the Americas increased 23 percent. Changes in currency exchange rates reduced the reported futures orders by 8 percentage points in Europe and by 7 percentage points in the Asia Pacific region. In the Americas region, 3 percentage points of the increase were due to changes in currency exchange rates.
Nike’s stock fell $4.32 to $84.16 in early trading on the New York Stock Exchange. The stock has traded in a 52-week range of $75.10 to $92.34.
Nike said its second-quarter profit rose 15 percent to $301 million, or $1.14 per share, $0.11 better than the $1.03 per share predicted by analysts. The company posted a profit of $261.9 million, or $0.97 a share, in the same fiscal period last year. Sales rose 10 percent, to $3.5 billion, from $3.1 billion for the second quarter last year.
During the second quarter, U.S. revenues increased 15 percent to $1.3 billion versus $1.1 billion for the second quarter of fiscal 2005. U.S. athletic footwear revenues increased 19 percent to $811.5 million. Apparel revenues increased 13 percent to $433.8 million. Equipment revenues declined eight percent to $61.8 million. U.S. pre-tax income improved 14 percent to $265.7 million.
Revenues for the European region grew 2 percent to $977.4 million, up from $961.1 million for the same period last year. Revenues in the Asia Pacific region grew 4 percent to $503.3 million compared to $483.5 million a year ago. Revenues in the Americas region increased 33 percent to $252.1 million, an improvement from $189.3 million in the second quarter of fiscal 2005.
Finish Line 3Q profit sinks 62 percent, unveils new women’s chain
Finish Line (Nasdaq: FINL) reported a 62-percent drop in third-quarter profit as operating expenses outpaced sales growth. Net income declined to $845,000, or $0.02 per share, from $2.2 million, or $0.04 per share, a year ago.
Revenue rose 16 percent to $274 million from $235.2 million last year, as same-store sales grew 4 percent. However, selling, general, and administrative expenses rose 21 percent to 76.5 million from a year ago.
Finish Line shares slipped $0.10 to close at $17.85 on the Nasdaq, and dropped $1.15, or 6.5 percent, to $16.70 in after-hours activity.
In other company news, Finish Line unveiled the name of its new upscale women’s chain — Paiva. Pronounced “pie-va,” the name of the multi-channel, premium athletic specialty store refers to a sun deity and also means “of the light.” The Paiva stores will average 4,000 square feet, and the first stores will open in April. This launch will be simultaneous through all channels: stores, web and catalog.
The chain will be primarily mall-based and target 25-40-year-old active women who exercise frequently and engage in multiple athletic activities such as running, fitness/dance, yoga and Pilates along with seasonal sports including tennis and swimming. With a product mix that will be approximately 70 percent softgoods and 30 percent footwear, the product offerings will be multi-branded and feature top athletic brands and private label fashion basics.
Sara Lee to delist shares on European exchanges
Sara Lee Corp. (NYSE: SLE) plans to delist its shares from several stock exchanges in Europe because of low trading volume. Its board of directors voted to delist the company’s common stock from the Euronext Amsterdam and Euronext Paris stock exchanges, as well as the Swiss Exchange. Pending completion of the delisting process of each exchange, Sara Lee said it expects to complete the delistings for the Euronext exchanges on Jan. 31 and the Swiss Exchange on March 21. Sara Lee shares will remain listed on the Chicago, London, New York and Pacific stock exchanges. The announcement came five weeks after the company announced the sale of its European clothing unit as part of an ongoing restructuring.
Among Sara Lee’s numerous brands is Champion, which has a license agreement with Lamar Health, Fitness & Sports for Champion-branded fitness equipment. In fact, if you got a look at a Champion apparel catalog that came out around the New Year, you’ll note some models already working out on equipment with the Champion name.
Health Fitness Corp. to acquire web-based fitness provider
Health Fitness Corp. (HFIT.OB) said it is buying HealthCalc.net, a provider of web-based fitness, health management, and wellness programs to corporations, health care organizations, physicians, and athletic/fitness centers.
Health Fitness paid $6 million in cash and stock at the closing with the potential for additional amounts to be paid under an earn-out provision based upon the HealthCalc business segment achieving certain revenue objectives for 2006. For 2005, HealthCalc’s revenues are projected to be approximately $2.5 million, of which $850,000 is attributed to Health Fitness clients.
Founded in 1997 and headquartered in Dallas, Texas, the HealthCalc web-based platform provides customers with a variety of tools and resources to identify opportunities to impact health care costs through lifestyle improvement programs for individuals. In addition to other services, the HealthCalc platform allows individuals to take periodic online health assessments, track their daily exercise, receive online health coaching, and provide access to the latest health education and information on the Internet.
Russell blames supply issues for lowered ’05 guidance
Russell Corp. (NYSE: RML) said its 2005 earnings will come in below its prior forecast citing lower-than-expected sales and costs related to supply issues. The news knocked its stock down 10.3 percent.
The company cut its outlook for 2005 sales to about $1.43 billion to $1.45 billion, but did not provide a new earnings outlook. In October, Russell said it expected 2005 profit of $1.25 to $1.35 a share, excluding items, on sales of $1.45 billion to $1.46 billion. Analyst expectations are a profit of $1.26 per share on revenue of $1.47 billion.
Russell lost 40 containers of product in Gulfport, Miss., because of Hurricane Katrina. The company said supply problems resulted from that loss, coupled with an increase in polyester costs and the company being forced to do more shipping out of Miami instead of Gulfport.
In a statement, Russell added that it plans to take aggressive action early next year to improve sales, but did not elaborate on its plans. The stock was down $1.46 at $13.26 on the New York Stock Exchange.
adidas stands by 2005 guidance
Prior to the Christmas holiday, adidas (ADSG.DE) confirmed its sales and profit targets for 2005. It said it expects a 2005 (currency-neutral) sales growth in a high single-digit percentage rate and earnings growth of at least 20 percent. adidas upgraded its 2005 outlook in November after posting a forecast-beating 28 percent rise in net income in the third quarter. adidas also confirmed its mid-term goals, saying net income was expected to rise by a double-digit percentage rate after the Reebok buyout was concluded. Sales are expected to rise by a mid- to high-single-digit rate in the medium term.
Wal-Mart expects December sales to be on low end
Wal-Mart Stores (NYSE: WMT) is estimating that its December sales will meet only the low end of its forecast — about 2.2 percent. The forecast was for a 2 percent to 4 percent gain. The company said that general merchandise sales outpaced demand for food. Wal-Mart and many other major retailers are expected to announce their final December results on Jan. 6.
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