Fitness financials: Bally's Q3 loss widens, plus Cybex, Brunswick, Gaiam, Health Fitness, Big 5, Sport Chalet, adidas

Fitness financials: Bally's Q3 loss widens. Cybex to trade on Nasdaq. Brunswick will close boat plants, layoff 645 workers. Gaiam Q3 sales jump 71.8 percent. Health Fitness reports Q3 financial results. Q3 profit up 8.1 percent for Big 5. Sport Chalet reports second-quarter results. Q3 profit up for adidas, but cuts 2007 outlook.

Bally’s Q3 loss widens
Bally Total Fitness (NYSE: BFT) said its third-quarter loss widened due to an asset impairment charge and other expenses.

The company reported a loss of $5.7 million, or $0.14 per share, compared with a loss of $214,000, or a penny per share, a year ago. It blamed a 19 percent rise in interest expense to $26 million for the wider loss.

Bally also recorded an asset impairment charge of $3 million during the quarter. Other general and administrative charges increased to $18.7 million from $14 million last year, including $5.4 million in compensation costs related to a separation agreement with former Chairman and CEO Paul Toback.

Revenue edged up to $248.4 million versus $247.9 million in the previous year.

Membership revenue rose to $204.5 million from $202.6 million. Average number of members declined 2 percent to 3.577 million members. Average monthly revenue per member in the quarter grew 3 percent to $19.06, compared with $18.55 in the prior-year quarter.

Cash collections of membership revenue, exclusive of personal training, during the quarter were $187.0 million, a decrease of $4.7 million, or 2 percent, from 2005 as a result of the lower average number of members and an unfavorable mix of new member additions, continuing the trend seen throughout 2006.

Operating income of $19.9 million for the quarter declined 11 percent from $22.3 million in 2005. Operating expenses in the period were $228.5 million, an increase of $2.8 million compared to the third quarter last year.

EBITDA (operating income plus depreciation and amortization and asset impairment charges) in the third quarter was $36.3 million, compared to $37.2 million in last year’s third quarter, a 2 percent decline.

Cybex to trade on Nasdaq
Cybex International said its application for listing its common stock on the Nasdaq stock market has been given the green light. The company expects to begin trading on the Nasdaq under the symbol “CYBI” on or about Nov. 21, the company said.

The company’s common stock will continue trading on the American Stock Exchange under the symbol “CYB” until the move is completed.

“We view this move as a significant event for Cybex, and one that is consistent with our goal of enhancing shareholder value,” said John Aglialoro, chairman and CEO of Cybex, in a statement. “The Nasdaq attracts growth companies from myriad of sectors, and we are looking forward to being a part of the Nasdaq stock market.”

Brunswick will close boat plants, layoff 645 workers
Brunswick Corp., parent of Life Fitness, Hammer Strength and ParaBody fitness equipment, said it will cut 645 jobs — about 2 percent of its workforce — in its boat manufacturing and bowling products businesses to reduce costs by $26 million next year. A statement from the company (NYSE: BC) did not mention any changes to its fitness division.

Brunswick chairman and CEO Dustan McCoy said the actions will result in a reduction of 430 hourly and salaried production employees and 215 salaried positions in corporate and division staff functions. The company has a worldwide work force of 28,500. The cuts will begin immediately and will be completed by the middle of next year.

The layoffs are expected to reduce operating earnings by approximately $25 million to $28 million, mostly in the fourth quarter.

Additionally, it is closing boat manufacturing plants in Canada and in Cumberland, Md., and will transfer production to factories in Minnesota.

McCoy said in a statement that the company is preparing for flat to declining production volumes in 2007 because of market conditions.

Last month, the company reported that its third-quarter profit fell 59 percent, weighed by a drop in marine-related sales.

Gaiam Q3 sales jump 71.8 percent
For the third quarter, Gaiam (Nasdaq: GAIA) generated revenue of $51.8 million, an increase of 71.8 percent over the $30.1 million recorded in the same period last year. It said the increase was due to a combination of internal growth in both the business and direct-to-consumer segments, as well as contributions from sales of media titles acquired from GoodTimes Entertainment in September 2005.

Gaiam reported a net income for the third quarter of $1.7 million, or $0.06 per share, as compared to a net income of approximately $505,000, or $0.03 per share, for the third quarter of 2005.

Gross margin increased 750 basis points to 63.0 percent in the third quarter of 2006, from 55.5 percent in the same period last year, which in turn was an 880 basis point increase from 46.7 percent in the third quarter of 2004. Gaiam noted that the increase was driven by strong media sales, reduction of third-party distribution fees and a shift in revenues to the direct-to-consumer segment, which carries higher gross margins along with higher operating expenses.

Operating expenses as a percentage of revenue increased to 61.0 percent in the third quarter of 2006 from 52.6 percent in the comparable period last year. The increase reflects the shift by Gaiam in revenue mix toward media and direct marketing products which carry higher selling and operating expenses including merchandising fees and advertising costs. Additionally, Gaiam said it is still being impacted by certain costs associated with operating and system redundancies as a result of the GoodTimes Entertainment acquisition.

The company added that it expects to see improved leverage by the end of 2006 as additional cost reductions from the GoodTimes acquisition are realized.

According to Nielsen VideoScan, Gaiam’s market share in the fitness/wellness DVDs led the category at 44.7 percent for the nine months ended Sept. 30, 2006, up from 41.5 percent in the same period in 2005. During the same period, Gaiam had five titles in the top 10 best selling fitness DVDs. In addition, the company ranks sixth in overall U.S. non-theatrical DVD sales year-to-date.

Health Fitness reports Q3 financial results
Revenue for Health Fitness Corp. (HFIT.OB), a provider of employee health improvement services to corporations, hospitals and communities, increased 21.4 percent for the third quarter ended Sept. 30.

Revenue for the 2006 quarter was $16.3 million compared to $13.5 million for the same period last year. Gross profit during the quarter increased 50.9 percent to $5.3 million, from $3.5 million for the same period last year. Operating income increased 126.6 percent to $2.0 million, from $0.9 million for the same period last year. Net earnings applicable to common shareholders increased 131.8 percent to $1.2 million, from $0.5 million for the same period last year. Net earnings per diluted share increased to $0.06, from $0.03 for the same period last year.

Fitness management revenue grew 7.2 percent to $10.7 million, from $9.9 million for the same period last year. Compared to revenue of $10.6 million for the second quarter of 2006, fitness management revenue grew 0.4 percent.

Q3 profit up 8.1 percent for Big 5
Big 5 Sporting Goods (Nasdaq: BGFV) reported an 8.1 percent rise in third-quarter profit and a similar increase in revenue. But its shares dropped in aftermarket electronic trading after the company issued a disappointing guidance.

Big 5 earned $7.8 million, or $0.34 per share for the period ended Oct. 1, compared with $7.2 million, or $0.32 per share, for the same quarter in 2005. Revenue grew to $223.3 million from $206.8 million in the year-ago period. Same-store sales increased 3.8 percent for the third quarter.

The results included a charge of $4 million, or $0.02 per share, in stock-option expenses this year, while the 2005 quarter included a $1.8 million gain related to an eminent domain action.

Company officials credited the results to positive sales and controlling expenses.

Big 5 said it expects to post a fourth-quarter profit of $0.34 to $0.40 per share, including $0.02 per share in stock-option expenses. Analysts, on average, expect a profit of $0.40 per share, including stock-option expenses. For the full-year 2006, the company said it expects to earn $1.27 to $1.33 per share, including about $0.06 per share in stock-option expenses. Analysts expect a profit of $1.32 per share, including stock options.

Big 5 shares sank as much as $1.94, or 8.1 percent, to $21.92 in aftermarket electronic trading before regaining some ground to trade at $23.37, down $0.49, or 2.1 percent, from their Nasdaq regular session close at $23.86.

The company opened five new stores during the third quarter of fiscal 2006, bringing its store count at the end of the third quarter to 334 stores.

Sport Chalet reports second-quarter results
Sport Chalet (Nasdaq: SPCHA and SPCHB) reported an 11.7 percent increase in sales for the second quarter, boosted by earnings from six new stores.

For its second quarter ended Oct. 1, 2006, sales were $91.3 million compared to $81.7 million for the quarter ended Sept. 30, 2005. Six new stores contributed $9.0 million in sales on a same-day basis. Same-store sales on a same day basis increased 3.0 percent in the second quarter. Sales for the quarter overall were $1.8 million lower due to the company’s calendar change. At the beginning of the fiscal year, the company changed its fiscal period so each quarter now ends on a Sunday.

Net income for the second quarter was $1.7 million, or $0.12 per diluted share, compared to a net loss of $5.2 million, or $0.38 per diluted share, for the second quarter last year. Excluding the after-tax charge of $7.8 million related to the company’s recapitalization, net income for the quarter ended Sept. 30, 2005, was $2.6 million, or $0.19 per diluted share.

Gross profit as a percent of sales increased to 32.2 percent from 31.8 percent in the second quarter of last year. Sport Chalet said that the 40 basis point improvement was primarily due to fewer markdowns as a result of continued improvements in inventory management.

Selling, general and administrative expenses as a percent of sales increased to 29.1 percent from 26.4 percent last year, excluding expenses from the recapitalization in fiscal 2006. SG&A for the second quarter ended Sept. 30, 2005, included expenses of $8.6 million related to the company’s recapitalization. The company reported that the increase was a result of reduced leverage on modest sales from mature stores as well as increased costs related to Sarbanes Oxley compliance, utilities, infrastructure investments and personnel.

Q3 profit up for adidas, but cuts 2007 outlook
Third-quarter profit for adidas (ADS.DE) rose 13 percent, but the company warned that its 2007 profit growth will fall short of previous forecasts because of costs related to the acquisition of rival Reebok.

adidas said net income growth would approach 15 percent in 2007, as it continued to put money into Reebok. But that was down from its earlier forecast of 20 percent earnings growth in 2007. The company said it expects Reebok to show improvement by 2008.

The company said net income for quarter was up to Euro 244 million (USD $311 million), compared with 215 million euros in the same period a year earlier.

Quarterly sales rose 54 percent to Euro 2.95 billion (USD $3.77 billion) from 1.92 billion euros because of the World Cup in Germany and demand for adidas-branded lifestyle apparel and by improved growth in Europe, Asia and North America.

Without Reebok, sales rose 12 percent to nearly Euro 2.2 billion (USD $2.81 billion) from 1.9 billion euros.

Strengthening Reebok will be the main goal of adidas through 2007, the company said, with plans to invest Euro 50 million (USD $63 million) in the brand.

Additionally, adidas said it expects a 2006 full-year net profit of between Euro 480 million to Euro 490 million (USD $613.3 million to $626.02 million), up from the Euro 383 million it earned in 2005. Full-year sales are expected to reach Euro 10 billion (USD $12.8 billion), lifted in part by the consolidation of Reebok into adidas.

Shares of adidas fell 7.2 percent on Nov. 9 to close at Euro 38.07 (USD $48.65) on the Frankfurt exchange after sinking as much as 11 percent earlier in the day.

(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 Nov. 9.)

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