Fitness financials: Forzani Group FY 2004 revenues take a hit, plus Russell, Nike

Fitness financials: Forzani Group FY 2004 revenues take a hit. Russell's 4Q profit down. Wall Street eyeing the profit potential of fitness facilities. Nike declares dividend.

Forzani Group FY 2004 revenues take a hit
Forzani Group (FGL.TO), parent of Canadian sporting goods stores Sport Chek, Coast Mountain Sports and National Sports, saw its fourth-quarter profits drop 20 percent as a result of the warm-weather affects on snowsport sales and stiffer competition from U.S. retailers.  

Fourth-quarter revenues were $274.3 million (USD $221.4 million), a decrease of 2.3 percent from the prior year. Corporate store revenues, at $229.5 million (USD $185.2 million), were 4.1 percent below last year’s revenues of $239.2 million (USD $193.1 million). Corporate comparable stores sales for the fourth quarter declined by 7.7 percent. Wholesale sales for the quarter were $44.8 million (USD $36.1 million), up 7.4 percent from the prior year. Forzani’s margins for the quarter were 37.4 percent , down 140 basis points from the prior year mark of 38.8 percent. Net earnings for the quarter were $13.0 million (USD $10.5 million) or 4.7 percent of revenues versus $16.1 million (USD $13 million) or 5.7 percent the year earlier. Earnings per share were $0.40 (USD $0.32) versus $0.50 (USD $0.40) in the prior year.

FY 2004 total revenues were $985.1 million (USD $795.2 million), a 1.8 percent increase from 2003’s $968.1 million (USD $781.4 million). Corporate store revenues were $718.8 million (USD $580.2 million), down 1.9 percent from $732.9 million (USD $592.0 million) last year. Corporate comparable store sales for the year declined 5.1 percent, while the franchise division comparable store sales increased 2.2 percent for the year. Combined company comparable store sales for the year decreased 2.6 percent. Wholesale sales for the year were $266.2 million (USD $215.0 million), up 13.2 percent from 2003. Store operating expenses, at $189.8 million (USD $153.2 million), were 26.4 percent of corporate revenues versus $186.7 million (USD $150.7 million) or 25.5 percent a year earlier.

“We are disappointed with the results of the fourth quarter and, by extension, the year. This is the second difficult year in a row for our company,” CEO Bob Sartor said in a statement. “The reasons for these difficulties are obvious to us, as are the solutions to overcome them. A massive focus on reenergizing corporate comp sales is required. Our athletic and casual sales have been negatively impacted for two consecutive years by the emergence of new, predominantly U.S. retail entrants into our market and by a general decline in the attractiveness of athletic clothing, as everyday wear, to our target consumer market. The solution to this was to completely rework our clothing product mix and to carefully manage our existing inventories down, which we have now done.”

Bill Gregson, president and COO, added, “The focus on reenergizing corporate comps is the single biggest factor in improving our financial performance.” Forzani said new initiatives will begin this spring and include an effort to change the clothing product-mix assortment by reducing private label, lifestyle product and athletic branded product. The company will add a bigger assortment of branded lifestyle/athletic product and continue to grow underdeveloped categories such as bike, golf and fitness. It will also introduce a camping program, increase average price points and give 60 Sport Chek stores a face-lift.

(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 Feb. 23.)

Russell’s 4Q profit down
Fourth-quarter profit for Russell Corp. (NYSE: RML) was down to $10.3 million, or 31 cents per share, from $14.5 million, or 44 cents per share, a year earlier. The results included charges of about 6 cents per share from its acquisition of Huffy Sports Co., severance and expenses related to compliance with Sarbanes-Oxley accounting regulations.

Fourth-quarter sales were up 10.5 percent, though, to $334 million. Russell said it represented 3 percent growth in ongoing business and $22 million in added sales from acquisitions within the last year. Gross profit for the fourth quarter was $97.1 million, or a 29.1 percent gross margin, versus a gross profit of $91.3 million, or a 30.2 percent gross margin, in the prior year. Russell said that the positive impact of increased volumes and revenues, coupled with ongoing cost improvements, was dampened by higher year-over-year costs of fiber, transportation and energy, lower margins experienced in Huffy Sports and other increased costs, as well as the fourth quarter impact of price reductions in Artwear which were taken in early 2004.

For FY2004, net sales increased $112 million to $1.298 billion, a 9.4 percent increase over 2003 sales of $1.186 billion. Net income for fiscal 2004 was $47.9 million, or $1.46 per share on a fully diluted basis, within the range of previous guidance. Gross profit was $363.9 million, or a 28.0 percent gross margin, for fiscal 2004 versus a gross profit of $344.1 million, or a 29.0 percent gross margin, in the prior year. Operating income for 2004 increased $7.2 million over fiscal 2003, to $100.8 million. Net income for 2004 increased 11.4 percent, or $4.9 million, to $47.9 million, or $1.46 per diluted share, versus $43.0 million, or $1.32 per diluted share, in 2003.

Russell expects sales for fiscal 2005 to increase approximately 15 percent to 17 percent, to approximately $1.50 billion to $1.52 billion.

Wall Street eyeing the profit potential of fitness facilities
The East Bay Business Times reported that fitness companies are being largely funded by the private equity industry and attracting investment attention like never before. The attention comes as fitness clubs are expanding their businesses and devising business models they hope will lure new members through their doors. Despite the well-publicized missteps of Bally Total Fitness and The Sports Club/LA brands, Life Time Fitness has had success going public and the industry is keeping an eye on potential IPOs from the likes of 24 Hour Fitness, Equinox Holdings and Town Sports International. To read more, click here.

Nike declares dividend
Nike’s (NYSE: NKE) board of directors declared a cash dividend of $0.25 per share on its outstanding Class A Common Stock and Class B Common Stock payable April 4, 2005, to shareholders of record at the close of business on March 14, 2005.

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