Fitness financials: Life Fitness parent reports soaring earnings, plus Nike, Bally, Life Time Fitness, Dick's, Sport Chalet, GSI, Puma

Life Fitness-parent Brunswick's earnings and sales soar, Nike updates futures information, Moody's downgrades Bally debt ratings, Life Time Fitness issues first earnings report, Dick's completes cash tender of Galyan's stocks, Sport Chalet reports increased sales, GSI net revenues rise, Puma sales skyrocket.
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Life Fitness parent's earnings, sales soar
With each of its three divisions including fitness posting double-digit growth, Brunswick Corporation (NYSE: BC) enthusiastically raised earnings-per-share guidance for the third quarter and the 2004 year and estimated it would close the year with $290 million in free cash flow.

The company reported a 68-percent increase in net earnings on 33-percent sales growth and a 60-percent improvement in operating earnings for the second quarter of 2004. Net earnings totaled $90.1 million, or $0.93 per diluted share, for the second quarter, compared with net earnings of $53.6 million, or $0.59 per diluted share, for the year-ago quarter. Brunswick Chairman and Chief Executive Officer George W. Buckley stated that a stronger retail environment was partly responsible, as well as recent company acquisitions. Excluding the effects of acquired businesses that were not part of the company a year ago, sales were up 17 percent in the quarter. Buckley called the quarter "quite remarkable" in an earnings conference call with analysts July 29.

For the quarter ended June 30, 2004, net sales increased 33 percent to $1,422.7 million, up from $1,071.0 million a year earlier. Operating earnings rose to $139.5 million compared with $87.2 million in the year-ago quarter, and operating margins improved to 9.8 percent from 8.1 percent. Net earnings totaled $90.1 million, or $0.93 per diluted share, up 68 percent from $53.6 million, or $0.59 per diluted share, for the second quarter of 2003.

In what is typically a slow quarter for the fitness industry, Life Fitness (with its companies Hammer Strength and ParaBody, and retailer Omni Fitness) showed 16-percent growth in sales, reaching $122.3 million from $105.1 million in the year-ago quarter. Operating earnings for the quarter totaled $2.9 million compared with $5.3 million in the second quarter of 2003, and operating margins were 2.4 percent compared with 5.0 percent a year ago. Buckley said the growth is partly a culmination of the steady introduction of new products in the last two years. Nevertheless, margins contracted the period which he said was due to a combination of competitive pricing pressure in Europe, a shift in product mix towards hot-selling but lower-margin strength equipment, technology licensing costs, and increases in steel pricing.

With the large stockpile of cash, analysts in the call broached the possibility of acquisitions, which Buckley and CFO Peter Leemputte said was possible. "We have plenty of opportunity moving forward," Leemputte said. Buckley added, "We think continued growth is very important, whether with new technology or acquisitions."

For the six months ended June 30, 2004, the company had net sales of $2,622.3 million, up 31 percent from $2,005.5 million for the first half of 2003. Excluding contributions from acquired businesses, sales were up 17 percent. Operating earnings totaled $218.0 million for the first half of 2004, more than double the $100.2 million reported for the corresponding period in 2003, and operating margins expanded 330 basis points, reaching 8.3 percent versus 5.0 percent a year ago. Operating earnings for the first six months of 2003 include a $25.0 million litigation charge ($16.0 million after tax) recorded in the first quarter of 2003 (due to the Precor lawsuit settlement). Excluding the litigation charge, operating earnings were $125.2 million, and operating margins were 6.2 percent for the first half of 2003. Net earnings for the first six months of 2004 reached $138.1 million, or $1.43 per diluted share, up from $57.4 million, or $0.63 per diluted share, for the same period in 2003. Excluding the previously mentioned litigation charge, net earnings for the first half of 2003 totaled $73.4 million, or $0.81 per diluted share.

Buckley said EPS estimates for 2004 have been increased to $2.60 to $2.68 from previous estimates of $2.45 to $2.65 per share, with estimates for the third quarter now $0.60 to $0.65 per share. He also said that the company is again expecting double-digit growth in 2005.

Nike updates futures information
Nike Inc. (NYSE:NKE) recently filed an annual report on Form 10-K for the fiscal year 2004. The form includes an update to previously released futures information of 10.7 percent growth for the fourth quarter and fiscal year 2004 earnings press release dated June 24, 2004. Current futures orders for footwear and apparel scheduled for delivery from June through November 2004 were 11.3 percent higher than the same period last year. The growth was 60 basis points higher than previously released. The change is due to increased orders in the company's U.S. and Asia Pacific regions.Â

Moody's downgrades Bally Total Fitness
Moody's Investors Service dealt Bally Total Fitness (NYSE: BTF) a blow recently when it downgraded the company's debt ratings. Bally has been plagued with financial difficulties, stockholder unrest and a pending class action lawsuit (see SNEWS story, June 4). The stimulus for the downgrade came with the SEC's investigation into Bally's accounting changes, the resignation of the chief financial officer and independent accountant, and the reservations about their departures. Moody's cites minimal free cash flow generation, weak operating income, and competitive business climate as reasons for the downgrade. The ratings did also take into account Bally's notable brand recognition, stable revenues, and robust industry fundamentals. Bally's struggle with free cash flow levels have not allowed the company to reduce debt balances of $730 million. The company's free cash flow generation increased in 2003 and is expected to improve in 2004. However, Moody does not consider the increase sufficient to maintain Bally's previous ratings. Expected 2004 revenues are just under $1 billion.

Moody's did consider Bally's focus on improving its marketing programs, reducing member turnover and expense reduction. The company has reduced its annual capital spending from $100 million to $50 million over the last five years. New product and services Bally is offering to boost revenue include nutrition, retail products, personal training, and a weight management program. Benefits from these changes should become apparent in the next few years.

Despite the downgrade, Bally's ratings outlook is stable, Moody's said in a statement, which reflects the company's large number of facilities and the breadth of its customer base. A negative result from the SEC's investigation or the company's lawsuits will be included in the rating. Bally's ratings could improve if the company were to considerably increase free cash flow after capital expenditures.

Life Time Fitness reports first earnings after going public June 30
Life Time Fitness Inc. (NYSE: LTM) reported its operating results for the second quarter ended June 30, 2004. Revenue grew 20.5 percent from $63.6 million during the same period last year to $76.6 million this year. Net income grew 32.2 percent to $7.2 million or $0.20 per diluted share. Second quarter 2003 net income was $5.5 million or $0.20 per diluted share. Revenue for the six months ended June 30, 2004 grew 21.7 percent to $150.8 million. Net income grew 33 percent for the same period to $12.9 million or $0.44 per diluted share. "Compared to the end of the second quarter of 2003, memberships grew 18.3 percent to 277,924 at the end of the second quarter of 2004," Bahram Akradi, Life Time chairman and CEO said in a statement. "Additionally, our in-center revenue, consisting of personal training, LifeCafe, LifeSpa, and member activities, grew 29.1 percent to $17.7 million." Life Time went public on June 30, 2004.

Dick's completes cash tender for Galyan's stocks
Dick's Sporting Goods Inc. (NYSE:DKS) has successfully completed its offer of cash tender to all issued and outstanding shares of Galyan's Trading Company Inc. (Nasdaq: GLYN). Dick's offered $16.75 per share and about 95 percent of shares were tendered. The Computershare Trust Company of New York was the Depositary for the offer and it has informed Dick's that 17,894,332 shares of common stock were validly tendered. Dick's acquired the remaining shares through a short-form merger under Indiana law, by which a wholly-owned subsidiary of Dick's merged into Galyan's. Each share of Galyan's common stock that remained outstanding was converted into the right to $16.75 in cash, without interest. Dick's currently operates 173 stores, but with the addition of 48 Galyan's, the company will have 221 stores in 32 states. Dick's and Galyan's generated revenue from fiscal 2003 combined to be approximately $2.2 billion.

Sport Chalet reports increased sales in first quarter ended June 30
The Sport Chalet Inc. (Nasdaq: SPCH) announced results for its first quarter ended June 30, 2004. Sales increased 15.4 percent to $61.5 million from $53.3 million for the quarter ended June 30, 2003. The opening of three new stores in late fall 2003 helped raise numbers, as well as a same store sales increase of 6.1 percent. The company's gross profit margin increased from 27.7 percent for the quarter in 2003 to 28.8 percent for this year's quarter. Reduced costs from more efficient inbound logistics as well as improvements in inventory procurement helped the increase in numbers. Net income also increased $0.12 per diluted share from a loss of $593,000 or $0.09 per diluted share in the first quarter last year to income of $245,000 or $0.03 per diluted share this year. The company's annual stockholder's meeting will be held at the Sport Chalet Corporate Offices in La Canada, Calif. on August 2, 2004.

GSI Commerce net revenues rise
GSI Commerce Inc. (NASDAQ: GSIC) has announced that for its second fiscal quarter ended July 3, 2004, the company increased its net revenues 28 percent to $64.7 million and reported a net loss of $3.1 million, or $0.08 per share, decreasing the company's net loss by $631,000, or $0.02 per share, compared to last year's second fiscal quarter. For the same comparable periods, adjusted EBITDA, a non-GAAP financial measure, improved by approximately $394,000 to a loss of $535,000, and net merchandise sales, also a non-GAAP financial measure, rose 63 percent to $89.6 million. Net revenues were $64.7 million for the second quarter of fiscal 2004, which was a 28 percent increase compared to net revenues of $50.3 million for the second quarter of fiscal 2003.
Net revenues from product sales generated by the company's sporting goods category were $33.6 million for the second quarter of fiscal 2004, which was a 24 percent increase compared to $27.0 million for the second quarter of fiscal 2003. Net merchandise sales from the sporting goods category increased 40 percent in the second quarter of fiscal 2004 to $37.9 million compared to $27.0 million in the second quarter of fiscal 2003. GSI Commerce operates e-tail websites for a number of companies, including Bally, Dick's, QVC, Reebok and The Sports Authority (including its other brands).

Puma sales skyrocket, predicts increased growth
With a switch to mostly lifestyle sportswear and preying on its historical sports significance in an era where retro is hip, Puma has seen consolidated sales increase by 17.1 percent to Euro 352 million*. The apparel segment realized the strongest growth of 26.3 percent, reaching Euro 99 million. Footwear was up 13.3 percent to Euro 229 million, and accessories improved by 19.2 percent to Euro 25 million. On a currency neutral basis, total sales in Q2 were up 18.3 percent. Gross profit margin also remains on a high level of 51 percent. The company reported an increase in gross margin of 220 basis points, thereby reaching 51 percent versus 48.8 percent in last year's quarter. The improvement was due to three factors: a favorable shift in product mix, a higher proportion of sales through Puma retail channels, as well as positive currency effects. EPS increased 47 percent to Euro 3.43 for the quarter. Puma continued its share buy back program in the quarter. During this period the company added 225,000 shares to the treasury stock, which corresponded to an investment of Euro 45 million. The buy back was financed through the company's cash position. The company also predicts a strong remaining 2004. Due to a strong order intake total future orders are up by 22 percent at end of June, and new sales records are expected across the board in FY 2004 with sales growth of about 20 percent and earnings growth of more than 30 percent now anticipated. (Puma AG trades on Germany XETRA stock exchange under the ticker symbol PUM. Reports have been left in Euro to retain accuracy due to fluctuations. For more, go to http://about.puma.com and click on Investor Relations.)

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