Fitness financials: Life Fitness seeks expanded European avenues, plus Precor, Nautilus, Bally, Big 5, Saucony, Russell

Fitness financials: Brunswick looks for other European avenues to continue LF growth there. Precor-parent Amer now exclusively sports equipment, no tobacco. Nautilus records lower profits, RBC maintains "underperform" rating. Bally under investigation. Q1 reports for Saucony, Big 5 and Russell.
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Brunswick looks for other European avenues to continue LF growth there

Noting that the European market is retrenching somewhat after recent strong growth, Brunswick Corp. (NYSE: BC) said in its earnings call for the first quarter ended March 31 that it will look at expanding its reach into other venues besides clubs for additional opportunities for equipment sales. Those avenues include hotels, military facilities and universities, which would help the company further diversify. Although international sales were up, Peter Leemputte, Brunswick senior vice president and CFO, said they are "well below" U.S. sales, also partly due to the much weaker dollar to the Euro.

For the quarter, Brunswick reported a net sales increase of 28 percent to $1,199.6 million, up from $934.5 million a year earlier. Operating earnings rose to $78.5 million compared with $13.0 million in the year-ago quarter, and operating margins improved to 6.5 percent from 1.4 percent. Excluding the $25.0 million litigation charge in the first quarter of 2003, operating earnings totaled $38.0 million, and operating margins were 4.1 percent.

Net earnings totaled $48.0 million, or $0.50 per diluted share, up from $3.8 million, or $0.04 per diluted share, for the first quarter of 2003. Excluding the previously mentioned litigation charge, net earnings totaled $19.8 million, or $0.22 per diluted share, in the first quarter of 2003.

For Life Fitness, that meant revenues were up 10 percent on sales for the quarter of $130.6 million compared to sales of $119.2 million a year ago. Operating earnings for the quarter totaled $9.2 million compared with an operating loss of $12.5 million for the year-ago quarter, which included the $25 million litigation charge in the infringement lawsuit with Precor. Operating margins were 7.0 percent in the first quarter of 2004. Excluding the litigation charge, operating earnings totaled $12.5 million, and operating margins were 10.5 percent in the first quarter of 2003.

But margins declined by 300 basis points, partly the result of what Leemputte called product success since the fitness segment launched 40 new products in the fourth quarter of 2003 -- with associated costs -- and a total of 90 in the last two years.

As Brunswick Chairman and CEO George W. Buckley put it: "Here is the temporary, yet dark side, of change."

Along with higher costs from product introductions, came higher-than-expected costs from the shutting of the Paso Robles, Calif., manufacturing facility announced last year, putting an additional damper on the bottom line.

Overall for Brunswick, Buckley added that acquisitions could "fuel future growth."

For the second quarter, earnings were estimated at .82 to .90 cents per share, with full-year earnings now estimated at 2.45 to 2.60 per share, up from previous estimates of 2.10 to 2.30. For fitness, the company said it maintains earlier expectations of sales growth in the high-single digits.

"We have only just begun," Buckley added. "There are more highs to be had in the upcoming years."

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Precor-parent Amer now exclusively sports equipment, no tobacco

Now purely a sports equipment company after withdrawing from its tobacco business, Amer Sports has announced as a part of its first-quarter report that it expects sports sales to be higher this year than last. Its fitness division, led by Precor but now also including ClubCom and the former Icarian, had net sales for the quarter that grew 7 percent -- to Euro 55.1 million from Euro 51.4 million a year ago.

In the first quarter, Amer Group's net sales grew by 4 percent and were Euro 293.4 million compared to Euro 281.2 million a year ago. (Ed. Note: SNEWS will leave currency in Euros for European companies since converting them with the ever-changing currency values would affect comparisons.) In local currencies, net sales grew by 14 percent. Earnings before interest and taxes (EBIT) amounted to Euro 46.7 million, compared to Euro 20.6 million in the comparable quarter a year ago. The company also noted that exiting from the tobacco business improved EBIT by Euro 18.0 million.

For the fitness division, net sales in local currencies increased 23 percent and EBIT increased 23 percent. The report said that the fastest-growing product categories were elliptical cross-trainers, especially cross-trainers for home. Outside the Americas, fitness sales grew by 16 percent.

Companywide, Amer Group (www.amersports.com) said it expected net sales and EBIT in local currencies to be higher this year than in 2003 (excluding the 2003 patent litigation settlement with Life Fitness).

"During the last quarter of 2003, there were some signs of a strengthening in demand for sports equipment, and this year's activity has started more positively in the sports equipment market than was the case last year," said Roger Talermo, president and CEO, in a statement.

"A historical milestone during the period was the withdrawal from the tobacco business," he said. "Amer Group is now a pure sports equipment company focusing on achieving its goal of becoming the world leader in its field."

To view the entire first-quarter report, click here.

Nautilus records lower profits, RBC maintains "underperform" rating

The Nautilus Group (NYSE:NLS) announced first-quarter net sales of $130.9 million compared to $129.4 million for the corresponding period last year. Net income during the period was $6.4 million, or $0.19 per diluted share, compared to $13.7 million, or $0.42 per diluted share, for the first quarter of 2003.

Gross profit was down to $56.8 million from $71.3 million a year ago, and income before taxes was down to $10.0 million from $21.3 million a year ago. The company's cost of sales was $74 million, compared to $58.1 million a year ago.

"We are encouraged by our results in the first quarter and our ability to outperform top-line expectations and grow year-over-year revenue for the first time in over a year," said Gregg Hammann, chairman and CEO, in a company statement. "By maintaining our focus on the customer and addressing demand for Nautilus' strength and cardiovascular equipment in the appropriate distribution channels, we delivered $130.9 million in net sales, above the $125 million to $130 million range we previously anticipated."

The company said its year-old TreadClimber had a sales increase of 39 percent in the first quarter of 2004 compared to the fourth quarter of 2003.

RBC Capital Markets said in an analysis for the quarter: "We remain cautious toward shares of Nautilus due to several negative trends: 1) the gross margin decline associated with the shift to the lower margin retail selling environment will likely persist; 2) with the ASP of retail units declining significantly from Q4, the potential success of Bowflex in the retail channel remains a question, and; 3) the company provided no guidance for the remainder of 2004 and little visibility into the important back-half of the year."

Hammann said in the statement the company expects to give additional guidance in its conference call after the second quarter.

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SEC investigates Bally's recent restatement, Moody's may downgrade ratings

The Division of Enforcement of the Securities and Exchange Commission is investigating Bally Total Fitness's (NYSE: BFT) recent restatement regarding the timing of non-obligatory prepaid membership dues. The errors accelerated dues recognition for certain prepaying members and totaled $43 million during the seven-year restatement period. Bally filed an amended annual report on April 2 that included corrections for each annual and quarterly period from January 1997 to September 2003, and reported that it has converted to a new system that it believes is effective. In other Bally news, rating agency Moody's is reviewing the ratings of Bally Total Fitness Holding Corp. for possible downgrade as a result of the SEC's investigation into the company's accounting changes, the resignation of the company's chief financial officer and independent accountant, and the uncertainties surrounding their departure. The following ratings are on review for possible downgrade: $100 million senior secured revolving credit facility, due June 30, 2008, rated Ba3; $235 million 10.5 percent senior unsecured notes, due July 15, 2011, rated B2; $300 million 9.875 percent senior subordinated notes, due Oct. 15, 2007, rated B3; Senior Implied, rated B1; and Senior Unsecured Issuer, rated B2. Moody's review will focus on Bally's accounting changes and the impact they will have on the company's operating and financial position. Also, it will consider the impact of the resignation of Ernst and Young as the company's independent accountants and resolution of the company's search for new independent accountants and a chief financial officer. As part of Bally's restatement, it announced a charge of $581 million for a cumulative effect of changes in accounting principles. As a result, the company reported a net loss for 2003 of $646 million. Moody's said it will study the relationship, if any, between the change in revenue recognition and the implications for Bally's reported cash flows, as well as review the company's competitive position in the fitness market.

Technical footwear puts a skip in Saucony's step

For the first quarter ended April 2, 2004, Saucony Inc. (NASDAQ: SCNYA and SCNYB) reported that its at-once business in core technical running and cross-over footwear categories and international growth helped it achieve its 10th consecutive quarter of meeting or exceeding expectations. Net income increased 63 percent to $4.2 million in the first quarter of 2004, compared to $2.6 million in the first quarter of 2003. Diluted earnings per share increased to $0.58 per Class A share and $0.64 per Class B share in the first quarter of 2004, compared to diluted earnings per share of $0.39 per Class A share and $0.43 per Class B share for the comparable period in 2003. Net sales for the first quarter increased 20 percent, to a record $47.0 million, compared to 2003's $39.1 million. Its backlog of open orders scheduled for delivery within the next five months (April 3 to August 27) increased 28 percent to $53.0 million, compared to last year's $41.2 million. "We continue to gain momentum in our domestic technical footwear business, which significantly contributed to our double-digit increase in open orders scheduled for delivery over the next five months," according to John H. Fisher, president and CEO.

Big 5 reports 33rd consecutive quarterly increase

Sporting goods retailer Big 5 Sporting Goods Corp. (Nasdaq: BGFV) reported first-quarter net sales, ended March 28, 2004, increased by $16.5 million, or 10.0 percent, to $181.0 million from $164.5 million in 2003. Same store sales increased 5.2 percent versus the first quarter last year, representing the company's 33rd consecutive quarterly increase in same store sales over comparable prior periods. Net income, calculated in accordance with generally accepted accounting principles ("GAAP"), increased to $6.8 million, or $0.30 per diluted share for the 2004 first quarter, compared with net income of $3.4 million, or $0.15 per diluted share, in the same period last year. Net income for the 2003 first quarter included a charge of $875,000, net of taxes, associated with the redemption of $20.0 million principal amount of the company's 10.875 percent senior notes. Excluding this charge, net income for the 2003 first quarter was $4.3 million, or $0.19 per diluted share. The company ended the quarter with 294 stores, opening three new stores since year-end, two of which were relocations. The company anticipates opening 15 to 20 stores this year.

Russell KO'd by earnings drop

Despite a 10 percent increase in net sales for its 2004 first quarter, Russell Corp.'s (NYSE: RML) first-quarter earnings dropped to $500,000 ($.02 per diluted share) versus earnings of $3.4 million ($.11 per diluted share) in first quarter 2003. First-quarter earnings were reduced by $.05 per share from the unfavorable impact of inventory close-out costs, it reported on April 29. Net sales for the 2004 first quarter were $251.8 million, an increase of $23.8 million from 2003's $228.0 million. Gross profit was $64.6 million, or a 25.7 percent gross margin, for the 2004 first quarter versus a gross profit of $62.8 million, or a 27.6 percent gross margin, in the prior year.

For more information about these companies' financial reports, as well as to view stock prices updated every 15 minutes, visit the SNEWS® Stock Market Updates at www.snewsnet.com in SNEWS Extras, or click here www.snewsnet.com/cgi-bin/snews/stock_report.html.

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