Fitness financials: Nautilus lowers Q1 guidance, share prices sink; plus Bally, Puma, Costco, Wal-Mart

Fitness financials: Nautilus lowers Q1 guidance, share prices sink. Bally in forbearance deal with lenders. PPR making $7.1 billion offer for Puma. Costco same-store sales up 6 percent in March. Wal-Mart same-store sales rise in March.
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Nautilus lowers Q1 guidance, share prices sink
Nautilus (NYSE: NLS) lowered its first-quarter earnings guidance based on sluggish sales of its home fitness products in North America.

For the first quarter, the company said it now expects earnings per diluted share of $0.08-$0.09 on net sales of around $160 million, compared to previous guidance of $0.18-$0.21 per share on net sales of $185 million to $195 million. For the full year 2007, it expects earnings growth of 20 percent to 30 percent on sales growth of 5 percent to 10 percent.

On average, most analysts forecast first-quarter earnings per share of $0.20 and revenue of $192.2 million.

Nautilus said its international, apparel and commercial businesses all performed well, but the North American market for home fitness was sluggish, resulting in a substantial shortfall in March retail replenishment orders, and softness in direct sales.

"We believe the North American consumer has been spending more discretionary dollars on higher-priced and aggressively promoted electronic items instead of fitness equipment," said Gregg Hammann, chairman and CEO of Nautilus, in a statement. "Further, the slowdown in housing is affecting our retail business as fewer homes are being built or remodeled, which means fewer new home gyms being filled with equipment."

Following the release, Merriman Curhan Ford & Co. analyst Eric Wold, who rates Nautilus "Sell," called the results "extremely weak" in a client note

"For the past four consecutive quarters, Nautilus has guided revenues below consensus estimates at the time," wrote Wold in a note to investors. "And now Nautilus has missed that lowered guidance three out of four of those quarters."

He said he is increasingly concerned about factors including internal channel cannibalization, core product sales declines, increasing competition and lower discretionary spending hurting financial results. "Our long-term concerns with Nautilus remain in place," he wrote.

Wedbush Morgan Securities analyst Rommel Dionisio called the results "disappointing." He said in a research note that the company's operational execution remains solid, but macro factors such as a slowing housing market and difficult consumer spending trends are proving challenging to overcome. He maintained his "Buy" rating, but lowered his price target to $17 from $20.

"Despite near-term macro concerns, impacting top-line expectations, we believe anticipated cost savings from recently implemented restructuring programs as well as the expected closing of the acquisition of a low-cost Chinese manufacturing facility should drive improved operating margins in 2008," he wrote in a note to investors.

Additionally, Matrix Research upgraded Nautilus from "Strong Sell" to "Hold," indicating that the stock should perform similarly to other comparable stocks.

Nautilus reported the new guidance after the market closed on April 11 and shares sank the following day on the lowered expectations. Shares fell as much as $2.92 to $13.09 in day's trading on the New York Stock Exchange to close at $13.67 on April 12. The stock has traded between $11.10 and $19.05 over the past 52 weeks.

Nautilus' first-quarter 2007 conference call is scheduled for May 2.

Bally in forbearance deal with lenders
Bally Total Fitness (NYSE: BFT) has obtained a forbearance agreement from the lenders under its $284 million senior secured credit facility.

Under the agreement, the lenders won't exercise any remedies under their credit agreement as a result of defaults due to Bally's inability to provide financial reports for the fiscal year ended Dec. 31, 2006. The forbearance period expires July 13, 2007, but may expire earlier under certain conditions.

The company also said it won't pay the scheduled interest payment of about $15 million due Monday on its 9 7/8 percent senior subordinated notes. About $300 million of the notes is outstanding, and the notes mature in October 2007. The company said it is in talks regarding waiver and forbearance agreements with its noteholders.

As of April 11, Bally had liquidity of about $54 million and said it continues to believe it can operate into 2008, excluding the potential impact of the maturity of its senior subordinated notes.

The company added that it's continuing to work diligently to complete its financial statements for 2006 and file its Annual Report on Form 10-K report for 2006.

Bally's shares fell 2 cents, or 2.9 percent, to close on April 12 at $0.66 on the New York Stock Exchange.

PPR making $7.1 billion offer for Puma
PPR, the French luxury goods maker behind the Gucci and Yves Saint Laurent brands, said it is buying a 27.1 percent stake in Puma (PUM.DE) and plans to make an offer for the rest in a deal that values the company at $7.1 billion.

Puma said in a statement that it welcomed the offer and management would recommend it to shareholders.

PPR said it was paying EUR 1.4 billion (USD $1.9 billion) for the stake in Puma held by the Mayfair investment company.

Following that deal, PPR said it plans to launch a "friendly takeover offer" for Puma's remaining shares at the same price of EUR 330 (USD $441.11) per share. It said it expects to complete the offer in early July.

Puma's board "unanimously believes that PPR's engagement is in the best interests of the company and that the announced offer price per share ... for the voluntary public takeover offer is fair," Puma said in a statement.

Established in 1948, Puma is one of the world's biggest sporting goods companies after Nike and adidas. It has 7,800 employees. In 2006, it earned a net profit of EUR 263.2 million (USD $353.4 million) on sales of EUR 2.37 billion (USD $3.18 billion).

(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 April 10.)

Costco same-store sales up 6 percent in March
Costco's (Nasdaq: COST) March same-store sales climbed 6 percent, beating analyst expectations of 4.7 percent.

Total sales for the five weeks ended April 8 rose 11 percent to $5.94 billion from $5.37 billion a year ago. Due to the timing of the Easter holiday, this year's five-week period included one fewer day compared with last year, which cut into sales by 1 to 2 percent, according to Costco.

Separately, Costco raised its quarterly dividend 11.5 percent. The new dividend of 14.5 cents -- up from 13 cents -- is payable May 18 to shareholders of record as of April 27.

Wal-Mart same-store sales rise in March
Wal-Mart Stores (NYSE: WMT) said that strong sales of groceries helped boost same-store sales 4 percent in March. For the five-week period ended April 6, Wal-Mart same-store sales rose 3.4 percent, while Sam's Club same-store sales were up 7.4 percent.

Total sales for the period grew 11.7 percent to $34.26 billion, from $30.68 billion a year ago. Wal-Mart stores' sales grew 9.6 percent to $22.12 billion, and Sam's Club sales grew 8.9 percent to $4.16 billion.

Additionally, Wal-Mart said it expects April same-store sales to be flat to down 2 percent in April. The company said the Easter calendar shift into March would hurt April results.

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