Fitness financials: Nautilus Q3 net sales up, lowers Q4 guidance, plus adidas, Sara Lee, Everlast, Under Armour, Puma, Foot Locker, Amer, Costco, Wal-Mart

Fitness financials: Nautilus touts 33 percent gain in net sales but 4Q expectations lower. adidas reports Q3 earnings. Sara Lee profits drop 81 percent. Everlast gets Q3 net income in the black. Under Armour to sell IPO shares. U.S. footwear bolster Puma's Q3. Same-store sales on the rise for Foot Locker. Amer told Franklin Resources owns nearly 5 percent capital. Costco reports October sales. Total comp sales up 4.3 percent for Wal-Mart in October.
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Nautilus touts 33 percent gain in net sales but 4Q expectations lower
While Nautilus' (NYSE: NLS) third-quarter sales were up 33 percent and profit increased 11 percent, the forecast for its fourth-quarter was lower than analyst expectations. The increase in sales includes sales from the June acquisition of Pearl Izumi, with estimated annual sales at that time of about $50 million.

Net sales were $163.3 million compared to $123.2 million for the corresponding period last year. Net income for the quarter was $8.3 million, or $0.24 per diluted share, up from $7.5 million, or $0.22 per share, or 11 percent for the corresponding period last year. The year ago quarter included a pretax $1.8 million gain on sale of land, which contributed $0.03 per share, the company said.

"We returned our business to growth," said CEO Gregg Hammann in a call with analysts Nov. 2. "We acquired two fitness companies… and we expanded distribution."

Despite all of that the company executives said they had fallen short, partly because of technical and quality assurance issues (such as problems with the TreadClimber in its exclusive placement commercially at 24 Hour Fitness) that were in its control and partly because of issues (such as weather and consumer confidence) that were not in its control.

Hammann has now also taken on the role overseeing manufacturing and operations since its Senior Vice President Holly Valkama, who began in May 2004, had left the company recently. Wrote Mark Rupe, an analyst with Adams Harkness, prior to the Nov. 2 call: "Hammann's direct oversight will restore a sense of urgency and accountability to an initiative of critical importance, in our opinion. To date, supply chain efficiencies have materialized more slowly than we had expected."  

Analysts said they had expected Nautilus to earn $0.24 a share, but sales of $163.3 million missed their target of $175.48 million.

Wrote RBC analyst Ed Aaron after the call in an analysis: "Overall, the Q3 earnings release brings resolution to our primary concern -- that estimates were too aggressive for 4Q05 and FY-06. While we are not yet prepared to revisit our rating, we now see a better risk/reward profile than we did prior to our recent downgrade. We have reduced our Q4 and FY-06 estimates…"

In the retail channel, Nautilus said sales were up 80 percent over the same quarter a year ago, or had reached $29.7 million. The company said it now has an average of five SKUs in 800 Sears stores, will appear in the seasonal Sears fitness catalog, and in Sears ads later this fall. In addition, Nautilus is now averaging about four to five SKUs at Dick's Sporting Goods, compared to one to two a year ago. In 25 Dick's stores, it is testing a larger display with 11 SKUs in a display called "Fitness that Fits." At specialty, the company said sales were up 37 percent compared to a year ago to $17.8 million.

For the fourth quarter of 2005, Nautilus estimates that net sales will grow approximately 25 percent compared to the same period last year. Meanwhile, fourth quarter 2005 earnings are expected to grow to $0.44 to $0.48 per diluted share, up from $0.42 per share during the year ago quarter when it achieved 50 percent earnings improvement. Nautilus said it expects its full year 2005 earnings to be $1.06 to $1.10, on annual sales of around $660 million.

Analysts, on average, currently expect Nautilus to earn $0.56 per share for the fourth quarter, on sales of about $230.6 million. For the year, analysts call for a profit of $1.18 per share, on $692.6 million in revenue.

Nautilus also reported that it repurchased approximately 190,000 shares of stock during the third quarter at an average price of $23.75, as part of a $100 million buyback authorized by its board earlier in the year. Also, the board declared a regular quarterly dividend of $0.10 per common share, payable Dec. 9, 2005, to stockholders of record as of Nov. 20, 2005.

"We're doing everything we can to affect the controllables," said Tim Hawkins, chief customer officer. "We're going to continue to hold our plan."

The company did say that it continues to consider the acquisition of a nutrition company, in response to a question from an analyst, with two being looked at closely. A few years ago, Nautilus had a relationship with Champion Nutrition that included options to buy, but they have not been finalized although Champion has continued to have a presence in Nautilus booths at past shows.

Nautilus closed on Nov. 2 at $18.30 on the New York Stock Exchange, up $0.19 from the day before.

adidas reports Q3 earnings
As it gets closer in its bid to takeover Reebok, adidas-Salomon (ADS.DE) reported a third-quarter net profit increase of 20 percent and that earnings for the year would increase a like amount.

The company earned Euro 215 million (USD $259 million), or Euro 4.36 (USD $5.26) a share, compared with Euro 179 million (USD $216 million), or Euro 3.92 (USD $4.73) a share, in the year-ago period. Excluding results from its discontinued operations -- particularly its Salomon unit, which it sold to Finland's Amer Sports Corp. earlier this year -- the company earned Euro 209 million (USD $252 million), up 28 percent, and beat analysts' expectations of Euro 190 million (USD $229 million). Sales rose 9.4 percent to Euro 1.92 billion (USD $2.31 billion) from Euro 1.76 billion (USD $2.12 billion) in 2004.

This is also the last quarter that includes results from Salomon, which was sold to Amer Sports in a deal that closed Oct. 20.

adidas said it is now seeing a high-single-digit increase in revenue on a currency neutral basis due to increased expectations in North America, and said net profit should rise at least 20 percent in 2005 and by at least 10 percent in 2006.

adidas said that it was confident its planned $3.8-billion-takeover of rival Reebok would lead to an earnings jump despite a sales slump at Reebok in its third-quarter sales. CEO Herbert Hainer reiterated the merged group would see double-digit net income growth in the medium term, while sales are expected to grow by a mid-to-high single digit percentage.

(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. 3.)

Sara Lee profits drop 81 percent
Sara Lee Corp. (NYSE: SLE) posted a drop in first-quarter profit of 81 percent hurt by declining sales and restructuring charges. Among its numerous brands is Champion, which has a license agreement with Lamar Health, Fitness & Sports for Champion-branded equipment.

Net earnings for the quarter ended Oct. 1 sank to $67 million, or $0.09 per share, from $352 million, or $0.44 per share, a year earlier. The company said impairment charges, costs from restructuring and closing businesses reduced earnings by about $0.25 per share. Excluding those items, earnings would have been $0.34 per share, exceeding the consensus estimate of analysts of $0.26 per share.

Revenue totaled $4.31 billion, down 2 percent from $4.4 billion a year earlier and well short of the consensus target of $4.64 billion. Sales volume fell 3 percent.

Brenda Barnes, who took over as CEO in February and was recently given the additional title of chairman, acknowledged the operating results were subpar. "We knew this would be a tough quarter as we realigned our organization, began to change the culture, moved employees and changed jobs," she said of the company, which is in the process of selling assets and relocating to its new corporate headquarters in the suburb of Downers Grove, Ill. "The worst is behind us now."

Leaving its guidance unchanged with charges factored in, Sara Lee forecast second-quarter earnings of $0.25 to $0.30 per share and fiscal 2006 income of 97 cents to $1.07 per share.

In the day's trading on the New York Stock Exchange, Sara lee's stock was as high as $18.49 and as low as $17.64, to close at $17.87. The stock, though, is still down from its 52-week high of $25 in January, before it announced its restructuring.

Everlast gets Q3 net income in the black
Net revenue for Everlast Worldwide (Nasdaq: EVST) was up 13 percent in the third quarter to$12.6 million over last year's $11.1 million.

The company attributed the increase in net revenues to net sales from continuing apparel operations and sporting goods, which increased 13 percent to $9.8 million compared with $8.6 million in the third quarter of 2004. Net licensing revenues were also up 13 percent to $2.8 million compared with $2.5 million in the prior period.

The company posted a 443 percent increase in operating income from continuing operations to $1.2 million, while earnings before interest, taxes, depreciation and amortization ("EBITDA") increased to $1.6 million compared with $21,000 reported in 2004. The increase in operating income and EBITDA was largely a result of a reduction in operating expense ratio of 28.2 percent compared with 40.5 percent in the 2004 comparable period.

Net income was $391,000, or $0.12 per basic share, compared to a net loss of $134,000, or $0.04 loss per basic per share, in the 2004 comparable period. Net income, after $216,000 in costs associated with the discontinued women's business component, was $175,000, or $0.05 per basic share, compared with a net loss of $249,000, or $0.08 per basic share in 2004.

"I expect revenues from our licensing, apparel and sporting goods equipment businesses to continue to achieve double-digit increases through existing merchandising and marketing strategies, along with our recently announced continued participation in the second season of The Contender reality television show," said George Q Horowitz, chairman and CEO. "The cost containment programs put in place, along with these anticipated revenue increases, will allow us to show improved operating margins in the quarters ahead."

Under Armour to sell IPO shares
Under Armour said it plans to sell 12 million shares priced between $7.50 and $9.50 per share in an initial public offering. The company has applied for a Nasdaq listing under the symbol "UARM."

It will sell 9.5 million shares and selling stockholders plan to sell another 2.5 million shares. The IPO could raise as much as $114 million in proceeds based on the high end of the estimated price range.

U.S. footwear bolster Puma's Q3
Puma's third-quarter profit rose 11 percent as demand for its sports shoes surged in the United States, it said.

The company earned Euro 91.9 million (USD $110.6 million), or Euro 5.70 (USD $6.86) a share, in the quarter, compared with Euro 82.4 million, or Euro 5.14 a share, in the year-ago period. Analysts had estimated a profit of Euro 89.4 million (USD $107.7 million).

With U.S. and European markets leading the way, Puma's sales during the third quarter rose 16.4 percent to Euro 536.4 million (USD $645.9 million) up from Euro 460.9 million last year.

Demand for its clothes and shoes rose in all its key markets, it said, including Europe and Asia, but rose 63.6 percent year-on-year in the United States to Euro 137 million (USD $164.96 million), with footwear accounting for nearly 49 percent of the revenue. In Europe, sales rose 5 percent to Euro 346 million (USD $416.6 million), while in Asia and the Pacific Rim, sales rose by 11.6 percent to Euro 54 million (USD $65 million) in the quarter.

Puma raised its full-year earnings outlook, saying it now expects high single digit percentage growth in contrast to earlier projections of "mid- to high-single digit" growth. The company said it expects its 2005 net profit to reach Euro 270 million (USD $325.1 million) on consolidated sales of Euro 1.7 billion (USD $2.05 billion) and expects earnings per share of between Euro 16 and Euro 17 (USD $19 and $20).

(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. 4.)

Same-store sales on the rise for Foot Locker
Foot Locker (NYSE: FL) reported that third-quarter same-store sales rose 2.7 percent on strong sales at its U.S. stores, but lowered its outlook to accommodate hurricane charges. It attributed the same-store sales rise to mid-single digit growth at U.S. businesses, led by Footaction and Champs Sports.

Total sales rose 3 percent to $1.41 billion from $1.37 billion for the quarter. Excluding currency fluctuations, sales rose 2.6 percent

The company estimates third-quarter earnings from continuing operations of $0.39 to $0.41 per share, down from $0.42 to $0.44, on hurricane-related and other charges of $0.03 per share. Analysts estimate earnings per share of 49 cents.

Amer told Franklin Resources owns nearly 5 percent capital
Finnish Securities notified Amer Sports (AMEAS.HE) that the total number of shares held by the mutual funds and separate accounts managed by the affiliated investment adviser of Franklin Resources represents 4.73 percent of the company's share capital and voting rights. Amer's capital consists of 71,419,860 shares in issue.

Costco reports October sales
Costco (Nasdaq: COST) said net sales rose 12 percent to $4.26 billion in the four weeks ended on Oct. 30. U.S. same-store sales were up 10 percent. Excluding a 30 percent year-over-year jump in gasoline prices, they rose 8 percent. International same-store sales rose 9 percent, helped by a strong Canadian dollar. Excluding the foreign currency benefit, the increase was 6 percent.

Total comp sales up 4.3 percent for Wal-Mart in October
Wal-Mart Stores (NYSE: WMT) reported total net sales of $23.255 billion for October. Total same-store sales were up 4.3 percent. The Wal-Mart division posted $15.397 billion in sales, with a same-store sales increase of 3.9 percent. It estimates U.S. comparable sales for November to be in the 3 percent to 5 percent range.

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