Lookout Cabela's and Bass Pro…here comes UFA Co-operative? - SNEWS

Lookout Cabela's and Bass Pro…here comes UFA Co-operative?

It was just four months ago that Canadian-owned UFA Co-operative Ltd. acquired Wholesale Sports, an Alberta, Canada-based, privately owned outdoor hunting, fishing and camping goods chain with six stores throughout Western Canada and a strong e-commerce and mail-order business. While that particular transaction didn't even register in the United States, the announcement on Nov. 26 that UFA is now intent on acquiring a majority share of Utah-based Sportsman's Warehouse, with 67 stores in 29 states, buzzed through the hunting and fishing blogosphere on both sides of the border like a swarm of bees.
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It was just four months ago that Canadian-owned UFA Co-operative Ltd. acquired Wholesale Sports, an Alberta, Canada-based, privately owned outdoor hunting, fishing and camping goods chain with six stores throughout Western Canada and a strong e-commerce and mail-order business. While that particular transaction didn't even register in the United States, the announcement on Nov. 26 that UFA is now intent on acquiring a majority share of Utah-based Sportsman's Warehouse, with 67 stores in 29 states, buzzed through the hunting and fishing blogosphere on both sides of the border like a swarm of bees.

According to a statement on the UFA website (click here to read), the acquisition which is "subject to the completion of negotiations and a comprehensive due diligence process" will boost UFA's annual revenue by $800 million. UFA reports that it will eclipse $2 billion in revenue for 2008, up from $1.8 billion in 2007.

In the meantime, both UFA in its website statement and a memorandum by Sportsman's Warehouse sent to vendors and employees indicate UFA has injected a significant (though what significant means is not specifically defined) amount of cash into Sportsman's Warehouse to keep its shelves stocked through Christmas.

Signs began to emerge early in 2008 that Sportsman's Warehouse was in a spot of trouble with underperforming retail locations and a weakened cash position amidst a challenged economy -- not long after GE Corporate Lending announced it had provided the retailer with a $325 million asset-based credit facility on Dec. 26, 2007. A new Sportsman's Warehouse store that opened in June 2008 in Victorville, Calif., abruptly shut its doors on Oct. 15, laying off as many as 85 employees. Earlier in the year, SNEWS® was told the company also shuttered a number of stores in Texas, one in Wisconsin, one in Arizona and one in Michigan. The Michigan store in Allen Park had only opened in November 2007 before it was shut down in July 2008. Insiders told us that inventory from that store was packed up and shipped to other retail locations.

A new store in Visalia, Calif., opened in late October, but insiders tell us it was stocked with merchandise transferred from the Victorville store that had just closed. A new store also just opened in Las Vegas on the heels of another Las Vegas store opening earlier in the year, and there are plans, we have learned for other store openings in other states in 2009.

Insiders tell us that Sportsman's Warehouse needed the injection of cash from UFA to get out from under the specter of low stock levels in its stores as it went into the holiday season. Low stock levels, we were told, were the result of nervous and careful vendors restricting inventory deliveries because of credit holds or slow payment of invoices by Sportsman's Warehouse.

When contacted by SNEWS, Stu Utgaard, CEO and chairman of Sportsman's Warehouse, was adamant the company was basically very healthy, though, he didn't deny cash-flow troubles.

So how did it come to this, with Utgaard losing majority control of his company? Simple mathematics. While the credit facility from GE was for a healthy $325 million, since it is an asset-based credit line, as inventory levels began falling, so did the available cash necessary to buy new inventory. And, that new inventory was direly needed to keep stock levels up in existing stores and stock the new stores the company opened -- 12 since November 2007 with 10 still open and doing very well, Utgaard told us. In addition, tightening credit markets due to the faltering economy led to bank actions that cost the company about $6 million and tightening credit restrictions by vendors cost the company another $35 million, he said. Add to that six underperforming stores, which are now closed (Victorville lost $250,000 a month for the four months it was open, we have learned), and you have the recipe for a very unsavory dish.

Utgaard launched his business in Utah 12 years ago with a single 18,000-square-foot store and 55 employees, he said. Today, the retailer has over 5,500 employees with 2008 sales and earnings for the company at an all-time high, he told SNEWS. It's certainly been a heady ride.

Utgaard's future with the company is not clear at this time. He told SNEWS that he has yet to meet Dallas Thorsteinson, president and CEO of UFA, but he has been told that his services as a CEO and president for the company likely are not needed. "They want me to serve as a consultant for the next year…we shall see," he said. As to what he will do should his days end at Sportsman's Warehouse, Utgaard said, without hesitation, "Start another business."

In a subsequent conversation with Thorsteinson, he did allow that while Utgaard was not out of the running to stay on as the leader at Sportsman's Warehouse, it was most likely a change would be made.

"From what we now know about the current management team, they are youthful and appear to be energized and very talented and we like what we see," said Thorsteinson. "However, it is important to realize that as a co-op, we are a bit funny about democratic control, which is why we are acquiring a minimum 80-percent share of Sportsman's Warehouse to be sure the owners of our co-op are clear we have full control strategically over the business, and in all likelihood, that also means that there will be a new leader of the business that we choose. That is no disrespect to Stu and the obviously very successful business he has built and led."

As for what the future holds, Thorsteinson told SNEWS that in all likelihood, Wholesale Sports and Sportsman's Warehouse would be rebranded to reflect a unified North American outdoor adventure sports retail entity. "Our brand people are all excited right now, and it is pretty certain our strategy will be to unify under one brand strategically -- and for now, let's assume that will be Sportsman's Warehouse," said Thorsteinson. "We will also look to take advantage of the obvious synergies and consolidate operations where it makes sense.

"Additionally, in our naming, we will likely start putting an endorsement next to the brand name," said Thorsteinson. "Something along the lines of 'a UFA operated company' so that we have the opportunity to introduce ourselves to the U.S. customers in case we might want to bring other business stateside."

Just who is UFA? Founded in 1909, UFA Co-operative Ltd. is based in Alberta, Canada, and committed to serving rural communities by providing its customers and members with products and services they need to live, work and play in a rural environment. It currently has product and service offerings in retail operations, petroleum and construction with more than 35 Farm and Ranch Supply stores, over 120 Petroleum locations, and more than 110,000 members. Its website stated: "We recognize that our ability to serve our traditional, core agriculture members and customers depends, in part, on diversifying beyond our traditional businesses."

And it is the synergy with that mission -- of providing its customers and members with product and services they need to live, work and play in a rural environment -- that makes the acquisition of Sportsman's Warehouse so ideal, said Thorsteinson.

"One of the things to know about UFA is we do not really do anything for the short term. We are more Warren Buffet in our style of both long term and acquiring businesses that have synergies," Thorsteinson told us. "We really like synergies we see between rural agricultural business and value for land and recreation and that of an outdoor adventure business and how rural adventure enthusiasts also get involved with the land. We believe the outdoor retail business will serve to enrich the greater rural experiences of our members and customers."

While Thorsteinson did not rule out other retail-like acquisitions as they make sense to the UFA mission, he did state unequivocally that UFA was not interested in acquiring and expanding its business scope into the manufacturing realm.

SNEWS® View: While to some it may seem like lunacy to step so boldly into the U.S. retail market in today's economy, for those with a strong cash position able to make such bold moves, golden opportunity is the flip side of that judgment coin. Consider that Sportsman's Warehouse has a very passionate and loyal customer and that in the rural and urban markets where it is well-established, average per square foot retail sales numbers are well above the national norm for comp stores, we've been told. With a more careful eye toward expansion plans to ensure that albatross stores do not weigh down the flight, UFA has just become a North American retail powerhouse with nearly $1 billion in annual sales.

Watch out Bass Pro, G.I. Joe's, Cabela's and, yes, perhaps even REI and EMS to some extent.

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