Outdoor financials: Gander Mountain files for IPO, plus Timberland, Russell, Wolverine, Phoenix, K2

Outdoor financials: Gander Mountain IPO closes at record high, Timberland Q1 boosted by international market, K2 first-quarter earnings exceed forecasts, Royal Robbins' parent reports first-quarter earnings, Wolverine World Wide earnings per share up 66.7 percent, Shareholder majority approves Russell reincorporation, one dissents.
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Gander Mountain IPO closes at record high
After more than four decades in specialty outdoor, hunting and fishing retail, Gander Mountain closed its initial public offering on April 26, selling 6,583,750 shares of its common stock at $16 per share.

Initially, Gander Mountain had planned to offer 5 million shares from $14 to $16 a share on April 21, but after strong interest, it increased the number of shares to 5.725 million at the high-end price of $16 a share. In first-day trading on the Nasdaq under the "GMTN" symbol, the shares closed the session at $22.02, which was $6.02, or 37.6 percent, above the initial public offering price set the day before. It was the best first-day performance by a non-technology IPO since student loan company First Marblehead rose 38.4 percent last Oct. 30.

Gander Mountain said $58.5 million of the proceeds will go toward paying debt under its credit facility, and another $9.8 million to pay debt owed to Holiday Companies. Members of the Erickson family control Gander Mountain and the Holiday Companies.

The Minneapolis, Minn.-based, company has 67 stores in nine states -- Illinois, Indiana, Iowa, Michigan, Minnesota, New York, Ohio, Pennsylvania and Wisconsin -- and is the first of several specialty retail companies going public this year. Cabela's filed recently to raise up to $230 million, and Bass Pro Shops is expected to file for an offering within the next year.

Sporting goods stocks have done well this year, with the average sporting goods stock up 9 percent for the year, outpacing the returns of all the major indexes, according to data from the stock-research firm Fulcrum Global Partners LLC in New York. Unfortunately, Gander Mountain's most closely related business, Galyan's Trading Co., is having a rough time of it and dragging the average down with its 17 percent decline.

Founded in 1960 as a catalog operation, Gander Mountain became a store-based operation after the owners of the Holiday Stationstore chain of convenience stores and gas stations acquired the company in 1996. At the same time, Gander Mountain sold its catalog business to Cabela's. After that, it hit a rough patch and consistently lost money. Things improved in the last couple years and in its 2004 fiscal year, ended Jan. 31, it reported net income of $1.5 million on revenue of $489.4 million, according to offering documents filed with the Securities and Exchange Commission. That compares with a loss of $12.2 million on sales of $357.4 million in the prior fiscal year.

Banc of America Securities LLC and William Blair & Company, L.L.C. acted as joint book-running managers of the offering and Piper Jaffray & Co. acted as co-manager of the offering. All of the shares were sold by Gander Mountain.

Timberland Q1 boosted by international market
The Timberland Company (NYSE: TBL) reported April 21 record revenue and profit results in the first quarter, driven by strong performance across global markets. Its first-quarter net income was $31.1 million with diluted earnings per share (EPS) of $0.87, compared with first-quarter 2003 net income of $19.3 million and diluted EPS of $0.53.

First-quarter revenue increased 18.7 percent to $321.8 million, driven by strong gains across global markets. International results (+28.7 percent or +14.6 percent in constant dollars) reflected double-digit constant dollar sales gains in Europe and Asia and continued progress in key markets such as Canada. The double-digit constant dollar sales gains in Europe, Asia and Canada came from efforts to enhance its premium integrated brand positioning in those regions, according to the company.

U.S. revenue growth (+9.0 percent) benefited from strong wholesale results (+7.1 percent) and continued gains in Timberland's consumer direct business (+15.1 percent on a 6.1 percent comparable store sales increase). Overall revenue growth benefited from favorable foreign exchange rate changes -- which added $18.9 million (or 7.0 percent) to first-quarter revenue -- and from additional selling days in Q1 2004, compared with the prior year.

Global footwear revenue expanded 23.6 percent to $239.4 million, driven by strong growth in men's and women's casual, boots and kids' categories. Global apparel and accessories revenue grew 7.6 percent to $79.3 million, driven by gains in Asian and U.S. Timberland brand apparel, which offset constant dollar declines in European and U.S. Timberland PRO series apparel.

"We believe that we are on track for solid performance in 2004 and are targeting mid to high single-digit revenue growth for the balance of this year," said Jeffrey B. Swartz, Timberland's president and CEO.

Timberland ended the quarter with $160.6 million in cash and no debt outstanding while driving improvements in annual inventory turns and receivables management. Timberland's annualized return on capital reached 32.1 percent.

K2 first-quarter earnings exceed forecasts
K2 Inc. (NYSE: KTO) reported record sales for the first quarter ending March 31, 2004, with revenues up 76.6 percent over 2003 numbers to $277.2 million from $157.1 million. On a comparable basis, K2 sales increased 8 percent over 2003, from $149.7 million to $161.1 million.

During the conference call with investors and press, company CEO Richard Heckman pointed out that gross margins were up, net income was up and that the company's recent acquisitions were "tucking into existing platforms and fit perfectly into our existing distribution plans."

Heckman was very excited about the current success of K2's newly introduced merchandiser program, and announced that the company had already placed 50 merchandisers in 31 markets.

"We are finding an interesting dynamic that we did not anticipate between our people and the store managers which is manifesting itself in our shelves not being empty and product getting out of the backroom more quickly where it can be sold and into the backroom more quickly where it can be restocked," said Heckman.

While pointing out that inline skate sales were still "crappy," Heckman added that the company is anticipating the second quarter will be flat and that because of savvy acquisitions, the company is now a solid "first, third and fourth quarter company." He pointed out the company continues to pursue appropriate acquisitions and noted that K2 would certainly be seeking companies that would bolster second-quarter performance numbers if possible. The company is projecting sales for the year to be in the range of $960 million.

K2 has, as a result of all the 2003 and several recent 2004 acquisitions, reclassified its business into three segments or divisions: Marine and Outdoor, Team Sports, and Action Sports.

In Marine and Outdoor, sales were up slightly to $98.8 million thanks to Shakespeare and Stearns. Heckman noted that Stearns' new children's PFDs had sold 275,000 units.

Action Sports, which includes skis, snowboards, bikes, skateboard and paintball, sales increased 55.2 percent to $84.5 million due to double-digit growth in ski and snowboard sales, a whopping 72 percent increase in skateboard shoes sales, and the acquisition in late 2003 of Tubbs and Atlas snowshoes and Brass Eagle. Heckman stated that preseason bookings for ski and snowboard products were up over last year, which bodes well for K2's sales in the category again heading into the upcoming winter season.

Royal Robbins' parent reports first-quarter earnings
Phoenix Footwear Group (Amex: PXG), owner of Royal Robbins, announced consolidated results for the first quarter ended March 27, 2004, and reported a 102 percent net sales increase for the quarter of $18.6 million from 2003's $9.2 million. Of this increase, $7.7 million is attributable to acquired brand revenue associated with the acquisitions of H.S. Trask, Ducks Unlimited and Royal Robbins, which occurred during the second half of 2003. Net sales for the current period include $185,000 of royalty income compared to zero for the prior year period.

The company's financial results for the first quarter of 2004 resulted in net income of $1.2 million, compared to $375,000 in 2003. Net income per diluted share was $0.24 for the first quarter, while the year before it was $0.10. Gross margin for the first quarter was 44 percent, comparable to the first quarter of 2003.

The per share amounts for the 2004 first quarter include the effect of the 699,980 and 71,889 shares of newly issued common stock associated with the H.S. Trask & Co. and Royal Robbins acquisitions, respectively, which occurred during the second half of 2003.

"We are beginning to see the benefits of the investments we made in our business during the past year," said James Riedman, chairman and CEO. "Our first-quarter results highlight our initial success in integrating recent acquisitions and driving sales growth across our broadened portfolio. Our utilization of a shared infrastructure and disciplined approach to cost controls and inventory management allowed us to convert this revenue gain into profits. As a result, both our operating income and net income more than tripled during the quarter, demonstrating the effectiveness of our model."

Wolverine World Wide earnings per share up 66.7 percent
Merrell-parent Wolverine World Wide (NYSE: WWW) achieved record revenue for the first quarter of 2004 totaling $224.9 million, a 17.4 percent increase over first quarter 2003 revenue of $191.5 million. Released on April 21, earnings per share during the first quarter of 2004 grew to $0.30 per share compared to $0.18 per share reported for the same quarter last year, an increase of 66.7 percent.

Wolverine also reported significant gross margin improvement during the quarter, growing 38.0 percent, a 190 basis point improvement over first quarter 2003. According to the company, this improvement partly resulted from global synergies in the Merrell business, a leading sales and profit driver. In the past several quarters, Wolverine has been expanding its Merrell business in Europe. Merrell posted double-digit percentage sales gains across all regions in the first quarter, with the strongest increase in Europe.

The company's order backlog was up approximately 12 percent at the close of the first quarter of 2004 compared to the prior year. Based on the strength of 2004's first quarter, its order backlog and anticipated re-order business for the remainder of the year, Wolverine is increasing its 2004 estimates. It expects revenue to range from $960 million to $980 million, up from its previous estimate of $945 million to $965 million, with earnings per share to range from $1.44 to $1.52, up from the $1.37 to $1.43 estimate.

"All of our major branded groups contributed to the company's record profit increase for the first quarter," Timothy O'Donovan, Wolverine's president and CEO, said. "Our strong performance in the quarter was driven by the company's concentrated efforts to capitalize on the global strength of our brand portfolio and strong consumer enthusiasm for the company's products."

Shareholder majority approves Russell reincorporation, one dissents
Russell Corp. (NYSE: RML) announced on April 23 that shareholders approved a proposal to change its state of incorporation from Alabama to Delaware, known for laws that are highly accommodating for businesses, at its annual meeting held two days prior. More than 22 million shares, representing about 69 percent of the outstanding shares, voted in favor of the measure. However, right before the meeting, Russell received a written notice of dissent from an entity that holds approximately 10 percent of its outstanding shares. Under Alabama law, shareholders may dissent from a reincorporation merger prior to the vote and, under certain circumstances, may obtain payment from the company for their shares. Russell said it is studying the situation and determining whether to proceed with the reincorporation merger, but there is no assurance that the reincorporation merger will occur.

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