|Weekly News 5/20/05
MAY 23, 2005 --
Honolulu Marathon Offers Booths For Vendors
The Honolulu Marathon, which has long since begun pre-registering runners for the 2005 race, has now also put booths for its December expo on sale, according to Hawaii's Pacific Business News.
For the second year the expo will be held at the Hawaii Convention Center, according to the paper. It will run from Dec. 7 through Dec. 10. Booth sponsorships vary from $500 to $2,000, based on position. For separate fees, vendors may put merchandise into the "goody bags" given to all runners and walkers.
Last year some 30,000 registrants for the Honolulu Marathon and the Race Day Walk passed through the expo to pick up their race packets. Actual attendance may have been double that since relatives and friends were allowed to accompany the registrants.
This year's expo, free to the public, will cover 148,122 square feet and include 273 booths. The 10x10-foot booths will feature seminars, a marathon museum and appearances by international sports celebrities.
Hawaii's Pacific Business News noted that The Honolulu Marathon is the largest sports event of the year in Hawaii and is routinely one of the top five marathons in the world, bigger than the Boston Marathon or Washington, D.C.'s Marine Corps Marathon. It is also Hawaii's single biggest December visitor draw.
SmartWool Hires Marketing Chief
SmartWool hired Carol Davidson as its new marketing director. Davidson was formerly a creative director at DDB-Seattle. She came to SmartWool with 20 years of marketing experience, the majority of which has been spent as creative director with experience ranging from the Nordstrom Product Group to K2, The North Face, McDonald's and even with SmartWool during her tenure at BrandLab. She will be responsible for development
and implementation of tactics and marketing strategy to drive overall brand communications and key seasonal initiatives.
Champs And Lady Foot Locker Shine In FL
Foot Locker reported earnings rose 20.8% to $578 million. Sales grew 16.1 percent to $1.38 billion, and comparable-store-sales rose 2.6 percent.
Foot Locker stressed that its 37¢ EPS was at the high end of its guidance. But it was still a penny shy of very optimistic analysts. They did not consider the effect of a shoe donations made for tsunami relief. That cut a penny off the top.
A number of factors were cited for the improvements. In the US market, US revenues were boosted by the sale of more marquee footwear, which drove up ASPs. Jordan product remained as hot as ever. FL sold out the Adidas 1 limited allocation. (Adidas sold 50,000 pairs, as compared to worldwide production of 110 million pairs.) The company noted
that lower-priced Classic product “clearly hit the wall.” Store traffic was also up.
Champs and Lady Foot Locker were cited in particular for their contributions. Champs produced a strong double-digit gain and an “exceptional” operating profit. Higher marquee shoe sales contributed. Private label and branded apparel were up low-single digits and offset the decline in licensed apparel. Champs is on the way to $1 billion in yearly sales. Its operating profit is in the high-single digits, but the company expects double digits in '06.The company said that Champs is gaining suburban market share.
Footaction is performing ahead of schedule. Apparel and accessory sales exceeded plan.
Lady Foot Locker was cited for in gains in sales and profitability after some “challenging” years. The turnaround, the company said, began last fall and the momentum continued into spring of '05. There was an uppermid-single-digit sales increase, helped along by increased branded and private label apparel/accessories.
Kids Foot Locker sales were up low-single digits, and Serra believed the chain is in position for a strong year. He expects a high-single digit operating margin this year.
Foot Locker doors were up low-single digits. The possibility of operating profit improvement at this unit “are very promising,” CEO Matt Serra said.
Footlocker.com/Eastbay generated a lowsingle digit increase. Sales were affected by the declining licensed apparel business. nevertheless, it maintained its high profit margin. This was helped by a shift from catalog shopping to more profitable Internet shopping.
Nevertheless, the catalog remains an important tool to drive Internet sales. Going forward, this unit's performance should look better in that the company is anniversarying the decline in licensed apparel sales. FL is in the process of rolling out new and enhanced web sites next month. In addition, it will have more marquee footwear available, particularly in the fall.
International results were mixed. FL Canada and FL Asia/Pacific were performing well, while Europe remains a challenge. The Canadian operation is expected to produce mid-single digit sales gains and record doubledigit operating profit improvement. In Europe, FL is introducing more marquee products. It is declining to gain sales at the expense of profits. France and the UK are tough markets, while Italy and Germany are fine. The discounting in the UK is “tremendous.”
The company's inventory position seemed to bother analysts. Inventory was pegged at $1.320 billion, up from $1.051 billion. Three factors were cited: Foreign exchange rates; access to to additional marquee products; and inventory to support Footaction. Excluding the exchange rates and Footaction, the company's inventory was up only 11%. Serra said the inventory is “very, very clean,” and the company had a habit of increasing its inventory at a higher rate than sales growth in order to have a good in-stock position. The Footaction acquisition is performing above expectations, as well, the company said. It's done so well that it will add 12¢ to FY05 EPS, up from the previous guidance of 10¢.
Dick's Conversion Of Galyan's Completed Three Months Early
Dick's Sporting Goods could brag in its 1Q report that it had completed the integration of Galyan's three months ahead of schedule, not an easy boast considering DKS had no experience in such an integration.
CEO Ed Stack praised his team: “A terrific job was done by our information systems group, merchants and store operations in completing the conversion of systems, the re-merchandising of the assortment and reconfiguring the stores. We have completed the Galyan's conversion three months earlier than planned. All of the former Galyan's stores have the look and feel of a Dick's Sporting Goods store. All departments throughout the company worked tirelessly to complete this conversion while delivering on their core responsibilities.”
The conversion, re-merchandising and grand reopening of the former Galyan's stores is essentially complete. DKS expects to be operating the former Galyan's doors with the same merchandise assortments, financial discipline and customer service expectations as the rest of the chain. The former Galyan's stores will be included in the comp-store base in 2Q.
The Galyan's doors are almost completely re-merchandised with DKS' private label products. Private label is 10.1% of sales, and the goal remains 15% over the next few years. DKS has a particularly successful Walter Hagen golf collection. It has the only 460 cc club with adjustable weights on the market.
DKS continues to expect total merger integration and store closing costs of approximately $70 million, of which $20 million was incurred in '04. It estimates future merger costs of $5.5 million in 2Q0, and $39 million pre-tax in FY05, of which $32.5 million was incurred in 1Q05. The balance of the costs, which relate to future lease payments on closed stores, will be incurred in '06 and beyond.
Merger-integration and store-closing costs primarily include the expense of closing Dick's stores, advertising the re-branding of Galyan's stores, recruiting, system conversion costs and duplicate costs such as corporate occupancy.
Looking at 1Q results, the company lost $7.3 million, which includes after-tax integration costs of $19.5 million. Excluding these costs, DKS would have had net income of $12.2 million. The results beat Wall Street estimates. In the prior year, it earned $10.6 million.
Sales jumped 56.7% to $570.8 million.
The company expects these 2Q results:
* EPS of 43¢-45¢ are anticipated excluding aftertax merger-integration and store-closing costs of approximately $3.3 million, or 37¢-39¢ per share, including merger expenses. This compares to 2Q04 GAAP EPS of 34¢, which includes only the results of Dick's and not Galyan's. Proforma, combined company EPS was 21¢.
* Comp-store sales are expected to increase approximately 1-2%.
* DKS expects to open four new stores and close the last store as a result of the conversion.
During the FY, DKS expects to open 25 new stores, while closing six stores (five Dick's and one Galyan's) due to overlap.The company said its estimates for 2Q and the FY were based on comp-store improvements of only 1%-2%. This greatly bothered some analysts on the conference call. But management admitted that while it fills in existing markets with store conversions and new stores, cannibalization occurs. Comps may be negatively affected, but the stores' profitability will be substantially enhanced due to synergies. DKS said it is more concerned with profitability of its doors rather than with comp-store gains. They noted that toward the end Galyan's was hitting comp goals, but at the cost of profits in that it had to close out so much merchandise.
Gross margins for the company have improved due to lower corporate head-count and reduced advertising expenditures.
The company has made up with mid what to do with wintersports. The Dick's stores had not been in the ski business, which had been a major category for Galyan's. Next season, downhill equipment will be found in 35 doors. they are predominantly former Galyan's banners and some Dick's banners in the Northeast. In addition, there will be a much heavier emphasis on snowboards in relevant markets going forward. Dick's is also exploiting a better job Galyan's did with sandals and boots. DKS is rolling out a larger assortment of sandals in the Dick's stores this spring. Water sports, another Galyan's expertise, will be expanded in both banners.
Asked about the impact of the outdoor megastores, the company said it is satisfied with its current strategy. When a giant outdoor store opens, DKS loses sales in the category for a year, but sales do return. Bass Pro Shops and Cabela's were praised as the best operators in that category, having the best stores and management.
Hibbett 1Q EPS Soar 39.4%
MAY 20, 2005 -- Hibbett Sporting Goods' 1Q net sales increased 19.0% to $114.8 million. Comp-store sales increased 8.2%. Net income increased 33.9% to $10.7 million compared to restated net income of $8.0 million. EPS increased 39.4% to 46¢ compared to restated earnings of 33¢ in the prior year.
Hibbett opened 15 new stores and closed four during 1Q, bringing the store base to 493 in 22 states. The company plans to open a net of approximately 73 new stores in FY06, including a net of 16 to 19 stores in 2Q06. CEO Mickey Newsome said that the stores opened in 4Q and 1Q are exceeding expectations. The company's decision to hire a lease-negotiation team has paid dividends. The company is already ahead of last year by more than a dozen leases. By next year, the team will be expanded to eight.
Newsome stated, "We are pleased to exceed the $100 million mark in revenue for the second consecutive quarter. Footwear and team equipment led the way once again with double-digit and high single-digit increases, respectively. The performance footwear category continues to show positive momentum with the strongest increases in ladies and youth. Although the apparel category remains below prior-year periods, we saw several bright spots with ladies activewear, technical apparel and urban brands.
"We have remained focused on translating this continued sales growth into much higher earnings growth. The first quarter is another example of our continued improvement in operating margin. With an approximate 150-basis point increase to 14.6% of sales in the quarter, we benefited from improved product margin due to increased sell through and a reduction in aged inventory. We were also able to again leverage occupancy, operating and administrative costs."
Hibbett's licensed business has been soft. It is already reducing NBA apparel for next fall. 1Q sales of pro apparel were down double digits. The company said it could survive a lockout. Collegiate apparel was off low-single digits. The company's fortunes with the category depend on the success of local teams. The company did note that collegiate apparel is over-distributed. While it works with vendors who keep a lid on distribution, the availability of other products affects Hibbett's sales. Success of branded apparel has offset the decline in licensed. The category was up double digits. Women's was led by Nike, Adidas, Under Armour and other technical products. Men's was led by Under Armour and Nike. The company does a successful urban business with specialty brands such as ENYCE.
Footwear was up double digits. Leading brands are Nike, Asics, K-Swiss and Reebok. There is still a good Classics business at Hibbett's, especially in urban markets.
Equipment sales rose high-single digits. Top sellers include Easton bats and Nike baseball gloves.
Inventory is up 11.3%, but is down about 2% on a per-store basis. The company emphasized its inventory is very clean. Hibbett is sitting on $60.9 million in cash vs $44.4 million a year ago. It could have as much as $90 million year-end.
Asked by an analyst what keeps him up at night, Newsome said it was the hiring and training of good store managers. At the time of the call, 20 new and potential managers were in headquarters for training. This is an ongoing program.
For 2Q, Hibbett expects to report EPS of approximately 17¢-21¢ and a comp-store sales increase in the mid-single-digit range compared to restated earnings of 12¢. Guidance for FY06 is estimated at approximately $1.32 to $1.38 and a comp-store sales increase in the mid-single-digit range.
Newsome concluded, "Based upon the strong growth in earnings and comparable store sales in the quarter, we believe fiscal 2006 will be another record year for Hibbett. Footwear and team equipment are posting very positive trends because of exceptional product, presentation and customer service. With the anniversary of the decline in licensed apparel in the second quarter, we expect apparel to begin contributing to our overall performance in the second half of the year along with continued year-over-year improvement in gross and operating margins from very efficient logistics and store operations."
In August 2004, the board authorized the repurchase of up to $30.0 million of the company's common stock. In November 2004, the board increased this maximum authorization to $40.0 million. During 1Q, Hibbett repurchased 16,000 shares bringing the total shares repurchased to 861,400 shares for a total expenditure of approximately $19.5 million.
Profits At Shoe Carnival Rise 31.2%
Shoe Carnival reported earnings in its first quarter rose 31.2% to $5.9 million. Sales climbed 10.5% to $160.7 million as same-store sales rose 5.5%.
Shoe Carnival said 1Q05 results includes a noncash correction of an error in the valuation of inventory related to the accounting for cash discounts on vendor purchases. Previously, cash discounts
were recorded as a reduction in cost of sales at the time the vendor was paid. The correction of the error will present cash discounts as a reduction in inventory, which reduces cost of sales when the inventory associated with the discount is sold. The
cumulative impact in 1Q was a reduction in net earnings of $235,000, or 2¢ per diluted share.
Mark Lemond, CEO,said, “We are pleased to announce the highest earnings of any quarter in the company's history. Our quarterly comparable-store sales increase of 5.5% was the best we've had in several years. Our warmer southern markets, in particular, performed very well, exhibiting an increase of more than 8%. The northern markets had to deal with abnormally cool weather during the first quarter, which kept store traffic below expectations.
Despite this, the northern stores also saw a respectable increase in comparable-store sales of approximately 3%. These comparable-store sales increases are most directly attributable to the continuing improvements we are making to the fashion content of our product mix.”
2Q05 EPS are expected to range from 16¢-18¢. This assumes a total sales increase of between 7% and 10% and comp-store sales increasing between 2% and 4%. Included in the estimate is a pre-tax charge of approximately $300,000 for two stores that are expected to close in 3Q05. For FY05, EPS are expected to range from $1.20 to $1.30.
Currently, SCVL expects to open between 12 to 14 stores in FY05 and close six stores. Five stores were opened in 1Q, and five or six stores are expected to open in 2Q. No stores were closed during 1Q and one store is expected to close in 2Q.
American Sporting Goods Acquires AND 1
American Sporting Goods has bought basketball footwear and apparel company, AND 1. Terms were not disclosed.
ASG, based In Irvine, CA, owns Avia, Ryka, Nevados, Yukon, Turntec, NSS and Apex, with revenues in excess of $220 million annually. AND 1, based in Paoli, PA, last reported sales of $175 million for 2003.
Founded in 1993, AND 1 initially made its mark with 'in your face' trash-talk t-shirts, but later expanded to include sneakers, shorts, shirts, pants, team uniforms, and licensed college gear. It runs the And 1 Mix Tape Tour featuring the nation's top streetballers, and last season had 93 NBA endorsers, including Stephon Marbury, Ben Wallace, Jason Williams and Rafer Alston. Last July, it opened its first retail store in Upper Darby, PA.
Seth Berger, co-founder and AND 1 CEO, will report directly to Kevin Wulff, who recently became CEO and president of ASG.
“The acquisition of AND 1 is a perfect strategic fit for our company,” said Wulff. “It complements our multi-brand business model by providing strength to areas within ASG that need it, such as the very large consumer group of teen boys and young adult basketball enthusiasts and our underdeveloped international and apparel business, just to name a few.”
Wulff, a former Nike exec and most recently, Adidas' director of sports marketing, recently bought a minority stake in ASG. ASG founder Jerry Turner remains chairman.
Polo Ralph Lauren Acquires Ralph Lauren Footwear from Reebok
Polo Ralph Lauren will purchase Ralph Lauren Footwear Co., Inc., a wholly owned subsidiary of Reebok and Polo's footwear licensee, for a gross purchase price of $110 million, subject to certain closing adjustments. It is expected that the sale will result in a gain to Reebok.
Upon the closing of the transaction, which is expected to occur by the end of the second quarter of 2005, the agreement under which Ralph Lauren Footwear acted as Polo's footwear licensee will terminate. The transaction is subject to the expiration of the waiting period under the Hart-Scott-Rodino Act.
Paul Fireman, Reebok's Chairman and Chief Executive Officer, stated: "The completion of this transaction enables us to focus on the continued growth and development of our core businesses."
In 1996, Reebok and Polo Ralph Lauren announced that they had entered into an exclusive footwear licensing arrangement that granted Reebok the rights to design, develop, manufacture, market and distribute men's, women's and children's footwear under the Ralph Lauren Footwear label. Reebok International established a separate subsidiary to operate the Ralph Lauren Footwear business.