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 Breaking Headlines


AUGUST 27, 2004 -- The Sports Authority Lowers 2H Guidance

Doug Morton, TSA CEO, stated, "As we previously announced, our more seasonal outdoor categories under-performed expectations due to unusually cool and wet weather in many of our key markets. Also, we continue to experience weak sales of fitness equipment, which represents a significant part of our business. We expect fitness sales to improve as we complete our new merchandise assortments in this category by the end of the third quarter. Furthermore, we believe we can improve the effectiveness of our advertising by implementing a number of personnel and procedural changes to address this issue.

"Despite these challenges, we continue to make progress on many of our initiatives. We are pleased with the initial success of our store remodel program where the incremental sales increases in the first 27 remodeled stores has approximated 7%. We are also excited about the rollout of our statement shoe walls, which was substantially completed at the end of the Q2. We believe these footwear walls, once fully merchandised, will drive additional sales and further enhance the overall shopping experience. Additionally, we are well positioned in our historically strong winter sports categories as we head into the second half of the year. Q3 will be the first quarter since the merger that we will have complete cold weather assortments, including ski and snowboard equipment, apparel and accessories in the company's Sports Authority stores.

"Although we are disappointed with our most recent results, we believe we have identified the key merchandising and operational issues that contributed to our performance and we are taking the necessary steps to address these challenges. The necessary changes to address these issues will not have an immediate impact and therefore, we are taking a more conservative approach with our guidance for the remainder of this year."

TSA is currently forecasting comp-store sales to decrease in the low single-digits for 3Q. Gross margins are forecasted to increase only slightly during the quarter due to markdowns and promotional strategies focused on liquidating summer outdoor inventories. TSA expects to report net income in the range of $0.0 to $1.3 million, and diluted EPS in the range of 0¢ to 5¢. All earnings estimates are exclusive of merger and integration costs.

For FY04, TSA expects to report net income in the range of $49.8 million to $51.1 million, and diluted EPS between $1.88 to $1.93. All earnings estimates are exclusive of merger integration costs. It currently expects to open 22 new stores during the year and expects to close up to a total of 13 stores. The number of stores in operation at the end of fiscal 2004 is expected to be 393. Following the news, First Albany Capital reduced its FY04 estimate to $1.90 from $2.20, and FY05 to $2.40 from $2.65. A neutral rating remained on the TSA stock.

Recreational Fishermen May Be Taking More Fish Than Thought

It's been standard thinking that commercial fisherman were the ones who were stripping the oceans of fish. But a report in the journal Science said that recreational fishermen must assume some of the blame, a suggestion that hasn't been heard before. According to The New York Times, recreational anglers landed 5% of the saltwater fish caught over the past 20 years. That's twice previous estimates. More important, Science charges that anglers caught as much as 23% of fish whose numbers are shrinking. The Times said that such fish accounted for 12% of the catches in the Northeast, but 64% of the catches in the Gulf of Mexico. The study said recreational fishermen caught 93% of the red drum caught in the South Atlantic, 87% of the bocaccio (rockfish) off the {Pacific coast and 59% of the red snapper in the gulf.

It should be noted that the study does not take into account the numbers of fish that are released. The report’s author, Felicia Coleman, Florida State University, said the mere landing still affected fish mortality. She cited the red snapper can be seriously harmed when subjected to water pressure changes as they are reeled in.

The study's conclusions are supported by Bob Jones, executive director of the Southeastern Fisheries Association, a commercial fishing group. He told The Times: "You wouldn’t have to be a rocket scientist to figure a million boats registered in Florida are going to have significant impact. The sports fishing segment is going to have to the table and be regulated in the same manner as everyone else." The report may encourage states t0 impose saltwater licenses.

Fitness Slowdown Dominated Health & Fitness Expo

As expected, the squeeze on the fitness market dominated the conversation at last week's Health & Fitness Business show in Denver. Fitness specialty dealers are feeling pressure from three fronts: Big box sporting goods stores, the Internet and vendors who are increasingly tempted to go direct. Big boxes stores, such as TSA, are devoting increasing space to high-end home gyms from brands such as Hoist. And when sales don't pan out, the boxes hit the markdown switch, which makes everyone nuts. Fitness specialty stores, of course, want geographic exclusivity for key lines. And vendors are getting fed up with all of it and are increasingly considering bypassing retailers altogether and going direct. During its recent conference call, Hibbett Sporting Goods execs offered some reasons for the softness in the fitness market. Most important was the explosion of fitness centers. Another was the state of school weight rooms. CEO Mickey Newsome said some high school gyms were outfitted as well as colleges.

Meanwhile, the show was steadily busy with quality, if not quantity traffic.

The biggest source of buzz was the new line of exercise bikes introduced by former Nautilus COO, Kevin Lamar under the Lamar Fitness brand. Barely 90 days after departing Nautilus, Lamar showcased a 21-piece line that he says will be expanded to include treadmills, ellipticals, free weights and home gyms. Lamar plans to focus on fitness specialty dealers and will back his line with a consumer loyalty program that use the web to help consumers monitor use of the products. The goal is to build a relationship between the dealer, the consumer and the brand and develop repeat business.

 Breaking Headlines
News: 8/30/04
AUGUST 30, 2004

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