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Today's news...7/28/05

JULY 28, 2005 -- Nautilus 2Q Sales Up 29%; Net Soars 72%

2Q Nautilus sales were $129.6 million, up 29.3%. Net income for the quarter was $3.3 million, or 10¢ per diluted share, up from $1.9 million, or 6¢ per share. The results exclude the acquisition of PEARL iZUMi USA which was completed after 2Q.

"The quarter was on plan for both sales and earnings as we gear up for the primary fitness equipment season which begins in late September," said Gregg Hammann, CEO. "As part of our commitment to a fast pace of innovation, we are taking advantage of the seasonally slowest part of the year to move a number of important innovations through the development and introduction process. This gives us time to optimize manufacturing and shipping in advance of the high-volume season.

"We are approaching this fitness season in an excellent position to serve our consumers and customers with high-quality branded fitness products wherever they shop and exercise. We are better positioned due to our continued investments in infrastructure, such as making necessary improvements to our supply chain and information systems. Through these investments, we are able to support greater business volume now, and this will position us to achieve operating efficiencies later this year and beyond, while we maintain a fast pace of product innovation."

The company will have up to five SKUs in as many as 450 Sears locations this fall.

For 3Q05, it estimates that net sales will grow about 30% in its existing business. The company also expects to achieve an additional $15 million in net sales from its recently-completed acquisition of PEARL iZUMi USA, for a total net sales estimate of $175-$180 million. Meanwhile, earnings are expected to grow about 25% to 23¢-24¢ per diluted share. The company reaffirmed its FY05 earnings estimate of $1.17 to $1.19, on annual sales of $690 to $700 million.


Saucony Ends History As Public Company In The Red

As Saucony has been sold to Stride Rite, Saucony management didn't have to answer tough questions about the dismal results on the analyst conference call. The company ended it history as a public company with a whimper.

Net sales for 2Q decreased 8.8% to $40.1 million. The company's gross margin decreased to 40.4% compared to 41.1%. SG&A as a percentage of net sales increased to 33.4% from 29.2%. In absolute dollars, these expenses increased 4.5%, due primarily to $802,000 in transaction costs related to the evaluation of its strategic alternatives and the sale of the company, and $150,000 in costs related to the settlement of a patent infringement lawsuit, offset in part by lower incentive compensation. The company did not receive any tax benefit from the transaction costs as they are not deductible for tax purposes.

Net income decreased 44.4% to $1.7 million, primarily because of lower revenues and the transaction costs referred to above. Diluted EPS decreased to 22¢ per Class A share and 24¢ per Class B share, compared to diluted EPS of 41¢ per Class A share and 45¢ per Class B share.

The backlog of open orders at July 1, '05 scheduled for delivery within the next five months plunged 8.9% to $40.9 million. The open order backlog for delivery in the next 12 months decreased 9.7% to $44.2 million.


K-Swiss Has Record 2Q, But Guides Lower

K-Swiss' 2Q net earnings and net EPS increased 27.1% and 34.3%, respectively, to $16,765,000, or 47¢ per diluted share, compared to $13,188,000, or 35¢ per diluted share. For 2Q05, total worldwide revenues increased 17.2% to $126,474,000. Domestic revenues increased 7.5% to $95,099,000, and international revenues increased 61.7% to $31,375,000.

Worldwide futures orders with start ship dates from July through December increased 12.3% to $185,181,000, compared to $164,956,000 a year ago. Domestic futures orders increased 1.9% to $137,464,000. International futures orders increased 58.5% to $47,717,000.

K-Swiss also issued guidance for 3Q and FY05. The company expects 3Q revenues to be approximately $133-$138 million and EPS of 42¢-47¢, lower than Wall Street estimates. The company expects FY revenues to be approximately $500-$515 million and expects to report FY EPS of approximately $1.85-$1.95.

The company's estimates reflect the continued investments in marketing, sales and product development for the Royal Elastics brand, as well as the expansion of European operations.


Russell Has Record 2Q Revenues, But Net Plunges 54%

Russell reported 2Q earnings of $4.7 million, or 14¢ per diluted share on sales of $342.1 million, record sales for any 2Q. But the net was off 54.1%.

The 18% gain in sales was led by increases associated with acquisitions, which generated more than $50 million in revenues. Excluding the incremental revenue related to acquisitions, the company experienced a slight increase in sales for the quarter.

Sales in the Activewear segment increased more than 10% and were particularly strong in the Artwear channel, which recorded sales increases of nearly 15% for the quarter. Increased product demand for hooded sweats led to significant cost increases associated with ramping up production quickly and reacting to changes in style mix, negatively impacting second quarter profits. Further impacting earnings, Activewear did not achieve all of its cost savings goals.

For the Sporting Goods segment, sales increases of nearly 30% were driven by the '04 acquisitions of AAI, Huffy Sports and Brooks. Overall, these acquisitions were on plan, and, as expected, had no material impact on EPS in the quarter. Excluding these acquisitions, revenue in the Sporting Goods segment declined 12% in the quarter.

Mossy Oak experienced declines in revenue and profits for the quarter versus a year ago. Lower prices and the reduction of a major retail program resulted in a revenue decline of more than 30% in the quarter. Even though most of Mossy Oak's sales are planned for the second half, the negative impact to profits is not expected to be offset for the balance of the year.

Also in the Sporting Goods segment, increases in sales in the quarter for the Russell Athletic Group's base business only partially offset the absence of Major League Baseball and the discontinuance of the Discus brand at a major account.

"Given the expectations we had for the quarter, we are certainly disappointed with the results," said Jack Ward, CEO. "The good news is that there is solid consumer demand for our products and the major impacts experienced in the second quarter were primarily operational issues. We are rapidly addressing these issues, but we expect continued impact into the third quarter. We have already taken a number of steps to improve our cost position and further leverage our growth opportunities.

"Our strategy, to maximize our presence in the sporting goods industry by developing new business and expanding programs within our core brands, continues to be successful with our customers. An example is the integration of Spalding, AAI and Huffy Sports into the Spalding Group, the world's largest provider of basketball equipment. We are achieving both operational and sales synergies with a number of accounts beginning to introduce new Spalding products into their markets. We believe we can leverage the strength we have in basketballs with the product offerings from these integrated businesses to create a strong foundation and increased sales, particularly with the turn-around at Huffy Sports."

As demand has remained strong, Russell continues to anticipate that the Activewear segment will achieve strong sales and profit growth for the year, especially for the company's market-leading men's fleece business.

"In the Sporting Goods segment, Brooks is having a strong year with continued sales gains planned for the second half as well," Ward added. "With ongoing improvements that are being made through the Spalding integration of Huffy Sports and AAI, we expect to continue building momentum into 2006." Russell Athletic also anticipates sales increases in 2H05, based on the reception of new styles and expanded floor space at retail.

Ward continued, "With expectations for second half sales growth from existing businesses in the 4% to 6% range, we are maintaining our '05 fiscal year sales forecast in the range of $1.500-$1.520 billion versus $1.298 billion in '04."


Skechers 2Q Sales Improve 12.5%, Net Earnings Handily Beat Estimates

Skechers' 2Q net sales rose 12.5% to $263.9 million. Net earnings for the quarter were $15.9 million versus net earnings of $8.3 million. Net EPS were 38¢, above First Call consensus of 25¢, and 81.0% higher than net EPS of 21¢ in 2Q04.

"Much like our record 1Q05 sales, our reported 2Q net sales of $263.9 million represent our highest 2Q revenues in the company's history," said David Weinberg, CFO. "This marks the sixth consecutive quarter of year-over-year top-line quarterly increases, a clear testament to the continued strength of our brands."


Sergio Tacchini Being Relaunched In US

Marin Group International, based in Novato, CA, is relaunching the Sergio Tacchini brand after a 10-year hiatus in North America. Under this new partnership agreement with Milan-based Sergio Tacchini S.p.A., MGI has the exclusive rights to license and distribute Sergio Tacchini sportswear, tennis apparel, footwear and accessories in the US, Canada and Mexico for a term of 12 years.

Led by Ron Page, president/CEO, and Tom Seavey, managing partner/director of sales, MGI was formed in October '04 to operate the Sergio Tacchini business in North America.

The Sergio Tacchini brand will be positioned as accessible luxury. MGI intends to distribute footwear, tennis and activewear through a limited number of targeted retailers through a national independent sales force.

Sergio Tacchini will make its formal debut at the WSA show this August where it will launch its Spring/Summer '06 collection of sports specific and lifestyle footwear developed exclusively for the North American market complemented by apparel from the international collection.


Sportcraft Recalling 12,000 Treadmills

In cooperation with the CPSC, Sportcraft is recalling about 12,000 Tredex 6.0, TX 440 and TX 550 Treadmills. The products can unexpectedly accelerate and cause users to fall and sustain injuries. Sportcraft has received 110 reports of unexpected acceleration, 14 of which resulted in minor injuries, including sprains and bruises. They were sold at discount department and other retail stores nationwide from December '02 through April '05 for between $350 and $600.


The Federation of the European Sporting Goods Industry announced the affiliation of two new sporting goods companies: AQUABLITZ Water Racing Wax as a regular member and K-Swiss as an associated member. This takes the total number of regular members to 17 and the number of corporate members to 23.


BB&T Capital Markets upgraded Nautilus to buy from hold.


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 Breaking Headlines
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