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Today's news...8/19/05

AUGUST 19, 2005 -- European Problems Reduce Foot Locker's 2Q

Net income of Foot Locker in 2Q decreased to 28¢ per share, or $44 million, from 53¢ per share, or $82 million last year. 2Q04 included an income tax benefit of $37 million, or 24¢ per share, related to discontinued operations.
Income from continuing operations decreased 3.4% to 28¢ per share, or $44 million, from 29¢ per share, or $45 million last year. Included in last year's results was a loss of $10 million, or 7¢ per share, related to the integration and operation of the 349-store Footaction chain that the Company acquired in May '04. Also included in last year's income from continuing operations were income tax benefits related to resolution of US and foreign income tax examinations, resulting in an effective tax rate that was significantly lower than the second quarter of this year. The company's higher effective tax rate this year versus the second quarter of last year resulted in an unfavorable comparison of 7¢ per share.

For 2Q, sales increased 2.8% to $1,304 million this year compared with sales of $1,268 million in the year-ago period. 2Q comp-store sales increased 1.3%. "Our second quarter earnings per share were below our initial expectations due to the disappointing financial results of our European business," stated Matt Serra, COB/CEO. "The second quarter profit decline at Foot Locker Europe essentially offset the combined profit increase generated by our US and other international divisions. We are particularly pleased with the second quarter financial results of our Champs Sports division and expect that our Footaction business will contribute meaningfully to our company's financial results for the balance of this year."

YTD net income decreased to 65¢ per share, or $102 million, compared to 84¢ per share, or $130 million last year. Income from continuing operations increased 8.3% to 65¢ per share, or $102 million, versus 60¢ per share, or $92 million last year. YTD sales increased 9.3% to $2,681 million. Comparable-store sales increased 2.0%.

"Given the recent challenges in our European business, we have revised our outlook for the balance of the year. We currently expect that our EPS from continuing operations to increase 2% to 12% during our third and fourth quarters of '05 as compared with the corresponding periods of the prior year. We believe it is prudent to maintain this outlook for the balance of this year until we see signs of a consistent improvement in our business trends in Europe."

TSA's Net Income Beats Expectations

Net 2Q income of the Sports Authority was $14.2 million, or 53¢ per diluted share, compared with net income of $6.8 million, or 26¢ per diluted share, including merger integration costs, in 2Q04. This was 4¢ above Wall Street's estimates. Excluding the effect of after-tax merger integration costs of $5.1 million, or 19¢ per diluted share, net income for the prior year's second quarter was $11.9 million, or 45¢ per diluted share.

2Q sales were $617.0 million compared to $605.0 million in the prior year's 2Q, an increase of $12.0 million, or 2.0%. 2Q comp-store sales for the company increased 0.2%.

CEO Doug Morton commented, "We exceeded earnings expectations for the second quarter driven by improvements in gross margin and effective management of our operating expenses. We were pleased with the sales performance of several key categories including active apparel and fitness. However, the impact on our top line performance was greater than expected due to our decision not to repeat certain promotional events. This decision also resulted in an improved gross margin rate and higher gross margin dollars, which contributed to the favorable EPS performance. In addition, we reduced quarter end debt by $45 million compared to second quarter last year, and reduced inventory by $33 million, or 6.6% on a per square foot basis, over the comparable period last year."

For 3Q05, the company is forecasting a comp-store sales increase of approximately 1% to 2%, total sales of approximately $565.0 million and diluted EPS of 9¢. The company expects to open five new stores and relocate two stores during the third fiscal quarter. For FY05, the company is forecasting comp-store sales to increase approximately 1.5%. The company also stated that it is raising its FY05 diluted EPS guidance to $1.96-$2.01, compared to its previous guidance of $1.90-$1.97.

Hibbett Net Income Up 67%

2Q net sales of Hibbett Sporting Goods increased 15.0% to $94.0 million. Comp-store sales increased 3.1% in 2Q. Net income increased 66.9% to $4.9 million. EPS increased 75.0% to 21¢ compared with restated diluted EPS of 12¢ in the prior year. Comp-store net sales data reflects sales for our Hibbett Sports and Sports Additions stores open through the 13-week period and the corresponding period of the prior fiscal year.

Mickey Newsome, COB/CEO, stated, "We had a positive comparable-store sales performance in all three product categories. Footwear, apparel and equipment all posted single-digit increases. Footwear was strong most of the quarter with the performance category leading the way, but slowed toward the end of July as some back-to-school shopping shifted to the third quarter. Equipment benefited from the seasonal demand of team sports, while apparel began to anniversary the significant sales shortfall in the pro-licensed category a year ago. In last year's second quarter, we responded to our sales softness with three separate promotions that were not repeated this year. With our much cleaner inventory position and a successful shift in emphasis to activewear and urban apparel, we generated much higher product margins in the quarter. We were able to once again deliver considerable year-over-year growth in earnings."

Women Significant SG Purchasers

Aside from the apparel they purchase, females (i.e. are the primary users of) are significant purchasers in many important footwear and equipment categories, according to an analysis of data contained in "The Sporting Goods Market in 2005," a consumer purchases report published annually by the National Sporting Goods Association.

In '04, females purchased 54% of the $14.8 billion athletic footwear sold at retail. Specifically, they purchased 85% of aerobic footwear; 35% of boat/deck shoes; 43% of bowling shoes; 49% of cross training shoes; 64% of fashion sneakers; 55% of fitness shoes; 49% of running shoes; 71% of sport sandals; 45% of tennis shoes; 64% of walking shoes and 48% of water sport shoes.\

"The issue for sporting goods stores is that just 10% of females made their athletic footwear purchases in sporting goods store versus 16% of males," said NSGA VP/information & research Tom Doyle. "Specialty athletic footwear stores did better, getting 11% of the female purchases versus 13% of male purchases."

In equipment, females purchased 41% of the bicycle helmets; 38% of the backpacks and daypacks; 60% of the ellipticals; 45% of the heart rate monitors; 52% of the exercise bikes; 62% of the treadmills; 47% of non-prescription sunglasses; 46% of the soccer balls; 37% of the tennis rackets; 43% of the in-line skates and 42% of non-motorized scooters and 38% of motorized scooters.

"A quick glance at products purchased by females suggests a strong fitness orientation," Doyle said. "The question for sporting goods stores might be, 'is your store environment female fitness friendly?'"

The data in "The Sporting Goods Market in 2005" projects '04 purchases of sporting goods products based on a survey of 100,000 US households. National Family Opinion, Inc. maintains the consumer panel used in the survey. It is balanced to parallel actual American household distribution as reported by the US Bureau of Census, so that the data can be projected nationally.

Thomas Weisel initiated coverage of GSI Commerce with an outperform…BB&T Capital Markets downgraded Hibbett Sporting Goods to hold from buy.


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Foot Locker 3Q Sales Rose 3%; But Hurricanes Will Trim EPS
Hibbett 3Q Revenues Rise 20% On 8% Comp-Gain
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Sporting goods industry
Earnings estimates

Foot Locker Inc.
Champs Sports
Hibbett Sporting Goods Inc.

Net Income
comp-store sales
continuing operations
diluted share
sporting goods

Matt Serra
Doug Morton
Mickey Newsome

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