Collegiate Pacific Bottom Line Suffers in Q4; Will Merge with Sport Supply…

While the added sales volume of recently acquired businesses helped the bottom line at Collegiate Pacific for much of the year, the seasonality of many came home to roost in the company’s fiscal fourth quarter ended June 30. Even though sales increased by more than 50% during the quarter, and margins exceeded expectations, the company posted considerably lower earnings than the previous year.

The primary reason for the decline in Q4 net income was higher than expected SG&A expenses, which ran ahead of plan for most of the year as the company worked to ready the operating platform. The primary contributor to this was the addition of 45 industry sales people during their seasonal slow period from January through June. This resulted in front-loaded expenses that preceded their selling season. BOO expects this seasonal cycle to reverse itself in the coming six-month period.

For the full fiscal year, sales increased 168% to $106.3 million due to the heavy acquisition activity during the past twelve months. Gross margin decreased 170 basis points to 34.2%. This was, again, due to acquisitions and the lower gross margins common among many of the “bolted-on” companies. SG&A as a percentage of sales decreased for the full-year by 90 basis points to 26.6%. This doubled net income to $3.8 million, compared to $1.9 million last year. Diluted earnings per share were 37 cents versus 25 cents in the prior year.

Collegiate Pacific also announced last week that it had executed a definitive merger agreement to acquire the remaining outstanding shares of Sport Supply Group, Inc. for roughly $6.74 per share through the fixed exchange of 0.56 shares of BOO common stock for each outstanding share of SSPY common stock.

During a conference call with analysts and the media, Collegiate Pacific’s CEO, Adam Blumenfeld outlined several synergies between the companies, including eliminating common SKU’s to increase Cash Flow by $3-$7 million; Combination of Manufacturing Facilities to reduce overhead; Moving Collegiate Pacific’s existing Dallas offices into SSG’s facility; Leveraging SSPY's IT and Web Infrastructure; and leveraging BOO's Sales and Marketing Expertise.

BOO will maintain much of its current management structure. Michael J. Blumenfeld will remain chairman of the board, Adam Blumenfeld will continue as CEO, but Terry Babilla, president and CEO of Sport Supply Group, will become president of the newly merged entity. William Estill will retain his position as CFO.

For fiscal year 2006, assuming the SSG transaction closes towards the end of calendar 2005, the company expects $220 million to $230 million in consolidated net sales and fully diluted EPS of 60 cents to 70 cents per share.