Busy boys down at Collegiate Pacific Inc. last week. During the past week, the company announced a new partnership with Varsity Group Inc. to become their exclusive sporting goods supplier; entered another (and seemingly final) attempt to acquire 100% of the stock of Sport Supply Group; and reported their financial results for the fiscal fourth quarter and full year 2006.

In the partnership with Varsity Group, Collegiate Pacific will exclusively assist Varsity in the creation of sporting goods related marketing materials and distribution of product to a growing Varsity Group customer base of more than 700 private, parochial, and charter schools across the nation. In a conference call with analysts, Michael Blumenfeld, CEO of Collegiate Pacific, noted that working with Varsity will bring the company into a “new distribution channel, in that [Varsity] touches a part of the school [Coll Pac] traditionally does not, which is the principal and purchasing director.”

Regarding what seems like the never-ending saga of their attempt to acquires the balance of Sport Supply Group they do not own, Coll Pac announced a deal last week to acquire the roughly 12% of SSG stock owned by parties other than Collegiate Pacific. Coll Pac intends to purchase the remaining shares at $8.80 per share, or approximately $24 million in total, in cash. The merger has been approved by the SSG board of directors, but still needs the approval of their stockholders and is subject to financing, which Coll Pac expects to execute under a new credit facility with Merrill Lynch Business Financial Services.

On a conference call with analysts, management said that they expect the deal to close in the next 60 to 90 days with Terry Babilla, currently president of Sport Supply, expected to take on the role of president and COO of Coll Pac. The company sees “roughly 700 SKU’s…that are duplicate in nature” that when removed will add $2 million to $5 million back to cash flow. But the real excitement for the management team is taking Col Pac’s marketing and product expertise to SSG, while bringing SSG’s “cost cutting culture” and back-end and online competencies back to the new parent. Management expects the transaction to be “mildly accretive” to earnings this year, maybe a penny or two, with variance based on the day of closure.

As for the performance of Collegiate Pacific itself, the company reported organic growth in Q4 in the “10% range.” Backing out the fourth quarter results from the annual and nine-month numbers, sales increased 91.1% to $53.1 million from $27.8 million for the same period last year. Gross margins dipped 70 basis points in the quarter to 33.2% of net sales, while SG&A rose 250 basis points to 33.1% of net sales. These two factors resulted in a net loss of $940,000, or a loss of nine cents per diluted share, for Q4, compared to profit of $356,000, or three cents per diluted share, last year. For the full year, BOO saw several one-time charges amounting to approximately $2 million take a 13.8% improvement in operating income and turn it into a 47% decrease in net income.

Looking ahead, the company expects fiscal 2007 to produce 10%+ top line organic growth, with gross profit margins increasing to approximately 35% and operating profit of approximately $17 million. The company has forecasted fiscal 2007 earnings per share of 52 cents to 64 cents based upon the current ownership of 73.2% of SSG.

>>> The merger of products, marketing, and systems will be a nice marriage. It better be, this courtship was just about ready for Dr. Phil…

Collegiate Pacific, Inc.
Fiscal Full Year Results
(in $ mm) 2006 2005 Change
Total Sales $224.2  $106.3  +111%
GM % 33.5% 33.8% -30 bps
SG&A % 29.8% 26.9% +280 bps
Net Income $1.9  $3.6  -47.3%
Diluted EPS 18¢  35¢  -48.6%
Inventories* $37.2 $17.5 +1137%
Accts Payable* $14.8 $9.8 +51.3%
*at year-end