First Quarter Not a Happy Place for Industry Retailers…

With few exceptions, the first quarter was a dismal time for sporting goods industry retailers as net sales rose only slightly, while margins and profits, barring a certain one-time benefit, declined.

Retailer net sales increased 8.7% for the first quarter on a consolidated basis, led largely by Collective Brands’ acquisition of Stride Rite and the opening of new stores. The acquisition by Collective added 3.7 percentage points to the overall net sales growth for the quarter. Of the retailers, 16 of the 25 reported comparable store sales declines for the quarter. Gross margins declined slightly for the period, down approximately 30 basis points to 33.5% of net sales.

Family Footwear retailers accounted for approximately 50 points of the decline, with each retailer in the group seeing margins shrink on higher clearance and a mix shift towards lower priced product, or in the case of Collective Brands, a litigation reserve related to the then-ongoing “stripe” fights with adidas and K-Swiss.

Profit was the most misleading metric as the bottom line grew 19.2% on a consolidated basis, but purely because of the large settlement paid to Genesco, Inc. by The Finish Line, Inc. after its failed acquisition attempt.

When using Genesco’s pro forma net income results for the quarter, profits for sporting goods retailers as a whole declined 86.8% as Specialty retailers reported a group net loss. The weak pro forma result from GCO was exacerbated by Pacific Sunwear taking several charges related to closing down its demo store operations. Using pro forma numbers for both PSUN and GCO, Specialty profits declined 47.3% and overall profits dropped 68.4% for the quarter.The good news for the Specialty guys is that inventories have been declining as each works to clean out older product. Unfortunately, the same can’t be said for the sporting goods retailers, which were hit the hardest as winter weather hung around longer into the spring season.

First Quarter Not a Happy Place for Industry Retailers…

With few exceptions, the first quarter was a dismal time for sporting goods industry retailers as net sales rose only slightly, while margins and profits, barring a certain one-time benefit, declined.

Retailer net sales increased 8.7% for the first quarter on a consolidated basis, led largely by Collective Brands’ acquisition of Stride Rite and the opening of new stores. The acquisition by Collective added 3.7 percentage points to the overall net sales growth for the quarter. Of the retailers, 16 of the 25 reported comparable store sales declines for the quarter. Gross margins declined slightly for the period, down approximately 30 basis points to 33.5% of net sales.

Family Footwear retailers accounted for approximately 50 points of the decline, with each retailer in the group seeing margins shrink on higher clearance and a mix shift towards lower priced product, or in the case of Collective Brands, a litigation reserve related to the then-ongoing “stripe” fights with adidas and K-Swiss.

Profit was the most misleading metric as the bottom line grew 19.2% on a consolidated basis, but purely because of the large settlement paid to Genesco, Inc. by The Finish Line, Inc. after its failed acquisition attempt.

When using Genesco’s pro forma net income results for the quarter, profits for sporting goods retailers as a whole declined 86.8% as Specialty retailers reported a group net loss. The weak pro forma result from GCO was exacerbated by Pacific Sunwear taking several charges related to closing down its demo store operations. Using pro forma numbers for both PSUN and GCO, Specialty profits declined 47.3% and overall profits dropped 68.4% for the quarter.The good news for the Specialty guys is that inventories have been declining as each works to clean out older product. Unfortunately, the same can’t be said for the sporting goods retailers, which were hit the hardest as winter weather hung around longer into the spring season.

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