Galyan’s Trading Company, Inc. announced financial results for the fiscal fourth quarter and fiscal year 2002 ended February 1, 2003.
For the fourth quarter of fiscal 2002 ended February 1, 2003, net earnings per share increased 32.4 percent to $0.98 per share on a fully diluted basis, in line with the Company’s most recent guidance, on net earnings of $16.7 million, compared to $0.74 per share on a fully diluted basis, on net earnings of $12.8 million, as reported for the fourth quarter of 2001.
As previously reported, net sales for the 2002 fourth quarter rose 21.4 percent to $212.2 million, from the $174.8 million reported in the fourth quarter last year. Comparable store sales decreased 1.4 percent. Gross margin as a percentage of sales was 33.6 percent for the fourth quarter of fiscal 2002 versus 33.1 percent in the prior year fiscal quarter. Selling, general and administrative expenses as a percent of sales for the fourth quarter decreased to 20.2 percent from 20.8 percent in the same period last year. Operating income as a percentage of sales increased to 13.4 percent from 12.2 percent in the fourth quarter of fiscal 2001.
Robert B. Mang, Chief Executive Officer and Chairman of the Company, commented, “While the retail sector and overall operating environment was extremely challenging, Galyan’s achieved solid fourth quarter earnings improvement through strong gross margin performance and SG&A leverage.”
On a GAAP basis for fiscal years 2002 and 2001, earnings per share on a fully diluted basis were $1.09 per share, on net earnings of $18.7 million for the fiscal year 2002, compared to $0.32 per share on a fully diluted basis, on net earnings of $4.6 million for fiscal year 2001. Fully diluted shares outstanding for fiscal 2002 and 2001 were 17,178,342 and 14,688,800, respectively.
For the 2002 fiscal year ended February 1, 2003, net sales rose 23.9 percent to $597.7 million, from $482.5 million last year. Comparable store sales increased 0.5 percent. The increase in comparable store sales was primarily driven by higher results in the winter sports, athletic apparel, athletic footwear and accessories categories.
Gross margin was 30.4 percent, up from 30.0 percent in fiscal 2001. Selling, general and administrative expenses as a percentage of sales for 2002 increased to 24.8 percent from 24.5 percent in the same period last year. The increase in SG&A expense resulted primarily from increased marketing of $5.5 million mainly in support of the Company’s expansion program and higher pre-opening costs of $2.0 million as a result of opening nine stores in 2002 versus five stores in 2001. Operating income as a percentage of sales remained constant at 5.5 percent for both fiscal 2002 and fiscal 2001.
Mr. Mang added, “Galyan’s continued to execute its business plan in fiscal 2002. We opened nine new stores and we remain on track to open nine more in fiscal 2003. Despite the challenging operating environment, the Company remained focused on managing inventories, operating efficiently and expanding the Company’s footprint into key new markets in New England, the Southwest and the Midwest. Inventory aging improved by over 400 basis points year over year and ending inventory was on plan in a challenging sales environment.”
Mr. Mang continued, “While new store openings are a cornerstone of Galyan’s growth strategy, we are equally focused on maximizing the performance of our existing stores. For 2003, we have numerous initiatives in place that, we believe, will strengthen us competitively, including competitive pricing guarantees, improved customer services, trade-in programs, new guaranteed-in- stock programs, expanded proprietary brand offerings, full utilization of our newly integrated planning, replenishment and allocation organization and a powerful new multi-media marketing strategy. Our store concept is second to none. With our sound business model, Galyan’s is well positioned to continue its growth and store expansion.”
During fiscal 2002, the Company opened new stores in Colorado Springs and Littleton (Denver), Colorado; Niles and Geneva (both Chicago), Illinois; Henderson (Las Vegas), Nevada; Okemos (Lansing), Michigan; Des Peres (St. Louis), Missouri; Danvers (Boston), Massachusetts; and Arlington (Dallas), Texas, bringing the total stores in operation at fiscal year end 2002 to 34.
Galyan’s has planned nine new store openings in 2003. The Company has signed leases for all of these new stores. The 2003 new stores locations include the Company’s first entry into the New York metropolitan market with two stores; two additional stores in the Chicago market; and its first entry into the Cleveland, Ohio; Richmond, Virginia; Omaha, Nebraska and Peoria, Illinois markets, and a new store in the south Indianapolis market, which replaces a store lost last year to tornado damage.
Given the extremely high level of concern regarding the economy, geo- political events and consumer confidence, Galyan’s is forecasting earnings per share for the fiscal 2003 year of $1.25 to $1.30 on a fully diluted, GAAP basis. This range of earnings assumes essentially flat comps. The high end of this range also assumes stabilization in the economy as well as a benign impact from the current uncertain geo-political environment.
The fiscal 2003 guidance is based on achieving sales between $740 million and $750 million. Operating margins are projected to be within 10 basis points, plus or minus, from fiscal 2002 performance with opportunity for higher gross margins but higher SG&A as a percentage of sales. The Company expects its effective tax rate to be approximately 40 percent and to have fully diluted shares outstanding of approximately 17.2 million.
As a result of the factors above, it is extremely difficult to forecast first quarter results for fiscal year 2003. Given the Company’s first quarter sales trends and increases in the costs of rent, depreciation and insurance, our earnings per share for the first quarter is currently forecasted as a loss of $(0.08) – $(0.12) per share on a fully diluted basis.
Mr. Mang concluded, “Despite the challenging retail environment, we have a compelling retail concept and believe the right initiatives are in place for the Company to achieve its long-term growth targets.”
Galyan's Trading Company, Inc.
Consolidated Statements of Operations
For the Three Month and Twelve Month Periods ended February 1, 2003 and
February 2, 2002
(in thousands, except per share data)
For the three month For the twelve month
periods ended periods ended
------------------------- --------------------------
February 1, February 2, February 1, February 2,
2003 2002 2003 2002
----------- ------------ ------------ ------------
Net sales $212,171 $174,759 $597,745 $482,528
Cost of sales 140,919 116,944 416,230 337,953
----------- ------------ ------------ ------------
Gross profit 71,252 57,815 181,515 144,575
Selling, general and
administrative
expenses 42,817 36,425 148,357 118,070
----------- ------------ ------------ ------------
Operating income 28,435 21,390 33,158 26,505
Interest expense 541 634 2,053 7,095
Interest income (77) (259) (257) (372)
----------- ------------ ------------ ------------
Income before
extraordinary loss
and income tax
expense 27,971 21,015 31,362 19,782
Income tax expense 11,252 8,256 12,642 8,340
----------- ------------ ------------ ------------
Income before
extraordinary loss 16,719 12,759 18,720 11,442
Extraordinary loss on
early extinguishment
of debt (net of income
tax benefit of $3,625) - - - (6,810)
----------- ------------ ------------ ------------
Net income $16,719 $12,759 $18,720 $4,632
