It was relatively calm in the retail market in the fourth quarter with no major mergers, acquisitions, or IPOs announced in the sporting goods retail sector. The radical swing in numbers seen in quarters past from those activities was noticeably missing from the analysis of data from the period ended January 31, 2005, or the quarter ended closest to that date.
The retail sector again saw profit growth for the period outpace sales growth, as the total profit gain for the retailers covered in this report increased 22.0% in the quarter while sales grew more than 11% for the period, the second quarter in a row that profits outpaced sales by a two-to-one margin. The sector did get one welcome addition as Zumiez started reporting their numbers after announcing they would enter the public market this year. While the numbers arent large enough to move the needle for the total sector, strong metrics reported by the retailer in the fourth quarter and the year indicate that the action sports retailer wont be a drag on total sector performance either.
The largest increase in the profit line came in the Catalog/Team/Web channel, which increased 246% for the period, due primarily to GSI Commerces jump in net income for the period. The Family Footwear channel saw real energy in the bottom line for the quarter after posting anemic low-single-digit growth in profits for the last few quarters and a 21% decline posted in the year-ago quarter.
Specialty Channel profit growth was aided by the inclusion of Hat World in the Genesco numbers in this years Q4, but the sector still saw profits increase 15.8% when excluding the Hat World figures for the period. The addition of Zumiez provided about 500 basis points of the gain for the quarter as net income jumped more than 47% in the quarter for the retailer, the top performer for the channel on a like-for-like basis. Golfsmith was the lone profit decliner in the Specialty Channel in the quarter as its loss widened by more then two-thirds versus the year-ago period. The channels profit line would have increased 19% without Golfsmith in the numbers.
Hat World added $14.0 million to Genescos Specialty Retail operating profit line and added $80.8 million in sales for the period. Excluding Hat World, which was acquired in April 2004, GCO Specialty would have seen sales increase 7.8% for the quarter to $214.1 million and operating profit would have risen just 6.6% to $33.1 million, thanks to a nice improvement at the Underground Station group.
Return on Sales, which represents profits as a percent of sales, was a healthy 9.2% for the Specialty Channel in Q4, up about 60 basis points from the 8.6% ROS posted in Q4 last year, and up 220 basis points from the 7.0% ROS achieved in the third quarter.
Foot Locker said that Footaction added about three cents to the bottom line this quarter, but did not break out the sales upside. Comps are probably a better indication of sales growth here as they relied heavily on the additional 350 Footaction doors and FX rate benefits to boost sales growth.
When assessing the impact of the inclusion of Hat World, The Walking Company, and Footaction numbers in the quarter, SEW estimated that the channel would have seen sales rise 6.0% for the period.
The Apparel Specialty channel, which includes Zumiez, Pacific Sunwear, and The Buckle, outpaced Return on Sales for their brethren in the Mall Athletic Specialty channel. Profit growth in the Apparel Specialty channel lagged the Athletic Specialty channel, growing about 19% in Q4 compared to 22% growth in profits with the footwear guys, but ROS in apparel (10.8%) came in about 370 basis points higher than the footwear retailers (7.1%).
Conversely, the Apparel Specialty retailers saw sales jump nearly 16% for the period versus the prior year quarter, while the Athletic Specialty retailers managed just a 3.6% gain in sales when figuring in the Footaction impact.
In the Sporting Goods Channel, the impact of Garts acquisition of The Sports Authority and Dicks Sporting Goods acquisition of Galyans impacted the numbers less than in quarter past. TSA is now in anniversary mode as a combined entity and Dicks is providing good pro forma numbers that enables the market to assess real metrics for the retailer. While the sales numbers on the chart did not change with the mergers, both Dicks and TSA saw integration costs impact their numbers for the quarter; Dicks in the 2004 quarter and TSA in the 2003 quarter.
Excluding the merger integration costs at DKS in Q4, their net income would have increased roughly 22% to $43.4 million. Excluding TSAs costs for the year-ago period, net income would have been down 9.7% for the period. Excluding the costs in both quarters for the two retailers, the total Sporting Goods channel net income line would have been up 10.3% for the quarter and ROS would have been 5.1% of sales, up 100 basis points from the fiscal 2003 quarter.
Including the costs associated with the mergers, Return on Sales for the Sporting Goods channel was up 50 basis points to 5.0% for the period versus 4.5% of sales in the year-ago period.
When looking at the Team Dealer and Sporting Goods segment combined without the Hunt/Fish/Camp guys, sales grew 8.3% in the fourth quarter and profits jumped 33% for the period. ROS for the group was up 50 basis points to 4.7% of sales. Forzani was the lone drag on the quarter for the channel as weather and the NHL lockout hurt them more than any other retailer in the channel. Collegiate Pacific got a boost from its acquisitions of a number of team dealers over the last year.
