The 2006 first quarter at retail was the most stable quarter in years in terms of acquisitions, consolidations, or other major changes that would have caused any real material changes to the numbers of trends for the period versus last year. Aside from Big Dog Holdings adding Steves Shoes and Footworks to the business at The Walking Company since last year and Collegiate Pacific adding Salkeld Sports and a majority interest in Sports Supply Group to its portfolio, the one big change for the industry was the move after the end of the quarter by The Sports Authority to go private, a move that eliminated them from the quarterly retail review for the first time. No retailers went public during the quarter, but Golfsmiths more recent IPO puts them in the public realm.
The two guys that were new to the chart in Q1 last year because of public offerings, Golf Galaxy and Zumiez, also posted the largest organic growth for the first quarter this year, with Zumiez revenues up more than 43% for the period versus the prior year and Golf Galaxy posting a gain of nearly 41% for the quarter. But the two retailers have stocks that are moving in opposite directions (see page 6 ).
For the period ended April 29, 2006, or the quarter ended closest to that date for retailers not on a regular retail fiscal calendar, the retail sector saw profit growth for the period outpace sales growth by nearly a two-to-one margin, thanks to the family footwear sector and a nice turnaround in the sporting goods sector that helped offset wider losses at Gander Mountain and West Marine. Total profit for the retailers covered in this report increased 14.2% in the quarter while sales increased 7.6% for the period, nearly half the rate of growth in the year-ago period.
When excluding the effect of merger and acquisition-aided gains, overall organic revenue growth for the companies tracked in the chart on page two would have still been up just over 7.0% for the period. Excluding the impact of year-ago merger integration charges associated with the Dicks Sporting Goods/Galyans deal, total profits for the companies tracked in the chart would have increased 4.3% and Sporting Goods sector profits would have risen more than 41% for the quarter and just eked out a profit compared to a loss in Q1 last year when including those expenses.
The Family Footwear sector shrugged off an operating income decline at Famous Footwear to post very strong growth in profits in relation to revenue growth. The bottom line surged an average 28.9% for the sector — led by a nice 150% gain at DSW-while revenues rose 3.9% for the period. The combination pushed Return on Sales for the sector up a full point for the quarter to 5.2% of sales.
Despite these gains on the bottom line, the retail sector as a whole still found it difficult to generate profits from operations. Return on Sales for the total retail segment increased to 3.1% of sales for the period, up just 20 basis points from the year-ago period, but still more than 470 basis points less than the number generated on the vendor side of the table for the period. Most of the profit drain came from The Finish Line, Pacific Sunwear, Gander Mountain, West Marine, and GSI Commerce. Excluding those four retailers, the retailers on the chart would have seen profits increase more than 34% on average and ROS would have been 3.7% of sales for the period. When compensating for the year-ago charges at Dicks Sporting Goods, the bottom line for the remaining companies would have still increased more than 18% in the first quarter.
The Catalog/Team/Web sector as a whole saw its profit margins narrow a bit thanks to the much wider loss at GSI Commerce, but the sector also saw the most overall growth due to the non-organic revenue increase at Collegiate Pacific. Sector profits were down nearly 50% for the period due to a loss at GSIC that expanded more than 181% versus the year-ago period. Excluding the GSIC issue, sector profits would have been up more than 28% for Q1.
Revenues in the Catalog/Team/Web sector, which do not include service income at GSIC, were up more than 28% for the quarter, due in large part to the non-organic growth at Collegiate Pacific. Revenue growth at the serial consolidator in the team dealer channel would have been 11.8% for Q1, which translates to a 13.2% increase for the sector as a whole on an organic basis.
The Specialty Channel saw the profit picture take a negative turn in the first quarter due to the issues at The Finish Line (see page 4) and Pacific Sunwear. Overall profits for the sector shrunk 8.3% in the period, but would have been up roughly 4.9% when excluding the two mall retailers.
Return on Sales was pegged at 4.3% for the Specialty sector in Q1, down about 50 basis points from the 4.8% ROS posted in Q1 last year. Excluding the drag from FINL and PSUN, Specialty sector ROS on a comp basis would have been flat to the prior year period.
When assessing the impact of the newly acquired businesses at The Walking Company, SEW estimates that the sector would have seen sales rise just 3.4% for the period on a like-for-like basis, reflecting a 19.7% increase in revenues at TWC on an organic basis.
Based on retail POS data compiled by SportScanINFO for the first quarter, overall footwear sales increased in the mid-single-digit neighborhood in the Sports Retailer sector, which includes Sporting Goods, Athletic/Urban Specialty, Sport Specialty, and Internet /Catalog sales. Running, Skate, Fashion Athletic, Outdoor Fashion Casual, and Sandals were the biggest gainers for the quarter, while Classics and Basketball were the biggest drag.
Apparel sales in the sector were up in the low-teens for the quarter, based on the SportScanINFO data, but Performance Apparel sales were up in the mid-20s for the period.
Licensed product sales were up in low-single-digits for the period in the Sports retailer sector, staying positive due to a high double-digit gain in headwear and strength in MLB and the NHL, which had an easy anniversary against no league play last year.
