After months of speculation about the pending sale of three more athletic footwear companies, it is Brook Sports that has made the first move, with parent JH Whitney inking an agreement last week to sell the company to Russell Corporation in a deal worth approximately $115 million. The deal will net Whitney a healthy 180% return on its initial investment when it bought Brooks in 1998 for an estimated $41 million.
The all-cash transaction will be funded with proceeds from Russell’s existing credit facility.
Brooks Sports, which will keep its 165 employees at their HQ in Bothel, WA, will become the third leg in the Russell Corporation model, with CEO Jim Weber reporting directly to RML chairman and CEO Jack Ward — at least for now.
This acquisition, which is seen much more of a brand play rather than a synergistic opportunity, is worth nearly the total amount RML has spent on all other deals over the last two years.
Mr. Weber told Sports Executive Weekly that Russell won out in this deal because they were the most aggressive and the most enthusiastic suitor. Asked if the deal went to the highest bidder or the best fit, the CEO simply replied, “both”. He said he saw sourcing opportunities, particularly in apparel, and looked forward to “getting more competitive” in the market.
Weber said Russell is eager to diversify into the Specialty channel and sees Brooks as a way to accomplish the task. He did not see immediately broadening Brooks distribution beyond the current Specialty focus, and will instead focus on growing market share in the channel.
Brooks now becomes a sister company to Moving Comfort, which established itself as the leading running brand for Women in the 80s. Russell acquired Moving Comfort in August 2002. He sees the Running category as a strong place to be right now as performance footwear sales drive the market. “If I have one category to play in, this would be it,” he told SEW.
Brooks Sports is expected to post $95 million in revenues in 2004, with about 25% of that coming from International sales and licensing revenues. Total global brand sales are expected to reach $150 million for the year. Brooks posted $135 million in global sales in 2003, with 58%, or roughly $78 million coming from International sales. The company produced approximately $57 million in sales in the domestic market last year and sees double-digit growth again in 2004 to roughly $71.3 million.
Footwear accounts for about 90% of sales, with the balance derived from apparel and accessories. Bookings for Spring 05 are up 30% versus the year-ago period. Brooks is obviously seen as a very strong player in the Specialty market but has not played very heavily in the Sporting Goods or Athletic Specialty channels of late.
Running Specialty accounted for 79% of total domestic Brooks sales in 2003 versus 35% of the business in the prior year and the company has increased share in the channel to 17% this year from 13% in the prior year.
Sporting Goods shrunk from 29% of sales in 2002 to just 8% of sales last year as the company moved to clean up distribution and strengthen brand image. Once a brand that was known on the West Coast as much for their $29.99 product as the iconic Chariot that is seen as the genesis of motion-control technology, Brooks has worked tirelessly over the last few years to right the ship and position itself for this deal.
One area that Weber saw as a opportunity is Team Sports, an area where Brooks has been focused of late after getting back in the track team uniform business three years ago and re-introducing track spikes to the schools. Russells strong network of team dealers and influence in the sporting goods channel should play well here.
Brooks sales in the Specialty channel were expected to grow more than 34% in 2004 versus roughly 17% in 2003. Sales in the Specialty channel grew more than 49% in 2002. Athletic Specialty was just 6% of sales last year compared to 15% of sales in 2002.
Sports Executive Weekly asked Mr. Weber if Brooks would become a footwear division with responsibility for developing footwear product for the growing stable of brands at Russell Corp. “First and foremost, its the Brooks brand,” he replied, but also intimated that they may be able to help where Russell already has some footwear product in the International market.
SEW sees some nice opportunities here as Brooks fights to build sales in a category where they are the number three volume player out of the niche running brands. While number two in share at running specialty, they certainly have room to grow as a premium brand in other channels. With Asics back over $200 million in sales in the domestic market this year and Saucony driving toward $175 million in sales this year, Brooks should also see continued opportunity for growth.
Russell is forecasting that the Brooks acquisition will boost its fiscal 2005 sales to $1.5 billion and earnings per share for the year will range between $1.55 and $1.65. Russell also said that 2004 EPS are now expected to come in at the lower range of its guidance of $1.45 to $1.55 per share, due primarily to softness at retail in fourth quarter.
>>> Not that anyones asking, but SEW sees an opportunity for Brooks to tap the knowledge base that now exists at the Russell Athletic Womens division. How can that be translated into taking a bigger piece of the fast-growing Womens running footwear market where Saucony has been King (or Queen) for some time…
