The Sports Authority, Inc. reported that net income for the second quarter was $6.7 million, or 25 cents per diluted share, including the effect of after-tax merger integration costs of $5.1 million, or 20 cents per diluted, share compared with 42 cents per diluted share in the prior year's second quarter. The 2003 Q2 period included the effect of after-tax merger integration costs of $1.0 million, or 8 cents per diluted share.
Excluding merger integration costs, net income for the second quarter was $11.9 million, or 45 cents per diluted share, compared with net income of $6.3 million, or 50 cents per diluted share in the prior year's second quarter for the former Gart Sports Company on a stand-alone basis. Pro forma combined earnings for the prior year's second quarter were 22 cents per diluted share.
Total sales for the second quarter were $605.0 million compared with $267.5 million in the prior year's second quarter as reported by the former Gart Sports Company on a stand-alone basis. Second quarter comparable store sales for the combined company decreased 3.8% from last year's combined company results.
Net income for the 26 weeks ended July 31, 2004, was $10.8 million, or $0.41 per diluted share, including the effect of after-tax merger integration costs of $10.4 million, or $0.39 per diluted share, compared with $0.75 per diluted share in the prior year's comparable period, which included the effect of after-tax merger integration costs of $1.0 million, or $0.08 per diluted share and included income related to non-recurring events and a related tax benefit of $2.0 million or $0.15 per diluted share.
Excluding these items, diluted earnings per share for the 26 weeks ended July 31, 2004 was $0.80 compared with $0.68 per fully diluted share in the prior year's comparable period for the former Gart Sports Company on a stand-alone basis. Pro forma combined earnings for the prior year's comparable period were $0.34 per diluted share.
Total sales for the 26 weeks ended July 31, 2004 were $1.18 billion compared with $495.9 million in the prior year's comparable period as reported by the former Gart Sports Company on a stand-alone basis. Year-to-date comparable store sales for the combined company decreased 1.9% from last year's combined company results.
The Company opened two stores and closed one store during the quarter to arrive at a total number of stores in operation as of July 31, 2004 of 386 stores in 45 states.
Doug Morton, Chairman, Chief Executive Officer and President of The Sports Authority, stated, “As we previously announced, our more seasonal outdoor categories under-performed expectations due to unusually cool and wet weather in many of our key markets. Also, we continue to experience weak sales of fitness equipment, which represents a significant part of our business. We expect fitness sales to improve as we complete our new merchandise assortments in this category by the end of the third quarter. Furthermore, we believe we can improve the effectiveness of our advertising by implementing a number of personnel and procedural changes to address this issue.”
Mr. Morton continued, “Despite these challenges, we continue to make progress on many of our initiatives. We are pleased with the initial success of our store remodel program where the incremental sales increases in the first twenty-seven remodeled stores has approximated seven percent. We are also excited about the rollout of our statement shoe walls, which was substantially completed at the end of the second quarter. We believe these footwear walls, once fully merchandised, will drive additional sales and further enhance the overall shopping experience. Additionally, we are well positioned in our historically strong winter sports categories as we head into the second half of the year. The third quarter will be the first quarter since the merger that we will have complete cold weather assortments, including ski and snowboard equipment, apparel and accessories in the company's Sports Authority stores.”
Mr. Morton concluded, “Although we are disappointed with our most recent results, we believe we have identified the key merchandising and operational issues that contributed to our performance and we are taking the necessary steps to address these challenges. The necessary changes to address these issues will not have an immediate impact and therefore, we are taking a more conservative approach with our guidance for the remainder of this year.”
The Company is currently forecasting comparable store sales to decrease in the low single-digits for the third quarter of fiscal 2004. Gross margins are forecasted to increase only slightly during the quarter due to markdowns and promotional strategies focused on liquidating summer outdoor inventories. The Company expects to report net income in the range of $0.0 to $1.3 million, and diluted EPS in the range of $0.00 to $0.05 based on 26.4 million diluted shares outstanding in the quarter. All earnings estimates are exclusive of merger integration costs.
For fiscal year 2004, the Company expects to report net income in the range of $49.8 to $51.1 million, and diluted EPS between $1.88 to $1.93, based on an estimated 26.5 million diluted shares outstanding. All earnings estimates are exclusive of merger integration costs. The Company currently expects to open 22 new stores during the year and expects to close up to a total of 13 stores. The number of stores in operation at the end of fiscal 2004 is expected to be 393.
The Sports Authority, Inc.
Condensed Consolidated Statements of Income
(Dollars in thousands, except share and per share data)
13 Weeks Ended 26 Weeks Ended
----------------------- -----------------------
July 31, August 2, July 31, August 2,
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net sales $605,025 $267,514 $1,177,065 $495,946
Cost of goods sold,
buying, and
occupancy 436,864 196,822 849,924 367,673
----------- ----------- ----------- -----------
Gross profit 168,161 70,692 327,141 128,273
Gross profit % 27.8% 26.4% 27.8% 25.9%
Operating expenses:
Selling, general
and
administrative
expenses 143,627 58,277 282,863 111,700
Selling, general
and
administrative
expenses % 23.7% 21.8% 24.0% 22.5%
Integration costs 8,419 1,676 16,977 1,676
Store pre-
opening
expenses 636 475 1,386 570
----------- ----------- ----------- -----------
Operating income 15,479 10,264 25,915 14,327
Non-operating
income (expense):
Interest (4,838) (2,134) (9,126) (4,149)
Other income 423 478 944 2,519
----------- ----------- ----------- -----------
Income before
income taxes 11,064 8,608 17,733 12,697
Income tax
expense (4,316) (3,348) (6,917) (3,248)
----------- ----------- ----------- -----------
Net income $6,748 $5,260 $10,816 $9,449
=========== =========== =========== ===========
Earnings per share:
Basic $0.26 $0.44 $0.42 $0.80
=========== =========== =========== ===========
Diluted $0.25 $0.42 $0.41 $0.75
=========== =========== =========== ===========
Basic weighted
average shares
outstanding 25,696,137 11,900,165 25,548,588 11,885,250
=========== =========== =========== ===========
Diluted weighted
average shares
outstanding 26,469,345 12,621,076 26,435,375 12,538,241
=========== =========== =========== ===========
Reconciliation of GAAP measures to pro
forma, non-GAAP measures:
-------------------------------------------
Results of operations for the 13 and 26 weeks ended July 31, 2004, and
August 2, 2003, include merger integration costs and/or non-recurring
settlements and associated income tax benefits. In order to present
comparable results year over year, the following table provides a
reconciliation of GAAP basis net income to pro forma net income
excluding these items, and including income tax expense at statutory
rates.
Income before
income taxes as
reported $11,064 $8,608 $17,733 $12,697
Integration costs 8,419 1,676 16,977 1,676
Expected non-
recurring
settlements
included above - - - (373)(1)
----------- ----------- ----------- -----------
Pro forma income
before income
taxes 19,483 10,284 34,710 14,000
Income tax
expense at
statutory tax
rates (7,598) (3,993) (13,537) (5,424)(2)
----------- ----------- ----------- -----------
Pro forma net
income $11,885 $6,291 $21,173 $8,576
=========== =========== =========== ===========
Pro forma earnings
per share:
Basic $0.46 $0.53 $0.83 $0.72
=========== =========== =========== ===========
Diluted $0.45 $0.50 $0.80 $0.68
=========== =========== =========== ===========
Basic weighted
average shares
outstanding 25,696,137 11,900,165 25,548,588 11,885,250
=========== =========== =========== ===========
Diluted weighted
average shares
outstanding 26,469,345 12,621,076 26,435,375 12,538,241
=========== =========== =========== ===========
(1) Includes a non-recurring expense of $1.5 million, related to the
settlement of two wage and hour lawsuits in California and $1.9
million of non-recurring interest income related to the settlement
of a tax dispute with Gart's former parent (Thrifty Payless
Holdings, Inc., a subsidiary of RiteAid Corporation).
(2) Adjusted to exclude a non-recurring tax benefit of $1.7 million
related to the settlement of a tax dispute with Gart's former
parent (Thrifty Payless Holdings, Inc., a subsidiary of Rite Aid
Corporation) and to record tax expense at statutory rates.
Pro forma combined results for the 13 weeks ended August 2, 2003
----------------------------------------------------------------
Former Former Pro forma
Sports Gart combined
Authority Sports
---------- -------- -----------
Earnings (loss) before income
taxes, as reported $(1,679) $8,608 $6,929
Non-recurring settlements and
merger related costs included
above 715 1,676 2,391
---------- -------- -----------
Pro forma income (loss) before
income taxes (964) 10,284 9,320
Pro forma income tax benefit
(expense) at statutory tax rates 371 (3,993) (3,622)
---------- -------- -----------
Pro forma net income (loss) $(593) $6,291 $5,698
========== ======== ===========
Pro forma earnings per share:
Basic $0.22
-----------
Diluted $0.22
===========
Pro forma basic weighted average
shares outstanding 25,700,000 (1)
===========
Pro forma diluted weighted average
shares outstanding 26,500,000 (1)
===========
(1) Pro forma share amounts are based on the weighted average and
diluted weighted average shares outstanding for the 13 weeks ended
July 31, 2004.
Pro forma combined results for the 26 weeks ended August 2, 2003
----------------------------------------------------------------
Former Former Pro forma
Sports Gart combined
Authority Sports
---------- -------- -----------
Earnings (loss) before income
taxes, as reported $(877) $12,697 $11,820
Non-recurring settlements and
merger related costs included
above 1,458 1,303 2,761
---------- -------- -----------
Pro forma income before income
taxes 581 14,000 14,581
Pro forma income tax expense at
statutory tax rates (224) (5,424) (5,648)
---------- -------- -----------
Pro forma net income $357 $8,576 $8,933
========== ======== ===========
Pro forma earnings per share:
Basic $0.35
-----------
Diluted $0.34
===========
Pro forma basic weighted average
shares outstanding 25,500,000 (2)
===========
Pro forma diluted weighted average
shares outstanding 26,400,000 (2)
===========
(2) Pro forma share amounts are based on the weighted average and
diluted weighted average shares outstanding for the 26 weeks ended
July 31, 2004.
