The Sports Authority was able to report fiscal third results compared against combined results as a merged entity in the year-ago period, finally giving the market a real apples-to-apples view of the business for the first time since the deal to merge Gart Sports and The Sports Authority closed in August of last year. Quarterly results from this point will reflect the new business, but the 2004 full year results will still be skewed due to the mysterious “lost quarter” for the old TSA in second quarter last year.
To their credit, TSA management did not fall back on the Falls unseasonably warm weather as an excuse for lower comps or declining profits. They did talk about the impact of the hurricanes in the Southeast that were said to have forced closure of stores resulting in 200 lost store-days of business. Management estimated that the closures impacted comps by 90 basis points — giving them a net decline of 1.0% for the quarter — resulting in a three cents impact to the bottom line.
The Street reacted positively to the retailers results for the quarter, taking a position that the worst appears to be behind them now, as TSA shares rose 13.1% for the week to close at $29.00 on Friday. TSA shares are now roughly a third lower than the same point last year.
After the dust settled from the impact of the Q3 hurricanes, TSA saw comps improve, resulting in a 3.0% positive comp in the month of October. The gains were said to come from both sides (Gart and TSA) of the business, with each comping up in low-single digits.
TSA continued to see a 6% to 7% lift in sales at stores that have gone through the remodel process, due primarily to transaction size. They expect to have 48 stores either completed or in process by year-end with another 60 planned for next year.
The Golf Day initiative continues its roll out as well. TSA expects to have 70 of the golf shop-in-shop formats completed by year-end and sees adding another 40 shops next year in either remodeled or new doors.
Footwear was called out as a key contributor as the company benefited from expanded performance footwear offerings on the full-service shoe walls at 200 stores.
The category comped up in low-singles for the period, driven by Nike Shox and Asics Gel Kuyanos. Morton said they still believe the hybrid format of the footwear department is the “most effective” model going forward. The hybrid model enable TSA to present product at $75+ on the full-service wall while still servicing the value customer in the rack model.
Chairman, CEO, and president Doug Morton said the Red Sox had a positive impact on the month, but it was mitigated quite a bit due to other regional upside last year such as the Marlins World Series win and stronger Cubs and Red Sox sales during their run last fall. He said the Licensed Apparel business was “slightly negative” for the quarter.
The overall Apparel business continues to improve, with comps up 3.0% and margins improving. Morton said they are expanding Apparel square footage by 25% and said remodeled stores Apparel pads increased 30%.
The Hunting category will be the net loser here as TSA cuts back on the commitment here due to “declining participation” and the impact of the “category killer competitors” in the market. Morton said the Outdoor department saw the “worst performance” at TSA.
The Fitness business was said to be improving, due primarily to more high-end product this year. The company is rolling out the Fitness Specialist initiative in some stores after a successful test, matching a program that Dicks started earlier this year.
Management said it was a little early to measure the success of expanded Winter Sports offerings in Northeast and Upper Midwest, stating that the business here was really more Q4 focused. Morton did say they were “pleased” with the initial sales results from the expanded offering, but opted to take a safe approach on the category. Analysts noted a great deal of 50% off signs on Outerwear and Morton explained it was part of the normal opportunity buy product they bring in each year.
The addition of skis in some stores had a positive impact on some stores, helping boost Winter Hardlines comp sales up mid-single-digits for third quarter.
Mr. Morton did say that they expect to focus more on the value end of the Winter Sports business, catering to a customer in this category they see as little different from the target customer in other categories — families with children that are involved in sports.
TSA Confirms Q4 Outlook
The Private Label business was up “around 200 basis points” for the quarter and is expected to finish the year at about 11% of sales.
Inventory was said to have been impacted by the write-down of inventories in Q3 last year as the company moved to liquidate goods from vendors that would not go forward in the merged model. The point was that the unit position did not reflect the same type of increase, since much of the inventory last year was valued less due as it moved to clearance. Gross margins were helped a bit his year due to an increase in merchandise margins, offset a bit by the de-leveraging of lower sales.
TSA opened seven stores and closed three stores during the quarter for a total of 390 stores at quarter-end. They expect to open six additional stores in Q4 for a total of 22 stores for the year. They expect to close another two under-performing doors in Q4 to end the year with 394 stores.
Looking ahead, TSA confirmed its fourth quarter forecast for flat comparable store sales, net income of approximately $28.5 million, and diluted EPS of $1.08 per share. For the full year, the retailer expects to report net income of approximately $50.6 million and diluted EPS of $1.91 per share, or $1.41 per diluted share excluding merger costs.
Management said it is their intent to open 15 or more stores next year and close another six old TSA stores.
>>> TSA made a big deal out of the potential Winter Sports upside in the NE and MW when the deal was done. They probably have their fingers crossed that snow will come soon
