The Sports Authority Cuts Promotional Position, Boosting Q2 GM and Net Income…

The Sports Authority saw shares rise for the week after providing some goods news in the bottom line results. The gain in net income was due in large part to a shift away from BOGO sales and other promotional vehicles that may have limited top-line growth but delivered improved gross margins. Company chairman and CEO Doug Morton said they opted not to repeat several “very aggressive” coupon events and several weeks of BOGO footwear promotions.

TSA was able to reduce its reliance on the promotional side of the business in part due to an emphasis on cleaner inventories. Inventory per square foot was down 6.6% versus the quarter-end last year. Morton said the inventory reduction also helped drive debt down by $45 million versus the same time last year.

Second quarter sales were driven by strong performances in active sportswear, outdoor apparel, and fitness equipment. The performance apparel business was driven by Nike, Under Armour, and adidas, while the outdoor apparel gains were driven by Columbia and The North Face. Management is excited about the gains in fitness since it makes up a larger portion of the back half business. Golf comps were described as “positive.”

TSA saw continued weakness in the outdoor categories, bikes, and in-line skates. Management expects the outdoor business to remain “challenging” in the near-term, due in large part to the large amount of new retail real estate being added in the category.

Footwear was “slightly negative” due to the decision to not anniversary nine weeks of BOGO events, but GM was up versus last year.

Comp sales growth came from “very, very nice growth” in average unit retail and average transaction size.

David Campisi, president of merchandising, was especially proud of a number of supply chain initiatives that are reducing inventories but increasing the in-stock of key items.

Campisi said the in-stock position on advertised items was in the high 90% range during the quarter. E3 replenishment items were on-plan in the mid-90% range and made up 43% of sales during the quarter while making up just one-third of the inventory for the period. They now have 1,200 items in the back-stock program, up from 700 items in the first quarter. Those items generated 13% of Q2 sales versus about 11% in the first quarter. The SDQ initiative grew to 20% of inventory receipts in dollars and over 35% in units in the quarter.

TSA is still focused on reducing inventories by $50 million by year-end versus the prior year level.

Net income excluding merger and integration expenses was up 19.3% for the quarter, versus $11.9 million, or 45 cents per share, in the year-ago quarter.

TSA plans to remodel or initiate remodeling an additional 30 to 35 TSA stores for the balance of the year, for a total of 55 to 60 stores for the year. They plan to open or relocate a total of 17 stores this year. TSA closed two small format stores in Q2 for a total of 392 doors in the portfolio at quarter-end.

The retailer is raising guidance for the year based on the second quarter performance. TSA new sees diluted EPS in the $1.96 to $2.01 range for the year on a 1.5% comp store sales gain, compared to its previous guidance of $1.90 to $1.97 and last year’s diluted EPS of $1.29 per share.

For third quarter, the company is forecasting diluted EPS of nine cents per share on a comp store sales increase of approximately 1% to 2% and total sales of roughly $565.0 million. TSA earned a penny per diluted share in Q3 last year.

>>> Vendors are telling SEW that the TSA business relationship is night ’n day positive compared to the post-merger merchant regime…