With over two-thirds of the sporting goods industrys retailers reporting comparable store sales declines for the third quarter, the segment would have to make serious strides in gross margin to see any improvement on the bottom line. Unfortunately, that did not happen. Overall margins did grow slightly for the third quarter ended November 3, but costs associated with store closings, clearing out old inventory and litigation expenses pushed net income down by more than half on an overall basis.
As a whole, the retailers tracked by Sports Executive Weekly saw sales increase 5.1% in the fiscal third quarter, but behind the 9.1% growth seen in the year-ago quarter. Sales were stymied by the macroeconomic condition as well as by the late start to winter that slowed sales of cold weather product largely until early in the fourth quarter. The reporting retailers saw gross margins increase 10 basis points to 31.0% of sales, but the slow sales combined with litigation and store closure costs caused profits to drop 51.8%.
Excluding the costs associated with store closings at Pacific Sunwear and Foot Locker and the litigation costs surrounding the Genesco and The Finish Line merger, net income would have declined only 12.2%. That decline is more or less a direct result of the comps declines seen across the industrys retailers.
The third quarter saw little outside influence in terms of mergers & acquisitions or companies new to the public life. Lululemon accounted for nearly half a percentage point of the sales growth for the overall retail market and pushed specialty retailers from a negative 0.6% sales decline to the 0.2% increase shown on the chart. Without LULUs bottom line gain, specialty retailers would have seen a net loss of $23.4 million for the third quarter.
Nowhere were the litigation and store closing costs more apparent than in the Specialty Retailers segment. Sales were relatively flat for the quarter, with margins improving only slightly. The costs of the GCO/FINL debacle, as well as the costs of closing the Demo and One Thousand Steps stores at Pacific Sunwear and many Foot Locker stores, dropped the segment from a net income of $116.4 million in the year-ago quarter to a net loss of $15.9 million this year. Without those charges, net income would have decreased 16.6% to $97.1 million for the third quarter.
Sporting Goods Retailers faired better than their counterparts at the mall, with sales growing 7.7%. However, the majority of these retailers saw comparable store sales decline for the quarter, leading net income to decline 6.7%. Gander Mountain led the comps declines for the segment, and was the only retailer in the group to post a net loss for the quarter. Without GMTN in the results, the retailers were able to overcome the soft sales environment with an 8.0% sales increase and a 5.6% improvement in net income. However, the 18.8% jump in inventories, especially at Gander and Cabelas, while likely a run-up toward Holiday and possibly a cause of the calendar shift could signal worrying signs after the slow December comps results covered in this issue.
The Catalog/Team/Web segment was the only to post double-digit sales growth for the quarter on GSI Commerces strong third quarter sales. However, GSIC was also a burden to the segment as it caused an overall net loss.
With the December numbers in, Q3 looks like it might be a fairly good measure of what Q4 will have in store…
