TSA Sports Authority New

The Sports Authority, Inc. (NYSE:TSA) today announced results for its second fiscal quarter ended July 30, 2005. -- Diluted EPS of $0.53 vs. previous guidance of $0.47 - $0.49 -- Comparable store sales increase of 0.2% -- Raises full year diluted EPS guidance from $1.90 - $1.97 to $1.96 - $2.01 Net income for the second quarter was $14.2 million, or $0.53 per diluted share, compared with net income of $6.8 million, or $0.26 per diluted share, including merger integration costs, in the prior year's second quarter. Excluding the effect of after-tax merger integration costs of $5.1 million, or $0.19 per diluted share, net income for the prior year's second quarter was $11.9 million, or $0.45 per diluted share. Total sales for the second quarter were $617.0 million compared with $605.0 million in the prior year's second quarter, an increase of $12.0 million, or 2.0%. Second quarter comparable store sales for the Company increased 0.2%. Net income for the 26 weeks ended July 30, 2005 was $22.2 million, or $0.83 per diluted share, compared with net income of $10.9 million, or $0.41 per diluted share, including merger integration costs, in the prior year's comparable period. Excluding the effect of after-tax merger integration costs of $10.4 million, or $0.39 per diluted share, net income for the prior year's 26 weeks was $21.3 million, or $0.80 per diluted share. Total sales for the 26 weeks ended July 30, 2005 were $1.21 billion compared with $1.18 billion in the prior year's comparable period, an increase of $31.2 million, or 2.7%. Comparable store sales for the 26 weeks ended July 30, 2005 increased 1.0%. The Company opened one store and closed two stores during the second quarter to arrive at a total number of stores in operation as of July 30, 2005 of 392 stores in 45 states. Doug Morton, Chief Executive Officer commented, "We exceeded earnings expectations for the second quarter driven by improvements in gross margin and effective management of our operating expenses. We were pleased with the sales performance of several key categories including active apparel and fitness, however, the impact on our top line performance was greater than expected due to our decision not to repeat certain promotional events. This decision also resulted in an improved gross margin rate and higher gross margin dollars, which contributed to the favorable EPS performance. In addition, we reduced quarter end debt by $45 million compared to second quarter last year, and reduced inventory by $33 million, or 6.6% on a per square foot basis, over the comparable period last year." Guidance for Fiscal Year 2005 For the third quarter of fiscal 2005, the Company is forecasting a comparable store sales increase of approximately 1% to 2%, total sales of approximately $565.0 million and diluted EPS of $0.09, based on 26.8 million diluted shares outstanding in the quarter. The Company expects to open five new stores and relocate two stores during the third fiscal quarter. For fiscal year 2005, the Company is forecasting comparable store sales to increase approximately 1.5%. The Company also stated that it is raising its fiscal year 2005 diluted EPS guidance to $1.96 to $2.01, based on an estimated 26.7 million diluted shares outstanding, compared to its previous guidance of $1.90 to $1.97. The Company expects to open approximately thirteen new stores, relocate four stores and close seven stores during the year. Non-GAAP Financial Measures To supplement our condensed consolidated statements of operations presented on a basis in accordance with accounting principles generally accepted in the United States of America ("GAAP"), we have disclosed additional non-GAAP measures of net income and earnings per share adjusted to exclude merger integration costs we believe appropriate to enhance an overall understanding of our financial performance (see income statement tables following). These adjustments to our GAAP results are made with the intent of providing a more complete understanding of the underlying operational results. These non-GAAP measures have been reconciled to the most comparable GAAP measure as required under SEC rules regarding the use of non-GAAP financial measures. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or diluted earnings per share prepared in accordance with GAAP. The Sports Authority, headquartered in Englewood, CO, is one of the nation's largest full-line sporting goods retailers offering a comprehensive high-quality assortment of brand name sporting apparel and equipment at competitive prices. As of July 30, 2005, The Sports Authority operated 392 stores in 45 states under The Sports Authority(R), Gart Sports(R), Sportmart(R) and Oshman's(R) names. The Company's e-tailing websites, located at thesportsauthority.com, gartsports.com, sportmart.com and oshmans.com, are operated by GSI Commerce, Inc. under license and e-commerce agreements. In addition, a joint venture with AEON Co., Ltd. operates "The Sports Authority" stores in Japan under a licensing agreement. (tables to follow) This announcement contains, in addition to historical information, certain forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those currently anticipated as a result of a number of factors, including risks and uncertainties discussed in The Sports Authority's filings with the Securities and Exchange Commission. Those risks include, among other things, the possibility that the Company's independent auditors may identify additional issues or other considerations while they complete their review of the Company's financial statements, rapidly changing accounting rules, regulations and interpretations, the competitive environment in the sporting goods industry in general and in the specific market areas of the Company, consumer confidence, changes in discretionary consumer spending, changes in costs of goods and services and economic conditions in general, and in the companies' specific market areas, unseasonable weather and those risks generally associated with the integration of the companies. The Company assumes no obligation to update any forward-looking statements as a result of new information or future events or developments. -0- *T 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 30, July 31, July 30, July 31, 2005 2004 2005 2004 ----------- ----------- ----------- ----------- Net sales $617,034 $605,025 $1,208,265 $1,177,065 Cost of goods sold, buying, and occupancy 442,985 436,707 873,358 849,442 ----------- ----------- ----------- ----------- Gross profit 174,049 168,318 334,907 327,623 Gross profit % 28.2% 27.8% 27.7% 27.8% Operating expenses: Selling, general and administrative expenses 144,952 143,636 287,115 282,881 Selling, general and administrative expenses % 23.5% 23.7% 23.8% 24.0% Integration costs - 8,419 - 16,977 Store pre-opening expenses 471 758 1,178 1,681 ----------- ----------- ----------- ----------- Operating income 28,626 15,505 46,614 26,084 Non-operating income (expense): Interest (5,345) (4,838) (10,841) (9,126) Other income 215 423 865 944 ----------- ----------- ----------- ----------- Income before income taxes 23,496 11,090 36,638 17,902 Income tax expense (9,281) (4,325) (14,472) (6,982) ----------- ----------- ----------- ----------- Net income $14,215 $6,765 $22,166 $10,920 =========== =========== =========== =========== Earnings per share: Basic $0.55 $0.26 $0.85 $0.43 =========== =========== =========== =========== Diluted $0.53 $0.26 $0.83 $0.41 =========== =========== =========== =========== Basic weighted average shares outstanding 26,050,048 25,696,137 25,962,964 25,548,588 =========== =========== =========== =========== Diluted weighted average shares outstanding 26,774,677 26,469,345 26,682,016 26,435,375 =========== =========== =========== =========== Reconciliation of GAAP measures to pro forma, non-GAAP measures: ---------------------------------------------------------------- Results of operations for the 13 and 26 weeks ended July 31, 2004 include merger integration costs. 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 costs, and including income tax expense at effective tax rates. Income before income taxes as reported $11,090 $17,902 Integration costs 8,419 16,977 ----------- ----------- Pro forma income before income taxes 19,509 34,879 Income tax expense at effective tax rates (7,609) (13,603) ----------- ----------- Pro forma net income $11,900 $21,276 =========== =========== Pro forma earnings per share: Basic $0.46 $0.83 =========== =========== Diluted $0.45 $0.80 =========== =========== Basic weighted average shares outstanding 25,696,137 25,548,588 =========== =========== Diluted weighted average shares outstanding 26,469,345 26,435,375 =========== =========== The Sports Authority, Inc. Condensed Consolidated Balance Sheets (Dollars in thousands) ---------------------------------------------------------------------- July 30, January 29, July 31, 2005 2005 2004 ----------- ----------- ----------- ASSETS Current assets: Cash and cash equivalents $31,623 $24,838 $30,535 Merchandise inventories 738,380 728,853 771,444 Other current assets 134,838 128,969 165,092 ----------- ----------- ----------- Total current assets 904,841 882,660 967,071 Property and equipment, net 280,169 256,312 244,312 Other long-term assets 293,714 312,209 287,077 ----------- ----------- ----------- Total assets $1,478,724 $1,451,181 $1,498,460 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $303,901 $339,492 $349,612 Other current liabilities 176,256 187,650 178,237 ----------- ----------- ----------- Total current liabilities 480,157 527,142 527,849 Long-term debt 344,429 305,383 389,815 Other long-term liabilities 138,773 133,647 120,286 ----------- ----------- ----------- Total liabilities 963,359 966,172 1,037,950 ----------- ----------- ----------- Total stockholders' equity 515,365 485,009 460,510 ----------- ----------- ----------- Total liabilities and stockholders' equity $1,478,724 $1,451,181 $1,498,460 =========== =========== =========== *T