Sports Authority Needs Second Wind

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You would think that a company with enough cash to purchase or merge with most of its competitors would spend a little more on clear communication with shareholders. Yesterday, Sports Authority (NYSE: TSA) announced its fourth-quarter and full-year 2003 results. Unfortunately, the press release leaves out a few minor details -- entire quarters' worth of sales, for instance.

I'm sure the aim was not to obfuscate, but that is certainly the result. Whoppers such as "Total sales for the 13 weeks ended January 31, 2004 increased 125%." require a sharp eye. Sure, reading the rest of the sentence lets you know that they're comparing the combined company's Q4 sales to the prior-year results for Gart Sports alone. But, c'mon, folks! Would it have been so tough to provide a reconciliation that compared apples to apples?

We can reconstruct some of it from last year's releases. Fourth-quarter comps were flat, and sales for the combined entity were $712 million, up less than 1% when compared to the $705 million sold by the separate firms in the prior-year period ($388 for Sports Authority, $317 for Gart). That's not awful, but it's behind the revenue upticks seen by a wide variety of retailers over the holiday season, not to mention the 20% boost attained recently by competitor Dick's (NYSE: DKS).

Fourth-quarter earnings were $0.55 per share, which is a lot less than the combined $2.59 per share that the firms earned separately in the final quarter of 2002 ($1.03 for Gart and $1.56 for Sports Authority). Even the $1.08 you get by excluding merger integration costs represents a 58% drop from the sum of last year's earnings. Clearly, some work needs to be done to achieve the efficiencies and economies of scale that were hoped for when the merger closed back in August.

Management seems confident that the synergies are forthcoming; it aims for earnings of $2.60 per share for 2004, before further restructuring charges. Investors may want to wait for Sports Authority to show them the money, though. Other Fools have pointed out that Sports Authority has little history of free cash flow, and it competes in a tough market with the likes of Big 5 (Nasdaq: BGFV), Sport Chalet (Nasdaq: SPCH), and Galyans (Nasdaq: GLYN), not to mention discounters like Wal-Mart (NYSE: WMT) and Target (NYSE: TGT).

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Fool contributor Seth Jayson owns no stake in any companies mentioned above. View his Fool profile here.