Has the Paddlesports Industry Found Its New Home?

Home , 2XU, Karhu (sports brand), Starter (clothing line)

WEEK IN REVIEW

VOLUME 1 | ISSUE 21 NEWS, ANALYSIS AND INSIGHT FOR THE ACTIVE LIFESTYLE EXECUTIVE DECEMBER 5, 2016

Photo courtesy Canoecopia

HAS THE PADDLESPORTS INDUSTRY FOUND ITS NEW HOME?

Following trade-show operator Emerald Ex- Bush said Paddlesports Retailer will fo- with the industry’s fun culture. “It will be a positions’ announcement that it will move its cus on the trade side of the business, which much more intimate event.” Outdoor Retailer Summer Market trade show to felt disenfranchised by Outdoor Retailer’s Still, some of the industry’s largest players, in- June, a group of paddlesports retailers revealed decision to move up its 2018 Summer Market cluding Confluence, say they are very keen on plans to establish their own trade show focused show to June — a month where many pad- the show, and Bush said he was surprised to get on the category. dlesports retailers are too busy to attend quite a few calls from European brands as well. Darren Bush, owner of Wisconsin-based and many vendors aren’t ready to exhibit the He said he has verbal commitments from “a doz- Rutabaga Paddlesports, and Sutton Bacon, following year’s products. Emerald is attempt- en or so domestic manufacturers,” and contin- chairman of North Carolina-based Nantahala ing to soften the blow by establishing an area ues to get more daily. “My No. 1 goal is to reach Outdoor Center, said they have secured focused on outdoor and paddlesports at its out to all the brands, ask them each who their September 12-14, 2017 in Madison, WI at Surf Expo show in Orlando, starting with the top 25 buyers are and get a total of about 400 the Alliant Energy Center to host the new September 6-8, 2018 show. buyers to come to the show,” he said. Paddlesports Retailer show. But Surf Expo “isn’t our industry’s culture,” This wouldn’t be the first time the industry The show will be one “for paddlers, by pad- Bush said. “Surfboards and girls in bikinis in a has attempted to split on trade shows. In 2010, dlers” at “half the cost of Outdoor Retailer,” soulless city dominated by a giant mouse just Canoe and Kayak Magazine unsuccessfully tried Bush told SGB. “You don’t have to make boats isn’t us. There is something important about to establish a new paddlesports trade show in to come, just need to support the paddlesports location.” Minneapolis, MN. Bush said those efforts failed lifestyle.” Bush declined to estimate how many people because the group didn’t have the logistics set The speed at which the group was able to put the group hoped to attract to the new show, that he has thanks to Canoecopia. together a new show comes in part from Bush’s but said there are 900 hotel rooms within “We’re not attempting … we’re doing,” he said. proven success in growing the consumer pad- walking distance of the venue, with another Bush added that he doesn’t view the group’s dlesports show Canoecopia, which takes place 9,000 in Madison. He said he never expects efforts as a “split” from Emerald, who he said in March at the same venue. The event is one of Paddlesports Retailer to get as big as Outdoor he has been in contact with. “We’re not saying the nation’s largest in the industry, and support Retailer, but that isn’t the point. He added that don’t go to Outdoor Retailer or Surf Expo, but from Nantahala Outdoor Center, as one of the he hoped to hit the middle ground between we are offering another option. We’re not in nation’s premier paddlesports outfitters, adds Outdoor Retailer and Grassroots Outdoor this for the money, we’re in it for the health of more chops. Alliance as far as a show that mixes business the industry.”

© SportsOneSource, LLC by “gains in the retailer’s men’s, accessories and juniors’ categories, while footwear and WEEK IN REVIEW hardgoods comped down for the quarter.” NEWS, ANALYSIS AND INSIGHT FOR THE ACTIVE LIFESTYLE EXECUTIVE From a regional perspective, North America net sales increased 7.8 percent to $202.9 million while international sales Group Publisher & Creative Director Teresa Hartford rose $14.6 percent. [email protected] Despite the decline in dollars per trans- 303.997.7302 action, Zumiez was able to bump up prod- Editorial Director Photo courtesy Zumiez uct margins, resulting in a 10-basis-point David Clucas [email protected] increase in gross margin as a percentage of 303.578.7007 sales to $34.4 percent for the third quarter Senior Business Editor ACTION SPORTS RETAIL versus a year ago. Coupled with SG&A ex- Tom Ryan GETS A BOOST, BUT ZUMIEZ penses as a percentage of sales remaining [email protected] 917.375.4699 CEO REMAINS CAUTIOUS flat at 26.8 percent, quarterly net income came in at 10.7 million, or 43 cents per di- Senior Business Editor Charlie Lunan Action sports lifestyle retailer Zumiez luted share, versus net income of 9.7 million, [email protected] (Nasdaq:ZUMZ) echoed its peers in the cat- or 36 cents per diluted share, a year ago. 704.996.4463 egory with better-than-expected results on Zumiez officials said the growth has contin- Associate Editor | Sports & Fitness Editor increased sales and profits for its fiscal third ued through November with its same-store sales Jahla Seppanen [email protected] quarter ended October 29, 2016, but CEO for the month up 5.7 percent for the four-week 303.578.7008 Rick Brooks isn’t ready to start the holiday period ending November 28, on a 10.3-percent

Associate Editor | Copy Editor party just yet. increase in net sales to $69.3 million. Carly Terwilliger The company, which has more than That’s a significant improvement from a year [email protected] 303.997.7302 650 stores in North America and 30 stores ago, when same-store sales slid 13.8 percent overseas in Europe and Australia, reported during the same period in 2015. Art Director Chris Loving-Campos same-store sales up 4 percent during the [email protected] quarter (it had expected at most a 2-percent Proceeding With Prudence

Media Sales increase), boosted by an 8.4-percent in- Part of that caution from Brooks involves Buz Keenan | East crease in sales to $221.4 million with 35 new a plan for slower store growth, while still [email protected] 201.887.5112 stores versus a year ago. That includes five viewing “physical-store expansion as an im- new Fast Times stores, which the company portant piece of the customer omni-channel Circulation & Subscriptions acquired to enter the Australian market. experience,” he said. New stores are expected [email protected] Despite the positive news, Brooks said the to further slow for North America in 2017, 303.997.7302 company was moving ahead with prudence. while there is more opportunity to grow in SGB Media “While these top-line results are a great sign Europe and Australia, he said. Print Magazine: SGB Magazine Executive Newsletters: SGB Executive of our brand strength and a testament to As of October 29, 2016, inventory rose Email Magazine: SGB Today the strong execution by the Zumiez sales 12.7 percent to $150.6 million, including Email Updates: SGB Update, SGB Apparel, teams, we are cognizant that headwinds an increase in inventory per square foot. SGB Footwear, SGB Outdoor, SGB Sports & Fitness persist throughout the retail industry and “Though inventory has grown in excess of challenges associated with muted mall traf- our square footage growth, we feel confident SSIData SSIData.com fic and macroeconomic uncertainly are still in the general quality of the inventory and bringing unpredictability across the retail have seen our aged inventory, defined as Career Services SGBJobs.com sector,” he told investors on the company’s inventory older than four months, decrease December 1 conference call. “Accordingly, as a percent of total inventory year over we are proceeding cautiously and tightly year,” Work said. controlling expenses to protect profitability.” Looking ahead, Zumiez projected its fis- SGB Executive is subject to copyright and other intellectual property protection in the U.S. and other countries. SGB Executive is a registered cal fourth-quarter same-store sales, ending trademark of SportsOneSource in the U.S. and other countries. Any attempt to distribute, copy, alter or otherwise transfer content of this material More Frequent, Yet Smaller Purchases January 28, 2017, increasing 3 to 5 percent, beyond the addressed subscriber is strictly prohibited. The latest quarter was boosted by with net sales in a range between $258 million

Powered by increased transaction volume, offset by a and $263 million. Its fourth-quarter gross decline in dollars per transaction, suggest- margin is expected to improve by 50 to

1075 E. South Boulder Road • Third Floor • Louisville • CO • 80027 ing that as with other retailers, particularly 100 basis points, in part due to easier com- SportsOneSource.com | 303.997.7302 in the West, the retailer saw increased traf- parisons from a year ago, when the company fic following the closures of the bankrupt took a $1.2 million charge to clear inventory. Sports Authority and Sport Chalet. Zumiez Diluted earnings per share for the quarter are CFO Chris Work said net sales were driven expected between 60 cents and 66 cents.

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Offer Expires December 31, 2016 Photo courtesy Journeys

JOURNEYS SEES PROMOTIONAL HOLIDAY QUARTER

Genesco Inc. (NYSE: GCO) reported third-quarter earnings surpassed rotate every two to four years for the Journeys concept. “While Journeys expectations as its Lids chain benefited from the Chicago Cubs World has adeptly managed this shift through several rotations, including grunge Series win. Unfortunately, its larger Journeys chain continued its recent and skate, the current shift has been exaggerated since Journeys has been struggles, impacted by ongoing fashion shifts to retro styles as well as the narrow and deep in its merchandise assortment for some time,” stated impact of unseasonably warm weather. Dennis. “A fashion rotation out of a more concentrated position clearly As a result, the company maintained its earnings guidance for the year has more negative impact.” despite the above-plan third-quarter performance. Following a “very challenging” August, comps saw some improvement In the quarter, net earnings declined 21.3 percent to $25.9 million, or in September with a later back-to-school selling season, but then “deteri- $1.30 a share. Results were skewed by asset-impairment charges and a orated quite a bit” in October as unseasonably warm weather across the lower-than-normal tax rate in both periods, as well as network intrusion U.S. hurt mall traffic and boot sales. “We continue to see strong consumer expenses in the year-ago period. Excluding the non-recurring items, earn- interest and rapid growth in brands that are not yet at a size in the assort- ings declined 20.8 percent to $25.5 million, or $1.28 a share. Results easily ment to fully offset the decline elsewhere,” said Dennis. “Our confidence topped Wall Street’s consensus estimate of 93 cents. in the spring assortment continues to be strong as the Journeys team has Sales declined 8.2 percent to $710.8 million, partly reflecting the sale committed to much larger positions and styles the consumer is looking of the Lids Team Sports business in the fourth quarter of last year. Con- for.” He added, “In the last two fiscal years Journeys has delivered record solidated comparable sales, including same-store sales and comparable sales and earnings as the preeminent provider of fashion footwear to teens. e-commerce and catalog sales, decreased 3 percent. Comparable sales And with the change in assortment, we feel we should be back on track to reflected a 4-percent decrease in same-store sales in stores and a 7-percent be doing so once again.” increase in e-commerce sales. At Lids Sports Group, sales dropped 18.9 percent to $200.3 million due to the sale of Lids Team Sports. Same-store sales improved 2 percent, Fashion Shifts Hit Journeys fueled by the favorable MLB playoff and World Series lineups, particularly At Journeys Group, sales in the quarter declined 2.4 percent to $314.2 million. the Cubs triumph. The gains came despite a positive 12-percent compar- Same-stores sales slumped 8 percent against a 6-percent gain a year ago. ison from last year, when Lids increased its promotional activity to right- Operating income in the segment was down 34.1 percent to $25.7 million. size inventory. Gross margin on the Lids retail businesses was up 400 basis Genesco Chairman, President and CEO Robert Dennis said that, as not- points as it anniversaried promotional activity and benefited from more ed in its second-quarter conference call, fashion trends in footwear tend to full-price selling. Added Dennis, “For the third quarter in a row we reaped (Con’t Pg. 5)

4 SGB EXECUTIVE | DECEMBER 5, 2016 © SportsOneSource, LLC the benefit of the numerous initiatives we executed to improve the Lids business during FY16.” At Schuh Group, its U.K. chain that’s similar to Journeys, sales slumped G-III APPAREL SEES WARM WEATHER 11.4 percent to $90.1 million. Same-store sales were flat. Operating earn- CHILLING OUTERWEAR SALES ings were down 23.5 percent to $6.6 million. Schuh rebounded with positive comps in September and October after adjusting its promotional G-III Apparel Group Ltd. (Nasdaq:GIII), the maker of Starter jackets as cadence, but profits were impacted by the strength in the U.S. dollar well as outerwear from other team licensed and fashion brands, reduced against the pound. its guidance for the year after reporting the warmish fall was impacting its At Johnston & Murphy Group, sales increased 2.8 percent to core outerwear sales. $72.1 million with a 1-percent comp gain. Johnston & Murphy’s operating For the third quarter, earnings fell 19 percent to $70.6 million, or earnings improved 6.1 percent to $4.9 million. In its Licensed Brands seg- $1.50 a share, coming in below Wall Street’s average estimate of ment, primarily Dockers footwear, sales rose 4.5 percent to $34.1 million; $1.53. Sales slid 2.9 percent to $883.5 million. On a conference call with operating earnings were down 19.6 percent to $2.7 million. analysts, Morris Goldfarb, chairman and CEO, said the company was pre- pared for softness in outerwear as noted in its second-quarter conference Margins Up call, but it was worse than planned. He said, “The repeat of unseasonably Gross margin companywide for the third quarter improved 170 basis points warm weather created even more pressure than we anticipated.” to 50 percent. Lids improved 790 basis points, partly reflecting the sale of Revenues were down $13 million in its wholesale business, or roughly the lower-margin Lids Team Sports business. Lids retail business also im- 20 percent versus last year. This created a $40 million shortfall of revenues proved 410 basis points due to a lower level of promotions this year and against plan. As a result, G-III is now anticipating a double-digit decrease much stronger full-price selling. Journeys gross margin decreased 120 basis in outerwear sales this year versus a high-single-digit decline expected points, largely due to additional markdowns required to clean inventory previously. Said Goldfarb, “Even so, we and our retail partners bought levels. Gross margins improved at Johnston & Murphy, but were down at carefully this year, and we do not expect to have any significant inventory Schuh. Total SG&A expense increased 270 basis points to 44.3 percent for issues.” the third quarter, largely due to the sale of Lids Team Sports. The weakness in outerwear wasn’t offset by $65 million of sales growth For the current fourth quarter, consolidated comps are down 2 percent in the quarter in non-outerwear categories, led by the strengthening of through November 29. Comp sales at stores are down 4 percent, with dresses, sportswear, handbags and performance apparel. Among its key direct rising 9 percent. Dennis, however, said the fourth-quarter figures un- brands, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld all saw growth derscore “very strong” Lids results offsetting weaker results in the rest of the outside outerwear. The company also on December 1 closed on the acqui- businesses. “The Chicago Cubs’ dramatic win over the Cleveland Indians in sition of Donna Karan International. game seven and the end of the plus-100-year World Series drought provided The company did not mention the performance of its fan apparel busi- Lids with an unusually strong start to the quarter,” noted Dennis. ness, which includes the licensed Starter outerwear line. The segment also Lids comps are up 15 percent in the fourth quarter to date, led by re- includes various team fan apparel lines across leagues under G-III Sports cord-breaking sales in many stores serving fans in the local Chicago mar- by Carl Banks and Touch by Alyssa Milano. Among its retail brands, Wil- ket. Online sales were boosted by sales to displaced Cub fans throughout sons’ third-quarter comps were down 20 percent, about 15 percentage the country. The strength in Cubs merchandise offset weaker comps in points lower than planned. About 65 percent to 70 percent of Wilsons’ the rest of Lids’ businesses so far during the quarter. Dennis added, “Also, product mix is outerwear at this time of the year. G.H. Bass saw a comp while the Cubs’ victory is expected to continue to drive sales through the decline of 11 percent in the quarter against a plan of up 1 percent. balance of the quarter for Lids, it will have less impact than the gains im- Goldfarb said that while execution at Bass is “good,” the merchandise mediately following the Series.” mix has been shifted to focus on a younger consumer and is “slightly more In other segments, comps were down 12 percent quarter to date at expensive” since being acquired by the company in November 2013. Those Journeys, off 6 percent at Schuh and flat at Johnston & Murphy. changes have to be better relayed to its new target customer base. Said Journeys is being hurt by not only the ongoing fashion rotation at the Goldfarb, “We need to have a little patience, continue to raise awareness retailer, but the persistent warm weather in November that has impacted and to largely stay the course in order to see the overall success we believe boot sales. Stated Dennis, “The newness in our fashion athletic assortment Bass will be.” The company now has 190 Wilson stores and 165 Bass stores. continues to perform well. However, it just isn’t enough to offset the soft- With over 150 leases between Bass and Wilsons due to expire over the next ness in boots as this athletic product represents a much smaller percentag- two years, stores may be repurposed to other banners or closed. es of the mix right now in Q4. But this trend does bode well for spring and Looking ahead, G-III now expects earnings in the range of $1.61 to the new fiscal year.” The weather is also impacting knit hats at Lids, as well $1.71 for the year, excluding costs associated with the acquisition of Donna as boots and other cold-weather products at Johnston & Murphy. Karan, compared to $2.44 for the 2015. Previously, earnings were expected During Black Friday weekend, comps improved slightly from the quar- between $2.20 and $2.30 before non-recurring items. Sales, excluding any ter-to-date trend for all its footwear business, but fashion footwear be- benefit from Donna Karan, are expected to reach $2.41 billion versus prior came “incredibly promotional” as competitors moved to clear excess fall guidance of $2.48 billion and compared with $2.34 billion a year ago. and winter inventory. Schuh has likewise faced heightened promotions Adjusted EBITDA for the year is expected between $163 million and from competitors. Added Dennis, “Overall it looks like it will be a very $171 million compared to adjusted EBITDA of $210.1 million a year ago promotional season for the category if these trends continue through the and to its previous forecast of adjusted EBITDA between $199 million and holiday.” $206 million. The current projection includes estimated operating losses of Genesco reiterated expectations for adjusted EPS for the year in the $14 million from the Donna Karan acquisition, but excludes professional range of $3.80 to $4.00, which compares to $4.29 a year ago. fees associated with the acquisition.

5 SGB EXECUTIVE | DECEMBER 5, 2016 © SportsOneSource, LLC PSG UPDATES BANKRUPTCY BID RULES FOLLOWING COMPLAINTS

Performance Sports Group Ltd. (PSG), parent to the Bauer, Mission and Easton hockey and baseball brands, is giving interested parties friendlier financial conditions and more time to make a bid for its business, current- ly undergoing bankruptcy reorganization. U.S. and Canadian courts approved the updated bidding procedures following legal complaints alleging that PSG’s largest shareholder Sagard Capital Partners L.P. and its partner Fairfax Financial Holdings Limited had unfairly reached terms with the company on a stalking-horse bid to purchase PSG for $575 million if no better bids arrived.

Photo courtesy GoPro Under the updated bidding procedures, the deadline to submit qualified bids was extended from January 4 to January 25, 2017, with the auction set for January 30, 2017. The initial bidding requirement was reduced from IS THERE A BOTTOM FOR GOPRO? $582.5 million to $580 million and subsequent bids must now be at least $1 million higher, versus $2.5 million increments beforehand. The mini- It’s not been a good year for action-camera category leader GoPro mum break-up fee to be paid to Sagard if another deal was reached was (Nasdaq:GPRO). also reduced, from $20.1 million to $17.25 million. Just when it looked like the brand could receive a boost from new prod- During the court hearing, PSG said 30 parties had signed non-disclo- ucts like its Hero5 cameras and Karma drones, plus better media editing/ sure agreements to see its books in preparation for potential bids, and posting services, it’s hit hurdle after hurdle. another five were pending. Even with the pushed-back bid deadline, PSG Production issues of its hardware have delayed inventory, including still expects to close a deal by the end of February 2017. The company also a recall of 2,500 Karma drones. Meanwhile, GoPro’s sales were sliced announced that the courts granted final approval to access $386 million in half during the first half of the year, followed by a 39 percent drop in in term loan debtor-in-possession (DIP) financing and the balance of its the third quarter, with profits swinging to losses. And on November 30, asset-based DIP financing. The company will mostly use the DIP financing the company announced it will cut 15 percent of its workforce (about to refinance its pre-bankruptcy loan credit agreement and fund day-to-day 200 full-time positions) in a restructuring that includes the closing of its operations, officials said. entertainment division and the departure of its president Tony Bates by “We are pleased to have reached these important milestones in our fi- the end of the year. nancial restructuring process and to move forward as planned to effect an The company-wide restructuring is designed to reduce full-year 2017 orderly sale of the business as a going concern and maximize value for our non-GAAP operating expenses to approximately $650 million (GAAP: stakeholders,” said PSG CEO Harlan Kent. “We expect to have sufficient $735 million) and achieve its goal of returning to non-GAAP profitability liquidity to fund our ongoing operations and continue serving our cus- in 2017. tomers and consumers and delivering our industry leading products and GoPro Founder and CEO Nicholas Woodman said the company will brands. We are committed to acting in the best interests of Performance “sharply narrow its focus” to concentrate on its core business. “We are Sports Group, our employees and our other stakeholders and look forward headed into 2017 with a powerful global brand, our best ever products to engaging in a robust auction process.” ,and a clear roadmap for restored growth and profitability in 2017.” The company has struggled over the last two years with debts Woodman sees the company as well positioned to present consumers absorbed to acquire Easton’s baseball and softball business for with streamlined solutions to capture, edit and share video. Still, simi- $330 million in 2014, as well as a downturn in its baseball and hock- lar to slowing growth seen in the fitness tracking electronic market, in- ey businesses. Sales were expected to decline 10 percent in both the vestors worry a flood of cheap competition from Asia will continue to fourth quarter and fiscal year ended May 31 before the company filed temper growth. And while category leaders like GoPro, FitBit and oth- for bankruptcy on October 31. ers have beefed up their products with more convenient digital services, The baseball/softball market in particular experienced a significant there’s also a broader question of whether consumers are experiencing downturn in retail sales across all product categories, but particularly content fatigue. in the company’s important bat category. The baseball category was Troubles aside, GoPro officials said its internal data show its Black Fri- also significantly impacted by the Chapter 11 filing of Sports Authority day sales were “up 35 percent at leading U.S. retailers.” The final holiday and the bankruptcy of an internet baseball retailer, Team Express. sales report will largely answer the question of whether consumers still In hockey, the consolidations in the U.S. as well as the bankruptcy of have an appetite for the product or have moved on to other technologies. Total Hockey in July 2016 led to lower hockey orders as its retail cus- Either way, it’s likely acquisition rumors could heat up again for GoPro tomers focused on reducing their inventory levels. Results throughout — something the company might be preparing for with the recent restruc- fiscal 2016 and fiscal 2017 to date have also continued to be negatively turing. But don’t necessarily expect the lowest bargain-basement price for impacted by foreign currency exchange rates, specifically the depreci- GoPro, unless it hits a few more hurdles. This year’s bidding war over peer ation of the Canadian dollar and other world currencies relative to the active-lifestyle tech brand Skullcandy — with a similar high rise and fall in U.S. dollar. the market — proved investors still see opportunity in the sector. PSG owes most of its money to creditors and its overseas suppliers.

6 SGB EXECUTIVE | DECEMBER 5, 2016 © SportsOneSource, LLC TILLY’S SURPRISES IN Q3 BY THE NUMBERS WITH JUMP IN STORE TRAFFIC 39 PERCENT Action sports lifestyle retailer Tilly’s Inc. (NYSE:TLYS) surprised investors Drop in third-quarter sales for GoPro only furthering the negative with significantly better-than-expected sales and profits for its fiscal third earnings that have hit the action sports camera brand for the past quarter ended October 29, due to an unexpected boost in store traffic. The retailer with 225 stores on the West Coast credited new product year. During the first half of 2016, sales were sliced in half, while assortments, a strong second half of the back-to-school season and better production issues for its hardware have delayed inventory, including local marketing efforts as the top drivers, but also likely benefitted (as have a recall of 2,500 of its Karma drones. other West Coast active lifestyle retailers) from the exit of bankrupt Sports Authority and Sport Chalet from the market. “Store comps were positive (low single digits) for the first time since $575 MILLION last year’s third quarter, and our online business continued to grow at a The current stalking-horse bid being offered by Sagard Capital double-digit rate,” Tilly’s Inc. President and CEO Ed Thomas said on the Partners L.P. and its partner Fairfax Financial Holdings Limited for company’s November 30 conference call. “After a soft start to the third the purchase of Performance Sports Group Ltd. out of bankruptcy. quarter during the peak of the back-to-school season, store traffic turned The deadline to submit qualified bids was extended from January positive on a weekly basis throughout September and October, marking our first months of store traffic growth in quite some time.” 4 to January 25, 2017, with the auction set for January 30, 2017. Tilly’s fiscal third-quarter comp sales, which include its e-commerce Meanwhile the initial bidding requirement was reduced from business, rose 4.4 percent (versus 3.9 percent a year ago). The retailer $582.5 million to $580 million and subsequent bids must now be at added five new stores in the quarter and total sales rose 7.3 percent to least $1 million higher, versus $2.5 million increments beforehand. $152.1 million from a year ago. While gross margins remained flat at 31.5 percent for the quarter due to some “increased markdowns on slow sellers,” the company was also able to 42 YEARS cut costs, lowering its SG&A expenses as a percentage of sales by 320 basis Since Frank Van Wezel founded Hi-Tec Sports International Holdings points to 24.5 percent, versus 27.7 percent a year ago. That produced a net B.V. On November 28, Cherokee Global Brands offered a deal of income of $6.4 million, or 22 cents per diluted share, versus a net income roughly $98.5 million to purchase Hi-Tec, which would include selling of $2.8 million, or 10 cents per diluted share, a year ago. off the outdoor footwear brand’s wholesale operations to licensed Stock Jumps partners. Cherokee expects to make $62 million from the license Outperforming expectations on all measures, Tilly’s stock leaped proceeds to help pay for the acquisition. Hi-Tec would join the nearly 35 percent to more than $13 per share December 1 following parent company’s other active lifestyle brands, including Tony Hawk, the release. Sideout and Everyday California. By store category, officials said all departments comped positive for the quarter with the exception of women’s, which was down by a low- single-digit percent but improved as the quarter progressed on $3.34 BILLION increased cold-weather-related product sales. The strongest results came In online Black Friday 2016 sales, setting a new record for the shopping from about 40 locations where officials made product assortment and holiday, according to a report from digital services firm Adobe. It merchandising changes, including shorter lead times and life cycles for products to keep up with trends. Thomas said the retailer will continue was a 21.6-percent jump from year-ago sales, widely surpassing to focus on strengthening existing stores before pursuing any significant the projected $3 billion. At the same time, Thanksgiving Day online store growth. sales came in at $1.93 billion, slightly below Adobe’s pre-holiday The company ended the quarter with a strong balance sheet, reducing prediction of $2 billion, but still ahead 11.5 percent from a year inventory by 9.2 percent per square foot, with cash and marketable securi- ago. Cyber Monday still ruled as the single-biggest online shopping ties totaling $105 million and no debt. day, however, coming in at $3.39 billion, according to Adobe, up Looking Ahead 10.2 percent from a year ago and ahead of expectations. Thomas said the fourth quarter is off to a “decent start,” with comp sales up by a low-single-digit percent due to a strong Black Friday and Cyber 1.1 MILLION NEW MEMBERS Monday offsetting a weaker early November due to warmer weather. Were added to Shoe Carnival’s Shoe Perks loyalty program, bringing “We still have a lot of work to do to further improve this business and get back to a high-single-digit annual operating margin, which remains our membership to more than 12 million. Members spent an average of objective,” he said. 21 percent more per transaction than non-members and accounted Officials expect fourth-quarter comp sales to be in the range of flat for 67 percent of net sales during the third quarter of 2016. However, to up 2 percent, with earnings per share between 15 cents and 20 cents these numbers were not able to offset a sharp double-digit slide compared to last year’s 10 cents. The retailer plans to end the year with 223 stores, with two stores closing late in the quarter after the holiday in boot sales, which as a result led the company to lower full-year period. guidance.

7 SGB EXECUTIVE | DECEMBER 5, 2016 © SportsOneSource, LLC AISLE TALK 2XU appointed Brian Anderson as President of its North America subsidiary.

Accell Group said Wouter Jager will be promoted to Brand and Marketing Director, effective January 1, 2017.

Bermuda Sands named Joe Pagani as CEO.

Bridgedale, Hilly and Mountain Equipment brands are merging North American distribution channels to create Outdoor & Sports Company Inc.

BSN Sports will see Johnny Schillage and his team from Photo courtesy Hi-Tec S&S Sports Center LLC join BSN Sports.

Christy Sports appointed Matt Gold as its new CEO, effective CAN HI-TEC SPORTS MAKE February 2017. IT AS A LICENSED BRAND? Differential Brands Group Inc. appointed Tom Nevell as EVP of Business Development. Cherokee Global Brands’ (Nasdaq:CHKE) proposed deal to buy Hi-Tec Sports International Holdings B.V. for $98.5 million will most significantly Fitbit Inc. agreed to acquire smartwatch maker Pebble, according to media reports. include selling off the outdoor footwear brand’s wholesale operations to licensed partners. Fleet Feet Sports formed an exclusive retail partnership with Finnish With the move, off of which Cherokee expects to make $62 million running brand Karhu. from the license proceeds to help pay for the acquisition, Hi-Tec would Gregory appointed Adrian Davison as its new Brand Director for join the parent company’s other active lifestyle marks, including Tony Europe. Hawk, Sideout and Everyday California, as licensed brands versus wholly JD Sports Fashion Plc acquired Go Outdoors for £112.3 million, owned and operated ones. also assuming net debt of approximately £16 million as part of the Cherokee officials said they have secured license agreements for transaction. the brand’s core footwear categories “that will strengthen and expand the brand’s presence in the United Kingdom, Continental Europe, the Krimson Klover named Luisa Harkins as its Director of Sales at its new Boulder headquarters. United States, Canada and South Africa.” It will also maintain distribution agreements throughout the world, including South and Central Loudmouth signed a licensing deal with footwear agency America and Asia. True Ivy LLC, where True Ivy will develop a collection of footwear featuring Loudmouth designs. While Hi-Tec’s headquarters will remain in Amsterdam and its founder’s son, Ed Van Wezel, will remain CEO of the company, there’s no ques- LVMH is in discussions to acquire Rapha, the high-end cycling apparel tion that the deal means a strategic pivot for the brand, whose future and bike-related accessories brand based in London. direction and health will largely depend on who the licensed partners Mizuno USA appointed Indra Gunasekara as its Creative Director of are. Licensed footwear deals are not uncommon, even in the outdoor Global Performance Running Footwear. industry. For example, Patagonia once licensed its footwear operations to Wolverine Worldwide. Montane named Neskowin Outdoor Inc. of Portland, OR to direct its sales and distribution management in the United States, starting in Interestingly enough, Hi-Tec may remain most true to its founding in spring/summer 2017. the South Africa market. That’s where Frank Van Wezel, who founded the company in 1974, struck a deal with Cherokee to become one of those Osmo will re-launch its sports nutrition brand come January 2017 after closing in November 2015. The news comes as the company’s licensees. original CEO and Co-Founder Ben Capron makes a return to the Cherokee officials expect the deal to add approximately $19 million company. of licensing revenue and $7 million in adjusted EBITDA during the Outdoor Industry Association promoted Alex Boian to VP of first full fiscal year post-closing. In 2015, Hi-Tec recorded revenue of Government Affairs. approximately $143 million on worldwide wholesale sales sold under the Hi-Tec and Magnum brands. In addition to the funds from selling off Spacecraft welcomed pro snowboarder and Freeride World Champion Sammy Luebke to its pro team. the wholesale operations, Cherokee will fund the purchase through cash on hand and a new credit facility from Cerberus Business Finance LLC. Sports Afield Trophy Properties added new Field Manager “The acquisition of the Hi-Tec and Magnum brands aligns with our Deetra Tsakrios to its management team. strategic focus of diversifying and building upon our active lifestyle port- Sports Illustrated named LeBron James as its 2016 Sportsperson of the folio as we continue to grow our global footprint,” stated Henry Stupp, Year. chief executive officer of Cherokee Global Brands. “Hi-Tec’s high-equity brands will build upon our presence in the active, outdoor markets, and Under Armour hired Dave Larson, a long-time exec at Brooks Running, as its GM and SVP of Running Category Management. we are excited by the potential to further expand these brands into additional categories including apparel, accessories, wearables, outdoor prod- Under Armour will replace Nike as the athletics sponsor of ucts and more.” Monmouth University.

DELTA APPAREL EYES BOUNCE BACK IN 2017

Activewear brand Delta Apparel Inc. (NYSE:DLA) reported earnings de- private-label programs. Art Gun’s continued rapid growth was driven by its clined in its fiscal fourth quarter due to costs associated with its manufac- expanded customer base and new product lines with existing customers. turing realignment and an extra week in the year-ago quarter. Results were Net sales in the Branded segment declined 11.1 percent to also skewed by a tax loss in the latest period versus a tax gain in the year- $40.7 million. The decline was due primarily to a $5.3 million decrease at ago period. Excluding those items, earnings were up slightly, including its Junkfood, resulting from the impact of the additional week of sales in the Activewear segment, and margins also picked up. prior year coupled with the soft retail environment. Net earnings in the period ended October 1 slumped 45.6 percent to After reducing the prior-year quarter for the additional sales week, Salt $2.3 million, or 29 cents a share. Costs associated with the manufacturing Life sales grew 20 percent over the prior-year quarter, attaining 27 percent realignment reduced earnings by 11 cents per share in the latest period. growth for the full year. Strong demand for the Salt Life brand continued, The current quarter ran 13 weeks versus 14 weeks in the year-ago quarter, with good sell-through of its spring line driving reorders and robust ini- while the latest period reflected a tax expense versus a tax benefit a year tial fall shipments. Sales on saltlife.com grew 66 percent in the quarter. A ago. Excluding all extraneous factors, earnings would have increased to second Salt Life store will open in San Clemente, CA in early 2017 to build 55 cents a share from 53 cents a year ago. Revenues in the quarter were on the ongoing success of the brand’s store in Jacksonville, FL. down 4.8 percent in the period to $114.4 million. Excluding the extra Soffe grew net sales in the fourth quarter and saw a gain of 8 percent week, sales were up 2.5 percent. when adjusting for the additional week in the prior year. The Soffe growth Gross margins for the fourth quarter were 20.9 percent compared to was driven by expansion in strategic sporting goods and e-retailer chan- 21.9 percent in the prior-year quarter. Excluding the impact of the manu- nels. Humphreys said Soffe’s growth was “fairly broad based.” One or two facturing realignment, however, gross margins expanded in both the com- strategic sporting goods store partners are expanding the brand “in a pany’s Basics and Branded segments. A shift to a higher mix of basics sales major way,” Amazon is “growing rapidly,” and Soffe’s military business is resulted in the slight decline in margins overall for the quarter. “solid.” Soffe’s business-to-business e-commerce site, re-launched in May On a conference call with analysts, Robert W. Humphreys, chairman 2016, is driving additional business particularly with independent sport- and CEO, noted that the company over the last two years has taken sever- ing goods accounts, with sales up 5 percent in the fourth quarter and up al steps to reduce its fixed cost structure, streamline business operations 16 percent during the second half of the fiscal year. Humphreys added, “I’d and lower production costs. “By focusing on key growth areas, we suc- say still plenty of work to do to get the revenue and momentum back that cessfully navigated through a tough retail environment, and our fourth we would like at Soffe, but it was nice to see some growth and feel good quarter highlights the momentum we have headed into fiscal year 2017,” that we are in a position of improvement going into fiscal 2017.” Humphreys said. Delta Apparel also recently completed the acquisition of Coast Apparel, He noted that the company achieved gross margin expansion through- a beach-lifestyle brand based in Greenville, SC. Humphreys said the brand out fiscal year 2016, and anticipates this trend to continue and strength- has high-growth potential similar to Salt Life and Art Gun. The brand is en in fiscal year 2017 as the benefits from the completed manufacturing primarily sold direct-to-consumer through its e-commerce site and two realignment are realized. Humphreys added, “We continue to expand our South Carolina stores. “We are excited about Coast’s geographic versa- output, which should allow for inventory levels that better support our tility across regional markets, which we believe can be leveraged using growing catalog business this spring. We are also producing open-width the strength of Delta’s infrastructure and expertise,” said Humphreys. He fabrics, and are meeting our $2 million cost savings goals for this initiative.” added that Delta Apparel continues to evaluate other such acquisition opportunities. In May, the company amended its credit facility to lower its Activewear Sales Up debt costs by 50 basis points to provide greater financial flexibility. By segment, net sales in Basics eased 0.9 percent to $73.7 million versus “Although we anticipate the retail environment will continue to be a the same period a year ago. Adjusting for the additional week of sales challenge in fiscal 2017,” Humphreys said, “we can see that our strategic in the prior-year quarter, sales grew 6.7 percent, with sales increasing initiatives completed in the past year have created momentum that we 5 percent in Activewear and 34 percent in Art Gun. Activewear benefited expect to result in sales growth, expanded margins and higher profits in from nearly double-digit growth within fashion basics, as well as expanded fiscal 2017 and beyond.”

9 SGB EXECUTIVE | DECEMBER 5, 2016 © SportsOneSource, LLC single digits, driven primarily by athletic. Adult athletic was also up by a low single digit on a comp basis, fueled by canvas basketball, lifestyle product and the running categories. Inventories were down 3.9 percent on a per-store basis at the end of the quarter. The company’s goal is to reduce its per-door inventories to the mid-single-digit range by year end. For the current quarter, Shoe Carnival expects comparable-store sales to be in the range of down 1 percent to up 1 percent. With unseasonably warm weather continu- Photo courtesy Shoe Carnival ing in the first two weeks of November, boot sales have declined in the teens during the month, short of plan. Sifford said Shoe Carni- SHOE CARNIVAL LOWERS val has become more promotional to drive the GUIDANCE ON SUBPAR BOOT SALES boot category, but “strong headwinds with promotional cadence all around us, including the Like its competitors — Famous Footwear and weather “not supporting our customer’s need department stores, affected our Thanksgiving DSW — Shoe Carnival (Nasdaq:SCVL) found to buy fall and winter footwear,” Sifford said. and Black Friday time period.” ongoing momentum in athletic footwear in the Boots wound up declining by low-teen percent- On the positive side, athletic categories third quarter, but warm weather led to a short- ages for the two-month period of September performed better than internal plans, finish- fall in boot sales. and October combined. Sandals sales were up ing November with a high-single-digit comp While Famous Footwear’s parent Caleres Inc. in the twenties and athletic sales were up in the increase. Added Sifford, “We continue to believe maintained its guidance for the year and DSW low singles, both on a comp basis, but neither the positive athletic sales trend we have experi- raised its outlook, Shoe Carnival was forced to category was able to offset the declines in boots. enced over the past several years will continue lower its expectations as boot sales continued to As a result, same-store sales dipped 0.4 percent to grow, as new casual categories and lifestyle slide by double-digit percentages (in the teens) for the quarter compared to a 6 percent comp product gain momentum.” He also noted that in November. Investors sent the retailer’s stock increase in the year-ago quarter. Net sales in- the retailer’s athletic push is being supported down more than 12 percent November 29, to creased 1.8 percent to $269.7 million. by the hiring of Clint Pierce, formerly at Sports below $27 per share, following the results. Gross margins in the quarter decreased Authority, as VP divisional merchandise man- The company now expects sales in the range slightly to 29.9 percent from 30.1 percent in the ager for athletic footwear. of $1.002 billion and $1.006 billion for the year, same period a year ago. The decline reflected a Besides athletic, the fourth quarter is expected with a comp increase ranging from 0.5 percent 30-basis-point increase in buying, distribution to benefit from tax refunds arriving at the begin- to 0.9 percent. EPS is expected to be in the range and occupancy expenses. Merchandise margin ning in January versus a delay that caused them of $1.46 to $1.51, which would compare to increased 0.1 percent, with margin increases to start landing in February 2016. But both fac- $1.45 in the prior year. Previously, the off-price in both non-athletic and athletic merchandise tors, however, will only partly offset the shortfall shoe chain expected sales between $1.012 billion mostly offset by an increase in expenses relat- in boots. Sifford noted that Shoe Carnival has and $1.016 billion, a comp gain in the range of ed to multi-channel sales initiatives. SG&A made significant progress with its multi-channel 1.5 percent to 2 percent and EPS ranging from expenses increased $0.4 million to $66.6 million. initiatives. Both buy-online, pick-up-in-store and $1.58 to $1.65. In the company’s fiscal third As a percentage of sales, these expenses buy-online, ship-to-store were launched during quarter ended October 29, net earnings rose decreased to 24.3 percent from 24.5 percent in the quarter and the company is “very pleased 3.2 percent to $9.7 million, or 54 cents a the third quarter of fiscal 2015. with the early results” of the program, Sifford share, short of Wall Street’s consensus estimate By category, women’s non-athletic ended the said. Vendor drop shipping will launch in 2017. of 56 cents. quarter down mid single digits on a comp basis The company’s Shoe Perks loyalty program On a conference call with analysts, Cliff Sif- due to a mid-teens drop in boots. Booties con- added approximately 1.1 million new members to ford, president & CEO, noted that as company tinued to perform “extremely well throughout bring total membership to more than 12 million. officials have previously mentioned, customers the quarter, but it was not enough to overcome Members spent an average of 21 percent more shopped not only closer to the start of school the losses we experienced in the other classifi- per transaction than non-members and account- during the quarter, but continued to shop well cations that are normally driven by seasonally ed for 67 percent of net sales. The retailer is work- after school began. While not a new trend, it cooler weather,” Sifford said. ing on better identifying its high-value members was “more pronounced than we have seen it in Men’s non-athletic comps were down low sin- for special targeted communications. previous years,” Sifford said. The delayed shop- gle digits on a comparable basis. Men’s casuals, Concluded Sifford, “While I’m disappoint- ping led to a 2.9 percent comp hike in the first especially boat shoes and canvas footwear, expe- ed in our recent sales trend, our team remains two weeks of September. However, comps start- rienced declines, but a low-single-digit increase focused on the execution of our multi-channel ed declining afterwards with the end of back- was still seen in men’s casual boots, driven pri- strategic initiatives to fuel future growth in sales to-school season and warmer, summer-like marily by hiking. Children’s shoes were up low and profitability.”

10 SGB EXECUTIVE | DECEMBER 5, 2016 © SportsOneSource, LLC Beyond purchases, mobile traffic accounted for the majority of visits to retail websites on Black Friday, according to Adobe, putting the number at 55 percent mobile, including 45 percent from smartphones and 10 percent from tablets. “Retailers that have invested in mobile, email and social have seen 30 percent more sales on average and 25 percent higher average order values,” Adobe officials said. The company’s Black Friday report is based on aggregated and anonymous data from 22.6 billion visits to retail websites, including 80 percent of all online transactions from the top 100 U.S. retailers. “Shoppers hit the buy button at unprecedented levels as conversion rates were up nearly a full percent across all devices in the evening hours on Black Friday,” said Tamara Gaffney, principal analyst and director, Adobe Digital Insights. “With the full day total coming in at $3.34 billion, Black Friday may have just dethroned Cyber Monday’s position as the largest online shopping day of the year.”

In-Store Sales Drop On the brick-and-mortar front, initial data from analytics firm RetailNext showed in-store sales down 5 percent over Thanksgiving Day and Black Friday versus 2015, including a 10.4 percent drop on Black Friday. While part of the drop comes from those high-flying online sales, officials said retail stores have also moved up their discounting to earlier in the week. Consumers also seem less excited about the physical late-night or early- morning rush to stores. According to the National Retail Federation’s (NRF) survey of holiday shoppers, the largest group of shoppers (20 percent) headed out after 10 a.m. on Black Friday, whereas less than 15 percent arrived by 6 a.m. or earlier. Thanksgiving Day in-store shopping dropped by 19 percent, with only 7 percent of consumers heading to stores before 5 p.m. ONLINE, MOBILE SALES Overall, the NRF said 44 percent of the people it surveyed shopped OUTPERFORM ON BLACK FRIDAY online, with 40 percent going to stores. Department stores received the More online shopping, less in-store shopping — that was an easy predic- majority of in-store traffic (50.9 percent), followed by discount stores at tion to make for the kickoff to the 2016 holiday shopping season. But just 34.2 percent, electronics stores at 31.8 percent and clothing/accessory how big the shift came in surprised even the experts. stores at 28.4 percent, according to the survey. Black Friday online sales set a record of $3.34 billion, according to a report from digital services firm Adobe — up 21.6 percent from a year Cyber Monday Still King ago, and well surpassing its $3 billion prediction. Thanksgiving Day online While the leap in Thursday-Friday online sales seem to have come at the sales came in at $1.93 billion, slightly below Adobe’s pre-holiday predic- cost to brick-and-mortar locations over the holiday weekend, there was no tion of $2 billion, but still ahead 11.5 percent from a year ago. In total, the cannibalization of Cyber Monday, as some had predicted. The traditional two-day period brought in $5.27 billion, up 17.7 percent from a year ago, online shopping day showed it was still king raking in $3.39 billion in and the entire four-day weekend brought in $9.36 billion, up 16.4 percent sales, just ahead of Black Friday, and 10.2-percent higher than a year ago, from a year ago. according to Adobe. It marked the single-biggest online shopping day in Amazon, while it did not release specific figures, said its Thanksgiving history, again surpassing officials’ initial Cyber Monday sales estimates, Day shopping sales were significant. “Thanksgiving is quickly becoming which had been $3.12 billion. one of the busiest mobile shopping days on Amazon in the U.S.,” company “This indicates that consumers still had more appetite for online officials said. “In fact, mobile orders from Amazon customers on Thanks- shopping despite the incredible volume of online sales on Black Friday,” giving Day exceeded both Thanksgiving and Cyber Monday 2015.” Adobe’s Gaffney said.

Strong Mobile Sales Alternative Marketing Perhaps the biggest number showing consumers’ shifting buying habits While a majority of the Black Friday weekend is focused on sales, some was that more than a third of Black Friday sales ($1.2 billion) were con- brands within the active lifestyle industry (which tend to see more busi- ducted via mobile devices, according to Adobe, up 33 percent from a year ness after the rush) focused more on marketing. For the second year in a ago. Out of the 36 percent of Black Friday purchases via mobile, 25 percent row, outdoor retailer REI closed its stores on Black Friday and said more came from smartphones, with 11 percent coming from tablets. than 6 million customers pledged to #OptOutside during the day instead Paypal reiterated the mobile trend figures, saying it, too, saw a third of of going shopping. Meanwhile, Patagonia gained buzz with its promise to Thanksgiving Day and Black Friday sales passing through mobile devices on donate 100 percent of its Black Friday sales (which came in at $10 million) its network, which includes 192 million customers and 15 million retailers. to environmental nonprofits.

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