As Sports Authority "sails into the choppy waters of Chapter 11 bankruptcy protection, the troubled sporting goods retailer and its creditors are exploring two options: Give a buzzcut to $1.1 billion in unwieldy, outstanding debt; slim down the operations; and emerge lean and competitive" or "sell all or part of the business," according to a front-page piece by Alicia Wallace of the DENVER POST. Sports Authority CEO Michael Foss said that either option "should reach its conclusion by the end of April." Wallace notes the company and the lender that is providing as much as $595M in bankruptcy financing "want it that way." Failure "could leave a trail of vacant big-box stores akin to the shutdown of Borders and Circuit City." Foss also noted that the company "expects to let go about 3,400 of its 15,000 employees." He said that under bankruptcy option No. 1, Sports Authority "would emerge as a 320-store operation with a greater focus on e-commerce, private-label sales and customer service" (DENVER POST, 3/3). The AP's Marcy Gordon notes Sports Authority stores "will remain open and run on normal schedules during the Chapter 11 process." The company’s website "will continue to function, and the chain plans to honor warranties on items purchased at its stores or online" (AP, 3/2). In Portland, Andy Giegerich noted Sports Authority, which currently holds the naming rights to the Broncos' stadium, owes $48M to Nike, as it is "one of its biggest creditors." The company also owes $23M to Under Armour. Sports Authority will take nearly $600M in bankruptcy financing from "such senior lenders" as Bank of America and Wells Fargo (BIZJOURNALS.com, 3/2).
WHAT'S NEXT? Foss said of the company's store base at this point, "We ended 2015 with roughly 464 stores. We're really, if you sit back, we're the product of a merger of about five major sporting goods retailers over time." Foss: "There was some organic growth of stores; but, principally, the growth came in big steps. Twice we doubled our footprint size." The DENVER POST's Wallace notes the company after a series of mergers "ultimately ended up with a collection of stores ranging from 8,000 square feet to 80,000 square feet." Sports Authority has now "identified 140 stores for potential closure." That "includes exiting some markets entirely," including Texas, Virginia Beach, Puerto Rico, K.C. and Omaha. The company also "will close major distribution centers in Denver and Chicago, taking its total to three from five." Foss "expects the reformed chain to be 320 to 330 stores, and the plan shows continued growth in the store base, but not as quickly as in the past, and not through mergers and acquisition." Meanwhile, Foss "expects that as a percentage of overall sales, online selling will triple over the next five years." Foss: "That'll be a critical part of the next couple years of our business. We're going to invest very heavily in it" (DENVER POST, 3/3).
ANY SUITORS? Wells Fargo Securities analyst Matt Nemer yesterday said that "sporting goods is a sector that has proven attractive to private-equity firms." The WALL STREET JOURNAL's Peg Brickley notes Sports Authority is currently owned by private equity group Leonard Green & Partners, which bought it in a $1.3B leveraged buyout in '06, "but could find a new owner, at a lower price, in bankruptcy." Possible suitors "include Modell’s Sporting Goods and middle-ranking lenders, which include Blackstone Group LP’s debt-investing arm and asset manager Columbia Threadneedle Investments." Analysts have said that Dick's Sporting Goods, Sports Authority’s biggest competitor, "stands to benefit from its rival’s troubles, grabbing what business Amazon doesn’t capture." Nemer noted that 42% of Dick’s stores are "within 5 miles of a Sports Authority outlet, and they are poised to pick off customers." Retail consultancy Strategic Resource Group Managing Dir Burt Flickinger said that Sports Authority also is "strong in markets such as California, where Dick’s needs to expand" (WALL STREET JOURNAL, 3/3).
COULD NOT KEEP UP: The AP's Gordon wrote under the header, "Sports Authority Stumbled As Shoppers Moved Online." Fans "coveting their favorite team's jersey with the personal touch of their name on the back are flocking online, likely not to the sports store at their local mall." Millennials are especially "attuned to the point-and-click of Internet purchasing and also like to get personal stuff." Even "heavy exercise equipment is finding an online audience" (AP, 3/2). In N.Y., Liz Moyer wrote with its bankruptcy filing, Sports Authority "can add itself to the pile of losers from the precrisis leveraged buyout boom" (NYTIMES.com, 3/2). In Chicago, Phil Rosenthal wrote under the header, "Sports Authority In Classic Retail Struggle With Size, Strategy, Debt." Since an "expensive leveraged buyout a decade ago, Sports Authority has lacked the wherewithal to compete with rival Dick's Sporting Goods, which shrewdly invested in modernizing stores and keeping pace with fitness trends." Sports Authority "found its niche encroached upon by not only other sporting goods stores and general retailers but also specialty stores, such as Lululemon" (CHICAGOTRIBUNE.com, 3/2).
