Posted on: Sunday, July 11, 2004

Sports equipment stocks languishing

By Matt Krantz
USA Today

Summer's here, school's out and nature is beckoning. It's the time of year when cubicle dwellers swap their laptops and calculators for bikes and golf clubs.

But don't let all the talk about in-line skates and boats and other staples of summer trick you into making a foolish investment. Despite all the attention these diversions get this time of year, they've proved to be pretty poor investments. This summer is shaping up to be especially cruel for many of these stocks.

Bike maker Huffy, golf club maker Callaway Golf and boat maker Travis Boats have either seen their stocks tumble or have warned that earnings will be weaker than expected.

There are even problems for anyone trying to buy shares of Cannondale, the maker of popular premier mountain and racing bikes. The stock named Cannondale (symbol BIKEQ), trading at about 8 cents a share, has no connection to the company.

The sporting goods business is a bad one to be invested in, says Mark Greenberg, portfolio manager of the Invesco Leisure fund.

He says that despite all the attention paid to shiny, upgraded models of bikes, clubs and rackets, most Americans rarely buy them. They stick with their older equipment or, frankly, never even get outside.

"The No. 1 leisure activity for people is watching TV," he says.

Granted, some summer or sporting stocks do well. Nike has posted strong earnings this year. So have several sporting goods retailers, including Dick's Sporting Goods.

But, overall, Greenberg's advice is: If you like biking, buy a bike, not a stock.

"People like to buy stocks due to psychological benefits. But people should look at it as opportunity to make money for their family," Greenberg says.

Recent performances of some top names in sports prove his point.

• Callaway Golf: Shares of the California-based maker of the Big Bertha oversized golf club are caught in the rough. Currently $10.99, the shares have lost 35 percent this year and are near their lowest levels since March 2003.

The company stunned investors in June with news that aggressive price cutting by competitors sliced away its sales. It also posted a bigger-than-expected loss at its Top-Flite golf ball unit.

Dennis McAlpine, managing director of the research firm McAlpine Associates, says the problems go deeper than Callaway. For one thing, the golf business is sluggish. He says the number of rounds of golf being played has been stagnant for years. And Tiger Woods isn't the sensation he once was — taking away another big magnet to the sport.

Making things worse, golfers are deciding the Callaway Big Bertha clubs they have are just fine, thank you. And McAlpine questions the company's decision to roll out a line of Big Bertha clubs that have smaller heads, by design, than clubs made by rivals. That's only confused buyers, who think bigger is better.

• Cannondale: At first glance, shares of Cannondale Corp. would appear to be a screaming bargain. Trading at just 8 cents a share on the Pink Sheets, it would seem you couldn't go wrong. Cannondale is a leading maker of some of the world's finest bikes.

But here's the problem: Those shares, while sometimes actively traded, are not connected whatsoever to the thriving Cannondale Bicycle Corp. of today.

It's actually linked to the original Cannondale Corp., which was so desperate to impress Wall Street that it got into the costly and risky off-road motor-sport business. That venture failed, and the company filed for bankruptcy protection last year. Then, a private equity firm, Pegasus Partners, bought every piece of Cannondale's bicycle business and all rights to its well-respected name.

"They are not the same company," says David Budd, marketing director of Cannondale Bicycle Corp.

• Huffy: It's been a bumpy road for this American idol, best known for its inexpensive bikes for tots. Shares have deflated 78 percent just this year as the company warned its first-quarter loss would be "significantly" higher than the $1.4 million it lost in the same quarter in 2003. The size of the loss is yet unknown, though, since the company is late filing its quarterly report.

Company CFO Robert Lafferty says a difficult restructuring has caused the problems. Huffy has been trying to centralize customer service and billing for all its products, which also include basketballs and backboards, golf clubs and in-line skates. "We continue to work on this," he says.

Time is ticking. The New York Stock Exchange has warned Huffy it is in danger of being delisted.

• Travis Boats: Investors in this retailer of boats know what it feels like to be underwater. Shares of the company have been in freefall for years, sinking from roughly $14 a share in June 1999 to 68 cents now.