It has been a tough few months for Sports Authority as it shoulders a string of financial challenges that don’t appear to be letting up any time soon.
A new report by Bloomberg, citing sources close to the matter, says the retailer is preparing to file for bankruptcy as it eyes a debt payment due in less than 10 days.
That news follows a confirmation from Sports Authority this week that it has laid off 100 employees, primarily at its corporate headquarters.
“Sports Authority and its advisors continue to work toward a balance sheet restructuring that will reduce the level of the company’s debt. We remain very focused on implementing a comprehensive operational plan that will support this effort while improving our ability to engage with our customers in stores and online,” a company spokesperson told Footwear News in an email statement this week. “As part of this plan, there was a workforce reduction of approximately 100 positions this week, primarily at our corporate headquarters. While this action was difficult, we believe this was a necessary step in our plan to return Sports Authority to long term profitable growth.”
In late January, insiders began speculating that the retailer, once the largest sporting goods chain in the U.S., was heading down the Chapter 11 path after it reportedly missed a $20 million interest payment on its $343 million subordinated bond.
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Sterne Agee CRT analyst Sam Poser said, in a Jan. 20 note, that he expected Sports Authority to close up to 200 of its 450 stores.
Poser and other market watchers, including Canaccord Genuity Inc. analyst Camilo Lyon and Susquehanna Financial LLLP analyst Christopher Svezia, also suggest that Sports Authority’s struggles could soon become a tailwind for competitor Dick’s Sporting Goods.
“Sports Authority is the number two player in the sporting goods space with 450 stores, versus Dick’s with 645 stores,” Poser wrote. “23 percent of Dick’s stores (over 150) are located nearby a Sports Authority store. We contend that any potential store closures in those areas will serve an immediate boon to same-store sales at Dick’s stores. Importantly, for the stores that are not located close to Dick’s, we contend that any store closures would provide Dick’s an easy entry point into those vacated locations.”
Lyon said he expects that it could take some time before Dick’s would reap any potential benefits stemming from Sports Authority’s woes.
“The bottom-line takeaway is that consolidation favors the leader (Dick’s) over the medium term. More importantly, it should help shift sentiment on the stock to positive now that there is an underlying potential for a positive shift in the competitive dynamic,” Lyon wrote on Jan. 21. “Should Sports Authority close stores in a trade area in which Dick’s operates, we would expect a majority of those sales to transfer to Dick’s over time. … the first steps would entail a liquidation strategy by Sports Authority to clear inventory, afterwards we believe Dick’s would likely recapture a significant portion of Sports Authority’s sales.”
