It is unreasonable to say that public ownership always results in the sacrifice of long-term goals for short-run profit. It is also unreasonable to say that privately-held firms are always committed to the long run, regardless of short-term pain. Some private owners are short-term maximizers and some aren’t. Same with the owners of retail stocks traded publicly. The most interesting element of this buyout is that the existing management is betting that their momentum will be positive. So are the public shareholders getting adequately compensated for giving up their ownership? Let’s see if anyone else steps up and offers a higher price.

As a matter of personal faith, it is easier for a private company to institute rational, long range and appropriate turn around plans than it is for a public company. Too much pressure remains on public companies regarding short term performance measures. The reality in any turnaround or long term strategy is that downturns in performance are not only inevitable, but often desirable or completely anticipatable. While that message may be heard in the months before when it is given to the Street, too often the analysts have forgotten by the time the results do roll around. Saying you are going to go through a tough patch before the turnaround occurs does not always shield you from the diminution in stock value when it actually happens. The conclusion that a leveraged SA will not be as aggressive is probably analyst-speak. SA will operate toward maintained margins and GMROI standards. If aggressive pricing remains an appropriate vehicle to accomplish those, expect SA to continue in that vein. As always, one fervently hopes that the leverage burden… Read more »

The sporting goods market has had significant consolidation, this market needs a national player who can operate without major transactions every couple years. Gart Sports was successful on its own but then had to swallow Sports Authority via buy out. Sports Authority has never been a healthy operation going all the way back to its beginning as a Kmart specialty store free standing real estate concept.

Sporting goods is again a major growth market with a lot of mom and pops still successful, which is not the case in most other category killer markets.

LBOs free companies from quarter-to-quarter scrutiny by the stock market, but they substitute oversight from the banks who finance the deals. Cost of borrowed money has an impact on net profits that poses one further limitation on a company’s margin formula. Presumably the Sports Authority buyout group has figured this into its equation. But it’s worth remembering that investment firms like Leonard Green & Partners may be less interested in the operating profit it can derive from SA than it is in the equity gains it might realize by sprucing up the company, then either flipping it or taking it public again. Or, as we have seen in the past with other retailers, the SA real estate portfolio may justify the buyout on the basis of its asset value (I have not investigated this). Against this backdrop of financial strategizing, it’s difficult to sort out what the company will look like merchandising and marketing-wise. Sports Authority has plenty of vigorous competition in Dick’s, Big 5, Modell’s and others, so there will be pressure to keep… Read more »