With sporting goods retailer Sports Authority recently missing an interest payment on some of its subordinated debt as it works with financial adviser Rothschild, industry analysts are wondering what impact the foundering of the sporting goods retailer might have for the competition.
An industry observer told The Deal that private equity-backed Sports Authority was seeking additional financing, and there was a strong likelihood the company could end up filing for bankruptcy, driven by the need to deal with landlords' stubborn stance on renegotiating leases.
If troubled Sports Authority, owned by PE firm Leonard Green & Partners, either closes stores or, in a worst-case scenario, ends up having to file for bankruptcy and even liquidate, that would likely send at least some customers to its only multi-regional, publicly traded rival Dick's Sporting Goods (DKS) .
That's the sentiment of Camilo Lyon, an analyst at Canaccord Genuity, who said in a report Thursday one-third of Dick's stores overlap with Sports Authority locations. He said that while initial liquidations would likely provide no immediate benefit to rivals, Dick's would recapture a portion of those customers over time. For every 100 stores Sports Authority would close, Dick's had the potential to add up to $119 million in sales, assuming a 75% rate of sales recapture, Lyon estimated. Dick's stock was closed Thursday at $37.
It wouldn't be the first time one retailer has benefited from another's demise.
After Linens Holdings, parent of Linens 'n Things and backed by private equity firm Apollo Global Management (APO) , liquidated in late 2008 and early 2009 after filing for bankruptcy, its main rival Bed Bath & Beyond (BBBY) saw a meaningful boost in its sales and earnings in its second fiscal quarter ended Sept. 23, 2009.
The home furnishings retailer saw its net earnings increase 13%, while its net sales were up 3.3%. Retail, overall, saw sales increase in the low single digits, up an adjusted 1.8%, according to the U.S. Census Bureau.
In the third quarter ended Nov. 28, 2009, the absence of Linens 'n Things supercharged sales at Bed Bath & Beyond by another 10.8%, compared to the same period a year prior, while earnings for that quarter popped by 71%. Though comparisons for that third quarter were made easier due to the financial crisis that had begun a year earlier, having its main rival fold certainly helped.
The liquidation of Linens 'n Things not only boosted Bed Bath & Beyond's top and bottom lines in the short term but made life a great deal easier for it over the long Term as it was the only category killer left that sold everything from hangers, shampoo, and towels to bedding, cooking pans, and dinner ware.
The same could be said in the instance of home electronics retailer Best Buy (BBY) following the collapse of competitor Circuit City, which liquidated in early 2009. By late 2009, along with easier year-over-year comparisons, Best Buy was once again notching positive same store sales results, not to mention improved net earnings and revenue figures.
Net earnings for the quarter ended Nov. 28, 2009 climbed to almost $230 million compared to about $50 million for the same period a year earlier, while revenue was up by about 4.3% to more than $12 billion, an increase of $500 million. Same store sales for that period grew 1.7%.
For retailers such as Dick's, much like Best Buy and Bed Bath & Beyond, which have the operating prowess and balance sheet to survive the upheaval, they stand to benefit as weaker rivals shrivel and perhaps even die.