Vans to Exit Park Arena
If you build it, they will come -- unless everybody else builds it too.
That’s the lesson shoemaker Vans Inc. has learned since entering the skate park business about five years ago, shortly before free facilities began springing up across the country.
With revenue falling precipitously at the parks since last summer, the Santa Fe Springs company says it plans to close most of the 11 remaining skate centers it operates in eight states. Vans said it probably would keep one or two parks open, largely as marketing tools, including its first park -- at the Block at Orange shopping center in Orange County.
Chief Executive Gary Schoenfeld said the company’s decision to exit the business was based on the “nearly tenfold” increase in the number of free skate parks nationwide since 1998.
Vans also said Thursday that its skate parks -- where youths can swoop along steep ramps and inside bowl-like arenas, performing tricks and testing new skills with their skateboards and in-line skates -- contributed to a decline in earnings for its latest quarter.
The company’s loss widened to $22.1 million, or $1.24 a share, in its fiscal quarter ended May 31, compared with a loss of $13.8 million, or 76 cents, in the same period a year earlier. The latest loss includes a pretax charge of $10.5 million tied to skate park asset and lease write-downs.
A consensus of analysts polled by Thomson First Call had expected a loss of 23 cents a share.
Sales were essentially flat at $63.3 million.
For the year, the company lost $29.4 million, or $1.64 a share, compared with a loss of $1.3 million, or 7 cents a share, in fiscal 2002. Sales were $330.2 million, compared with $331.4 million the year before.
Even though losses grew, analysts seem relieved that the company was distancing itself from skate parks to focus on its core business -- selling its sturdy canvas sneakers and other shoes.”This is the move everyone was waiting for -- for them to exit,” said Raymond Jones, an analyst with Delafield Hambrecht. “What it comes back to is: Is this what you’re good at?”
Analysts also were cheered by the company’s improved same-store sales. Sales jumped 9% at U.S. stores open at least a year, a key barometer of a retailer’s health. That contrasts with a nearly 2% decrease in the prior year’s fourth quarter.
Eventually, the improvement at the retail level should filter back to Vans’ wholesale business, said Jeffrey Van Sinderen, an analyst with B. Riley & Co.
“I think this company is gradually turning around,” he said.
The upturn in retail sales was particularly good news at the company because it earlier had expected same-store sales to be down 5% to 7%, said Mitch Kummitz, an analyst with D.A. Davidson.
Still, Kummitz said it was too soon to predict that better sales at company stores would boost Vans’ wholesale business with retailers, given the weakness in the overall skate-shoe industry over the last couple of years.
Many wholesale accounts have scaled back their orders of Vans shoes, he said. Domestic sales at Vans’ stores accounted for 40% of the firm’s revenue in the quarter, while wholesale and international sales contributed about 30% each, he said.
Despite the recent problems with its skate parks, Vans’ sales have received a boost from the parks, which were crafty marketing tools for the sneaker maker, causing many more skaters to warm to the brand.
Vans is expanding the line to include clothes for females and a higher-end line of shoes, said Heidi Lemmon, executive director of the Skate Park Assn. of the USA, which is based in Venice.
Nonetheless, the skate centers have proved a major disappointment for the company, which was practically giddy after opening the first park in Orange, a 46,000-square-foot facility that served as a youth magnet.
The park attracted more than 30,000 skaters, among others, and generated more than $800,000 in revenue, in its first nine weeks of operation, prompting Vans to quickly begin planning more parks. Vans typically charges $7 to $14 for use of its parks.
The skate parks turned a profit in their first three years, but the shoemaker ultimately was blindsided by mushrooming competition. About 1,800 skate parks are operating in the U.S., most of them public parks, and an additional 1,000 or so are in the planning stages, Lemmon said. Vans’ skate-park push “really helped get public parks built because it made cities less afraid of skaters,” she said. But as more free facilities opened, parks that charged fees began closing.
“If I go through my list of private parks, I’d say half of them are gone,” Lemmon said.
The company declined to say which parks would close first or when.
Vans stock, which is up 48% this year, closed Thursday at $8.41, down 9 cents, on Nasdaq. The earnings were released after the market closed.
