Sports Authority Files for Bankruptcy With Plan to Slim Down

Sports Authority and the Unwind of Traditional Retail
  • Chain wrestled with debt as Dick’s rode retail fitness boom
  • Company says it will close 140 stores over next three months

Sports Authority Inc. filed for bankruptcy protection with a plan to slim down after missing out on the fitness boom that’s been a rare bright spot in retail. 

The company said Wednesday that it will close as many as 140 of its 463 stores while trying to preserve $124 million in tax deductions.

Sports Authority has fallen far since a $1.3 billion buyout in 2006 piled it with debt.  Back then, the chain was even with Dick’s Sporting Goods Inc. in sales. Today, Dick’s has hundreds more locations and takes in almost twice as much per store, making it the U.S. leader in selling athletic gear, while Englewood, Colorado-based Sports Authority has been hampered in its ability to expand or innovate.

“We are taking this action so that we can continue to adapt our business to meet the changing dynamics in the retail industry,” Chief Executive Officer Michael E. Foss said in a statement. “We intend to use the Chapter 11 process to streamline and strengthen our business both operationally and financially so that we have the financial flexibility to continue to make necessary investments in our operations.”

Tax Savings

Tax savings “could substantially enhance the debtors’ cash position,” the company said in court papers, indicating that it planned to seek a special court order that might allow it to sell assets without losing the ability to carry forward past net operating losses to reduce future taxes.

Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co. and TPG Capital have agreed to provide a $595 million loan that will help Sports Authority operate as it restructures in bankruptcy, according to court papers filed along with the bankruptcy in Wilmington, Delaware.

Sales last year at U.S. retailers were their weakest since 2009, according to the Commerce Department. But as big-box giants and online merchants encroached on clothing stores and consumer electronics chains, sports were one of the few healthy areas, with companies including Target Corp. and Gap Inc. expanding their fitness offerings.

Distribution Centers

In addition to the retail closings, Sports Authority distribution centers in Denver and Chicago will be shut down or sold. Gordon Brothers Retail Partners LLC and Tiger Capital Group LLC have been retained to run store-closing sales, according to court papers. The closing process should take three months, the company said. A&G Realty Partners has been hired to help dispose of 87 leases and cut occupancy costs.

With so much debt to manage after the buyout, Sports Authority hasn’t been able to make the improvements seen at Dick’s. One area where it’s lagged is presentation, according to Joe Feldman, an analyst at Telsey Advisory Group. 

Dick’s excels in layouts and displays and has partnered with manufacturers including Nike Inc. and Under Armour Inc., which operate in-store shops. That’s helped Dick’s pull in about $10 million a year in sales from the average store, while Sports Authority collected about $5.75 million, according to Steven Ruggiero, a credit analyst at RW Pressprich & Co.

The case is In re Sports Authority Holdings Inc., 16-10527, U.S. Bankruptcy Court, District of Delaware.

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