TSA: File the Dang IPO Already!

TSA: File the Dang IPO Already!

 

Yet another announcement from TSA lighting the path to an IPO later this year. It’s all good for the industry for now. We’ll see competitive tension, no doubt. But without it we’re left with atrophy, which has hurt for the past 3 years. The cycle is turning positive.

 

It’s like torture waiting for The Sports Authority to come back to market. We’ve been watching and waiting since we made our view clear in January. Since then, the company has announced an acceleration in square footage growth from 0% to a high-single digit rate.   And then this morning it announced a new concept called S.A. Elite. I’m going to realistically assume that this new concept was embedded in the company’s prior growth acceleration plans. But the noise is getting louder.

 

Comps are looking better, capacity has been pulled out of the industry, the athletic cycle is just starting to turn up due to elevated levels of R&D out of the vendors, and this happens to be a window where private equity firms can jettison levered businesses they’ve been sitting on through the recession and credit crunch.

 

This will be Dollar General all over again. Also watch Toys R Us, PetCo…You get the drift.

 

The S.A. Elite idea is actually pretty interesting. The boxes are about 80% smaller than existing TSA box, and will be geared toward very high-end product from only the top brands. TSA is highlighting how ‘brand presentation’ will be key, and it is investing in things like lighting, high-end fixtures, and just about anything else needed to get brand CEOs’ juices flowing. The first one opens in August in Denver, with opportunity for ‘200-300 over 5-10 years.’

 

One point I don’t get is that it’s pretty clear based on what we see out of this space is that you need to be super-aligned with how the brands want to approach the market – otherwise you’re hanging on by a thread. We’re seeing Foot Locker close and consolidate its base of stores, and open up more category-specific (i.e. run, hoops) and brand-specific (Nike) stores. TSA is going out there with more multi-brand stores. It seems to me that the path to success here will be to make the experience heads and tails above everything else out there, which will be costly with an unproven return on capital. I wonder if Leonard Green is going to fund this, or if they’ll ask you to do so when it’s a stand-alone company?

 

The most commonly asked question of me is whether this is good or bad for the industry. The bottom line is that if the growth is going to come from a high-end concept where the formula works for both the retailer and the brands, then it is quite healthy. Tension in this business is good. It keeps people on their toes, and it keeps R&D checks flowing. Inactivity is bad. Complacency = no spending = weak product cycle. So longer term, I’m torn on this specific transaction without knowing more facts.

 

But near-term, it’s a positive. More hype, more press, better product flow, better comps, etc…will keep a halo around the athletic space well after the rest of retail enters its ‘show me’ stage of earnings growth (which it is just kicking off now).

 

- Brian McGough


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