As the Sports Club Co. beefs up, Wall Street is responding by kicking sand in the fitness company's face.

The West Los Angeles-based owner/operator of luxury sports and fitness complexes is in the midst of a major expansion. The Sports Club/LA at Rockefeller Center opened in February and four other clubs will debut later this year and early next year on New York's Upper East Side, in Washington, D.C., San Francisco and Boston.

Despite potential rewards down the road, the company's rapid pace of expansion has dragged down its stock price and earnings in recent months.

"We didn't expect in 2000 or 2001 to make money," said Rex Licklider, vice chairman and co-CEO. "We knew it wouldn't bode well on the stock price in the near term."

The Sports Club's thinly traded stock was trading at around $3.50 a share last week, closer to its 52-week low of $2.75 than to its 52-week high of $6.13.

Wall Street prefers companies that grow their earnings consistently, quarter after quarter, but the Sports Club's bottom line has been hurt by development costs. Each club costs about $30 million to build, with the new flagship New York club clocking in at close to $55 million.

So it's little surprise that the Sports Club posted a net loss of $2.1 million (12 cents per diluted share) for the first quarter ended March 31, vs. net income of $551,000 (3 cents) for the year-earlier quarter. The loss included a charge of $1.47 million to settle litigation, $2.5 million in pre-opening expenses and pre-sales activities at new clubs, and interest expenses related to the $100 million of notes issued last April to finance the expansion.

Revenues were also down in the first quarter, to $16.8 million, more than a 20 percent drop from $21.7 million in the year-earlier period.

The revenue drop stems from the December 1999 sale of the mid-range Spectrum Clubs as part of the company's decision to focus exclusively on its upper-tier Sports Club outlets. Although the sale generated $50 million in cash, those clubs are no longer contributing revenues.

New development is the only way for the Sports Club to grow, Licklider said, because there are no other comparable clubs or chains for it to buy. Historically, new clubs aren't profitable until they've been operating for at least a year, he said.

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