| BUSINESSWEEK ONLINE : MAY 31, 1999 ISSUE | ||||||||
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| SPECIAL REPORT
Action Performance Cos.: Hot-Rodding His Way to the Top As a kid, Fred W. Wagenhals looked like he was going nowhere fast. After just one semester at Ohio State University, the car enthusiast dropped out of school to race his '53 Willy's with a Corvette engine in drag races. ''My mother damn near cried,'' says Wagenhals, 57, as he strides across the rubber-treaded floors of his 140,000-square-foot headquarters in Phoenix. ''She said, 'Will you quit screwing around with those hot rods--you are never going to make anything of yourself.''' Today, even Wagenhals' mom is glad he ignored her advice. Action Performance Cos., the company Wagenhals founded in 1992 to make die-cast replicas of NASCAR race cars for collectors, is in overdrive. It grabbed the No. 59 spot on the Hot Growth list by more than doubling annual sales and profits on average for the past three years. Sales have jumped by 119.9% annually since 1995, to $251.9 million, while earnings accelerated at a 103.1% annual pace, to $24.6 million. Most pleasing to shareholders, the company's stock price has surged by 1,100% since its initial public offering in 1993. The key to this success? NASCAR racing, once viewed as a niche sport, has become the fastest-growing spectator sport in America. As tracks have opened in cities such as Dallas, Los Angeles, Las Vegas, and Miami, attendance at major races is up, from 4.3 million in 1992 to 9.3 million in 1998. Wagenhals had already snagged pole position in the race to profit from its popularity. Back in the '80s, Wagenhals made a living inventing offbeat machines for the entertainment industry. Then he noticed the craze in baseball cards and wondered, why not race cars? He founded Racing Champions Corp. But in 1992, the entrepreneur--who in manner is a low-key, charming fellow--split with his partners. Then, a year after he started over with Action Performance, Wagenhals' own board tossed him out for pushing too hard. Two months later, though, results had nose-dived and Wagenhals, who now owns 13% of the shares, bought out opposing execs. In the spring of 1994, Wagenhals made the biggest gamble of his career, selling his house to buy the rights to make replicas of Dale Earnhardt's black No. 3 GoodWrench race car. Earnhardt, winner of seven Winston Cup championships, has been NASCAR's Michael Jordan. The replicas were so successful that within three years, Wagenhals had snapped up the exclusive rights to Jeff Gordon and Rusty Wallace as well. ''Those three drivers account for 60% of all licensed merchandise sales,'' says NationsBanc Montgomery Securities analyst Chris Hansen. ''Its competitors are left with the less popular drivers.'' WILD RIDE. Wagenhals started out selling through a few wholesalers. Today, thanks to a flurry of 17 acquisitions financed through cash flow and a secondary stock offering, Action ACTN has expanded into T-shirts, jackets, and water bottles, and all major distribution channels, including direct mail and trackside. Action descends on every race with a fleet of 20 trucks packed with merchandise. Its primary customers for the replica cars priced from $10 to $2,000, are men ages 21 to 35. But it's also reaching out to kids through a deal with Hasbro Inc. to sell toy versions of its cars through retailers such as Wal-Mart Stores Inc. There are many watchers of this race who are anticipating challenging turns ahead. About 30% of Action Performance shares are held by short sellers who predict that NASCAR's popularity will level off, sinking demand for collectible cars and souvenirs. Already, Action's shares have taken a wrenching ride: trading at 29 a year ago, they hit 37 in July, tumbled to 19 in October, soared to 48 in January, and now trade around 38. For now, though, there is plenty of open road ahead. New NASCAR tracks are going up in Kansas City, Chicago, and Denver. The fight to nail down contracts for Formula One racing is just beginning. And since it opened an elaborate new Web site--www.goracing.com--in February, Action has rung up more than $8 million in Net sales. For Wagenhals, that's reason enough to keep screwing around with those hot rods. By Kathleen Morris in Phoenix _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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Hot Growth Companies TABLE: Hottest of the Hot Friede Goldman Intl.: A Gusher in a Drought bebe stores inc.: This Is No Fashion Victim Mastech Corp.: The Nabobs of Networking Action Performance Cos.: Hot-Rodding His Way to the Top Salton Inc.: Putting a Gizmo in Every Kitchen Maximus Inc.: Welfare Privatizer Where Are They Now? TABLE: The 1997 Winners...And the Losers TABLE: 1999's 100 Top Hot Growth Companies (.pdf) INTERACT E-Mail to Business Week Online | |||
