The Forzani Group Ltd./Le Groupe Forzani Ltee
TSX : FGL

The Forzani Group Ltd./Le Groupe Forzani Ltee

June 05, 2007 07:00 ET

FGL Announces First Quarter Results Earnings Momentum Continues

CALGARY, ALBERTA--(Marketwire - June 5, 2007) - The Forzani Group Ltd. (TSX:FGL), Canada's largest retailer of sporting goods, today reported fiscal 2008 first quarter results for the 13 weeks ended April 29, 2007.



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For the 13 Weeks ended
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April 29, 2007 April 30, 2006
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Same Store Sales

Corporate 0.4% 12.2%
Franchise 9.6% 6.0%
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Consolidated 3.5% 10.0%
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Revenue ($000s)
Retail 194,195 195,855
Wholesale 100,363 84,579
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Total 294,558 280,434
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EBITA Margin 4.9% 4.6%
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Net Earnings ($000's) 739 294
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Earnings per Share (prior to loss
on sale of investment) $0.04 $0.01
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Earnings Per Share $0.02 $0.01
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Earnings and Earnings Per Share:

Net earnings for the first quarter were $0.7 million, or $0.02 per share, compared to the prior year's first quarter of $0.3 million, or $0.01 per share. Net earnings included the effect of a one-time loss of $0.9 million on the sale of an investment in a trademark licensing company. Excluding this item, earnings were $1.3 million or $0.04 per share.

Sales:

Retail system sales for the quarter were $308.4 million, an increase of $9.3 million, or 3.1% from the comparable 13-week sales of $299.1 million. The increase was due to strong contributions from franchise stores as corporate store sales were flat with the prior year.

Same store sales in corporate locations were up 0.4% in the quarter and, in franchise, up 9.6% over the fiscal 2007 first quarter. These results were up against strong same store increases of 12.2% and 6.0% respectively in the prior year.

Revenue, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, was $294.6 million, up $14.2 million, or 5.1% over the comparable period last year.

Gross Margins:

Combined gross margin for the 13 weeks ended April 29, 2007 was 33.3% of revenue, or $98.0 million, compared to 32.1%, or $90.1 million in the previous year. The margin rate and dollar improvements were driven by a combination of continued, solid franchise results, and improved corporate store results. Corporate store category sales results were mixed with solid performance in winter categories, particularly hockey and team sports, outerwear, casual clothing and footwear. Spring category performance, particularly in golf and inline skate categories lagged due to unseasonably cool weather. Margin rate performance continued to post strong year over year gains in corporate stores.

Expenses:

Store operating expenses, as a percent of corporate store revenue, were 29.6% against the prior year of 29.5% . In absolute dollars, store operating expenses fell $0.2 million. The overall store operating expense decrease reflects the closing/franchising, in the past year, of 8 corporate stores (net of openings), specifically the franchising of 9 Fitness Source stores, acquired in January 2006, which were franchised in April 2007. Same store operating costs were 27.9% of corporate store revenues versus 28.1% in the prior year. Same store costs, in absolute dollars, decreased $0.4 million or 0.8%.

General and administrative expenses were 8.8% of total revenue versus the prior year's 7.0% . The absolute dollar increase of $6.4 million was a combination of standard year over year increases and the timing of accruals for anticipated year-end, performance-based compensation. In fiscal 2007, first quarter accruals for performance-based compensation were minimal as there was uncertainty with regard to the attainment of targets. Management is of the opinion that performance targets will be attained in fiscal 2008 and has accrued compensation expenses accordingly. As mentioned in the Company's fiscal 2007 year end conference call, year over year performance based compensation is expected to be approximately $10 million less in fiscal 2008 versus fiscal 2007 which will result in an annualized general and administrative expense run rate in line with historical rates. These reduced expenses will be in the third and fourth quarters of the year. Earnings before interest, taxes, loss on sale of investment, and amortization ("EBITA") were $14.5 million, a 13.3% improvement over the prior year's EBITA of $12.8 million.

Store Activity:

During the quarter, the Company opened 1 Sport Chek store, franchised 9 Fitness Source and 1 Nevada Bob's Golf stores and closed 3 Sport Mart and 3 Sport Chek stores. In the franchise division, 5 new stores were opened (1 Atmosphere, 3 Nevada Bob's Golf and 1 Hockey Experts), 1 store converted from Intersport to Econosport, and 1 Nevada Bob's Golf store closed. Additionally, 10 corporately owned stores (9 Fitness Source and 1 Nevada Bob's Golf) were franchised. As a result, at the end of the first quarter, the Company had 255 corporate stores and 223 franchise locations. This was a net decrease of 18,804 square feet of retail selling space, a 0.3% decrease versus the previous quarter. The Company now has 478 stores from coast to coast (April 30, 2006 - 471 stores).

Balance Sheet:

The Company's working capital surplus of $168.6 million grew by 48.5% over the prior year due to stronger results which reduced debt levels more than offsetting increased investment in inventory and receivables to support growth. During the quarter, the Company purchased 360,800 Common Shares at a cost of $7,555,000 under its outstanding Normal Course Issued Bid.

Management's Comments:

The Company's first quarter of fiscal 2008 continues the strength exhibited in the results of the fiscal 2007 year. Franchise operations continue to perform to plan and, corporate stores matched their record first quarter sales results from 2007 while continuing the trend of higher margins due to better assortment planning and replenishment. Store operating expenses are in line with historical rates. General and administrative expenses, though ahead of the prior year, will be less than fiscal 2007 on a full year basis. Operationally, exclusive of the impact of the one-time loss on the sale of an investment and the effect of the timing of accruals for performance-based compensation, earnings are substantially improved over the first quarter of fiscal 2007, representing a strong start to the current year's results. It should be noted that the licences held as a result of the original investment in a trademark licensing company have been, and continue to be highly profitable for the Company.

For the first four weeks of Q2, fiscal 2008, same store sales from corporate stores grew by 4.5% and franchise comparable store sales increased 14.6%, with strong margins.

In conjunction with this release, the Company invites you to listen to its teleconference call that will take place Tuesday, June 5, 2007 at 9:30 a.m. (Eastern Time). The Company will be holding its Annual General and Special Meeting of Shareholders at 12:00 pm (Eastern Time) that day and it will be web cast. Details are available on the Company's website at www.forzanigroup.com.

Q1 F08 Teleconference Call: To listen to the teleconference call, please dial the following number approximately five minutes prior to commencement:

Within Toronto: 416-644-3423

Outside Toronto: 866-249-2157

Replay: Should you be unable to join the conference call, an audio recording will be available approximately three hours after the call until June 23rd, 2007 at 416-640-1917 or 877-289-8525 (pass code 21234154#)

The Forzani Group Ltd. is Canada's largest national retailer of sporting goods, offering a comprehensive assortment of brand-name and private-brand products, operating stores from coast to coast, under the corporate banners: Sport Chek, Coast Mountain Sports, Sport Mart, and National Sports. The Forzani Group is also a franchisor under the banners: Sports Experts, Intersport, RnR, Econosports, Atmosphere, Pegasus, Tech Shop, Nevada Bob's Golf, Hockey Experts and The Fitness Source. The Company also has websites for several of its corporate and franchise banners which can be accessed through its main website at www.forzanigroup.com.

The foregoing information may contain forward-looking statements relating to the future performance of The Forzani Group Ltd. Forward-lookingstatements, specifically those concerning future performance, are subject to certain risks and uncertainties, and actual results may differ materially. The Company, with the appropriate securities commissions, details these risks and uncertainties from time to time.



THE FORZANI GROUP LTD.
Consolidated Balance Sheets
(in thousands)
(unaudited)

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As at April 29, 2007 January 28, 2007 April 30,2006

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ASSETS
Current
Cash $ 897 $ 22,758 $ 1,075
Accounts receivable 134,538 65,543 107,260
Inventory 330,898 302,207 310,590
Prepaid expenses 4,565 2,688 4,001
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470,898 393,196 422,926
Capital assets 185,421 191,146 192,196
Goodwill and other
intangibles 89,586 90,238 85,966
Other assets 4,952 8,930 9,956
Future income tax asset 117 - 5,677
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$ 750,974 $ 683,510 $ 716,721
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LIABILITIES
Current
Indebtedness under
revolving credit
facility $ 23,811 $ - $ 58,456
Accounts payable and
accrued liabilities 276,039 230,977 244,163
Current portion of
long-term debt 2,494 2,082 6,790
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302,344 233,059 309,409
Long-term debt 56,204 58,303 60,635
Deferred lease
inducements 57,947 58,543 62,360
Deferred rent liability 5,831 5,737 4,275
Future income tax
liability - 55 -
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422,326 355,697 436,679
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SHAREHOLDERS' EQUITY
Share capital 154,043 148,424 138,576
Contributed surplus 8,741 8,294 5,294
Accumulated other
comprehensive earnings (2) - -
Retained earnings 165,866 171,095 136,172
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328,648 327,813 280,042
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$ 750,974 $ 683,510 $ 716,721
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THE FORZANI GROUP LTD.
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)

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For the thirteen weeks ended
April 29, 2007 April 30, 2006
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Revenue
Retail $ 194,195 $ 195,855
Wholesale 100,363 84,579
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294,558 280,434
Cost of sales 196,520 190,290
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Gross margin 98,038 90,144
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Operating and administrative expenses
Store operating 57,541 57,697
General and administrative 26,038 19,619
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83,579 77,316
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Operating earnings before undernoted items 14,459 12,828
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Amortization 11,052 10,731
Interest 1,370 1,630
Loss on sale of investment 864 -
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13,286 12,361
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Earnings before income taxes 1,173 467
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Provision for income taxes
Current 438 160
Future (4) 13
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434 173
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Net earnings for the period $ 739 $ 294
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Earnings and diluted earnings per share $ 0.02 $ 0.01
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THE FORZANI GROUP LTD.
Consolidated Statements of Retained Earnings, Comprehensive
Earnings and Accumulated Other Comprehensive Earnings
(in thousands)
(unaudited)

Consolidated Statements of Retained Earnings
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For the thirteen weeks ended
April 29,2007 April 30,2006
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Retained earnings, beginning of period $ 171,095 $ 135,878
Net earnings 739 294
Adjustment arising from shares purchased
under a normal course issuer bid (5,968) -
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Retained earnings, end of period $ 165,866 $ 136,172
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Consolidated Statement of Comprehensive Earnings

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For the thirteen weeks ended
April 29, 2007
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Net earnings $ 739
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Other comprehensive earnings (loss):
Unrealized foreign currency gains and
losses on cash flow hedges
(net of tax of $48) (81)

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Other comprehensive earnings (loss) (81)
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Comprehensive earnings $ 658
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Consolidated Statement of Accumulated Other Comprehensive Earnings
(note 2(a)(i))
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For the thirteen weeks ended
April 29, 2007
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Accumulated other comprehensive earnings,
beginning of period -
Reclassification of foreign currency
translation (transitional adjustment) 79
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Accumulated other comprehensive earnings,
beginning of period, as restated 79
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Other comprehensive earnings loss (81)
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Accumulated other comprehensive earnings
(loss), end of period $ (2)
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THE FORZANI GROUP LTD.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

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For the thirteen weeks ended
April 29, 2007 April 30, 2006
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Cash provided by (used in) operating
activities
Net earnings (loss) for the period $ 739 $ 294
Items not involving cash:
Amortization 11,052 10,731
Amortization of finance charges 176 137
Amortization of deferred lease inducements (2,775) (2,753)
Rent expense 126 786
Stock-based compensation 2,146 1,023
Future income tax expense (recovery) (4) 13
Loss on sale of investment 864 -
Loss on ineffective hedges 63 -
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12,387 10,231
Changes in non-cash elements of working
capital related to operating activities (54,396) (73,602)
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(42,009) (63,371)
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Cash provided by (used in) financing activities
Net proceeds from issuance/redemption of
share capital (349) 445
Decrease in long-term debt (1,119) (389)
Increase in revolving credit facility 23,811 58,456
Credit facility assumed on acquisition - (105)
Proceeds from deferred lease inducements 2,179 2,170
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24,522 60,577
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Changes in non-cash elements of financing
activities (2,893) -
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21,629 60,577
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Cash provided by (used in) investing activities
Net addition of capital assets (4,999) (8,892)
Net disposal of other assets 2,694 145
Acquisition of wholly-owned subsidiary - (6,650)
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(2,305) (15,397)
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Changes in non-cash elements of investing
activities 824 -
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(1,481) (15,397)
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Increase (decrease) in cash (21,861) (18,191)
Net cash position, opening 22,758 19,266
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Net cash position, closing $ 897 $ 1,075
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Contact Information

  • The Forzani Group Ltd.
    Robert Sartor, CA
    Chief Executive Officer
    (403) 717-1342
    or
    The Forzani Group Ltd.
    Bill Gregson, CA
    President & Chief Operating Officer
    (403) 717-1386
    or
    The Forzani Group Ltd.
    Richard Burnet, CA
    Chief Financial Officer
    (403) 717-1442
    Website: www.forzanigroup.com