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

The Forzani Group Ltd./Le Groupe Forzani Ltee

June 10, 2009 07:00 ET

FGL Announces First Quarter Results Results Improve 60% on Flat Revenues

CALGARY, ALBERTA--(Marketwire - June 10, 2009) - The Forzani Group Ltd. (TSX:FGL), Canada's largest retailer of sporting goods, today reported fiscal 2010 first quarter results for the 13 weeks ended May 3, 2009.



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For the 13 Weeks ended
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May 3, 2009 May 4, 2008
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Same Store Sales(1)
Corporate 1.0% -5.2%
Franchise -2.8% 3.1%
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Consolidated -0.4% -2.1%
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Revenue ($000's)
Retail 201,331 210,330
Wholesale 106,382 97,160
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Total 307,713 307,490
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EBITA Margin(1) 3.7% 2.5%
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Net Earnings (Loss) ($000's) (1,117) (2,819)
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Earnings (Loss) Per Share ($0.04) ($0.09)
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(1) Refer to "Non-GAAP Measures" below.


Management's Comments:

Notwithstanding the 60% improvement in results, we are not satisfied with our first quarter of fiscal 2010, as we had expected a return to a profitable first quarter. However, we believe that our performance reflects the initial signs of a number of strategic initiatives launched last year coming to fruition especially in the corporate retail banners as: Firstly, our corporate same store sales were up, albeit modestly, in a very tough business climate. Secondly, our continued attention to inventory management allowed us to achieve the sales growth, while at the same time improving our gross margins. Thirdly, Athletes World turned its second consecutive quarterly profit and is beginning to gain momentum as a result of our re-branding strategy and integration into corporate systems.

In our wholesale businesses, sales were up to both franchisees and external customers. The integration of our INA and FGL Wholesale businesses is already beginning to show results as we begin to market a wider array of products to our existing customer base, and introduce the assortment to new customers.

Lastly, with gross margin dollars down on a year over year basis due to reduced sales, our cost control measures have produced an absolute reduction in both selling and G&A expenses and reduced run rates in both, which we believe will continue throughout the remainder of the year.

For the first four weeks of Q2, fiscal 2010, same store sales from corporate stores are up 0.8% and franchise comparable store sales are down 0.8%. Overall, same store retail system sales are up 0.2%.

Earnings (Loss) and Earnings (Loss) Per Share:

Net loss for the first quarter was $1.1 million, an improvement of $1.7 million from the prior year loss of $2.8 million. On a per share basis, the loss was $0.04 per share versus a loss of $0.09 per share in the prior year.

Sales:

Retail system sales for the quarter were $318.6 million, a decrease $15.4 million, or 4.6% from the comparable 13-week sales of $334.0 million. The decrease was primarily due to the impact of closings of Athletes World stores during fiscal 2009, which were acquired in CCAA in late fiscal 2008.

Same store sales in Corporate locations were up 1.0% in the quarter, bucking the general retail malaise seen by most of the Canadian retail sector. In the franchise division, comparative store sales were down 2.8% for the quarter having posted a 3.1% increase in the prior year. As a result, combined system retail sales for the quarter were down 0.4%.

Revenue, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, was $307.7 million, up $0.2 million, or 0.1% over the comparable period last year. Wholesale revenues were up $9.2 million as a result of increases in both franchise division sales to franchisees and sales by the FGL Wholesale division to 3rd parties.

Gross Margins:

Combined gross margin for the 13 weeks ended May 3, 2009 was 33.7% of revenue, or $103.6 million, compared to 34.3%, or $105.4 million in the previous year. The overall rate decrease reflects a shift in the sales mix between higher margined retail sales and the lower margined wholesale businesses as margin rates actually increased in both the corporate retail and franchise wholesale divisions, a result of cleaner inventories on a year over year basis.

Expenses:

Overall store operating expenses, as a percentage of sales, were 33.1% against the prior year of 33.5% a reflection of the impacts of changes made in fiscal 2009 to the wage structure in the Sport Chek division. Same store operating expenses were flat at 30.6% of sales. In absolute dollars, same store costs increased $0.3 million, or 0.5%.

General and administrative expenses were 8.3% of total revenue versus the prior year's 8.9% and are expected to be down, as a percent of sales, throughout the year.

Store Activity:

During the quarter, the Company opened 1 Athletes World store, converted 9 Fitness Source stores from franchise to corporate ownership, closed a total of 3 stores (1 Sport Chek and 2 Athletes World), and sold 1 Nevada Bob's Golf store to become a Buying Member in the franchise division. In the franchise division, 2 new stores were opened (1 Atmosphere and 1 Hockey Experts) and 2 Buying Members were added (1 from the sale of a corporate Nevada Bob's Golf store and 1 formerly franchised RnR store), 4 stores closed (1 Fitness Source and 3 RnR) and 9 Fitness Source stores reverted to corporate ownership. As a result, at the end of the first quarter, the Company had 343 corporate stores and 218 franchise locations. This was a net decrease of 27,032 square feet of retail selling space, a 0.4% decrease versus the previous quarter. The Company now has 561 stores from coast to coast (May 4, 2008 - 568 stores).

Balance Sheet:

The Company's working capital of $74.9 million decreased $26.8 million from the prior year. The year over year decrease is the carry-over impact of $33.0 million in share repurchases made during the second quarter of fiscal 2009 under the Company's normal course issuer bid, and ongoing capital expenditures for store openings and renovations. These expenditures were made from operating cash flow.

Dividends:

On June 9, 2009, the Company declared a dividend of $0.075 per Class A common share, payable on August 3, 2009 to shareholders of record on July 20, 2009. All dividends paid by The Forzani Group Ltd. are, pursuant to subsection 89 (14) of the Income Tax Act, designated as eligible dividends. An eligible dividend paid to a Canadian resident is entitled to the enhanced dividend tax credit.

The Company will be holding its Annual General Meeting of Shareholders at 12:00 pm (EST) that day and it will be web cast. Details are available on the Company's website at www.forzanigroup.com. In conjunction with this release, the Company invites you to a teleconference call that will take place Wednesday, June 10, 2009 at 4:00 p.m. (EST).

Teleconference Call: To participate in the teleconference call, please dial the following number approximately five minutes prior to commencement:

Within Toronto: 416-640-1917

Outside Toronto: 800-732-9303

Replay: Should you be unable to join the conference call, an audio recording will be available approximately three hours after the call until June 24th, 2009 at 416-640-1917 or 877-289-8525 (pass code 21306359#)

Non-GAAP Measures:

The use of the term "System Retail Sales" (retail sales from corporate and franchise stores) is not recognized under Canadian generally accepted accounting principles ("GAAP"). Management believes that this measure is useful supplemental information which provides the reader with an indication of the Company's total retail sales, but may not be comparable to measures used by other companies.

The use of the term "EBITA" (earnings before interest, taxes and amortization) is not recognized under Canadian GAAP. Management believes that in addition to net earnings, EBITA is a useful measure that provides an indication of the results generated by the Company's business activities prior to consideration of how activities were financed and how the results are taxed. Investors should be cautioned, however, that EBITA should not be construed as an alternative to net earnings, cash flows from operating activities or other measures of financial performance determined in accordance with GAAP as an indicator of the Company's performance. Furthermore, this measure does not have a standardized meaning under GAAP and may not be comparable to similar measures presented by other companies.

This news release contains certain statements that may constitute forward-looking information within the meaning of applicable securities laws. This forward-looking information relates to, among other things, the Company's growth objectives, strategic and operating initiatives, revenue, retail system sales, share buy-backs and dividend growth, and can generally be identified by the use of such words as "may", "will", "expect", "believe", "plan", "intend", "are confident" and other similar terminology, including statements concerning possible or assumed future results. Certain material factors or assumptions are applied in making statements regarding forward-looking information, and actual results may differ materially from those expressed or implied in such information. The forward-looking information in this news release is based upon material factors and assumptions that management believes are reasonable as of the date of this news release, including the successful execution of the initiatives described herein; however, the Company cannot assure actual results will be consistent with this forward-looking information. Information about material factors that could cause actual results to differ materially from expectations include, but are not limited to, the factors discussed in the Company's Management Discussion and Analysis and Annual Information Form filed with the securities regulatory authorities in Canada, available at www.sedar.com.

When relying on the forward-looking information to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Although the Company believes that the expectations reflected in such forward-looking information are reasonable, such information involves significant risks and uncertainties, should not be read as a guarantee of future performance or results, and will not necessarily be an accurate indication of whether or not such results will be achieved. While the Company may elect to do so, unless required by applicable law, it undertakes no obligation to update this information to reflect new information or circumstances at any particular time.

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 following corporate and franchise banners: Sport Chek, Coast Mountain Sports, Sport Mart, National Sports, Athletes World, Sports Experts, Intersport, Econosports, Atmosphere, RnR, Tech Shop, Pegasus, Nevada Bob's Golf, Hockey Experts, S3 and The Fitness Source. As well, the Company retails on-line at www.sportmart.ca and provides a content rich sporting goods information site at www.sportchek.ca.



The Forzani Group Ltd.

Consolidated Balance Sheets
(in thousands)
(unaudited)

February 1,
As at May 3, 2009 2009 May 4, 2008
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ASSETS
Current
Cash $ 3,191 $ 3,474 $ 2,945
Accounts receivable 137,034 84,455 125,266
Inventory 338,303 291,497 339,368
Prepaid expenses 16,611 2,827 16,084
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495,139 382,253 483,663
Capital assets 196,541 196,765 191,599
Goodwill and other intangibles 95,809 91,434 91,484
Other assets 8,622 8,545 2,856
Future income tax asset 10,223 9,960 17,193
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$ 806,334 $ 688,957 $ 786,795
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LIABILITIES
Current
Indebtedness under revolving
credit facility $ 92,078 $ 17,130 $ 27,446
Accounts payable and accrued
liabilities 321,178 277,820 301,486
Current portion of long-term
debt 6,936 7,501 53,100
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420,192 302,451 382,032
Long-term debt 6,928 126 5,437
Deferred lease inducements 44,939 47,811 53,323
Deferred rent liability 5,849 5,893 6,045
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477,908 356,281 446,837
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SHAREHOLDERS' EQUITY
Share capital 147,225 147,161 156,954
Contributed surplus 6,397 6,401 7,296
Accumulated other
comprehensive earnings (loss) (44) 863 47
Retained earnings 174,848 178,251 175,661
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328,426 332,676 339,958
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$ 806,334 $ 688,957 $ 786,795
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The Forzani Group Ltd.

Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)

For the thirteen weeks ended
May 3, 2009 May 4, 2008
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Revenue
Retail $ 201,331 $ 210,330
Wholesale 106,382 97,160
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307,713 307,490
Cost of sales 204,079 202,079
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Gross margin 103,634 105,411
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Operating and administrative expenses
Store operating 66,577 70,409
General and administrative 25,557 27,320
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92,134 97,729
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Operating earnings before undernoted items 11,500 7,682
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Amortization of capital assets 12,278 11,116
Interest 927 904
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13,205 12,020
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Loss before income taxes (1,705) (4,338)
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Income tax recovery
Current 325 968
Future 263 551
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588 1,519
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Net loss for the period $ (1,117) $ (2,819)
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Basic and diluted loss per share $ (0.04) $ (0.09)
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The Forzani Group Ltd.

Consolidated Statements of Retained Earnings (Loss), Comprehensive Earnings
(Loss) and Accumulated Other Comprehensive Earnings (Loss)
(in thousands)
(unaudited)


Consolidated Statements of Retained Earnings For the thirteen weeks ended
(Loss) May 3, 2009 May 4, 2008
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Retained earnings, beginning of period $ 178,754 $ 191,176
Adjustment arising from adoption of new
accounting policy (503) (2,161)
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Adjusted retained earnings, beginning of
period 178,251 189,015
Net loss (1,117) (2,819)
Dividends paid (2,286) (2,473)
Adjustment arising from shares purchased
under a normal course issuer bid - (8,062)
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Retained earnings, end of period $ 174,848 $ 175,661
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Consolidated Statements of Comprehensive For the thirteen weeks ended
Earnings (Loss) May 3, 2009 May 4, 2008
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Net loss $ (1,117) $ (2,819)
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Other comprehensive earnings (loss):
Unrealized foreign currency gain (loss) on
cash flow hedges (1,385) 84
Tax impact 478 (29)
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Other comprehensive earnings (loss) (907) 55
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Comprehensive loss $ (2,024) $ (2,764)
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Consolidated Statements of Accumulated Other For the thirteen weeks ended
Comprehensive Earnings (Loss) ("AOCE") May 3, 2009 May 4, 2008
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Accumulated other comprehensive earnings
(loss), beginning of period $ 863 $ (8)
Other comprehensive earnings (loss) (907) 55
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Accumulated other comprehensive earnings
(loss), end of period $ (44) $ 47
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The Forzani Group Ltd.

Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

For the thirteen weeks ended
May 3, 2009 May 4, 2008
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Cash provided by (used in) operating
activities
Net loss for the period $ (1,117) $ (2,819)
Items not involving cash:
Amortization of capital assets 12,278 11,116
Amortization of deferred finance charges 40 181
Amortization of deferred lease inducements (2,904) (2,875)
Rent expense (32) 21
Stock-based compensation 8 690
Future income tax recovery (263) (551)
Unrealized gain (loss) on ineffective hedges 276 (25)
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8,286 5,738
Changes in non-cash elements of working
capital related to operating activities (71,884) (55,781)
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(63,598) (50,043)
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Cash provided by (used in) financing
activities
Proceeds from issuance of share capital 52 2,257
Share repurchase via normal course issuer
bid - (11,074)
Long-term debt 3,067 (93)
Revolving credit facility 74,948 27,446
Dividends paid (2,286) (2,473)
Lease inducements received 32 1,108
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75,813 17,171
Changes in non-cash elements of financing
activities 4,554 (33)
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80,367 17,138
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Cash provided by (used in) investing
activities
Capital assets (11,856) (11,337)
Other assets (158) (297)
Acqusition of assets (945) -
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(12,959) (11,634)
Changes in non-cash elements of investing
activities (4,093) -
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(17,052) (11,634)
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Decrease in cash (283) (44,539)
Net cash position, opening 3,474 47,484
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Net cash position, closing $ 3,191 $ 2,945
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Contact Information

  • The Forzani Group Ltd.
    Robert Sartor, CA
    Chief Executive Officer
    (403) 717-1342
    or
    The Forzani Group Ltd.
    Michael Lambert, CA
    Chief Financial Officer
    (403) 717-1666
    or
    The Forzani Group Ltd.
    Richard Burnet, CA
    Senior Vice President, Finance and Administration
    (403) 717-1442
    Website: www.forzanigroup.com