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

The Forzani Group Ltd./Le Groupe Forzani Ltee

June 11, 2008 07:00 ET

FGL Announces First Quarter Results

Sales Hampered by Poor Spring Weather

CALGARY, ALBERTA--(Marketwire - June 11, 2008) - The Forzani Group Ltd. (TSX:FGL), Canada's largest retailer of sporting goods, today reported fiscal 2009 first quarter results for the 13 weeks ended May 4, 2008.



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For the 13 Weeks ended
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May 4, 2008 April 29, 2007
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Same Store Sales
Corporate (5.2%) 0.4%
Franchise 3.1% 9.6%
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Consolidated (2.1%) 3.5%
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Revenue ($000s)
Retail 210,330 194,195
Wholesale 97,160 100,363
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Total 307,490 294,558
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EBITA Margin 2.5% 4.9%
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Net Earnings (Loss) ($000's) (2,907) 739
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Earnings (Loss) Per Share ($0.09) $0.02
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Earnings (Loss) Per Share
(excluding Athletes World) ($0.05) $0.02
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Earnings (Loss) and Earnings (Loss) Per Share:

Net loss for the first quarter was $2.9 million, or $0.09 per share, inclusive of a loss from the operation of Athletes World, of $1.3 million, or $0.04 per share.

Sales:

Retail system sales for the quarter were $334.0 million, an increase of $25.6 million, or 8.3% from the comparable 13-week sales of $308.4 million. The increase was due to the impact of prior year acquisitions, most notably Athletes World, ($24.7 million), and new store openings which offset declines in same store corporate sales of 5.2%. Franchise same store results increased 3.1%. Corporate sales were negatively impacted in a number of areas. The strength of 4th quarter fiscal 2008 sales of winter categories depleted inventories to an extent that hampered 1st quarter, fiscal 2009 clearance events. This, coupled with unseasonable spring weather across the country, delayed the sale of spring categories which, though improved over the prior year, were below expectations. The introduction of a new statutory holiday in Ontario, the country's largest market, further dampened sales. The Athletes World sales contribution was below expectations as spring inventories had been impacted by cancelled orders while the company operated under the protection of the Companies' Creditor Arrangement Act ("CCAA").

Revenue, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, was $307.5 million, up $12.9 million, or 4.4% over the comparable period last year. Wholesale revenues were down as a result of the timing of receipts by franchise operations. This shortfall will be recouped in the 2nd quarter.

Gross Margins:

Combined gross margin for the 13 weeks ended May 4, 2008 was 34.3% of revenue, or $105.4 million, compared to 33.3%, or $98.0 million in the previous year. The overall rate increase reflects rate increases in both the corporate retail and franchise wholesale results and a shift in the sales mix between retail and wholesale sales in the quarter. The dollar improvement was driven by sales growth in the corporate business as well as solid franchise results at improved margins. Corporate store category sales results were mixed with weak performance in winter categories, particularly ski, snowboard, hockey, outerwear and accessories, casual clothing and footwear. Spring category performance, particularly in cycling, camping, fitness and racquets were strong despite the unseasonably cool weather.

Expenses:

Same store operating expenses were 30.4% of corporate store revenues versus 28.1% in the prior year, a reflection of the reduced sales volume. In absolute dollars, same store costs increased $1.5 million, or 2.8%. Overall store operating expenses were 33.5% against the prior year of 29.6%. The increase is a combination of costs associated with Athletes World ($9.6 million), the acquisition, in September 2007, of former Nevada Bob's franchise locations ($1.3 million) and new store openings, offset by the elimination of overhead from 9 Fitness Source stores franchised in April 2007 ($0.6 million). On an ongoing basis, the operating expenses associated with Athletes World are expected to be in line with corporate same store run rates as certain costs are integrated and stores operations are normalized following the emergence from CCAA.

General and administrative expenses were 8.9% of total revenue versus the prior year's 8.8%. The absolute dollar increase of $1.3 million was the result of $2.8 million in additional infrastructure costs associated with the Athletes World acquisition and standard, planned year over year increases. These costs were partially offset by lower stock-based compensation expenses ($1.8 million). Earnings before interest, taxes and amortization ("EBITA") were $7.7 million versus the prior year's EBITA of $14.5 million.

Store Activity:

During the quarter, the Company opened 2 Nevada Bob's Golf stores and closed a total of 5 stores (1 Sport Chek, 1 Nevada Bob's Golf, 2 Sport Mart and 1 corporately owned Econosport). In the franchise division, 6 new stores were opened (1 Atmosphere, 1 Nevada Bob's Golf, 1 Pegasus, 1 Fitness Source, 1 S3 and 1 Hockey Experts), 2 stores converted from Buying Members to S3, and 2 stores closed (1 Intersport and 1 RnR). As a result, at the end of the first quarter, the Company had 341 corporate stores and 227 franchise locations. This was a net decrease of 16,795 square feet of retail selling space, a 0.3% decrease versus the previous quarter. The Company now has 568 stores from coast to coast (April 30, 2007 - 478 stores).

Balance Sheet:

The Company's working capital of $101.7 million decreased $66.9 million from the prior year. The decrease is the result of the reclassification of $50 million in term financing, due for repayment on June 30, 2008. During the quarter, the Company purchased and cancelled 632,300 Common Shares at a cost of $11,074,000 under its outstanding Normal Course Issuer Bid. During the last week of the quarter, the Company committed to the purchase of an additional 402,400 shares for $7,346,000 that were settled and cancelled subsequent to the quarter end.

Dividends:

On June 10, 2008, the Company declared a dividend of $0.075 per Class A common share, payable on August 4, 2008 to shareholders of record on July 21, 2008. 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.

Management's Comments:

The Company's first quarter of fiscal 2009 was a reflection of the old adage "too much of a good thing" where the continuation of the exceptional winter weather that drove Q4 2008 sales and reduced winter inventories to record lows, hampered the Company's ability to generate positive sales momentum through the first 8 weeks of the quarter in either the corporate or franchise division. The quarter ended on a positive trend with improved sales and margins, but couldn't recover the lost opportunity of those first 8 weeks of the quarter. The first quarter traditionally represents less than 22% of revenues and 2% of earnings, and the Company expects to meet its operational plans for the year despite getting off to somewhat of a slow start. Store operating and general and administrative expenses are generally in line with historical rates.

With regard to the Athletes World acquisition, and in accordance with the Company's planned timeline to exit protection under CCAA, the Company presented its plan to a meeting of creditors on May 30, 2008 and received their approval. The Company received court approval of its plan on June 6th, 2008 and expects to exit CCAA at the end of June 2008.

Despite the loss in the quarter, the Company is pleased with the results of the continuing Athletes World stores as they were impacted by both the continuing CCAA administration and a less than optimal inventory position, both in absolute dollars and aging, available for sale during the quarter due to the cancellation of spring orders by the previous owners. The company remains confident that the business will be accretive for the year once fresh inventories arrive and are merchandised.

For the first four weeks of Q2, fiscal 2009, same store sales from corporate stores were off 8.2% and, from franchise stores, off 7.1%. The cold, wet and late start to spring affected seasonal product categories such as summer tops, shorts and sandals in both the corporate and franchise businesses. In addition, recognizing that the weather was not conducive to sales of those categories, management shifted some of its tactical advertising spending from the April/May period to June/July in order to ensure that the Company's advertising takes place when the weather has returned to more seasonal levels.

In conjunction with this release, the Company invites you to a teleconference call that will take place Wednesday, June 11, 2008 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.

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

Within Toronto: 416-644-3414

Outside Toronto: 800-733-7560

Replay: Should you be unable to join the conference call, an audio recording will be available approximately three hours after the call until June 25th, 2008 at 416-640-1917 or 877-289-8525 (pass code 21272749#)

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, 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 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)

As at May 4, 2008 February 3, 2008 April 29, 2007
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ASSETS

Current
Cash and cash equivalents $ 2,945 $ 47,484 $ 897
Accounts receivable 125,266 75,506 134,538
Inventory 339,368 319,445 330,898
Prepaid expenses 16,084 14,501 4,565
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483,663 456,936 470,898
Capital assets 191,599 188,621 185,421
Goodwill and other intangibles 91,529 89,335 89,586
Other assets 3,912 3,863 4,952
Future income tax asset 16,808 16,209 117
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$ 787,511 $ 754,964 $ 750,974
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LIABILITIES

Current
Indebtedness under
revolving credit
facility $ 27,446 $ - $ 23,811
Accounts payable and
accrued liabilities 301,486 279,910 276,039
Current portion of
long-term debt 53,100 51,863 2,494
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382,032 331,773 302,344
Long-term debt 5,437 6,586 56,204
Deferred lease inducements 53,323 55,089 57,947
Deferred rent liability 6,045 6,033 5,831
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446,837 399,481 422,326
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SHAREHOLDERS' EQUITY

Share capital 156,954 157,105 154,043
Contributed surplus 7,296 7,210 8,741
Accumulated other
comprehensive earnings 47 (8) (2)
Retained earnings 176,377 191,176 165,866
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340,674 355,483 328,648
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$ 787,511 $ 754,964 $ 750,974
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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 4, 2008 April 29, 2007
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Revenue
Retail $ 210,330 $ 194,195
Wholesale 97,160 100,363
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307,490 294,558
Cost of sales 202,079 196,520
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Gross margin 105,411 98,038
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Operating and administrative expenses
Store operating 70,409 57,541
General and administrative 27,320 26,038
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97,729 83,579
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Operating earnings before undernoted items 7,682 14,459
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Amortization 11,250 11,052
Interest 904 1,370
Loss on sale of investment - 864
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12,154 13,286
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Earnings (loss) before income taxes (4,472) 1,173
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Income tax expense (recovery)
Current (968) 438
Future (597) (4)
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(1,565) 434
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Net earnings (loss) for the period $ (2,907) $ 739
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Basic and diluted earnings (loss) per share $ (0.09) $ 0.02
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The Forzani Group Ltd.

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

For the thirteen weeks ended
Consolidated Statements
of Retained Earnings May 4, 2008 April 29, 2007
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Retained earnings, beginning of period $ 191,176 $ 171,095
Adjustment arising from adoption of
new accounting policy (1,357) -
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Adjusted Retained earnings, beginning of period 189,819 171,095
Net earnings (loss) (2,907) 739
Dividends paid (2,473)
Adjustment arising from shares purchased under
a normal course issuer bid (8,062) (5,968)
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Retained earnings, end of period $ 176,377 $ 165,866
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Consolidated Statement of Comprehensive Earnings
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Net earnings (loss) $ (2,907) $ 739
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Other comprehensive earnings (loss):
Unrealized foreign currency gains and losses
on cash flow hedges (net of tax of $29
(2008 - $48)) 55 (81)
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Other comprehensive earnings (loss) 55 (81)
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Comprehensive earnings $ (2,852) $ 658
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Consolidated Statement of Accumulated Other Comprehensive Earnings (Loss)
("AOCE")
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Accumulated other comprehensive earnings
(loss), beginning of period $ (8) $ -
Reclassification of foreign currency
translation (transitional adjustment) - 79
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Accumulated other comprehensive earnings
(loss), beginning of period, as restated (8) 79
Other comprehensive earnings (loss) 55 (81)
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Accumulated other comprehensive earnings
(loss), end of period $ 47 $ (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
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May 4, 2008 April 29, 2007
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Cash provided by (used in) operating activities
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Net earnings (loss) for the period $ (2,907) $ 739
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Items not involving cash:
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Amortization 11,250 11,052
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Amortization of deferred finance charges 181 176
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Amortization of deferred lease inducements (2,875) (2,775)
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Rent expense 21 126
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Stock-based compensation 690 2,146
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Future income tax expense (recovery) (597) (4)
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Loss on sale of investment - 864
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Unrealized (gain) loss on ineffective hedges (25) 63
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5,738 12,387
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Changes in non-cash elements of working capital
related to operating activities (55,836) (54,396)
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(50,098) (42,009)
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Cash provided by (used in) financing activities
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Proceeds from issuance of share capital 2,257 5,507
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Share repurchase via normal course issuer bid (11,074) (7,555)
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Decrease in long-term debt (93) (1,119)
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Increase in revolving credit facility 27,446 23,811
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Dividends paid (2,473) -
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Proceeds from deferred lease inducements 1,108 2,179
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17,171 22,823
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Changes in non-cash elements of financing activities 22 (1,194)
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17,193 21,629
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Cash provided by (used in) investing activities
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Capital assets (11,337) (4,999)
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Other assets (297) 2,694
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(11,634) (2,305)
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Changes in non-cash elements of investing
activities (Note 4) - 824
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(11,634) (1,481)
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Decrease in cash (44,539) (21,861)
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Cash position, opening 47,484 22,758
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Cash position, closing $ 2,945 $ 897
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Contact Information

  • The Forzani Group Ltd.
    Robert Sartor, CA
    Chief Executive Officer
    (403) 717-1342
    or
    The Forzani Group Ltd.
    Tom Quinn
    President & Chief Operating Officer
    (403) 717-1394
    or
    The Forzani Group Ltd.
    Richard Burnet, CA
    Chief Financial Officer
    (403) 717-1442