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

The Forzani Group Ltd./Le Groupe Forzani Ltee

March 24, 2006 07:00 ET

FGL Announces Record Fourth Quarter Results

CALGARY, ALBERTA--(CCNMatthews - March 24, 2006) -

- Fourth quarter earnings up 31%

The Forzani Group Ltd. (TSX:FGL), Canada's largest retailer of sporting goods, today released its fourth quarter and year-end results for the 13 and 52-week periods ended January 29, 2006.

For the Fourth Quarter:

Retail system sales for the quarter ended January 29, 2006, were $438.0 million, a $71.4 million increase from sales for the quarter ended January 30, 2005, of $366.6 million, on the strength of a 10.1% increase in corporate comparable store sales; a 5.3% increase in franchise comparable store sales; and sales stemming from the acquisition of National Gym Clothing Limited ("National Sports") on January 31, 2005, and the full year impact of the Nevada Bob's Golf banner/license acquisition at the end of fiscal 2005. Excluding the impact of the two new banners, retail system sales for the fourth quarter were $407.1 million, an 11.0% increase over sales in the same period last year.

Total revenues, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, were $342.2 million, an increase of 24.8% from the prior year. Exclusive of the impact of National Sports and Nevada Bob's Golf, revenues increased to $316.1 million or 15.2% over last year's fourth quarter.

Corporate store revenues, at $287.8 million, were 25.4% above last year's revenues of $229.5 million, a combination of the impact of the National Sports stores acquired earlier in the year, the net addition of 9 corporate stores and the comparable store sales increases of 10.1% referred to above. Corporate comparable store sales were driven by stronger than expected results in footwear, hockey and athletic clothing.

Wholesale sales for the quarter were $54.4 million, up 21.4% from the prior year. Franchise comparable store sales were up 5.3% for the quarter on the strength of footwear, athletic and winter clothing.

The Company's margins for the quarter were 37.9%, up 50 basis points from the prior year mark of 37.4%. This was primarily due to the strength of improved corporate store results, particularly in the hockey equipment, athletic/casual/outdoor clothing, and footwear categories. In absolute dollars, combined gross margin increased $27.2 million to $129.7 million compared to $102.5 million in the 13-week period last year.

Corporate store operating expenses, as a percent of retail revenue, decreased to 21.5% this year versus 23.2% in the prior year. On a comparable store basis, store-operating expenses were 20.1% of revenue against 22.0% last year.

General and administrative expenses were 8.4% of total revenue at $28.8 million versus $18.4 million in the prior year. The difference of $10.4 million, in addition to ordinary course increases, was comprised of: central costs related to National Sports ($2.1 million); an increased media spend ($3.1 million); the addition of a Precision Retail Group ($0.7 million); and a variance in stock-based compensation expense, in the quarter, as a result of a forfeiture of stock options in fiscal 2005 ($2.5 million). Exclusive of these costs, general and administrative expenses represented 6.4% of revenues, more in line with historical levels.

Net earnings for the quarter were $17.0 million, or 5.0% of revenues versus $12.7 million or 4.6% in the prior year. Basic earnings per share for the 13-week period ended January 29, 2006 were $0.52 compared to $0.39 in the prior year. Diluted earnings per share were $0.51, a record fourth quarter for the Company, versus $0.39 in the fourth quarter of fiscal 2005. Cash flow from operations increased to $27.4 million from $20.5 million. On a per share basis, cash flow increased to $0.83 from $0.63 in the prior year.

During the quarter, the Company opened 5 Sport Chek stores, 1 Sport Mart store and 2 National Sports stores. In addition, the Company closed 3 Sport Chek stores and 2 Sport Mart stores, and 1 franchise store was converted to a corporate store. In the franchise division, 10 stores were opened (6 Nevada Bob's Golf, 1 Sports Experts, 1 Pegasus, 1 Hockey Experts and 1 Atmosphere), 2 Intersport stores and 1 Nevada Bob's Golf store closed, and 1 franchise store became a corporate store. As a result, at the end of the fourth quarter, the Company had 260 corporate stores and 204 franchise locations. This was a net increase of 74,700 square feet of retail selling space, a 1.3% increase versus the previous quarter. The Company now has 464 stores from coast to coast (January 30, 2005 - 427 stores).

For the Year:

Retail system sales for the 52 weeks ended January 29, 2006 were $1,310.5 million, a $202.2 million increase from sales for the 52 weeks ended January 30, 2005. This increase was a combination of comparable store sales increases of 3.8% and 6.5% in corporate and franchise stores, respectively, and the sales resulting from the acquisition of National Sports in the first quarter of fiscal 2006 and the full-year impact of the addition of Nevada Bob's Golf. Excluding the impact of these two new banners, retail system sales for fiscal 2006 were $1,190.3 million, a 7.4% increase over sales in the same period last year.

Revenue was $1,129.4 million, a $144.3 million, or 14.6% increase over the 52-week period last year. Exclusive of the impact of National Sports and Nevada Bob's Golf, revenue increased to $1,040.5 million, or 5.6% over the prior year.

Combined gross margin for the 52 weeks ended January 29, 2006 was 33.9% of revenue, consistent with the prior year. In absolute dollars, the combined gross margin increased $49.2 million, to $383.1 million, from the 52-week period last year.

Store operating expenses, as a percent of retail revenue, were 26.3% versus 26.6% in the prior year. On a comparable store basis, store-operating expenses were up 0.8% in absolute dollars versus the prior year, but down 50 basis points as a percent of retail revenue.

General and administrative expenses were $88.7 million, or 7.9% of total revenue, versus $66.5 million or 6.8% in the prior year. Similar to the quarter, the increase in absolute dollars over and above ordinary course increases, is primarily a result of: the addition of National Sports, representing $7.7 million; and increase in the Company's advertising spend of $6.0 million; the full-year cost of a Precision Retailing Group, in the amount of $1.2 million, and the year over year variance in stock-based compensation expense as a result of a forfeiture of stock options in fiscal 2005, representing $1.3 million.

Net earnings for the 52 weeks ended January 29, 2006 were $13.8 million compared to $21.5 million for the 52-week period in the prior year. Basic and diluted earnings per share were $0.42, compared to $0.66 in the prior year. Cash flow from operations decreased from $56.8 million to $47.8 million. On a per share basis, cash flow decreased 16.7% to $1.45 compared to $1.74 the prior year.

Management's Comments:

The weak results in the Company's first two quarters of fiscal 2006 made for a difficult year. We are encouraged, however, by the operational changes made in the Company which resulted in strong results in the back half of the year, with diluted earnings per share for the combined third and fourth quarters of $0.71, a 24.6% improvement over fiscal 2005. Commencing with the Back to School period and carrying through a record fourth quarter, the Company has regained its momentum moving into fiscal 2007. For the first seven weeks of Q1, fiscal 2007, comparable store sales from corporate stores grew by 17.2% and franchise comparable store sales increased 4.2 %.

In conjunction with this release, the Company invites you to listen to its teleconference call / audio web cast that will take place Friday, March 24, 2006 at 9:30 a.m. (Eastern time).

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

Within Toronto: 416-644-3427

Outside Toronto: 800-796-7558

Replay: Should you be unable to join the conference call, an audio recording will be available approximately three hours after the call until April 8th, 2006 at 416-640-1917 or 877-289-8525 (pass code 21181626#)

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 Company also retails on-line at www.sportmart.ca and provides a content rich sporting goods information site at www.sportchek.ca. 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 foregoing information may contain forward-looking statements relating to the future performance of The Forzani Group Ltd. Forward-looking statements, 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)
------------------------------------------------------------------------
As at January 29, 2006 January 30, 2005
------------------------------------------------------------------------

ASSETS
Current
Cash $ 19,266 $ 26,018
Accounts receivable 68,927 58,576
Inventory 278,002 278,631
Prepaid expenses 2,647 3,022
------------------------------------------------------------------------
368,842 366,247
Capital assets 193,594 179,702
Goodwill and other intangibles 75,805 52,790
Other assets 10,080 9,415
Future income tax asset 4,885 -
------------------------------------------------------------------------
$ 653,206 $ 608,154
------------------------------------------------------------------------
------------------------------------------------------------------------

LIABILITIES
Current
Accounts payable and accrued
liabilities $ 244,293 $ 238,239
Current portion of long-term debt 5,135 1,580
------------------------------------------------------------------------
249,428 239,819
Long-term debt 58,805 40,278
Deferred lease inducements 62,883 62,613
Deferred rent liability 3,810 2,213
Future income tax liability - 384
------------------------------------------------------------------------
374,926 345,307
------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital 138,131 137,811
Contributed surplus 4,271 2,915
Retained earnings 135,878 122,121
------------------------------------------------------------------------
278,280 262,847
------------------------------------------------------------------------
$ 653,206 $ 608,154
------------------------------------------------------------------------
------------------------------------------------------------------------


THE FORZANI GROUP LTD.
Consolidated Statements of Operations and Retained Earnings
(in thousands, except share data)

------------------------------------------------------------------------
For the For the
52 weeks 52 weeks
ended ended
January 29, January 30,
2006 2005
------------------------------------------------------------------------

Revenue
Retail $ 856,149 $ 718,820
Wholesale 273,255 266,234
------------------------------------------------------------------------
1,129,404 985,054
Cost of sales 746,313 651,158
------------------------------------------------------------------------

Gross margin 383,091 333,896
------------------------------------------------------------------------

Operating and administrative expenses
Store operating 225,218 190,891
General and administrative 88,720 66,536
------------------------------------------------------------------------
313,938 257,427
------------------------------------------------------------------------

Operating earnings before undernoted items 69,153 76,469
------------------------------------------------------------------------

Amortization 41,343 35,885
Interest 6,145 4,447
Loss on write-down of investment - 2,208
------------------------------------------------------------------------
47,488 42,540
------------------------------------------------------------------------

Earnings before income taxes 21,665 33,929
------------------------------------------------------------------------

Provision for income taxes
Current 8,784 10,207
Future (876) 2,177
------------------------------------------------------------------------
7,908 12,384
------------------------------------------------------------------------

Net earnings 13,757 21,545

Retained earnings, opening 122,121 101,528
Adjustment arising from normal course
issuer bid - (952)
------------------------------------------------------------------------
Retained earnings, closing $ 135,878 $ 122,121
------------------------------------------------------------------------
------------------------------------------------------------------------
Earnings per share $ 0.42 $ 0.66
------------------------------------------------------------------------
------------------------------------------------------------------------
Diluted earnings per share $ 0.42 $ 0.66
------------------------------------------------------------------------
------------------------------------------------------------------------


THE FORZANI GROUP LTD.
Consolidated Statements of Cash Flows
(in thousands)

------------------------------------------------------------------------
For the For the
52 weeks 52 weeks
ended ended
January 29, January 30,
2006 2005
------------------------------------------------------------------------

Cash provided by (used in) operating
activities
Net earnings $ 13,757 $ 21,545
Items not involving cash
Amortization 41,343 35,885
Amortization of deferred finance charges 637 828
Amortization of deferred lease inducements (10,661) (10,459)
Rent expense 2,281 4,565
Stock-based compensation 1,356 27
Write-down of investment and other assets - 2,213
Future income tax expense (876) 2,177
------------------------------------------------------------------------
47,837 56,781
Changes in non-cash elements of working capital (1,979) (6,545)
------------------------------------------------------------------------
45,858 50,236
------------------------------------------------------------------------
Cash provided by (used in) financing activities
Net proceeds from issuance of share capital 320 967
Increase in long-term debt 23,573 3,563
Decrease in revolving credit facility - -
Debt assumed on acquisition (17,922) -
Proceeds from deferred lease inducements 9,368 13,402
------------------------------------------------------------------------
15,339 17,932
------------------------------------------------------------------------
Changes in non-cash elements of financing
activities (2,450) (4,375)
------------------------------------------------------------------------
12,889 13,557
------------------------------------------------------------------------
Cash provided by (used in) investing activities
Net addition of capital assets (50,837) (45,726)
Net addition of other assets (3,751) (7,112)
Acquisition of wholly-owned subsidiary (12,428) (9,589)
------------------------------------------------------------------------
(67,016) (62,427)
------------------------------------------------------------------------
Changes in non-cash elements of investing
activities 1,517 1,337
------------------------------------------------------------------------
(65,499) (61,090)
------------------------------------------------------------------------
Increase (decrease) in cash (6,752) 2,703
Net cash position, opening 26,018 23,315
------------------------------------------------------------------------
Net cash position, closing $ 19,266 $ 26,018
------------------------------------------------------------------------
------------------------------------------------------------------------



Contact Information

  • The Forzani Group Ltd.
    Robert Sartor, C.A.
    Chief Executive Officer
    (403) 717-1342
    or
    The Forzani Group Ltd.
    Bill Gregson, C.A.
    President & Chief Operating Officer
    (403) 717-1386