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

The Forzani Group Ltd./Le Groupe Forzani Ltee

September 05, 2007 07:00 ET

FGL Announces Record Second Quarter Results and Initiation of Dividend

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

Financial Highlights:



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For the thirteen weeks For the twenty-six weeks
ended ended
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July 29, July 30, July 29, July 30,
2007 2006 2007 2006
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Revenue ($000s)
---------------
Retail 212,107 208,188 406,300 404,043
Wholesale 80,274 75,808 180,637 160,388
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Total 292,381 283,996 586,937 564,431
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EBITA Margin 7.2% 5.7% 6.0% 5.1%
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Net Earnings ($000's) 5,428 1,948 6,167 2,242
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Earnings Per Share $0.16 $0.06 $0.18 $0.07
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Same Store Sales (%)

Corporate 0.4 5.4 0.5 8.5
Franchise 6.1 6.9 7.7 6.5
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Consolidated 2.5 6.0 3.1 7.8
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For the Second Quarter:

Earnings and Earnings Per Share:

Net earnings for the second quarter were $5.4 million, or $0.16 per share, compared to the prior year's second quarter of $1.9 million, or $0.06 per share. Cash flow from operations increased to $13.8 million, or $0.41 per share, from $11.8 million, or $0.36 per share, in the prior year.

Sales:

Retail system sales for the quarter were $351.3 million, an increase of $13.4 million, or 4.0% from the comparable 13-week sales of $337.9 million.

Same store sales in corporate locations were up 0.4% and increased 6.1% in franchise locations, over the fiscal 2007 second quarter, for an overall same store sales increase of 2.5%. These results were on top of prior year same store increases of 5.4% and 6.9% respectively in Corporate and Franchise businesses.

Revenue, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, was $292.4 million, up $8.4 million, or 3.0% over the comparable period last year.

Gross Margins:

Combined gross margin for the 13 weeks ended July 29, 2007 was 34.9% of revenue, or $102.1 million, compared to 34.0%, or $96.7 million in the previous year. Both retail and wholesale margins improved over the prior year. The margin dollar improvements continue to be driven by a combination of solid franchise results, and improved corporate store results. Gross margin improvements were seen in most categories, in particular team sports, hockey, camping and inline hardgoods lines, athletic and licensed clothing and outerwear.

Expenses:

Store operating expenses, as a percent of corporate store revenue, were 27.8% against the prior year of 27.4%. Same store operating costs were 26.5% of corporate store revenue, 26.2% in the prior year. Same store costs, in absolute dollars, increased $1.0 million or 2.0%.

General and administrative expenses were 7.6% of total revenue versus the prior year's 8.3%. The absolute dollar decrease of $1.4 million was a combination of standard year over year increases, offset by reduced accruals for performance-based compensation and reduced advertising expenses.

Earnings before interest, taxes and amortization ("EBITA") were $20.9 million, compared to $16.1 million for the 13-week period last year.

Store Activity:

During the quarter, the Company opened 2 Sport Chek, 2 Coast Mountain Sports and 1 Golf Experts stores and converted 2 Sport Mart stores to corporate Hockey Experts locations. In the franchise division, 5 stores were opened (3 Nevada Bob's Golf, 1 Fitness Source and 1 Buying Member). As a result, at the end of the second quarter, the Company had 260 corporate stores and 228 franchise locations. This was a net increase of 86,923 square feet of retail selling space, a 1.5% increase versus the previous quarter. The Company now has 488 stores from coast to coast (July 30, 2006 - 470 stores).

For the Year to Date:

Net earnings for the 26-week period ended July 29, 2007, were $6.2 million, or $0.18 per share, compared to $2.2 million, or $0.07 in the prior year. Cash flow from operations increased to $26.2 million from $22.0 million. On a per share basis, cash flow increased 14.9% to $0.77 compared to $0.67 in the prior year.

Retail system sales for the 26 weeks were $659.7 million, a $22.7 million increase from sales for the comparative fiscal 2007 period. Same store sales in corporate stores increased 0.5%, while franchise stores increased 7.7%, with total same store retail system sales increasing 3.1%.

Revenue was $586.9 million, a $22.5 million, or 4.0% increase over the 26-week period last year. Combined gross margin for the 26 weeks ended July 29, 2007 was up 100 basis points to 34.1% of revenue, from 33.1% in the prior year. In absolute dollars, the combined gross margin increased $13.4 million, to $200.2 million, from the 26-week period last year.

Store operating expenses, as a percent of corporate revenue, were 28.7% versus 28.4% in the prior year. General and administrative expenses were 8.2% of total revenue, up from 7.7% in the prior year. The absolute dollar increase of $5.1 million was a combination of the timing of accruals for performance-based compensation ($4.1 million), and standard year over year increases. As discussed in our first quarter press release, management is of the opinion that performance targets will be attained in fiscal 2008 and has accrued compensation expenses accordingly. Year over year performance-based compensation is expected to be approximately $10 million less in fiscal 2008 versus fiscal 2007 resulting in an annualized general and administrative expense run rate in line with historical levels.

EBITA was $35.4 million, or 6.0% of total revenue, compared to 5.1% for the same period last year. Earnings before income taxes for the 26 weeks ended July 29, 2007 were $9.7 million compared to $4.2 million for the 26-week period in the prior year.

Net earnings were $6.2 million versus $2.2 million in the prior year. Net earnings in the current year include the effect of a one-time loss of $0.9 million on the sale of an investment in a trademark licensing company.

Balance Sheet:

The Company's working capital of $127.5 million grew by 12.0% over the prior year due to the stronger results and in spite of a $49.4 million reclassification of long-term debt to current debt, reflecting the maturity, in the coming twelve months, of the Company's net term debt with its lender. The company has no exposure to recent market concerns in respect of asset-backed commercial paper as it is neither an investor in, nor issuer of this financing vehicle.

Management's Comments:

The improved results that the Company is generating have continued due to strong growth in the Wholesale division and improved Retail profitability as a result of expense controls and improved margins, driven by the Precision Retailing initiative in the Sport Chek and Coast Mountain banners. EBITA, on a trailing four-quarter basis, was $113.8 million compared to $89.4 million for the four quarters ending in the second quarter of last year, a 27.2% improvement.

As in the prior two years, the Back to School selling period has shifted to the latter half of August and the first half of September and the Company has adjusted its advertising spend to coincide with this shift. The Company will be releasing its Back to School results at the end of September.

Dividend Policy:

The Company is pleased to announce, subject to the Board of Directors' discretion, its intent to declare an annual dividend of $0.30 per share, payable quarterly, commencing in the fourth quarter of this fiscal year.

In conjunction with this release, the Company invites you to listen to its teleconference call / audio web cast that will take place Wednesday, September 5, 2007 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: 416-644-3416

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 September 19, 2007 at 416-640-1917 or 877-289-8525 (pass code 21244870#).

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, National Sports and Hockey Experts. The Forzani Group is also a franchisor under the banners: Sports Experts, Intersport, 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-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)
(unaudited)


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

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ASSETS
Current
Cash $ 744 $ 22,758 $ 904
Accounts receivable 107,778 65,543 84,155
Inventory 323,479 302,207 313,970
Prepaid expenses 4,649 2,688 3,336
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436,650 393,196 402,365
Capital assets 184,895 191,146 193,839
Goodwill and other
intangibles 89,501 90,238 85,818
Other assets 4,373 8,930 9,611
Future income tax asset 272 - 5,206
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$ 715,691 $ 683,510 $ 696,839
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LIABILITIES
Current
Indebtedness under
revolving credit facility $ 18,809 $ - $ 61,506
Accounts payable and
accrued liabilities 238,856 230,977 220,135
Current portion of
long-term debt 51,474 2,082 6,850
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309,139 233,059 288,491
Long-term debt 6,760 58,303 60,511
Deferred lease inducements 55,429 58,543 60,209
Deferred rent liability 6,003 5,737 5,018
Future income tax liability - 55 -
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377,331 355,697 414,229
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SHAREHOLDERS' EQUITY
Share capital 161,902 148,424 138,718
Contributed surplus 7,049 8,294 5,772
Retained earnings 169,409 171,095 138,120
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338,360 327,813 282,610
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$ 715,691 $ 683,510 $ 696,839
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THE FORZANI GROUP LTD.
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)



For the thirteen weeks For the twenty-six weeks
ended ended
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July 29, July 30, July 29, July 30,
2007 2006 2007 2006

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Revenue
Retail $ 212,107 $ 208,188 $ 406,300 $ 404,043
Wholesale 80,274 75,808 180,637 160,388
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292,381 283,996 586,937 564,431
Cost of sales 190,268 187,335 386,787 377,626
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Gross margin 102,113 96,661 200,150 186,805
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Operating and
administrative expenses
Store operating 58,946 56,978 116,486 114,675
General and
administrative 22,227 23,608 48,265 43,228
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81,173 80,586 164,751 157,903
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Operating earnings before
undernoted items 20,940 16,075 35,399 28,902

Amortization 10,850 10,487 21,902 21,218
Interest 1,536 1,899 2,906 3,529
Loss on sale of
investment - - 864 -
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12,386 12,386 25,672 24,747
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Earnings before income
taxes 8,554 3,689 9,727 4,155

Income tax expense
(recovery)
Current 3,281 1,270 3,719 1,429
Future (155) 471 (159) 484
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3,126 1,741 3,560 1,913
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Net earnings for the
period $ 5,428 $ 1,948 $ 6,167 $ 2,242
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Earnings & diluted
earnings per share $ 0.16 $ 0.06 $ 0.18 $ 0.07
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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 For the twenty-six weeks
ended ended
July 29, July 30, July 29, July 30,
2007 2006 2007 2006
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Retained earnings,
beginning of period $ 165,866 $ 136,172 $ 171,095 $ 135,878
Net earnings 5,428 1,948 6,167 2,242
Adjustment arising
from shares purchased
under a normal course
issuer bid (1,885) - (7,853) -

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Retained earnings,
end of period $ 169,409 $ 138,120 $ 169,409 $ 138,120
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Consolidated Statement of Comprehensive Earnings
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For the thirteen weeks For the twenty-six weeks
ended ended
July 29, July 30, July 29, July 30,
2007 2006 2007 2006
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Net earnings $ 5,428 $ 1,948 $ 6,167 $ 2,242
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Other comprehensive
earnings (loss):
Unrealized foreign
currency gains and
losses on cash flow
hedges 3 (126)
Tax impact (1) 47
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2 N/A (79) N/A
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Other comprehensive
earnings (loss) 2 (79)

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Comprehensive earnings $ 5,430 $ 1,948 $ 6,088 $ 2,242
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Consolidated Statement of Accumulated Other Comprehensive Earnings
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For the thirteen weeks For the twenty-six weeks
ended ended
July 29, July 30, July 29, July 30,
2007 2006 2007 2006
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Accumulated other
comprehensive
earnings, beginning
of period (2) - - -
Reclassification of
foreign currency
translation
(transitional
adjustment) - - 79 -
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Accumulated other
comprehensive
earnings, beginning
of period, as restated (2) - 79 -
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Other comprehensive
earnings (loss) 2 - (79) -
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Accumulated other
comprehensive
earnings, end
of period $ - - $ - $ -
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THE FORZANI GROUP LTD.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

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For the thirteen weeks For the twenty-six weeks
ended ended
July 29, July 30, July 29, July 30,
2007 2006 2007 2006
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Cash provided by (used
in) operating
activities
Net earnings for the
period $ 5,428 $ 1,948 $ 6,167 $ 2,242
Items not involving
cash:
Amortization 10,850 10,487 21,902 21,218
Amortization of
finance charges 4 145 179 282
Amortization of
deferred lease
inducements (2,732) (2,780) (5,507) (5,533)
Rent expense 329 998 455 1,784
Stock-based
compensation 117 522 2,262 1,545
Future income tax
expense (recovery) (155) 471 (159) 484
Loss on sale of
investment - - 864 -
Loss on ineffective
hedges (71) - 29 -
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13,770 11,791 26,192 22,022
Changes in non-cash
elements of working
capital related to
operating activities (3,245) (3,830) (57,641) (77,432)
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10,525 7,961 (31,449) (55,410)
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Cash provided by (used
in) financing
activities
Net proceeds from
issuance of share
capital 4,165 98 2,118 543
Decrease in long-term
debt (464) (64) (1,583) (453)
Increase (decrease)
in revolving credit
facility (5,002) 3,050 18,809 61,506
Credit facility
assumed on acquisition - - - (105)
Proceeds from
deferred lease
inducements 214 629 2,393 2,799
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(1,087) 3,713 21,737 64,290

Changes in non-cash
elements of financing
activities (183) (257) (1,312) (257)
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(1,270) 3,456 20,425 64,033
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Cash provided by (used
in) investing
activities
Net addition of
capital assets (10,003) (11,691) (15,003) (20,583)
Net disposal
(addition) of other
assets 413 (91) 3,006 54
Acquisition of wholly
owned subsidiary - - - (6,650)
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(9,590) (11,782) (11,997) (27,179)
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Changes in non-cash
elements of investing
activities 182 194 1,007 194
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(9,408) (11,588) (10,990) (26,985)
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Decrease in cash (153) (171) (22,014) (18,362)
Net cash position,
opening 897 1,075 22,758 19,266
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Net cash position,
closing $ 744 $ 904 $ 744 $ 904
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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