The Forzani Group Ltd./Le Groupe Forzani Ltee

The Forzani Group Ltd./Le Groupe Forzani Ltee

March 22, 2005 07:00 ET

FGL Confirms Fourth Quarter and Audited Full Year F05 Results


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: THE FORZANI GROUP LTD./LE GROUPE FORZANI LTEE

TSX SYMBOL: FGL

MARCH 22, 2005 - 07:00 ET

FGL Confirms Fourth Quarter and Audited Full Year F05
Results

CALGARY, ALBERTA--(CCNMatthews - March 22, 2005) - The Forzani Group
Ltd. (TSX:FGL), Canada's largest retailer of sporting goods, having
completed the annual audit of its financial statements, today confirmed
the results, previously released on February 22nd, 2005, with the
exception of a reduction in fourth quarter and full year, diluted
earnings per share of $0.01 and $0.04 respectively, due to a change in
accounting for certain lease costs (refer below "Lease Related
Accounting Issues").

Fourth Quarter (for the 13-weeks ended January 30, 2005)

- Net earnings for the fourth quarter were $13.0 million, a 19.2%
decrease from fiscal 2004, $12.7 million or a decrease of 21.1%, after
the impact of the change in accounting for certain lease costs. Diluted
earnings per share for the fourth quarter were $0.40, $0.39 after the
impact of the change in accounting for certain lease costs, compared to
$0.50(1) per share for the same period last year.

- Consolidated gross margins for the quarter decreased 140 basis points,
from the prior year, to 37.4%, and EBITDA (earnings before interest,
taxes, depreciation and amortization) margins decreased 110 basis points
to 11.3%, 120 basis points to 11.2% after the impact of the change in
accounting for certain lease costs. The change was reflected as a $0.2
million increase in corporate store operating expenses, $53.1 million
prior to the change and $53.3 million after the change, which has been
accounted for on a prospective basis. Comparative store operating
expense decreased 3.4% versus the quarter in the prior year, inclusive
of the change in accounting.

- Revenue decreased 2.3% to $274.3 million. Corporate comparable store
sales decreased 7.7% and, in the franchise division, comparable store
sales increased 7.1%.

Full Year (for the 52-weeks ended January 30, 2005)

- Net earnings for the year were $22.9 million, down 18.5% from reported
net earnings of $28.1 million in fiscal 2004, $21.5 million or a
decrease of 23.5%, after the impact of the change in accounting for
certain lease costs Earnings per share were $0.70, $0.66 after the
impact of the change in accounting for certain lease costs, versus
$0.87(1) per share in the previous year.

- Gross margin for the year decreased 50 basis points from fiscal 2004
to 33.9%.

- EBITDA margin was 7.9%, a 60 basis point decrease from the prior year,
7.8% or a 70 basis point decrease after the impact of the change in
accounting for certain lease costs. The change was reflected as a $1.1
million increase in corporate store operating expenses, $189.8 million
prior to the change and $190.9 million after the change, which has been
accounted for on a prospective basis. Comparative store operating
expense decreased 0.7% versus the prior year, inclusive of the change in
accounting.

- Revenue for fiscal 2005, which consists of corporate retail system
sales and wholesale sales, was $985.1 million, a 1.8% increase over the
previous year. Consolidated comparable store sales decreased 2.6%.
Corporate comparable store sales decreased 5.1% and franchise store
sales grew by 2.2%.

Company CEO, Bob Sartor, stated "As previously reported, in our February
22, 2005 press release, the decrease in corporate store comparable
sales, in the fourth quarter, was primarily due to the decline in sales
of ski and snowboard equipment, and outerwear which were down 14.1% and
3.2%, respectively, as well as the licensed clothing category, which was
down 39.5% for the quarter. The lingering NHL lockout contributed
materially to this decline." Additional information on the quarter and
the year is included in the Company's February 22, 2005 press release
and corresponding conference-call transcript, which is available for
review at www.forzanigroup.com.

(1) restated in compliance with EIC-144 - Consideration Received from a
Vendor

During fiscal 2005, the Company opened 20 new corporate stores, 7 of
which were opened during the fourth quarter. Also, during fiscal 2005,
the franchise division opened 4 new franchise stores. This growth
translates to an additional 226,530 square feet of retail space, an
increase of 4.9% over the previous year. In addition, with the Company's
acquisition of Nevada Bob's locations and National Sports, the Company
now has over 5.5 million square feet of retail selling space and 446
locations from coast to coast.

Lease Related Accounting Issues

On February 7, 2005, the Office of the Chief Accountant of the U.S.
Securities and Exchange Commission ("SEC") issued a clarification in
respect of accounting for various components of property leases and
leasehold improvements on which U.S. and Canadian accounting governing
bodies had been largely silent. As a result of the SEC clarification,
North American retailers, including The Forzani Group Ltd., have
reviewed, or are in the process of reviewing, all facets of their
related accounting practices.

The Company's review of its practices, and discussion with the Audit
Committee of its Board of Directors and external auditors, has confirmed
earlier indications that adjustments to align itself with the recent
clarification have not had a significant impact on its earnings.

The review resulted in the following two changes to accounting for
certain lease costs:

The first is in respect of the treatment of rent expense during stores'
fixturing periods. Typically, tenants are granted a fixturing, or
build-out period, during which rent is not charged. Rent is charged at
the end of the fixturing period when the store opens for business. Most
retailers, who receive "free-rent" fixturing periods, do not take a
charge for rent during this period, the premise being that, under the
terms of their lease contract, there is no rent payable and they are not
in business as yet, thus there are no revenues to which to match a rent
expense should one be accounted for notionally. The SEC clarification
stipulates that such free-rent periods be recognized on a straight-line
basis over the lease term. The impact of this change has now been
accounted for on a retroactive basis in the Company's financial
statements. This change has created a non-current asset, representing
capitalized, store pre-opening rent expenses and an offsetting,
non-current, deferred rent liability. The net effect of this change is
immaterial to the Company's financial statements.

The second is in respect of the treatment of leases with scheduled rent
increases. The SEC clarification recommends that any rent increases be
accounted for on a straight-line basis. Most retailers account for these
rent increases when they occur, as they represent a contractually
committed, negotiated amount. Nonetheless, the Company has changed its
treatment of these scheduled rent increases and the change, accounted
for on a prospective basis, results in a charge to full-year, diluted
earnings of $0.04.

These are non-cash adjustments and have no impact on the Company's
revenues or cash flows.

The Forzani Group is Canada's largest and only national retailer of
sporting goods, offering a comprehensive assortment of brand-name and
private-brand products, operating stores from coast to coast, under four
corporate banners: Sport Chek, Coast Mountain Sports, Sport Mart and
National Sports. The Company also retails on-line at www.sportmart.ca
and provides content rich sporting goods information site at
www.sportchek.ca and www.sportsexperts.ca. The Forzani Group is also a
franchisor under the banners: Sports Experts, Intersport, RnR,
Econosports, Atmosphere, Tech Shop and Nevada Bob's.

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)
------------------------------------------------------------------------
------------------------------------------------------------------------
January 30, February 1,
As at 2005 2004
(restated)
------------------------------------------------------------------------
------------------------------------------------------------------------

ASSETS
Current
Cash $ 26,018 $ 23,315
Accounts receivable 54,651 36,319
Inventory 278,631 258,816
Prepaid expenses 3,022 11,292
------------------------------------------------------------------------
362,322 329,742
Capital assets 179,702 167,716
Goodwill and other intangibles 52,790 39,682
Other assets 9,415 10,105
Future income tax asset - 1,793
------------------------------------------------------------------------
$ 604,229 $ 549,038
------------------------------------------------------------------------
------------------------------------------------------------------------

LIABILITIES
Current
Accounts payable and accrued liabilities $ 234,314 $ 217,777
Current portion of long-term debt 1,580 887
------------------------------------------------------------------------
235,894 218,664
Long-term debt 40,278 37,408
Deferred lease inducements 62,613 59,670
Deferred rent liability 2,213 -
Future income tax liability 384 -
------------------------------------------------------------------------
341,382 315,742
------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital 137,811 128,880
Contributed surplus 2,915 2,888
Retained earnings 122,121 101,528
------------------------------------------------------------------------
262,847 233,296
------------------------------------------------------------------------
$ 604,229 $ 549,038
------------------------------------------------------------------------
------------------------------------------------------------------------



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

------------------------------------------------------------------------
------------------------------------------------------------------------
For the For the
52 weeks ended 52 weeks ended
January 30, 2005 February 1, 2004
(restated)
------------------------------------------------------------------------
------------------------------------------------------------------------

Revenue
Retail $ 718,820 $ 732,880
Wholesale 266,234 235,198
------------------------------------------------------------------------
985,054 968,078
Cost of sales 651,158 634,961
------------------------------------------------------------------------
Gross margin 333,896 333,117
------------------------------------------------------------------------
Operating and administrative expenses
Store operating 190,891 185,720
General and administrative 66,536 65,081
------------------------------------------------------------------------
257,427 250,801
------------------------------------------------------------------------

Operating earnings before
undernoted items 76,469 82,316
------------------------------------------------------------------------

Amortization 35,885 32,158
Interest 4,447 4,838
Loss on write-down of investment 2,208 -
------------------------------------------------------------------------
42,540 36,996
------------------------------------------------------------------------

Earnings before income taxes 33,929 45,320
------------------------------------------------------------------------

Provision for income taxes
Current 10,207 16,799
Future 2,177 422
------------------------------------------------------------------------
12,384 17,221
------------------------------------------------------------------------

Net earnings 21,545 28,099

Retained earnings, opening 101,528 73,429
Adjustment arising from
normal course issuer bid (952) -
------------------------------------------------------------------------
Retained earnings, closing $ 122,121 $ 101,528
------------------------------------------------------------------------
------------------------------------------------------------------------
Earnings per share $ 0.66 $ 0.90
------------------------------------------------------------------------
------------------------------------------------------------------------
Diluted earnings per share $ 0.66 $ 0.87
------------------------------------------------------------------------
------------------------------------------------------------------------



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

------------------------------------------------------------------------
------------------------------------------------------------------------
For the For the
52 weeks ended 52 weeks ended
January 30, 2005 February 1, 2004
(restated)
------------------------------------------------------------------------
------------------------------------------------------------------------

Cash provided by (used in)
operating activities
Net earnings $ 21,545 $ 28,099
Items not involving cash
Amortization 35,885 32,158
Amortization of deferred
finance charges 828 430
Amortization of deferred
lease inducements (10,459) (9,097)
Straight-line rent expense 2,213
Stock-based compensation 27 2,342
Write-down of investment
and other assets 2,213 -
Future income tax expense 2,177 422
------------------------------------------------------------------------
54,429 54,354
Changes in non-cash elements
of working capital (4,040) 11,890
------------------------------------------------------------------------
50,389 66,244
------------------------------------------------------------------------
------------------------------------------------------------------------
Cash provided by (used in)
financing activities
Net proceeds from issuance
of share capital 967 4,014
Increase in long-term debt 3,563 2,169
Decrease in revolving
credit facility - (4,204)
Proceeds from deferred
lease inducements 8,874 8,222
------------------------------------------------------------------------
13,404 10,201
------------------------------------------------------------------------
Cash provided by (used in)
investing activities
Net addition of capital assets (44,389) (47,926)
Net addition of other assets (7,112) (5,727)
Acquisition of wholly-owned
subsidiary (9,589) -
------------------------------------------------------------------------
(61,090) (53,653)
------------------------------------------------------------------------
Increase in cash 2,703 22,792
Net cash position, opening 23,315 523
------------------------------------------------------------------------
Net cash position, closing $ 26,018 $ 23,315
------------------------------------------------------------------------
------------------------------------------------------------------------



-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    The Forzani Group Ltd.
    Bob Sartor, C.A.
    Chief Executive Officer
    (403) 717-1342
    or
    The Forzani Group Ltd.
    Bill Gregson, C.A.
    President and Chief Operating Officer
    (403) 717-1386