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

The Forzani Group Ltd./Le Groupe Forzani Ltee

April 08, 2009 07:00 ET

Forzani Announces Fiscal 2009 Results

CALGARY, ALBERTA--(Marketwire - April 8, 2009) - The Forzani Group Ltd. (TSX:FGL), Canada's largest retailer of sporting goods, today reported fiscal 2009 fourth quarter and year-end results for the 13 and 52-week periods ended February 1, 2009. Unless otherwise stated, prior year comparisons are to the 14 and 53-week periods ended February 3, 2008.




Comparative Weeks Sales Information:

----------------------------------------------------------------------------
($000's) For the 13 For the 13 For the 52 For the 52
weeks ended weeks ended weeks ended weeks ended
----------------------------------------------------------------------------
February 1, February 3, February 1, February 3,
2009 2008 2009 2008
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System Retail
--------------
Sales (1)
----------

Corporate Retail 317,098 322,476 994,043 953,125
Franchise Retail 189,792 176,468 584,594 551,222
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Total System Retail 506,890 498,944 1,578,637 1,504,347
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Same Store Sales (%)
--------------------
Corporate (3.5) 6.0 (1.9) 1.9
Franchise 5.9 12.8 4.8 8.5
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Consolidated (0.2) 8.3 0.5 4.1
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Financial Highlights:

----------------------------------------------------------------------------
($000's) For the 13 For the 14 For the 52 For the 53
weeks ended weeks ended weeks ended weeks ended
----------------------------------------------------------------------------
February 1, February 3, February 1, February 3,
2009 2008 2009 2008
----------------------------------------------------------------------------
Revenue
--------
Retail 317,098 338,796 994,043 969,256
Wholesale 63,714 71,803 352,715 361,753
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Total 380,812 410,599 1,346,758 1,331,009
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EBITA (1) 47,225 54,625 97,102 122,970
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Net Earnings 24,170 28,698 29,325 47,451
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Earnings Per Share
(Diluted) $ 0.79 $ 0.85 $ 0.93 $ 1.39
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Same Store Sales (%)
--------------------
Corporate (8.1) 10.6 (3.5) 3.3
Franchise 0.4 17.7 3.1 10.0
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Consolidated (5.1) 13.0 (1.1) 5.6
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(1) Refer to "Non-GAAP Measures" below.


Management's Comments:

As we move forward in fiscal 2010, our focus is on continuing to grow our business and increase profitability and market share by upgrading and renovating existing stores and opening new stores while, at the same time maintaining a disciplined focus on operating costs and maintaining a strong balance sheet with sufficient liquidity and borrowing capacity to facilitate strategic acquisitions and ensure adequate working capital, in the context of the significant challenges presented by ongoing difficult economic conditions. Against a backdrop of the very significant economic challenges in recent quarters, particularly in the Canadian retail industry, the Company is satisfied with its performance in the 4th quarter, given the widespread deterioration in consumer confidence, especially when viewed against what was a record, extended 14 week quarter in the prior year. Excluding the 14th week from the prior year, same store corporate sales decreased 3.5% while franchise retail sales increased 5.9% for an overall sales decrease of 0.2%. Gross margins were essentially flat and general and administrative costs were well controlled in both absolute dollars and as a percentage of revenue.

For fiscal 2009 as a whole, excluding the impact of the prior year's 53rd week, same store corporate sales decreased 1.9% while franchise same store sales grew 4.8% for an overall adjusted same store system retail sales growth of 0.5%, despite the plunge in consumer confidence. Margins were flat to the prior year, and expenses were well controlled in absolute terms, but increased as a percentage of revenues due exclusively to the weaker than anticipated sales environment.

Notwithstanding that financial performance throughout the year lagged the prior year's record results, the Company achieved many important operational initiatives, most notably Athletes World emerging from CCAA and the integration of its' back office functions, testing of new boutique concepts in Sport Chek, and streamlining the corporate purchasing functions to leverage the IT Banner Migration project. The completion of, and progress in, these initiatives positions the Company well for the coming year. The Company exits fiscal 2009 with its inventory reduced in absolute dollars and fresh in terms of aging, a strong franchise network coming off yet another year of positive same store results, and significant resources and cash flow to take advantage of opportunities arising from the weakened competitive Canadian landscape.

For the first 9 weeks of the first quarter of the Company's fiscal 2010 year, same store sales from corporate stores were up 2.7% and franchise same store sales decreased 0.6% for an overall retail system sales increase of 1.5% relative to the same period in fiscal 2009. Corporate margins declined versus prior year as continuing winter weather across the country hampered sales of spring products and the retail sector continued to deal with the impact of the current economic malaise.

For the Fourth Quarter:

Earnings and Earnings Per Share:

Net earnings for the fourth quarter were $24.2 million, or $0.79 per share, compared to the prior year's fourth quarter of $28.7 million, or $0.85 per share, a 15.7% decrease in profits and a 7.1% decrease in earnings per share. In the quarter, Athletes World stores added $0.2 million or $0.01 per share to consolidated net earnings.

Sales:

Retail system sales for the quarter were $506.9 million, a decrease of $17.8 million, or 3.4% from the prior year 14-week sales of $524.7 million. The results were negatively impacted by the deterioration in consumer confidence, and a comparison to the extended quarter in the prior year. Excluding the impact of the 14th week of the prior year's quarter, total retail system sales rose $8.0 million or 1.6% on a year over year basis.

Same store sales in corporate locations were down 8.1% and up 0.4% in franchise locations, for an overall same store sales decrease of 5.1%. Excluding the impact of the 14th week in the prior year's quarter, quarterly sales were down 3.5% in corporate locations and up 5.9% in franchise locations for an overall same store sales decrease of 0.2%.

Revenue, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, was $380.8 million, down $29.8 million, or 7.3% from the 4th quarter last year.

Gross Margin:

Combined gross margin for the 13 weeks ended February 1, 2009 was 39.8% of revenue, or $151.4 million, compared to 40.0%, or $164.3 million in the previous year. The small margin rate decline was the result of weaker margins in corporate stores due to the impact of aggressive pricing actions taken to offset weaker consumer demand.

Expenses:

Store operating expenses, as a percent of corporate store revenue, were 23.5% against the prior year of 21.9%. Same store operating costs were 21.0% of corporate store revenue, against 19.8% in the prior year, the increase a function of the decreased same store sales volumes. Same store costs, in absolute dollars, decreased $1.2 million or 1.9%.

General and administrative expenses were 7.8% of total revenue versus the prior year's 8.6%. The rate decrease was attributable to reduced accruals for year-end, performance-based compensation and prior year severance costs, which offset increased infrastructure costs resulting from the Athletes World acquisition.

Earnings before interest, taxes and amortization ("EBITA") were $47.2 million compared to $54.6 million in last year's fourth quarter. As a percentage of revenues, EBITA was 12.4% compared to the prior year at 13.3%. Cash flow from operations increased $7.8 million to $42.6 million. On a per share basis, cash flow was $1.40, up 33.3% from the prior year's $1.05.

Store Activity:

During the quarter, the Company opened 2 Sport Chek, 1 Coast Mountain, 1 Fitness Source and 3 Athletes World stores while closing 2 Nevada Bob's Golf and 3 Athletes World stores. In the franchise division, 6 stores were opened (2 Atmosphere, 1 S3, 1 Econosport, 1 Nevada Bob's Golf and 1 Buying Member) and 5 RnR stores closed. As a result, at the end of the fourth quarter, the Company had 337 corporate stores and 227 franchise locations. This represents a year over year net increase of 31,917 square feet of retail selling space, a 0.5% increase versus the previous year. The Company now has 564 stores from coast to coast (February 3, 2008 - 567 stores).

For the Year:

Earnings and Earnings Per Share:

Net earnings for the year were $29.3 million, or $0.94 per share compared to $47.5 million or $1.40 per share in the prior year, a 38.2% decrease in profits and a 32.9% decrease in earnings per share. Diluted earnings per share for the 52-week period ended February 1, 2009 were $0.93, compared to $1.39 in the prior year, a 33.1% decrease. As noted in the Company's 3rd quarter press release, the Company increased its tax provision as a result of an assessment which would deny interest deductions of certain payments by the Company to a subsidiary in the taxation years ended 2004 and 2005. The earnings impact for the year totals $1.8 million or $0.06 per share. The negative impact to net earnings and earnings per share, as a result of the acquisition of Athletes World Limited, was $1.7 million, or $0.05 per share in the year.

Cash flow from operations decreased to $74.8 million from $82.7 million. On a per share basis, cash flow decreased 2.4% to $2.39 compared to $2.45 in the prior year.

Sales:

Retail system sales for the 52 weeks were $1.6 billion, a $49.5 million increase from sales for fiscal 2008. Same store sales in corporate stores decreased 3.5%, while franchise stores increased 3.1%, with total same store retail system sales decreasing 1.1%. Excluding the impact of the 53rd week in fiscal 2008, sales were down 1.9% in corporate locations and up 4.8% in franchise locations for an overall same store sales increase of 0.5%. Revenue was $1.3 billion, a $15.7 million, or 1.2% increase over the 53-week period last year.

Gross Margin:

Combined gross margin for the 52 weeks ended February 1, 2009 was flat on a year over year basis at 35.9% of revenue. In absolute dollars, combined gross margin increased $5.1 million, to $483.5 million, from the 53-week period last year.

Expenses:

Store operating expenses, as a percent of corporate revenue, were 27.9% versus 26.0% in the prior year. Same store operating costs were 25.6% of corporate store revenue, against 24.9% in the prior year, the increase a function of the decreased same store sales volumes. Same store costs, in absolute dollars, decreased $3.2 million or 1.4%, a result of managing variable costs to reduced same-store sales volumes and a change, during the second quarter, to in store compensation plans.

General and administrative expenses were 8.1% of total revenue versus 7.8% in the prior year. The absolute dollar increase in general and administrative expense of $5.5 million was a result, primarily, of the additional costs associated with the Athletes World infrastructure ($7.9 million) and standard year over year budgeted increases. These incremental overhead costs were offset by reduced accruals for fiscal 2009 performance based compensation and reduced severance costs from the prior year.

EBITA was $97.1 million, or 7.2% of total revenue, compared to 9.2% last year. Earnings before income taxes for the 52 weeks ended February 1, 2009 were $44.3 million compared to $71.8 million for the prior year.

Balance Sheet:

The Company's working capital of $79.8 million declined 36.2% or $45.3 million from the prior year. The year over year decrease is the result of $44.0 million of share repurchases during 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.

As at February 1, 2009, there were 30,468,045 Common Shares issued and outstanding. During the 12 months, ended March 27, 2009, pursuant to the normal course issuer bid approved by the Toronto Stock Exchange on March 26, 2008, the Corporation purchased 2,694,376 Common Shares of the Corporation.

On April 7, 2009 the Company declared a dividend of $0.075 per Class A common share, payable on May 4, 2009 to shareholders of record on April 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.

In conjunction with this release, the Company invites you to listen to its teleconference call / audio web cast that will take place Wednesday, April 8, 2009 at 8:00 a.m. (Mountain Standard 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: 800-732-0232

Replay: Should you be unable to join the conference call, an audio recording will be available approximately three hours after the call until April 22, 2009 at 416-640-1917 or 1-877-289- (pass code21301716#).

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.

The foregoing information may contain forward-looking statements relating to the future performance of The Forzani Group Ltd. In addition, this press release contains forward looking statements pertaining to: upgrading and expansion activities by the Company; operating costs; liquidity and financial resources; acquisitions and working capital. Forward-looking statements, specifically those concerning future performance, are subject to certain risks and uncertainties, and actual results may differ materially. Such factors include, among others, the overall economy, consumer spending, retail competition, seasonality, changes in fashion trends, adverse movements in foreign exchange and interest rates and debt levels. These items and their possible impact are discussed more fully on pages 15 through 17 of the Company's MD&A for fiscal 2009, under the section heading "Retail Risks and Uncertainties", which may be found, subsequent to the Company's filing, at www.sedar.com.

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)

February 1, February 3,
As at 2009 2008
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ASSETS
Current
Cash $ 3,474 $ 47,484
Accounts receivable 84,455 75,506
Inventory 291,497 319,445
Prepaid expenses 2,827 14,501
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382,253 456,936
Capital assets 196,765 188,621
Goodwill and other intangibles 91,481 89,335
Other assets 9,280 3,863
Future income tax asset 9,681 16,209
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$ 689,460 $ 754,964
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LIABILITIES
Current
Indebtedness under revolving credit facility $ 17,130 $ -
Accounts payable and accrued liabilities 277,820 279,910
Current portion of long-term debt 7,501 51,863
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302,451 331,773
Long-term debt 126 6,586
Deferred lease inducements 47,811 55,089
Deferred rent liability 5,893 6,033
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356,281 399,481
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SHAREHOLDERS' EQUITY
Share capital 147,161 157,105
Contributed surplus 6,401 7,210
Accumulated other comprehensive earnings (loss) 863 (8)
Retained earnings 178,754 191,176
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333,179 355,483
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$ 689,460 $ 754,964
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The Forzani Group Ltd.
Consolidated Statements of Operations
(in thousands, except per share data)

For the 52 For the 53
weeks ended weeks ended
February 1, February 3,
2009 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Revenue
Retail $ 994,043 $ 969,256
Wholesale 352,715 361,753
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1,346,758 1,331,009
Cost of sales 863,239 852,608
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Gross margin 483,519 478,401
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Operating and administrative expenses
Store operating 277,089 251,630
General and administrative 109,328 103,801
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386,417 355,431
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Operating earnings before undernoted items 97,102 122,970
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Amortization of capital assets 47,613 44,468
Interest 5,175 5,797
Loss on sale of investment - 864
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52,788 51,129
----------------------------------------------------------------------------

Earnings before income taxes 44,314 71,841
Income tax expense (recovery)
Current 6,273 27,439
Future 8,716 (3,049)
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14,989 24,390
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Net earnings $ 29,325 $ 47,451
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Earnings per share $ 0.94 $ 1.40
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Diluted earnings per share $ 0.93 $ 1.39
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The Forzani Group Ltd.
Consolidated Statements of Retained Earnings, Comprehensive Earnings and
Accumulated Other Comprehensive Earnings (Loss)
(in thousands)

For the 52 For the 53
weeks ended weeks ended
February 1, February 3,
Consolidated Statements of Retained Earnings 2009 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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 29,325 47,451

Dividends paid (9,327) (2,472)

Adjustment arising from shares purchased under a
normal course issuer bid (31,063) (24,898)
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Retained earnings, end of period $ 178,754 $ 191,176
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Consolidated Statements of Comprehensive Earnings
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Net earnings $ 29,325 $ 47,451
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Other comprehensive earnings (loss):
Unrealized foreign currency gains (losses) on
cash flow hedges 1,340 (138)
Tax impact (469) 51
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Other comprehensive earnings (loss) 871 (87)
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Comprehensive earnings $ 30,196 $ 47,364
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Consolidated Statements of Accumulated Other
Comprehensive Earnings (Loss) ("AOCE")
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Accumulated other comprehensive earnings (loss),
beginning of period $ (8) $ -
Transitional adjustment upon adoption of new
financial instruments standard - 79
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Accumulated other comprehensive earnings (loss),
beginning of period, as restated (8) 79
Other comprehensive earnings (loss) 871 (87)
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Accumulated other comprehensive earnings (loss),
end of period $ 863 $ (8)
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The Forzani Group Ltd.
Consolidated Statements of Cash Flows
(in thousands)

For the 52 For the 53
weeks ended weeks ended
February 1, February 3,
2009 2008
----------------------------------------------------------------------------
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Cash provided by (used in) operating activities
Net earnings $ 29,325 $ 47,451
Items not involving cash:
Amortization of capital assets 47,613 44,468
Amortization of deferred finance charges 377 738
Amortization of deferred lease inducements (11,500) (11,109)
Rent expense 152 524
Stock-based compensation (174) 2,756
Future income tax expense (recovery) 8,716 (3,049)
Loss on sale of investment - 864
Unrealized loss on ineffective hedges 321 44
----------------------------------------------------------------------------
74,830 82,687
Changes in non-cash elements of working capital
related to operating activities 20,913 23,737
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95,743 106,424
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Cash provided by (used in) financing activities
Net proceeds from issuance of share capital 2,384 13,273
Share repurchase via normal course issuer bid (44,027) (33,331)
Long-term debt (51,199) (19,198)
Revolving credit facility 17,130 -
Lease inducements received 4,221 7,648
Dividends paid (9,327) (2,472)
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(80,818) (34,080)
Changes in non-cash elements of financing activities (1,121) (1,698)
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(81,939) (35,778)
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Cash provided by (used in) investing activities
Capital assets (52,139) (40,660)
Other assets (2,998) 2,151
Acquisition of wholly-owned subsidiaries - (8,774)
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(55,137) (47,283)
Changes in non-cash elements of investing activities (2,677) 1,363
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(57,814) (45,920)
----------------------------------------------------------------------------
Increase (decrease) in cash (44,010) 24,726
Net cash position, opening 47,484 22,758
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Net cash position, closing $ 3,474 $ 47,484
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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