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

The Forzani Group Ltd./Le Groupe Forzani Ltee

March 23, 2007 07:00 ET

Forzani Announces Record Fiscal 2007 Results Earnings Up 148%

CALGARY, ALBERTA--(CCNMatthews - March 23, 2007) - The Forzani Group Ltd. (TSX:FGL), Canada's largest retailer of sporting goods, today reported fiscal 2007 fourth quarter and year-end results for the 13 and 52-week periods ended January 28, 2007.



Financial Highlights:

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For the thirteen weeks ended For the fifty-two weeks ended
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January January January January
28, 2007 29, 2006 28, 2007 29, 2006
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Revenue ($000s)
Retail 293,019 287,800 925,443 856,149
Wholesale 60,157 54,384 338,512 273,255
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Total 353,176 342,184 1,263,955 1,129,404
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EBITA Margin 46,941 38,875 107,260 69,153
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Net Earnings
($000's) 21,097 16,968 35,217 13,757
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Earnings Per Share $0.62 $0.51 $1.04 $0.42
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Same Store Sales (%)
Corporate 1.1 10.1 5.9 3.8
Franchise (2.9) 5.3 4.4 6.5
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Consolidated (0.3) 8.3 5.4 4.7
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Management's Comments:

The momentum that had been built through the first three quarters of the year carried through the fourth quarter and year end, resulting in record results for the Company. This in spite of the challenges of an unseasonable winter in Eastern Canada, the impact of which was most strongly felt by our franchise network, predominantly located in the province of Quebec. Nonetheless, conditions proved more favourable at the end of the fourth quarter and the beginning of the first quarter of the new fiscal year. The Company exited fiscal 2007 with a clean inventory position, expanded margins, and growth potential throughout the organization.

For the first 7 weeks of the first quarter of the Company's fiscal 2008 year, same store sales from corporate stores grew 1.9% and franchise same store sales increased 17.1% against prior year increases of 17.2% corporately and 4.2% for franchise stores for the same seven week period. Corporate margin expansion continues to outpace sales growth.

For the Fourth Quarter:

Earnings and Earnings Per Share:

Net earnings for the fourth quarter were $21.1 million, or $0.62 per share, compared to the prior year's fourth quarter of $17.0 million, or $0.51 per share, a 24.1% increase in profits and a 21.6% increase in earnings per share.

Sales:

Retail system sales(1) for the quarter were $440.2 million, an increase of $2.2 million, or 0.5% from the comparable 13-week sales of $438.0 million. The results were impacted by the unseasonable weather in the East, offset by increases in Western Canada.

(1) Retail system sales are retail sales from corporate and franchise stores and are reported to give an indication of the size of the operation at retail.

Same store sales in corporate locations were up 1.1% and down 2.9% in franchise locations, for an overall same store sales decrease of 0.3%.

Revenue, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, was $353.2 million, up $11.0 million, or 3.2% over the comparable period last year.

Gross Margins:

Combined gross margin for the 13 weeks ended January 28, 2007 was 41.2% of revenue, or $145.4 million, compared to 37.9%, or $129.8 million in the previous year. The margin rate and dollar improvements were driven by considerably stronger corporate store results, supported by solid franchise and wholesale operations results.

Expenses:

Store operating expenses, as a percent of corporate store revenue, were 21.8% against the prior year of 21.5%. Same store operating costs were 20.9% of corporate store revenue, 20.4% in the prior year. Same store costs, in absolute dollars, increased $1.9 million or 3.5%. The overall store operating expense increase reflects the acquisition of 9 Fitness Source stores and the addition of 1 corporate store (net of closings).

General and administrative expenses were 9.8% of total revenue versus the prior year's 8.4%. The rate increase, and absolute dollar increase of $5.7 million, was attributable to the addition of the Fitness Source infrastructure and accruals for year-end, performance-based compensation offset, to a large extent, by a reduced marketing spend.

Earnings before interest, taxes and amortization ("EBITA") were $46.9 million or 13.3% of revenues, compared to $38.9 million or 11.4% of revenues for the 13-week period last year.

Store Activity:

During the quarter, the Company opened 3 Sport Chek stores and acquired 7 Nevada Bob's Golf stores from a former licensee. In addition, the Company closed 1 National Sports store and 1 corporately owned Golf Experts store. In the franchise division, 5 stores were opened (1 Nevada Bob's Golf, 1 Sports Experts, 1 Atmosphere and 2 Intersport). As noted above, 7 Nevada Bob's Golf stores became corporate stores, and 3 new buying members were recruited. As a result, at the end of the fourth quarter, the Company had 270 corporate stores and 209 franchise locations. The Company now has 479 stores from coast to coast (January 29, 2006 - 464 stores).

For the Year:

Diluted earnings per share for the 52-week period ended January 28, 2007 were $1.04, compared to $0.42 in the prior year, a 147.6% increase. Cash flow from operations increased to $77.4 million from $47.8 million. On a per share basis, cash flow increased 61.4% to $2.34 compared to $1.45 in the prior year.

Retail system sales for the 52 weeks were $1,416.7 million, a $106.2 million increase from sales for the comparative fiscal 2006 year. Exclusive of the sales attributable to Fitness Source locations, retail system sales increased $85.0 million or 6.5%. Same store sales in corporate stores increased 5.9%, while franchise stores increased 4.4%, with total same store retail system sales increasing 5.4%.

Revenue was $1,264.0 million, a $134.6 million, or 11.9% increase over the 52-week period last year. Combined gross margin for the 52 weeks ended January 28, 2007 was up 180 basis points to 35.7% of revenue, from 33.9% in the prior year, driven primarily by strong corporate store margins. In absolute dollars, the combined gross margin increased $68.5 million, to $451.6 million, from the 52-week period last year.

Store operating expenses, as a percent of corporate revenue, were 25.6% versus 26.3% in the prior year. General and administrative expenses were 8.5% of total revenue versus 7.9% in the prior year. The absolute dollar increase in general and administrative expense spend was a result, primarily, of the addition of the Fitness Source infrastructure and accruals for performance-based compensation, offset by reduced spending in marketing.

EBITA was $107.3 million, or 8.5% of total revenue, compared to 6.1% for the same period last year. Earnings before income taxes for the 52 weeks ended January 28, 2007 were $56.5 million compared to $21.7 million for the prior year.

Balance Sheet:

The Company's working capital of $160.1 million grew by 34.1% over the prior year as a result of stronger results and improved cash flow.

In addition to its quarterly and year-end results, the Company announces today that the Toronto Stock Exchange (the "TSX") has accepted its application for a normal course issuer bid (the "Bid") to purchase, from March 27, 2007 to March 26, 2008, certain of its outstanding Class A common shares (the "Common Shares"). All purchases will be made through the facilities of the TSX.

As at March 20, 2007, there were 33,696,389 Common Shares issued and outstanding. During a previous bid that commenced July 26, 2005 and terminated July 25, 2006 the Corporation purchased no Common Shares of the Corporation.

The number of Common Shares which may be purchased during the period of the Bid will not exceed 2,313,000 Common Shares, which is approximately 10% of the public float of the Corporation.

The Bid has been put in place because the Company believes that the Common Shares are undervalued in the market and are a good investment for the Company at current and recent prices. All Common Shares purchased through the Bid will be returned to treasury for cancellation.

For further information or to obtain a copy of the notice filed with the TSX in connection with the Bid, please contact Richard Burnet, Vice President and Chief Financial Officer of the Company, at (403) 717-1442.

In conjunction with this release, the Company invites you to listen to its teleconference call / audio web cast that will take place Friday, March 23, 2007 at 10:00 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: 416-644-3423

Outside Toronto: 800-732-6179

Replay: Should you be unable to join the conference call, an audio recording will be available approximately three hours after the call until April 6, 2007 at 416-640-1917 or 877-289-8525 (pass code 21221136#).

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 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 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)

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As at January 28, January 29,
2007 2006
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ASSETS
Current
Cash $ 22,758 $ 19,266
Accounts receivable 65,543 68,927
Inventory 302,207 278,002
Prepaid expenses 2,688 2,647
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393,196 368,842
Capital assets 191,146 193,594
Goodwill and other intangibles 90,238 75,805
Other assets 8,930 10,080
Future income tax asset - 4,885
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$ 683,510 $ 653,206
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LIABILITIES
Current
Accounts payable and accrued liabilities $ 230,977 $ 244,293
Current portion of long-term debt 2,082 5,135
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233,059 249,428
Long-term debt 58,303 58,805
Deferred lease inducements 58,543 62,883
Deferred rent liability 5,737 3,810
Future income tax liability 55 -
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355,697 374,926
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SHAREHOLDERS' EQUITY
Share capital (Note 8) 148,424 138,131
Contributed surplus 8,294 4,271
Retained earnings 171,095 135,878
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327,813 278,280
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$ 683,510 $ 653,206
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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 28, January 29,
2007 2006
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Revenue
Retail $ 925,443 $ 856,149
Wholesale 338,512 273,255
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1,263,955 1,129,404
Cost of sales 812,363 746,313
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Gross margin 451,592 383,091
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Operating and administrative expenses
Store operating 236,870 225,218
General and administrative 107,462 88,720
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344,332 313,938
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Operating earnings before undernoted items 107,260 69,153
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Amortization 43,410 41,343
Interest 7,354 6,145
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50,764 47,488
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Earnings before income taxes 56,496 21,665
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Provision for income taxes
Current 19,897 8,784
Future 1,382 (876)
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21,279 7,908
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Net earnings 35,217 13,757

Retained earnings, opening 135,878 122,121
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Retained earnings, closing $ 171,095 $ 135,878
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Earnings per share $ 1.06 $ 0.42
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Diluted earnings per share $ 1.04 $ 0.42
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THE FORZANI GROUP LTD.
Consolidated Statements of Cash Flows
(in thousands)

----------------------------------------------------------------------------
For the For the
52 weeks 52 weeks
ended ended
January 28, January 29,
2007 2006
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Cash provided by (used in) operating
activities
Net earnings $ 35,217 $ 13,757
Items not involving cash
Amortization 43,410 41,343
Amortization of deferred finance charges 580 637
Amortization of deferred lease inducements (10,549) (10,661)
Rent expense 2,659 2,281
Stock-based compensation 4,730 1,356
Future income tax expense 1,382 (876)
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77,429 47,837
Changes in non-cash elements of working
capital (28,016) (1,979)
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49,413 45,858
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Cash provided by (used in) financing
activities
Net proceeds from issuance of share capital 9,586 320
Increase in long-term debt (7,429) 23,573
Repayment of debt assumed on acquisition (105) (17,922)
Proceeds from deferred lease inducements 6,149 9,368
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8,201 15,339
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Changes in non-cash elements of financing
activities (927) (2,450)
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7,274 12,889
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Cash provided by (used in) investing
activities
Net addition of capital assets (37,997) (50,837)
Net addition of other assets (538) (3,751)
Acquisition of wholly-owned subsidiaries (15,448) (12,428)
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(53,983) (67,016)
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Changes in non-cash elements of investing
activities 788 1,517
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(53,195) (65,499)
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Increase (decrease) in cash 3,492 (6,752)
Net cash position, opening 19,266 26,018
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Net cash position, closing $ 22,758 $ 19,266
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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