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

The Forzani Group Ltd./Le Groupe Forzani Ltee

December 08, 2006 07:00 ET

Forzani Posts Record Third Quarter With Profits up 83%

CALGARY, ALBERTA--(CCNMatthews - Dec. 8, 2006) - The Forzani Group Ltd. (TSX:FGL), Canada's largest retailer of sporting goods, today reported fiscal 2007 third quarter results for the 13 weeks ended October 29, 2006.



Financial Highlights:
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For the thirteen For the thirty-nine
weeks ended weeks ended
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October 29, October 30, October 29, October 30,
2006 2005 2006 2005
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Same Store Sales
Corporate 6.6% 3.2% 8.2% 0.2%
Franchise 9.9% 8.1% 7.6% 7.2%
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Consolidated 7.7% 4.7% 8.0% 2.5%
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Revenue ($000s)
Retail 228,381 210,262 632,424 568,348
Wholesale 117,968 95,126 278,356 218,872
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Total 346,349 305,388 910,780 787,220
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EBITA Margin 9.1% 7.1% 6.6% 3.8%
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Net Earnings (loss)
($000's) 11,878 6,529 14,120 (3,211)
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Earnings (loss) Per Share $ 0.35 $ 0.20 $ 0.42 ($0.10)
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For the Third Quarter:

Earnings and Earnings Per Share:

Net earnings for the third quarter were $11.9 million, or $0.35 per share, compared to the prior year's third quarter of $6.5 million, or $0.20 per share, an 83.1% increase in profits and a 75.0% increase in earnings per share.

Sales:

Retail system sales(1) for the quarter were $339.5 million, an increase of $31.9 million, or 10.4% from the comparable 13-week sales of $307.6 million. The increase was due to continued, strong contributions from franchise and corporate stores and the addition, on January 31, 2006, of The Fitness Source Inc. ("Fitness Source"). Exclusive of the acquisition of Fitness Source, retail system sales increased $27.0 million, or 8.8%.

Same store sales in corporate locations were up 6.6% and increased 9.9% in franchise locations, for an overall same store sales increase of 7.7%. This versus a 4.7% overall increase in the third quarter of fiscal 2006, continuing the current year trend of strong quarterly, year over year same store sales increases.

Revenue, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, was $346.3 million, up $40.9 million, or 13.4% over the comparable period last year.

Gross Margins:

Combined gross margin for the 13 weeks ended October 29, 2006 was 34.5% of revenue, or $119.4 million, compared to 33.1%, or $101.1 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.

(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.

Expenses:

Store operating expenses, as a percent of corporate store revenue, were 25.6% against the prior year of 26.9%. Same store operating costs were 24.5% of corporate store revenue, 25.5% in the prior year. Same store costs, in absolute dollars, increased $1.3 million or 2.6%. The overall store operating expense increase reflects the acquisition of 9 Fitness Source stores.

General and administrative expenses were 8.5% of total revenue versus the prior year's 7.5%. The rate increase, and absolute dollar increase of $6.6 million, was attributable to the addition of the Fitness Source infrastructure and accruals for anticipated, year-end, performance-based compensation.

Earnings before interest, taxes and amortization ("EBITA") were $31.4 million or 9.1% of revenues, compared to $21.7 million or 7.1% of revenues for the 13-week period last year.

Store Activity:

During the quarter, the Company opened 1 Sport Mart and 1 Golf Experts store, closed 1 Sport Chek and 2 Sport Mart stores. In the franchise division, 3 stores were opened (2 Hockey Experts and 1 Intersport), and 2 Intersport stores were closed. As a result, at the end of the third quarter, the Company had 262 corporate stores and 208 franchise locations. The Company now has 470 stores from coast to coast (October 30, 2005 - 454 stores).

For the Year to Date:

Diluted earnings per share for the 39-week period ended October 29, 2006 were $0.42, compared to a loss of $0.10 in the prior year. Cash flow from operations increased to $45.1 million from $20.4 million. On a per share basis, cash flow increased 121.0% to $1.37 compared to $0.62 in the prior year.

Retail system sales for the 39 weeks were $976.5 million, an $104.0 million increase from sales for the comparative fiscal 2006 period. Exclusive of the sales attributable to Fitness Source locations, retail system sales increased $89.3 million or 10.2%. Same store sales in corporate stores increased 8.2%, while franchise stores increased 7.6%, with total same store retail system sales increasing 8.0%.

Revenue was $910.8 million, a $123.6 million, or 15.7% increase over the 39-week period last year. Combined gross margin for the 39 weeks ended October 29, 2006 was up 140 basis points to 33.6% of revenue, from 32.2% in the prior year driven primarily by strong corporate store margins. In absolute dollars, the combined gross margin increased $52.8 million, to $306.2 million, from the 39-week period last year.

Store operating expenses, as a percent of corporate revenue, were 27.4% versus 28.7% in the prior year. General and administrative expenses were 8.0% of total revenue versus 7.6% in the prior year.

EBITA was $60.3 million, or 6.6% of total revenue, compared to 3.8% for the same period last year. Earnings before income taxes for the 39 weeks ended October 29, 2006 were $23.0 million compared to a $5.1 million loss for the 39-week period in the prior year.

Balance Sheet:

The Company's working capital of $138.8 million grew by 30.8% over the prior year due to stronger results and leaner inventories, which reduced debt levels considerably.

Management's Comments:

Revenue growth of 13.4%, translating into strong bottom line results, are evidence of the continued effects of our revitalization programs, as executed by our dedicated teams at store level. This, combined with our operational cost controls and the strong results in the franchise and wholesale businesses, produced an exceptionally strong quarter and we look forward to improved results throughout the remainder of the year. EBITA, on a trailing four-quarter basis, was $99.2 million, or 8.6%, compared to $61.0 million, or 5.2%, for the four quarters ending in the third quarter of last year, a 62.5% improvement.

For the first five weeks of the fourth quarter, same store sales from corporate stores were flat and franchise same store sales decreased 3.2% against prior year same store increases of 14.1% and 8.3% in corporate and franchise stores, respectively. These results are due to unseasonably warm weather in Ontario and Quebec, and are anticipated to improve as the quarter progresses. Margins continue their strong performance into the fourth quarter.

In conjunction with this release, the Company invites you to listen to its teleconference call / audio web cast that will take place Friday, December 8, 2006 at 9:00 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: 416-644-3417

Outside Toronto: 800-733-7571

Replay: Should you be unable to join the conference call, an audio recording will be available approximately three hours after the call until December 22, 2006 at 416-640-1917 or 877-289-8525 (pass code 21210584#).

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 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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As at October 29, 2006 January 29, 2006 October 30, 2005


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ASSETS
Current
Cash $ 1,111 $ 19,266 $ 858
Accounts receivable 134,052 68,927 119,191
Inventory 362,178 278,002 347,220
Prepaid expenses 3,278 2,647 2,808
----------------------------------------------------
500,619 368,842 470,077
Capital assets 191,810 193,594 189,155
Goodwill and other
intangibles 85,740 75,805 75,491
Other assets 9,269 10,080 10,308
Future income tax
asset 454 4,885 6,474
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$ 787,892 $ 653,206 $ 751,505
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LIABILITIES
Current
Indebtedness under
revolving credit
facility $ 25,922 $ - $ 75,990
Accounts payable and
accrued liabilities 331,255 244,293 282,900
Current portion of
long-term debt 4,593 5,135 5,105
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361,770 249,428 363,995
Long-term debt 58,068 58,805 58,917
Deferred lease
inducements 60,790 62,883 63,972
Deferred rent
liability 5,637 3,810 3,713
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486,265 374,926 490,597
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SHAREHOLDERS' EQUITY
Share capital 144,322 138,131 138,018
Contributed surplus 7,307 4,271 3,980
Retained earnings 149,998 135,878 118,910
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301,627 278,280 260,908
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$ 787,892 $ 653,206 $ 751,505
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THE FORZANI GROUP LTD.
Consolidated Statements of Operations and Retained Earnings
(in thousands, except per share data)
(unaudited)


For the thirteen For the thirty-nine
weeks ended weeks ended
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October 29, October 30, October 29, October 30,
2006 2005 2006 2005

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Revenue
Retail $ 228,381 $ 210,262 $ 632,424 $ 568,348
Wholesale 117,968 95,126 278,356 218,872
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346,349 305,388 910,780 787,220
Cost of sales 226,954 204,260 604,580 533,866
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Gross margin 119,395 101,128 306,200 253,354
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Operating and
administrative
expenses
Store operating 58,351 56,461 173,026 163,200
General and
administrative 29,628 22,998 72,856 59,878
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87,979 79,459 245,882 223,078
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Operating earnings
before undernoted
items 31,416 21,669 60,318 30,276
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Amortization 10,458 9,789 31,676 30,513
Interest 2,104 1,598 5,633 4,820
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12,562 11,387 37,309 35,333
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Earnings (loss)
before income taxes 18,854 10,282 23,009 (5,057)
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Income tax expense
(recovery)
Current 6,587 5,574 8,016 619
Future 389 (1,821) 873 (2,465)
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6,976 3,753 8,889 (1,846)
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Net earnings (loss)
for the period $ 11,878 $ 6,529 $ 14,120 $ (3,211)
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Retained earnings,
beginning of period 138,120 112,381 135,878 122,121
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$ 149,998 $ 118,910 $ 149,998 $ 118,910

Retained earnings,
end of period
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Basic earnings
(loss) per share $ 0.36 $ 0.20 $ 0.43 $ (0.10)
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Diluted earnings
(loss) per share $ 0.35 $ 0.20 $ 0.42 $ (0.10)
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THE FORZANI GROUP LTD.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

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For the thirteen For the thirty-nine
weeks ended weeks ended
October 29, October 30, October 29, October 30,
2006 2005 2006 2005
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Cash provided by (used in)
operating
activities
Net earnings (loss) for the
period $ 11,878 $ 6,529 $ 14,120 $ (3,211)
Items not involving cash:
Amortization 10,458 9,789 31,676 30,513
Amortization of finance
charges 144 102 423 525
Amortization of deferred
lease inducements (2,139) (2,588) (7,672) (7,981)
Rent expense 683 608 2,467 1,989
Stock-based compensation 1,655 190 3,202 1,065
Future income tax expense
(recovery) 389 (1,821) 873 (2,465)
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23,068 12,809 45,089 20,435
Changes in non-cash elements
of working capital related
to operating activities
(note 3) 17,372 13,856 (60,060) (82,980)
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40,440 26,665 (14,971) (62,545)
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Cash provided by (used in)
financing activities
Net proceeds from issuance
of share capital 5,604 15 6,191 207
Increase (decrease) in
long-term debt (4,700) (145) (5,153) 23,655
Increase (decrease) in
revolving credit facility (35,584) (18,210) 25,922 75,990
Credit facility assumed on
acquisition - - (105) (17,922)
Proceeds from deferred lease
inducements 2,720 2,197 5,519 7,777
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(31,960) (16,143) 32,374 89,707
Changes in non-cash elements
of financing activities
(note 3) (160) (199) (463) (1,882)
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(32,120) (16,342) 31,911 87,825
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Cash provided by (used in)
investing activities
Net addition of capital
assets (8,155) (9,247) (28,737) (36,185)
Net disposal (addition) of
other assets 2 (1,793) 58 (2,936)
Acquisition of wholly owned
subsidiary - - (6,650) (12,428)
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(8,153) (11,040) (35,329) (51,549)
Changes in non-cash elements
of investing activities 40 131 234 1,109
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(8,113) (10,909) (35,095) (50,440)
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Increase (decrease) in cash 207 (586) (18,155) (25,160)
Net cash position, opening 904 1,444 19,266 26,018
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Net cash position, closing $ 1,111 $ 858 $ 1,111 $ 858
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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
    Website: www.forzanigroup.com