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

The Forzani Group Ltd./Le Groupe Forzani Ltee

December 07, 2007 18:52 ET

Forzani Posts Third Quarter Results, Profits Up 6.0%, and Declares Dividend

CALGARY, ALBERTA--(Marketwire - Dec. 7, 2007) - The Forzani Group Ltd. (TSX:FGL), Canada's largest retailer of sporting goods, today reported fiscal 2008 third quarter results for the 13 weeks ended October 28, 2007.



Financial Highlights:

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For the thirteen weeks For the thirty-nine weeks
ended ended
----------------------------------------------------------------------------
October 28, October 29, October 28, October 29,
2007 2006 2007 2006
----------------------------------------------------------------------------
Same Store Sales
----------------
Corporate -2.4% 6.6% -0.7% 8.2%
Franchise 3.0% 9.9% 6.5% 7.6%
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Consolidated -0.7% 7.7% 1.8% 8.0%
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Revenue ($000s)
---------------
Retail 224,158 228,381 630,458 632,424
Wholesale 109,313 117,968 289,950 278,356
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Total 333,471 346,349 920,408 910,780
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EBITA Margin 9.9% 9.1% 7.4% 6.6%
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Net Earnings ($000's) 12,586 11,878 18,753 14,120
----------------------------------------------------------------------------
Earnings Per Share $0.36 $0.35 $0.55 $0.42
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For the Third Quarter:

Earnings and Earnings Per Share:

Net earnings for the third quarter were $12.6 million, or $0.36 per share, compared to the prior year's third quarter of $11.9 million, or $0.35 per share, a 6.0% increase in profits and a 2.9% increase in earnings per share. Cash flow from operations was $0.63 per share versus $0.70 in the prior year.

Sales:

Retail system sales(1) for the quarter were $344.6 million, an increase of $5.1 million, or 1.5% from the comparable 13-week sales of $339.5 million. The increase came despite aggressive pricing actions taken in response to the stronger Canadian dollar.

Same store sales in corporate locations were down 2.4% and increased 3.0% in franchise locations, for an overall same store sales decrease of 0.7% . The same store sales decrease is compared to a very robust 7.7% increase in the third quarter of fiscal 2007.

Revenue, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, was $333.5 million, down $12.8 million, or 3.7% from the comparable period last year.

(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.

Gross Margins:

Combined gross margin for the 13-weeks ended October 28, 2007 was 34.2% of revenue, or $113.9 million, compared to 34.5%, or $119.4 million in the previous year. The margin rate and dollar reductions in the quarter reflect an aggressive pricing strategy in light of the deterioration in the US dollar throughout the quarter and the impact of a slower start to the winter selling season where the Company typically realizes the benefit of higher margins on winter apparel.

Expenses:

Store operating expenses, as a percent of corporate store revenue, were 27.2% against the prior year of 25.6% . Same store operating costs were 25.6% of corporate store revenue, 24.4% in the prior year. Same store costs, in absolute dollars, increased $1.3 million or 2.5% . These increased costs, as a percentage of revenue are a reflection of the decreased sales volume rather than any unplanned increases in costs.

General and administrative expenses were 6.0% of total revenue versus the prior year's 8.5% . The rate decrease, and absolute dollar decrease of $9.5 million, was attributable to lower accruals for anticipated, year-end, performance-based compensation which, in the prior year, were unusually elevated as the Company neared the attainment of three-year performance targets. As noted in our second quarter press release, year over year performance-based compensation is expected to be approximately $10 million less in fiscal 2008 versus fiscal 2007 which will result in an annualized general and administrative expense run rate in line with historical rates. Third quarter, fiscal 2007 accruals for performance-based compensation anticipated the attainment of multi-year targets. To the end of the 3(rd) quarter, performance-based compensation expense is $5.3 million less than the same period in the prior year.

Earnings before interest, taxes and amortization ("EBITA") were $32.9 million or 9.9% of revenues, compared to $31.4 million or 9.1% of revenues for the 13-week period last year.

Store Activity:

During the quarter, the Company opened 1 Sport Mart and 2 corporate Nevada Bob's Golf stores and acquired 8 Nevada Bob's Golf stores from a former franchisee. In the franchise division, 2 stores were opened (1 Sports Experts and 1 Econosport) and 3 stores closed (2 Nevada Bob's Golf and 1 Buying Member) while 8 Nevada Bob's Golf stores were acquired by the Company. As a result, at the end of the third quarter, the Company had 271 corporate stores and 219 franchise locations. The Company now has 490 stores from coast to coast (October 29, 2006 - 470 stores).

For the Year to Date:

Earnings per share for the 39-week period ended October 28, 2007 were $0.55, compared to $0.42 in the prior year. Cash flow from operations increased to $47.9 million from $45.1 million. On a per share basis, cash flow increased 2.9% to $1.41 compared to $1.37 in the prior year.

Retail system sales for the 39 weeks were $1.004 billion, a $27.8 million increase from sales for the comparative fiscal 2007 period. Same store sales in corporate stores decreased 0.7%, while franchise stores increased 6.5%, with total same store retail system sales increasing 1.8% .

Revenue was $920.4 million, a $9.6 million, or 1.1% increase over the 39-week period last year. Combined gross margin for the 39 weeks ended October 28, 2007 was up 50 basis points to 34.1% of revenue, from 33.6% in the prior year driven by improvements in both the corporate retail and franchise division. In absolute dollars, the combined gross margin increased $7.9 million, to $314.1 million, from the 39-week period last year.

Store operating expenses, as a percent of corporate revenue, were 28.1% versus 27.4% in the prior year. General and administrative expenses were 7.4% of total revenue versus 8.0% in the prior year.

EBITA was $68.3 million, or 7.4% of total revenue, compared to 6.6% for the same period last year. Earnings before income taxes for the 39 weeks ended October 28, 2007 were $29.7 million compared to $23.0 million for the 39-week period in the prior year.

Balance Sheet:

The Company's working capital of $128.0 million fell by $10.8 million or 7.8% over the prior year. The reduced working capital reflects the reclassification as current, in the second quarter of fiscal 2008, of $49.4 million net long-term debt due to its scheduled maturity within the next twelve months. The company expects this debt to be renewed on a long-term basis and reflected as such, by its fiscal 2008 year end.

Management's Comments:

Despite reduced revenues and margins, our overhead savings produced a solid quarter and overcame the challenges presented by the dramatic shift in the US dollar and an unseasonable start to winter. We look forward to solid results throughout the remainder of the year in a more normal business climate. EBITA, on a trailing four-quarter basis, was $115.3 million, or 9.1% of revenues, compared to $99.2 million, or 7.9%, for the four quarters ending in the third quarter of last year, a 16.2% improvement.

On December 7, 2007 the Company declared a dividend of $0.075 per Class A common share, payable on February 4, 2008 to shareholders of record on January 21, 2008.

For the first five weeks of the fourth quarter, same store sales from corporate stores increased 4.9% and franchise same store sales 16.7% . These results reflect a relatively slow start to the quarter and accelerating results in the past 3 weeks as cold winter weather hit many parts of the country. Margin rates are lower than prior year due to the continuation of aggressive pricing activities into the fourth quarter. On a dollar basis, margins have risen slightly as sales increases more than offset the decline in margin rates

In conjunction with this release, the Company invites you to listen to its teleconference call / audio web cast that will take place Monday, December 10, 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: 416-644-3414 Outside Toronto: 800-732-9303

Replay: Should you be unable to join the conference call, an audio recording will be available approximately three hours after the call until December 24, 2007 at 416-640-1917 or 877-289-8525 (pass code 21255117#).

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, 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)

----------------------------------------------------------------------------
As at October 28, January 28, October 29,
2007 2007 2006
----------------------------------------------------------------------------

ASSETS
Current
Cash $ 9,854 $ 22,758 $ 1,111
Accounts receivable 138,548 65,543 134,052
Inventory 376,620 302,207 362,178
Prepaid expenses 3,647 2,688 3,278
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528,669 393,196 500,619
Capital assets 185,812 191,146 191,810
Goodwill and other
intangibles 89,338 90,238 85,740
Other assets 3,950 8,930 9,269
Future income tax asset 309 - 454
----------------------------------------------------------------------------
$ 808,078 $ 683,510 $ 787,892
----------------------------------------------------------------------------
----------------------------------------------------------------------------

LIABILITIES
Current
Indebtedness under
revolving credit
facility $ - $ - $ 25,922
Accounts payable and
accrued liabilities 349,058 230,977 331,255
Current portion of
long-term debt 51,671 2,082 4,593
----------------------------------------------------------------------------
400,729 233,059 361,770
Long-term debt 6,685 58,303 58,068
Deferred lease
inducements 55,367 58,543 60,790
Deferred rent liability 6,140 5,737 5,637
Future income tax
liability - 55 -
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468,921 355,697 486,265
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SHAREHOLDERS' EQUITY
Share capital 160,105 148,424 144,322
Contributed surplus 6,821 8,294 7,307
Accumulated other
comprehensive loss (166) - -
Retained earnings 172,397 171,095 149,998
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339,157 327,813 301,627
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$ 808,078 $ 683,510 $ 787,892
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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 thirty-nine weeks
ended ended
----------------------------------------------------------------------------
October 28, October 29, October 28, October 29,
2007 2006 2007 2006
----------------------------------------------------------------------------
Revenue
Retail $ 224,158 $ 228,381 $ 630,458 $ 632,424
Wholesale 109,313 117,968 289,950 278,356
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333,471 346,349 920,408 910,780
Cost of sales 219,545 226,954 606,332 604,580
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Gross margin 113,926 119,395 314,076 306,200
----------------------------------------------------------------------------

Operating and
administrative
expenses
Store operating 60,915 58,351 177,401 173,026
General and
administrative 20,065 29,628 68,330 72,856
----------------------------------------------------------------------------
80,980 87,979 245,731 245,882
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Operating earnings
before
undernoted items 32,946 31,416 68,345 60,318
----------------------------------------------------------------------------

Amortization 11,137 10,458 33,039 31,676
Interest 1,831 2,104 4,737 5,633
Loss on sale of
investment - - 864 -
----------------------------------------------------------------------------
12,968 12,562 38,640 37,309
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19,978 18,854 29,705 23,009
Earnings before income
taxes
----------------------------------------------------------------------------
Income tax expense
(recovery)
Current 7,428 6,587 11,146 8,016
Future (36) 389 (194) 873
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7,392 6,976 10,952 8,889
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Net earnings for the
period $ 12,586 $ 11,878 $ 18,753 $ 14,120
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----------------------------------------------------------------------------
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Earnings per share $ 0.37 $ 0.36 $ 0.55 $ 0.43
----------------------------------------------------------------------------
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Diluted earnings per
share $ 0.36 $ 0.35 $ 0.55 $ 0.42
----------------------------------------------------------------------------
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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
----------------------------------------------------------------------------
For the thirteen weeks For the thirty-nine weeks
ended ended
October 28, October 29, October 28, October 29,
2007 2006 2007 2006
----------------------------------------------------------------------------
Retained earnings,
beginning of period $ 169,410 $ 138,120 $ 171,095 $ 135,878
Net earnings 12,586 11,878 18,753 14,120
Adjustment arising from
shares purchased under
a normal course issuer
bid (note 3(b)) (9,599) - (17,451) -
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Retained earnings, end
of period $ 172,397 $ 149,998 $ 172,397 $ 149,998
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Consolidated Statement of Comprehensive Earnings
----------------------------------------------------------------------------
For the thirteen weeks For the thirty-nine weeks
ended ended
October 28, October 29, October 28, October 29,
2007 2006 2007 2006
----------------------------------------------------------------------------

Net earnings $ 12,586 $ 11,878 $ 18,753 $ 14,120
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Other comprehensive
earnings (loss):

Unrealized foreign
currency gains and
losses on
cash flow hedges (264) (389)
Tax impact 98 144
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(166) N/A (245) N/A
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Other comprehensive
earnings (loss) (166) (245)

----------------------------------------------------------------------------
Comprehensive earnings $ 12,420 $ 11,878 $ 18,508 $ 14,120
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Consolidated Statement of Accumulated Other Comprehensive Earnings/(Loss)
(note 2(a)(i))
----------------------------------------------------------------------------
For the thirteen weeks For the thirty-nine weeks
ended ended
October 28, October 29, October 28, October 29,
2007 2006 2007 2006
----------------------------------------------------------------------------
Accumulated other
comprehensive earnings,
beginning of period - - - -
Reclassification of
foreign currency
translation
(transitional
adjustment) $ - $ - $ 79 $ -
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Accumulated other
comprehensive
earnings, beginning
of period, as
restated - - 79 -
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Other comprehensive
earnings (loss) $ (166) $ - $ (245) $ -
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Accumulated other
comprehensive (loss),
end of period $ (166) $ - $ (166) $ -
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THE FORZANI GROUP LTD.
Consolidated Statements of Cash Flows
(in thousands) (unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the thirteen weeks For the thirty-nine weeks
ended ended
October 28, October 29, October 28, October 29,
2007 2006 2007 2006
----------------------------------------------------------------------------
Cash provided by (used
in) operating activities
Net earnings for the
period $ 12,586 $ 11,878 $ 18,753 $ 14,120
Items not involving
cash:
Amortization 11,137 10,458 33,039 31,676
Amortization of
finance charges 189 144 731 423
Amortization of
deferred lease
inducements (2,754) (2,139) (8,260) (7,672)
Rent expense 151 683 606 2,467
Stock-based
compensation 76 1,655 2,338 3,202
Future income tax
expense (recovery) (36) 389 (194) 873
Loss on sale of
investment - - 864 -
Loss on ineffective
hedges 8 - 37 -
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21,357 23,068 47,914 45,089

Changes in non-cash
elements of working
capital related to
operating activities 27,042 17,372 (30,629) (60,060)
----------------------------------------------------------------------------
48,399 40,440 17,285 (14,971)
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Cash provided by (used
in) financing activities
Proceeds from issuance
of share capital 1,087 5,604 13,115 6,191
Share repurchase via
normal course issuer bid (12,785) - (22,695) -
Decrease in long-term
debt (64) (4,700) (2,011) (5,153)
Increase (decrease) in
revolving credit
facility (18,809) (35,584) - 25,922
Credit facility assumed
on acquisition - - - (105)
Proceeds from deferred
lease inducements 2,690 2,720 5,084 5,519
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(27,881) (31,960) (6,507) 32,374
Changes in non-cash
elements of financing
activities (150) (160) (1,462) (463)
----------------------------------------------------------------------------
(28,031) (32,120) (7,969) 31,911
----------------------------------------------------------------------------
Cash provided by (used
in) investing activities
Net addition of capital
assets (11,740) (8,155) (26,743) (28,737)
Net disposal of other
assets 269 2 3,303 58
Acquisition of wholly
owned subsidiary - - - (6,650)
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(11,471) (8,153) (23,440) (35,329)
Changes in non-cash
elements of investing
activities 213 40 1,220 234
----------------------------------------------------------------------------
(11,258) (8,113) (22,220) (35,095)
----------------------------------------------------------------------------
Increase (decrease) in
cash 9,110 207 (12,904) (18,155)
Net cash position,
opening 744 904 22,758 19,266
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Net cash position,
closing $ 9,854 $ 1,111 $ 9,854 $ 1,111
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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
    or
    The Forzani Group Ltd.
    Richard Burnet, C.A.
    Chief Financial Officer
    (403) 717-1442
    Website: www.forzanigroup.com