Forzani Posts Double-Digit Q4 Sales and Net Gains

For the first 8 weeks of the first quarter of the company's fiscal 2009 year, same store sales from corporate stores were down 8.0% and franchise same store sales decreased 4.3% for an overall retail system sales decline of 6.6% as continuing winter weather across the country hampered sales of spring products. Corporate margins rose versus prior year as a result of cleaner winter inventories.

Earnings and Earnings Per Share:

Net earnings for the fourth quarter were CA$28.7 million ($29.0 mm), or CA 85 cents ($0.86) per share, compared to the prior year's fourth quarter of CA$21.1 million ($18.3 mm), or CA 62 cents ($0.54) per share, a 36.0% increase in profits and a 37.1% increase in earnings per share. The negative impact to net earnings and earnings per share, as a result of the acquisition of Athletes World Limited, was less than CA$0.3 million or CA 1 cent per share. Net earnings were positively impacted during the quarter, by a reduction in corporate income tax rates, which added CA$2.2 million or CA 6 cents per share.

Gross Margins:

Combined gross margin for the 14 weeks ended February 3, 2008 was 40.0% of revenue compared to 41.2% in the previous year. The margin rate decline was the result of weaker margins in corporate stores due to the impact of aggressive pricing actions taken to offset the impact of the rise in the Canadian dollar together with a slight shift in the revenue mix from corporate to wholesale.

Expenses:

Store operating expenses, as a percent of corporate store revenue, were 21.9% against the prior year of 21.8%. Same store operating costs were 19.9% of corporate store revenue, 20.9% in the prior year. Same store costs, in absolute dollars, increased 5.8%.

General and administrative expenses were 8.6% of total revenue versus the prior year's 9.8%. The rate decrease was attributable to reductions in infrastructure costs due to the franchising of the Fitness Source banner, and reduced accruals for year-end, performance-based compensation from the prior year, which were offset to a degree by increased costs associated with the Athletes World acquisition, and costs associated with the departure of the president & COO.

Earnings before interest, taxes and amortization (“EBITA”) were CA$54.6 million ($55.2 mm) compared to CA$46.9 million ($40.7 mm) in last year's fourth quarter. As a percentage of revenues, EBITA was flat to the prior year at 13.3%.

Store Activity:

During the quarter, the company opened 2 Sport Chek stores and 1 Hockey Experts store. With the Athletes World acquisition, the company added 137 stores, closed 39 and earmarked a further 28 stores for closing to finish the year with 70 continuing locations2. In the franchise division, 8 stores were opened (2 Hockey Experts, 1 Fitness Source, 4 Atmosphere and 1 Intersport) and 4 stores were closed (2 Intersport and 2 Nevada Bob's Golf ). As a result, at the end of the fourth quarter, the company had 344 corporate stores and 223 franchise locations. The company now has 567 stores from coast to coast (January 28, 2007 – 479 stores).

For the Year:

Earnings and Earnings Per Share:

Net earnings for the year were CA$47.5 million ($44.9 mm), or CA$1.40 ($1.33) per share compared to CA$35.2 million ($31.0 mm) and CA$1.06 ($0.93) per share in the prior year, a 34.9% increase in profits and a 32.1% increase in earnings per share. Diluted earnings per share for the 53-week period ended February 3, 2008 were CA$1.39 ($1.32), compared to CA$1.04 ($0.92) in the prior year, a 33.7% increase. Cash flow from operations increased to CA$82.7 million ($83.1 mm) from CA$77.4 million ($65.6 mm). The negative impact to net earnings and earnings per share, as a result of the acquisition of Athletes World Limited, was less than CA$0.3 million, CA 1 cent per share. As previously noted, net earnings and earnings per share were positively impacted by a reduction, in the 4th quarter, in the corporate income tax rate. The rate reduction added CA$2.2 million or CA 6 cents per share to earnings for the year.

Sales:

Retail system sales for the 53 weeks were CA$1.53 billion ($1.45 bn), a 7.9% increase from sales for fiscal 2007. Same store sales in corporate stores increased 3.3%, while franchise stores increased 10.0%, with total same store retail system sales increasing 5.6%. Excluding the impact of the 53rd week, sales were up 1.3% in corporate locations and 8.5% in franchise locations for an overall same store sales increase of 3.8%. Revenue was CA$1.33 billion ($1.26 bn), a 5.3% increase over the 52-week period last year.

Gross Margins:

Combined gross margin for the 53 weeks ended February 3, 2008 was up 20 basis points to 35.9% of revenue, from 35.7% in the prior year.

Store operating expenses, as a percent of corporate revenue, were 26.0% versus 25.6% in the prior year. General and administrative expenses were 7.8% of total revenue versus 8.5% in the prior year. The absolute dollar decrease in general and administrative expense spend was a result, primarily, of the franchising of the Fitness Source infrastructure, a reduced marketing spend and reduced accruals for performance-based compensation which offset additional costs associated with the Athletes World infrastructure, and costs associated with the departure of the president & COO. As noted in each of our fiscal 2008 quarterly press releases, fiscal 2007 performance-based compensation expenses reflected the achievement of multi-year targets. As indicated throughout this past year, the fiscal 2008 general and administrative expense run rate has returned to historical levels.

EBITA was CA$116.5 million ($110.3 mm), or 9.2% of total revenue, compared to 8.5% last year. Earnings before income taxes for the 53 weeks ended February 3, 2008 were CA$71.8 million ($68.0 mm) compared to CA$56.5 million ($49.8 mm) for the prior year.

Balance Sheet:

The company's working capital of CA$125.1 million ($125.8 mm) declined by 22.3% or $36.0 million from the prior year. The decrease is the result of the reclassification of CA$50 million ($50.3 mm) in term financing as a current liability during the year, due for repayment on June 30, 2008. The company expects to renew this credit facility prior to its expiry on June 30, 2008.

Financial Highlights:

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($000's)                 For the 14   For the 13    For the 53   For the 52

                        weeks ended  weeks ended   weeks ended  weeks ended

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                         February 3,  January 28,   February 3,  January 28,

                               2008         2007          2008         2007

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Revenue

 Retail                     338,798      293,019       969,256      925,443

 Wholesale                   71,803       60,157       361,753      338,512

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 Total                      410,601      353,176     1,331,009    1,263,955

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EBITA                        54,626       46,941       122,970      107,260

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Net Earnings                 28,698       21,097        47,451       35,217

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Earnings Per Share

 (Diluted)                    $0.85        $0.62         $1.39        $1.04

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Same Store Sales (%)

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 Corporate                     10.6          1.1           3.3          5.9

 Franchise                     17.7         (2.9)         10.0          4.4

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 Consolidated                  13.0         (0.3)          5.6          5.4

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