The Forzani Group Ltd. reported a loss of $2.9 million (U.S. $2.8 million), or 9 cents a share, in the first quarter against earnings of CA $739,000 (U.S.$724,000), or 2 cents, a year ago. The loss included a loss from the operation of Athletes World, of $1.3 million (U.S. $1.27 million), or 4 cents per share.



Retail system sales for the quarter were $334.0 million ($327 million), an increase of $25.6 million, or 8.3% from the comparable 13-week sales of $308.4 million. The increase was due to the impact of prior year acquisitions, most notably Athletes World, ($24.7 million), and new store openings which offset declines in same store corporate sales of 5.2%. Franchise same store results increased 3.1%. Corporate sales were negatively impacted in a number of areas. The strength of 4th quarter fiscal 2008 sales of winter categories depleted inventories to an extent that hampered 1st quarter, fiscal 2009 clearance events. This, coupled with unseasonable spring weather across the country, delayed the sale of spring categories which, though improved over the prior year, were below expectations. The introduction of a new statutory holiday in Ontario, the country's largest market, further dampened sales. The Athletes World sales contribution was below expectations as spring inventories had been impacted by cancelled orders while the company operated under the protection of the company's' Creditor Arrangement Act (“CCAA”).



Revenue, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, was $307.5 million, up $12.9 million, or 4.4% over the comparable period last year. Wholesale revenues were down as a result of the timing of receipts by franchise operations. This shortfall will be recouped in the 2nd quarter.



Combined gross margin for the 13 weeks ended May 4, 2008 was 34.3% of revenue, or $105.4 million, compared to 33.3%, or $98.0 million in the previous year. The overall rate increase reflects rate increases in both the corporate retail and franchise wholesale results and a shift in the sales mix between retail and wholesale sales in the quarter. The dollar improvement was driven by sales growth in the corporate business as well as solid franchise results at improved margins. Corporate store category sales results were mixed with weak performance in winter categories, particularly ski, snowboard, hockey, outerwear and accessories, casual clothing and footwear. Spring category performance, particularly in cycling, camping, fitness and racquets were strong despite the unseasonably cool weather.



Same store operating expenses were 30.4% of corporate store revenues versus 28.1% in the prior year, a reflection of the reduced sales volume. In absolute dollars, same store costs increased $1.5 million, or 2.8%. Overall store operating expenses were 33.5% against the prior year of 29.6%. The increase is a combination of costs associated with Athletes World ($9.6 million), the acquisition, in September 2007, of former Nevada Bob's franchise locations ($1.3 million) and new store openings, offset by the elimination of overhead from 9 Fitness Source stores franchised in April 2007 ($0.6 million). On an ongoing basis, the operating expenses associated with Athletes World are expected to be in line with corporate same store run rates as certain costs are integrated and stores operations are normalized following the emergence from CCAA.



General and administrative expenses were 8.9% of total revenue versus the prior year's 8.8%. The absolute dollar increase of $1.3 million was the result of $2.8 million in additional infrastructure costs associated with the Athletes World acquisition and standard, planned year over year increases. These costs were partially offset by lower stock-based compensation expenses ($1.8 million). Earnings before interest, taxes and amortization (“EBITA”) were $7.7 million versus the prior year's EBITA of $14.5 million.



The company's first quarter of fiscal 2009 was a reflection of the old adage “too much of a good thing” where the continuation of the exceptional winter weather that drove Q4 2008 sales and reduced winter inventories to record lows, hampered the company's ability to generate positive sales momentum through the first 8 weeks of the quarter in either the corporate or franchise division. The quarter ended on a positive trend with improved sales and margins, but couldn't recover the lost opportunity of those first 8 weeks of the quarter. The first quarter traditionally represents less than 22% of revenues and 2% of earnings, and the company expects to meet its operational plans for the year despite getting off to somewhat of a slow start. Store operating and general and administrative expenses are generally in line with historical rates.



With regard to the Athletes World acquisition, and in accordance with the company's planned timeline to exit protection under CCAA, the company presented its plan to a meeting of creditors on May 30, 2008 and received their approval. The company received court approval of its plan on June 6th, 2008 and expects to exit CCAA at the end of June 2008.



Despite the loss in the quarter, the company is pleased with the results of the continuing Athletes World stores as they were impacted by both the continuing CCAA administration and a less than optimal inventory position, both in absolute dollars and aging, available for sale during the quarter due to the cancellation of spring orders by the previous owners. The company remains confident that the business will be accretive for the year once fresh inventories arrive and are merchandised.



For the first four weeks of Q2, fiscal 2009, same store sales from corporate stores were off 8.2% and, from franchise stores, off 7.1%. The cold, wet and late start to spring affected seasonal product categories such as summer tops, shorts and sandals in both the corporate and franchise businesses. In addition, recognizing that the weather was not conducive to sales of those categories, management shifted some of its tactical advertising spending from the April/May period to June/July in order to ensure that the company's advertising takes place when the weather has returned to more seasonal levels.



During the quarter, the company opened 2 Nevada Bob's Golf stores and closed a total of 5 stores (1 Sport Chek, 1 Nevada Bob's Golf, 2 Sport Mart and 1 corporately owned Econosport). In the franchise division, 6 new stores were opened (1 Atmosphere, 1 Nevada Bob's Golf, 1 Pegasus, 1 Fitness Source, 1 S3 and 1 Hockey Experts), 2 stores converted from Buying Members to S3, and 2 stores closed (1 Intersport and 1 RnR). As a result, at the end of the first quarter, the company had 341 corporate stores and 227 franchise locations. This was a net decrease of 16,795 square feet of retail selling space, a 0.3% decrease versus the previous quarter. The company now has 568 stores from coast to coast (April 30, 2007 – 478 stores).


The Forzani Group Ltd. reported a loss of $2.9 million (U.S. $2.8 million), or 9 cents a share, in the first quarter against earnings of CA $739,000 (U.S.$724,000), or 2 cents, a year ago. The loss included a loss from the operation of Athletes World, of $1.3 million (U.S. $1.27 million), or 4 cents per share.



Retail system sales for the quarter were $334.0 million ($327 million), an increase of $25.6 million, or 8.3% from the comparable 13-week sales of $308.4 million. The increase was due to the impact of prior year acquisitions, most notably Athletes World, ($24.7 million), and new store openings which offset declines in same store corporate sales of 5.2%. Franchise same store results increased 3.1%. Corporate sales were negatively impacted in a number of areas. The strength of 4th quarter fiscal 2008 sales of winter categories depleted inventories to an extent that hampered 1st quarter, fiscal 2009 clearance events. This, coupled with unseasonable spring weather across the country, delayed the sale of spring categories which, though improved over the prior year, were below expectations. The introduction of a new statutory holiday in Ontario, the country's largest market, further dampened sales. The Athletes World sales contribution was below expectations as spring inventories had been impacted by cancelled orders while the company operated under the protection of the company's' Creditor Arrangement Act (“CCAA”).



Revenue, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, was $307.5 million, up $12.9 million, or 4.4% over the comparable period last year. Wholesale revenues were down as a result of the timing of receipts by franchise operations. This shortfall will be recouped in the 2nd quarter.



Combined gross margin for the 13 weeks ended May 4, 2008 was 34.3% of revenue, or $105.4 million, compared to 33.3%, or $98.0 million in the previous year. The overall rate increase reflects rate increases in both the corporate retail and franchise wholesale results and a shift in the sales mix between retail and wholesale sales in the quarter. The dollar improvement was driven by sales growth in the corporate business as well as solid franchise results at improved margins. Corporate store category sales results were mixed with weak performance in winter categories, particularly ski, snowboard, hockey, outerwear and accessories, casual clothing and footwear. Spring category performance, particularly in cycling, camping, fitness and racquets were strong despite the unseasonably cool weather.



Same store operating expenses were 30.4% of corporate store revenues versus 28.1% in the prior year, a reflection of the reduced sales volume. In absolute dollars, same store costs increased $1.5 million, or 2.8%. Overall store operating expenses were 33.5% against the prior year of 29.6%. The increase is a combination of costs associated with Athletes World ($9.6 million), the acquisition, in September 2007, of former Nevada Bob's franchise locations ($1.3 million) and new store openings, offset by the elimination of overhead from 9 Fitness Source stores franchised in April 2007 ($0.6 million). On an ongoing basis, the operating expenses associated with Athletes World are expected to be in line with corporate same store run rates as certain costs are integrated and stores operations are normalized following the emergence from CCAA.



General and administrative expenses were 8.9% of total revenue versus the prior year's 8.8%. The absolute dollar increase of $1.3 million was the result of $2.8 million in additional infrastructure costs associated with the Athletes World acquisition and standard, planned year over year increases. These costs were partially offset by lower stock-based compensation expenses ($1.8 million). Earnings before interest, taxes and amortization (“EBITA”) were $7.7 million versus the prior year's EBITA of $14.5 million.



The company's first quarter of fiscal 2009 was a reflection of the old adage “too much of a good thing” where the continuation of the exceptional winter weather that drove Q4 2008 sales and reduced winter inventories to record lows, hampered the company's ability to generate positive sales momentum through the first 8 weeks of the quarter in either the corporate or franchise division. The quarter ended on a positive trend with improved sales and margins, but couldn't recover the lost opportunity of those first 8 weeks of the quarter. The first quarter traditionally represents less than 22% of revenues and 2% of earnings, and the company expects to meet its operational plans for the year despite getting off to somewhat of a slow start. Store operating and general and administrative expenses are generally in line with historical rates.



With regard to the Athletes World acquisition, and in accordance with the company's planned timeline to exit protection under CCAA, the company presented its plan to a meeting of creditors on May 30, 2008 and received their approval. The company received court approval of its plan on June 6th, 2008 and expects to exit CCAA at the end of June 2008.



Despite the loss in the quarter, the company is pleased with the results of the continuing Athletes World stores as they were impacted by both the continuing CCAA administration and a less than optimal inventory position, both in absolute dollars and aging, available for sale during the quarter due to the cancellation of spring orders by the previous owners. The company remains confident that the business will be accretive for the year once fresh inventories arrive and are merchandised.



For the first four weeks of Q2, fiscal 2009, same store sales from corporate stores were off 8.2% and, from franchise stores, off 7.1%. The cold, wet and late start to spring affected seasonal product categories such as summer tops, shorts and sandals in both the corporate and franchise businesses. In addition, recognizing that the weather was not conducive to sales of those categories, management shifted some of its tactical advertising spending from the April/May period to June/July in order to ensure that the company's advertising takes place when the weather has returned to more seasonal levels.



Retail Activity



During the quarter, the company opened 2 Nevada Bob's Golf stores and closed a total of 5 stores (1 Sport Chek, 1 Nevada Bob's Golf, 2 Sport Mart and 1 corporately owned Econosport). In the franchise division, 6 new stores were opened (1 Atmosphere, 1 Nevada Bob's Golf, 1 Pegasus, 1 Fitness Source, 1 S3 and 1 Hockey Experts), 2 stores converted from Buying Members to S3, and 2 stores closed (1 Intersport and 1 RnR). As a result, at the end of the first quarter, the company had 341 corporate stores and 227 franchise locations. This was a net decrease of 16,795 square feet of retail selling space, a 0.3% decrease versus the previous quarter. The company now has 568 stores from coast to coast (April 30, 2007 – 478 stores).


Balance Sheet



The company's working capital of $101.7 million decreased $66.9 million from the prior year. The decrease is the result of the reclassification of $50 million in term financing, due for repayment on June 30, 2008. During the quarter, the company purchased and cancelled 632,300 Common Shares at a cost of $11,074,000 under its outstanding Normal Course Issuer Bid. During the last week of the quarter, the company committed to the purchase of an additional 402,400 shares for $7,346,000 that were settled and cancelled subsequent to the quarter end.