Forzani Group Ltd. reported earnings slipped 15.7% in the fourth quarter, to Canadian $24.2
million (U.S. $19.6 million), or 79 cents (U.S. 64 cents) per share, from C$28.7 million ($23.5 million), or C85 cents (69 cents), a year ago. Retail
system sales for the quarter were down 3.4% to C$506.9 million ($410.7 million) from C$524.7
million ($425.1 million) a year ago. Same store sales in corporate locations were down 8.1% and
up 0.4% in franchise locations, for an overall same store sales decrease of
5.1%.
The Canadian sporting goods chain said the results were negatively impacted by the deterioration in consumer
confidence, and a comparison to the extended quarter in the prior year.
Excluding the impact of the 14th week of the prior year's quarter, total retail
system sales rose C$8.0 million ($6.5 million) or 1.6% on a year over year basis.
Excluding
the impact of the 14th week in the prior year's quarter, quarterly sales were
down 3.5% in corporate locations and up 5.9% in franchise locations for an
overall same store sales decrease of 0.2%.
The
company also noted that Athletes World stores added C$0.2 million or C1 cent per
share to consolidated net earnings.
Revenue,
consisting of corporate store sales, wholesale sales, service income, equipment
rentals, franchise fees and franchise royalties, was C$380.8 million ($307.7 million), down 7.3% from the 4th quarter last year.
Gross
Margin:
Combined
gross margin for the 13 weeks ended February 1, 2009 was 39.8% of revenue, compared to 40.0% in the previous year. The
small margin rate decline was the result of weaker margins in corporate stores
due to the impact of aggressive pricing actions taken to offset weaker consumer
demand.
Expenses:
Store
operating expenses, as a percent of corporate store revenue, were 23.5% against
the prior year of 21.9%. Same store operating costs were 21.0% of corporate
store revenue, against 19.8% in the prior year, the increase a function of the
decreased same store sales volumes. Same store costs, in absolute dollars,
decreased 1.9%.
General
and administrative expenses were 7.8% of total revenue versus the prior year's
8.6%. The rate decrease was attributable to reduced accruals for year-end,
performance-based compensation and prior year severance costs, which offset
increased infrastructure costs resulting from the Athletes World acquisition.
Earnings
before interest, taxes and amortization (“EBITA”) were C$47.2 million
($37.1 million) compared to C$54.6 million ($44.1 million) in last year's fourth quarter. As a percentage of
revenues, EBITA was 12.4% compared to the prior year at 13.3%. Cash flow from
operations increased C$7.8 million ($6.3 million) to C$42.6 million ($34.4 million). On a per share basis, cash
flow was C$1.40 ($1.13), up 33.3% from the prior year's C$1.05 (85 cents)..
Store
Activity:
During
the quarter, the company opened 2 Sport Chek, 1 Coast Mountain, 1 Fitness
Source and 3 Athletes World stores while closing 2
stores. In the franchise division, 6 stores were opened (2 Atmosphere, 1 S3, 1
Econosport, 1
Bob's Golf and 1 Buying Member) and 5 RnR stores closed. As a result, at the
end of the fourth quarter, the company had 337 corporate stores and 227
franchise locations. This represents a year over year net increase of 31,917
square feet of retail selling space, a 0.5% increase versus the previous year.
The company now has 564 stores from coast to coast (February 3, 2008 – 567
stores).
For the
Year:
earnings for the year were C$29.3 million ($23.7 million), or C94 cents per share compared to C$47.5
million ($38.4 million), or C$1.40 per share in the prior year, a 38.2% decrease in profits and a
32.9% decrease in earnings per share. Diluted earnings per share for the
52-week period ended February 1, 2009 were C93 cents a share, compared to C$1.39 in the
prior year, a 33.1% decrease. As noted in the company's 3rd quarter press
release, the company increased its tax provision as a result of an assessment
which would deny interest deductions of certain payments by the company to a
subsidiary in the taxation years ended 2004 and 2005. The earnings impact for
the year totals C$1.8 million ($1.5 million) or C6 cents per share. The negative impact to net
earnings and earnings per share, as a result of the acquisition of Athletes
World Limited, was C$1.7 million ($1.4 million), or C5 cents a share in the year.
Cash flow
from operations decreased to C$74.8 million ($60.6 million) from C$82.7 million ($67.0 million). On a per share
basis, cash flow decreased 2.4% to C$2.39 compared to C$2.45 in the prior year.
Sales:
Retail
system sales for the 52 weeks were C$1.6 billion ($1.3 billion), a C$49.5 million($40.1 million) increase from
sales for fiscal 2008. Same store sales in corporate stores decreased 3.5%,
while franchise stores increased 3.1%, with total same store retail system
sales decreasing 1.1%. Excluding the impact of the 53rd week in fiscal 2008,
sales were down 1.9% in corporate locations and up 4.8% in franchise locations for
an overall same store sales increase of 0.5%. Revenue was C$1.3 billion ($1.05 million), a 1.2% increase over the 53-week period last year.
Gross
Margin:
Combined
gross margin for the 52 weeks ended February 1, 2009 was flat on a year over
year basis at 35.9% of revenue. In absolute dollars, combined gross margin
increased C$5.1 million ($4.1 million), to C$483.5 million ($392.3 million), from the 53-week period last year.
Expenses:
Store
operating expenses, as a percent of corporate revenue, were 27.9% versus 26.0%
in the prior year. Same store operating costs were 25.6% of corporate store
revenue, against 24.9% in the prior year, the increase a function of the
decreased same store sales volumes. Same store costs, in absolute dollars,
decreased C$3.2 million ($2.6 million), or 1.4%, a result of managing variable costs to reduced
same-store sales volumes and a change, during the second quarter, to in store
compensation plans.
General
and administrative expenses were 8.1% of total revenue versus 7.8% in the prior
year. The absolute dollar increase in general and administrative expense of
C$5.5 million ($4.5 million) was a result, primarily, of the additional costs associated with
the Athletes World infrastructure (C$7.9 million ($6.4 million)) and standard year over year
budgeted increases. These incremental overhead costs were offset by reduced
accruals for fiscal 2009 performance based compensation and reduced severance
costs from the prior year.
EBITA was
$97.1 million ($78.8 million), or 7.2% of total revenue, compared to 9.2% last year. Earnings
before income taxes for the 52 weeks ended February 1, 2009 were C$44.3 million
($36.0 million) compared to C$71.8 million ($58.3 million) for the prior year.
Commenting
on results, management said, “As we move forward in fiscal 2010, our focus
is on continuing to grow our business and increase profitability and market
share by upgrading and renovating existing stores and opening new stores while,
at the same time maintaining a disciplined focus on operating costs and
maintaining a strong balance sheet with sufficient liquidity and borrowing
capacity to facilitate strategic acquisitions and ensure adequate working
capital, in the context of the significant challenges presented by ongoing
difficult economic conditions. Against a backdrop of the very significant
economic challenges in recent quarters, particularly in the Canadian retail
industry, the company is satisfied with its performance in the 4th quarter,
given the widespread deterioration in consumer confidence, especially when
viewed against what was a record, extended 14 week quarter in the prior year.
Excluding the 14th week from the prior year, same store corporate sales
decreased 3.5% while franchise retail sales increased 5.9% for an overall sales
decrease of 0.2%. Gross margins were essentially flat and general and
administrative costs were well controlled in both absolute dollars and as a
percentage of revenue.”
“For
fiscal 2009 as a whole, excluding the impact of the prior year's 53rd week,
same store corporate sales decreased 1.9% while franchise same store sales grew
4.8% for an overall adjusted same store system retail sales growth of 0.5%,
despite the plunge in consumer confidence. Margins were flat to the prior year,
and expenses were well controlled in absolute terms, but increased as a
percentage of revenues due exclusively to the weaker than anticipated sales
environment.”
“Notwithstanding
that financial performance throughout the year lagged the prior year's record
results, the company achieved many important operational initiatives, most
notably Athletes World emerging from CCAA and the integration of its' back
office functions, testing of new boutique concepts in Sport Chek, and
streamlining the corporate purchasing functions to leverage the IT Banner
Migration project. The completion of, and progress in, these initiatives
positions the company well for the coming year. The company exits fiscal 2009
with its inventory reduced in absolute dollars and fresh in terms of aging, a
strong franchise network coming off yet another year of positive same store
results, and significant resources and cash flow to take advantage of
opportunities arising from the weakened competitive Canadian landscape.”
“For the
first 9 weeks of the first quarter of the company's fiscal 2010 year, same
store sales from corporate stores were up 2.7% and franchise same store sales
decreased 0.6% for an overall retail system sales increase of 1.5% relative to
the same period in fiscal 2009. Corporate margins declined versus prior year as
continuing winter weather across the country hampered sales of spring products
and the retail sector continued to deal with the impact of the current economic
malaise.”
Balance
Sheet:
The company's
working capital of C$79.8 million ($64.8 million) declined 36.2% or C$45.3 million ($36.8 million) from the prior
year. The year over year decrease is the result of C$44.0 million ($35.7 million) of share
repurchases during fiscal 2009 under the company's normal course issuer bid,
and ongoing capital expenditures for store openings and renovations. These
expenditures were made from operating cash flow.
As at
February 1, 2009, there were 30,468,045 Common Shares issued and outstanding.
During the 12 months, ended March 27, 2009, pursuant to the normal course
issuer bid approved by the Toronto Stock Exchange on March 26, 2008, the
Corporation purchased 2,694,376 Common Shares of the Corporation.
On April
7, 2009 the company declared a dividend of C$0.075 per Class A common share,
payable on May 4, 2009 to shareholders of record on April 20, 2009.
