The Forzani Group's first quarter results were significantly better than last year and topped consensus estimates with the help of positive footwear and apparel comps and continuing improvement at Sport Chek. But inclement April weather prevented it from posting a profit in the quarter. Forzani CEO Bob Sartor said the company was “well ahead of last year” after the first two months of the fiscal year, but the “very poor spring weather in April” hampered sales of bikes and in-line skates, which he called “two huge categories” for them at this time of year. They were both off double digits for the quarter.
On the plus side, apparel at Forzanis flagship Sport Chek chain “comped very, very well” and footwear comped positive. Margins and comps were both up at its corporate stores despite the tough climate.
“This tells us that despite continued economic uncertainty and in the face of continued job losses in Canada, it is the weather that really impacts our business, more so than the economy,” said Sartor.
Retail system revenues were down 4.3% to CN$201.3 million ($162 mm) from CN$210.3 million ($209 mm) in Q1 last year, primarily due to closings at Athletes World. Corporate comps were up 1.0% and franchise stores were down 2.8% against Q1 2008 results of minus 5.2% and plus 3.1%, respectively.
Wholesale revenues were down 4.3% to CN$106.4 million ($86 mm) from CN$97.2 million ($97 mm) in Q1 2008 as a result of increases in both franchise division sales to franchisees and sales by the FGL Wholesale division to third parties. Forzani said the integration of its Intersport North America (INA) and FGL wholesale businesses “is already beginning to show results as we begin to market a wider array of products to our existing customer base, and introduce the assortment to new customers.”
Tom Quinn, Forzani's president and COO, said the franchises softer comps were a result of weaker snow sports sales in February and March and a slightly lower start to the golf business in April. They also had much less carry-over winter sports inventories in February and March, reflecting a company decision to tighten inventories given economic conditions. Its wholesale business on the franchise side showed double-digit growth, while footwear and seasonal apparel had positive comp sales growth. Quinn cited “continued positive performance” at its Atmosphere, S3 and Hockey Experts franchise banners.
At its corporate banners, comps improved and the margin performance of its Sport Chek and Coast Mountain Corporate businesses was stronger than its combined franchise retail margin for the first time. The Athletes World banner turned its second consecutive quarterly profit and continues to comp positively in line with targets with the aid of new merchandise assortments and store standards.
Introducing Nevada Bob's concept shops into the Sport Chek environment “has been and continues to have been a very positive move,” added Quinn. The additional 15 locations opened so far this year are already performing to the same levels as last year's six tests. The concept will be “aggressively” rolled out across the Sport Chek chain over the next few years.
Regarding categories at its corporate banners, double-digit comp gains in outerwear and casual clothing reflected merchandise changes and improved store presentation standards that have been evolving for the past 18 months. This includes rolling out vendor concept shops in apparel.
In addition to The North Face, Columbia, Nike, Adidas, Puma, Reebok and licensed areas, Speedo concept shops were added to a number of Sport Chek locations and “so far all of these areas are performing well.” Also driving apparel's strength was increased advertising in Forza magazine and local television.
Footwear's positive comp was led by running, training athletic and trend categories. Licensed apparel's negative comps were a direct result of under-performing Canadian hockey franchises.
On the equipment side, racket sports, golf, fitness, backpacks and sport bags all had positive growth. But Forzani continues to be “challenged for a number of reasons” in categories such as bike, in-line skates and camping, as well as the snow sports categories in February and March. Another challenge has been hockey, mainly in licensed products.
Gross margin decreased to 33.7% of revenue from 34.3% due to a shift in the sales mix between higher-margined retail sales and the lower-margined wholesale businesses. Margin rates increased in both the corporate retail and franchise wholesale divisions due to cleaner inventories.
Forzani also announced a partnership that will put GNC (General Nutrition Centres) performance nutrition boutiques within FGL stores. The first pilot market will be in Calgary, Alberta this fall.
