Forzani Group Posts Second Quarter Loss as Cool Summer Hits Sales

Revenues were flat at CN$296.5 million (U.S. $262 mm) versus CN$295.6 million ($293 mm) a year earlier. Corporate same-store sales were down 1.6% in the latest quarter and franchise comps slipped 0.1%, resulting in a negative 1.0% overall comp sales decline for the period. While overall comps were down $4.6 million, comps in weather-related business such as bikes, sandals, inline skates and swimwear declined more than $7 million.

Retail revenues were CN$216.3 million ($191 mm) for the quarter, down 2.3% driven by the comp decrease and the closure of some Athletes World stores over the last year. Wholesale revenues were up $6 million to $80.3 million, an 8.1% increase. Forzani also had a strong quarter in its INA international division, the wholesale division that sells to other retailers in the U.S and abroad.

On a conference call with analysts, company CEO Bob Sartor said given the tough economy, FGL will continue to  focus on managing margins, inventories and expenses while waiting for more signs of a turnaround before ratcheting up marketing efforts. “There's no sense in fishing when there are no fish around,” quipped Sartor.

Nonetheless, he noted that the 1% overall comp decline outperformed steeper declines from retailers both in the U.S. and Canada and shows that the retailer's marketing and merchandising efforts are working. In particular, marketing investments helped Sport Chek, its flagship, achieve comp gains of 6% in the sport fashion & leisure and outerwear categories. Due to the increased emphasis, apparel has achieved consistent positive growth at Sport Check over the last 18 months, he said. Sport Chek also saw an 11% hike for golf, driven by apparel and footwear more so than equipment. The company also accelerated its move of freestanding Nevada Bob's Golf stores to be relocated as boutiques within its Sport Chek, Intersport and Sports Experts stores.
Another bright spot was the performance of Athlete's World, which generated an 8.9% comp gain.

 

The National Sports banner, rebounding from what had been a weak performance, also showed a 5.1% gain. On the downside, Sport Mart's comps were down 8%, due to the conversion of the chain to the same technology platform as Sport Chek. The move completed in June impacted replenishment.

Forzani last week also unveiled plans to consolidate its two outdoor and lifestyle banners, Coast Mountain Sports and Atmosphere, under the Atmosphere name. The consolidation is designed to help it simplify its business and achieve efficiencies in the area of advertising, and will require minimal capital. Forzani also said it remains on track to launch e-commerce in time for holiday selling and the opening of GNC nutrition boutiques in its Calgary stores has gone well. Said Sartor, “It is product that has decent margin, turns well and generates traffic.”

Consolidated gross margins declined 100 basis points to 34.8% of sales, due to the sales mix change as the wholesale margins are lower than retail margins. Forzani noted that its consolidated corporate margins were up 40 basis points for the quarter, which management attributed to the strength of its merchandising programs and the continued improved aged inventory management.

Store operating expenses were slightly higher due to the marketing investment to launch Nevada Bob's Boutiques in 24 Sport Chek stores, and some new additional corporate stores.

The loss in the period compared with a profit of CN$1.6 million, ($1.5 mm) or CN$0.05 a share, a year earlier, and missed analysts' consensus target of CN$0.05 a share. Breaking out the components of Q2 shortfall in the quarter, CN$0.06 a share was attributed to the sales shortfall, CN$0.04 to the proxy fight, CN$0.03 cents to stock-based compensation, CN$0.03 cents related to amortization and tax rates, and CN$0.03 cents to the Nevada Bob's Boutique launch and the severance packages for its information technology restructuring. EBITDA was down by more than 50% from a year ago.

Looking ahead, Forzani's comps for the first five weeks of the third quarter fell 4.5% for corporate locations versus a 2.2% increase a year earlier; and rose 6.2% for franchise stores, compared with a prior-year increase of 3.1%. Management said preliminary results are skewed by the year-over-year calendar, which saw both of the two peak weeks of Back to School, namely the week before and the week immediately following Labor Day, included in the prior year's figures while reflecting only the first of those weeks in the current year.