The Forzani Group Ltd. confirmed its results, previously released on March 2nd, 2004. In addition, the Company announced the acquisition of all of the shares of the corporation carrying on business as Gen-X Sports, an opportunity-buy business specializing in the sourcing, purchase and subsequent re-sale of manufacturers' excess capacity product.
Commenting on the acquisition, Forzani Chief Executive Officer, Bob Sartor stated, “The acquisition of Gen-X Sports, and the retention of its talented management team, will provide FGL with an opportunity-buy arm, capable of delivering high quality, profitable close-out products to our corporate and franchise stores. This will enable the Company to continue to grow its margins in an increasingly competitive environment. The transaction will be immediately accretive to earnings in the current fiscal year, after giving effect to the issuance of 300,000 FGL Class 'A' shares to complete the transaction. The shares will be escrowed, and are subject to an earn-out over a four-year period.”
Fourth Quarter net earnings were $15.4 million, an 11.6% increase over the prior year. Earnings per share for the fourth quarter were $0.48, compared to $0.43 per share for the same period last year.
All numbers are reported in Canadian dollars and cents.
Consolidated gross margins for the quarter increased 160 basis points, over the prior year, to 38.4%, and EBITDA margins increased 40 basis points to 12.0%, versus 11.6% last year.
Retail system sales increased 0.1 million to $362.6 million, but revenues decreased 1.0% to $280.9 million. Consolidated comparable store sales decreased 3.8%. Corporate and franchise comparable store sales decreased 4.1% and 3.1%, respectively.
For full Year 2003, which was a 52-week period versus 53-weeks last year, net earnings were $28.0 million, down 6.7% from reported net earnings of $30.0 million in fiscal 2003. Earnings per share were $0.86 versus $0.95 per share in the previous year.
Gross margin for the year decreased 30 basis points over fiscal 2003 to 34.4%, resulting in an EBITDA (earnings before interest, taxes, depreciation and amortization) margin of 8.4%, a 50 basis point decrease over the prior year.
Retail system sales (corporate and franchised stores) increased 5.1% to $1.108 billion compared with $1.053 billion for the year ended February 2nd, 2003.
Revenue for fiscal 2004, which consists of corporate retail system sales and wholesale sales to franchisees, was $968.1 million, a 4.8% increase over the previous year. Consolidated comparable store sales decreased 0.7%. Corporate comparable store sales decreased 3.0% and franchise store sales grew by 3.9%.
As previously reported here, comparable EPS, or diluted EPS exclusive of the impact of the 53rd week and one-time gain on sale of investments in fiscal '03; the closure of the Forzani's banner; and the impact of accounting for stock-based compensation, was $0.95 in fiscal '04 versus $0.87 in fiscal '03.
“The Company delivered, in an increasingly difficult retail environment, a record fourth quarter,” stated Bob Sartor, Chief Executive Officer. “This was overshadowed by the fact that we missed our annual targets due to the weaker performance of the first three quarters of last year. However, our fourth quarter performance was particularly important because it demonstrated that changes implemented in the Company's product mix and promotional programs could deliver better results in what is traditionally the most competitive period of the year for retailers. The current fiscal year will see continued store growth for the Company and the beginning of a renovation program for the Sport Chek banner, based upon the successful test -store formats introduced last year. While we don't believe current competitive activity will abate in the current fiscal year, with more and better private brands and closeouts; exclusive international brand deals and a new promotion strategy, we expect to not only compete, but to grow our business. Our long-term expectations for FGL remain unchanged, as the current competitive environment will undoubtedly provide consolidation opportunities in the sector.”
During fiscal 2004, the Company opened 24 new corporate stores, 6 of which were opened during the fourth quarter. Also, during fiscal 2004, the franchise division opened 12 new franchise stores. This growth translates to an additional 327,270 square feet of retail space, an increase of 7.6% over the previous year. The Company now has over 4.6 million square feet of retail selling space from coast to coast.
For the first seven weeks of Q1, fiscal 2005, consolidated comparable store sales decreased by 0.8%. On a corporate store basis, comparable store sales decreased by 0.2% and, in the franchise division, comparable store sales decreased 1.8%.
For the current fiscal year, management has taken a conservative approach to guidance, reflecting the belief that competitive activity experienced in fiscal '04 will continue through fiscal '05. As a result, management's earnings per share guidance for fiscal 2005 is in the range of $1.02 to $1.10.
THE FORZANI GROUP LTD.
Consolidated Statements of Operations and Retained Earnings
(in thousands, except share data)
(audited, except where otherwise noted)
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For the For the
52 weeks ended 53 weeks ended
February 1, February 2,
2004 2003
(Note 3)
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Corporate and Franchise Retail
Sales $ 1,107,603 $ 1,053,449
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Revenue
Corporate $ 732,880 $ 715,003
Franchise 235,198 208,792
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968,078 923,795
Cost of sales 635,059 603,326
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Gross margin 333,019 320,469
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Operating and administrative
expenses
Store operating 186,725 177,252
General and administrative 62,739 60,230
Stock-based compensation 2,342 546
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251,806 238,028
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Operating earnings before
undernoted items 81,213 82,441
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Amortization 31,183 29,624
Interest 4,838 4,354
Gain on sale of investment - (1,454)
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36,021 32,524
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Earnings before income taxes 45,192 49,917
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Provision for (recovery of) income taxes
Current 16,799 22,133
Future 374 (2,201)
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17,173 19,932
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Net earnings 28,019 29,985
Retained earnings, opening 78,311 48,326
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Retained earnings, closing $ 106,330 $ 78,311
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Earnings per share $ 0.90 $ 1.00
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Diluted earnings per share $ 0.86 $ 0.95
