The Forzani Group, having completed the annual audit of its financial statements, confirmed the results, previously released on February 22nd, 2005, with the exception of a reduction in fourth quarter and full year, diluted earnings per share of $0.01 and $0.04 respectively, due to a change in accounting for certain lease costs (refer below “Lease Related Accounting Issues”).
Net earnings for the fourth quarter were $13.0 million, a 19.2% decrease from fiscal 2004, $12.7 million or a decrease of 21.1%, after the impact of the change in accounting for certain lease costs. Diluted earnings per share for the fourth quarter were $0.40, $0.39 after the impact of the change in accounting for certain lease costs, compared to $0.50(1) per share for the same period last year.
Consolidated gross margins for the quarter decreased 140 basis points, from the prior year, to 37.4%, and EBITDA (earnings before interest, taxes, depreciation and amortization) margins decreased 110 basis points to 11.3%, 120 basis points to 11.2% after the impact of the change in accounting for certain lease costs. The change was reflected as a $0.2 million increase in corporate store operating expenses, $53.1 million prior to the change and $53.3 million after the change, which has been accounted for on a prospective basis. Comparative store operating expense decreased 3.4% versus the quarter in the prior year, inclusive of the change in accounting.
Revenue decreased 2.3% to $274.3 million. Corporate comparable store sales decreased 7.7% and, in the franchise division, comparable store sales increased 7.1%.
Net earnings for the year were $22.9 million, down 18.5% from reported net earnings of $28.1 million in fiscal 2004, $21.5 million or a decrease of 23.5%, after the impact of the change in accounting for certain lease costs Earnings per share were $0.70, $0.66 after the impact of the change in accounting for certain lease costs, versus $0.87 per share in the previous year.
Gross margin for the year decreased 50 basis points from fiscal 2004 to 33.9%.
EBITDA margin was 7.9%, a 60 basis point decrease from the prior year, 7.8% or a 70 basis point decrease after the impact of the change in accounting for certain lease costs. The change was reflected as a $1.1
million increase in corporate store operating expenses, $189.8 million prior to the change and $190.9 million after the change, which has been accounted for on a prospective basis. Comparative store operating expense decreased 0.7% versus the prior year, inclusive of the change in accounting.
Revenue for fiscal 2005, which consists of corporate retail system sales and wholesale sales, was $985.1 million, a 1.8% increase over the previous year. Consolidated comparable store sales decreased 2.6%. Corporate comparable store sales decreased 5.1% and franchise store sales grew by 2.2%.
Company CEO, Bob Sartor, stated “As previously reported, in our February 22, 2005 press release, the decrease in corporate store comparable sales, in the fourth quarter, was primarily due to the decline in sales of ski and snowboard equipment, and outerwear which were down 14.1% and 3.2%, respectively, as well as the licensed clothing category, which was down 39.5% for the quarter. The lingering NHL lockout contributed materially to this decline.”
During fiscal 2005, the Company opened 20 new corporate stores, 7 of which were opened during the fourth quarter. Also, during fiscal 2005, the franchise division opened 4 new franchise stores. This growth translates to an additional 226,530 square feet of retail space, an increase of 4.9% over the previous year. In addition, with the Company's acquisition of Nevada Bob's locations and National Sports, the Company now has over 5.5 million square feet of retail selling space and 446 locations from coast to coast.
On February 7, 2005, the Office of the Chief Accountant of the U.S. Securities and Exchange Commission (“SEC”) issued a clarification in respect of accounting for various components of property leases and leasehold improvements on which U.S. and Canadian accounting governing bodies had been largely silent. As a result of the SEC clarification, North American retailers, including The Forzani Group Ltd., have reviewed, or are in the process of reviewing, all facets of their related accounting practices.
The Company's review of its practices, and discussion with the Audit Committee of its Board of Directors and external auditors, has confirmed earlier indications that adjustments to align itself with the recent clarification have not had a significant impact on its earnings.The review resulted in the following two changes to accounting for certain lease costs.
THE FORZANI GROUP LTD.
Consolidated Statements of Operations and Retained Earnings
(in thousands, except share data)
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For the For the
52 weeks ended 52 weeks ended
January 30, 2005 February 1, 2004
(restated)
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Revenue
Retail $ 718,820 $ 732,880
Wholesale 266,234 235,198
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985,054 968,078
Cost of sales 651,158 634,961
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Gross margin 333,896 333,117
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Operating and administrative expenses
Store operating 190,891 185,720
General and administrative 66,536 65,081
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257,427 250,801
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Operating earnings before
undernoted items 76,469 82,316
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Amortization 35,885 32,158
Interest 4,447 4,838
Loss on write-down of investment 2,208 -
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42,540 36,996
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Earnings before income taxes 33,929 45,320
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Provision for income taxes
Current 10,207 16,799
Future 2,177 422
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12,384 17,221
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Net earnings 21,545 28,099
Retained earnings, opening 101,528 73,429
Adjustment arising from
normal course issuer bid (952) -
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Retained earnings, closing $ 122,121 $ 101,528
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Earnings per share $ 0.66 $ 0.90
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Diluted earnings per share $ 0.66 $ 0.87
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