The Forzani Group Ltd. announced retail system sales for the first quarter of fiscal 2004 grew by 18.2% to $237.2 million compared to $200.8 million for the same period of the previous year. Combined revenues from corporate and franchise divisions increased by $24.6 million or 12.5% over the $196.7 million posted in the first quarter of last year.
During the quarter, total Company comparable store sales were up 2.6% in an environment, reported by many retailers, as extremely challenging. The Company’s solid strategic positioning and geographic and banner diversity substantially mitigated consumer spending weakness and poor weather patterns in the quarter. Overall franchise comparable store sales were up 11.1%, driven by good spring weather in Eastern Canada where the bulk of the Company’s franchise business is located. Corporate comparable store sales were down 1.6%, impacted by poor weather in Western Canada.
The Company reported diluted earnings per share of $0.04 versus $0.09 last year. Current year earnings were negatively impacted by the closure of the remaining small corporate Forzani’s stores ($854,000 or $0.02 per share), as well as the Company’s decision to expense options directly in the income statement ($456,000 or $0.01 per share, in fiscal 2004 and $72,000 or $0.002 per share in fiscal 2003). Adjusting for these items, diluted earnings would have been $0.07 versus $0.10 in the previous year.
Commenting on the results, CEO Bob Sartor stated, “Despite a difficult retail climate and continued unseasonable weather for most of the first quarter, particularly in Western Canada, our business has performed very well. Our aggressive and proactive management of the winter product and casual clothing categories where price competition was strong, though negatively impacting margins, resulted in a very clean inventory position at the end of the quarter. On a per square foot basis, inventory was down 13.1% versus the first quarter of last year. The current inventory position should enable us to post solid margins going forward.”
During the quarter, the Company opened 3 corporate stores (Sport Mart), franchised 5 stores and closed 14 smaller stores in the Forzani banner. In the Franchise division, 3 stores were opened (2 Atmosphere and 1 Sports Experts). In addition, 2 franchise stores were renovated. As a result, at the end of the first quarter, the Company had 199 corporate stores and 169 franchise locations.
For the first 3 weeks of the second quarter of fiscal 2004, combined comparable store sales grew 4.9%.
THE FORZANI GROUP LTD.
Consolidated Statements of Operations and Retained Earnings
(in thousands, except per share data)
(unaudited)
For the thirteen weeks ended
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May 4, 2003 April 28, 2002
(restated)
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Corporate and Franchise Retail Sales $ 237,241 $ 200,780
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Revenue
Corporate $ 147,844 $ 137,408
Franchise 73,461 59,269
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221,305 196,677
Cost of sales 153,807 133,138
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Gross margin 67,498 63,539
Operating and administrative expenses
Store operating 42,929 39,530
General and administrative 13,237 11,849
Stock-based compensation 456 72
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56,622 51,451
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Operating earnings before undernoted items 10,876 12,088
Amortization 7,564 6,586
Interest 1,424 1,023
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8,988 7,609
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Earnings before income taxes 1,888 4,479
Income tax expense
Current 993 1,923
Future (275) (154)
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718 1,769
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Net earnings for the period 1,170 2,710
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Retained earnings, beginning of period,
as previously reported 78,857 48,326
Change in accounting policy
for stock-based compensation 330
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Retained earnings, beginning of period,
as restated 78,527 48,326
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Retained earnings, end of period $ 79,697 $ 51,036
