The Forzani Group Ltd. saw its gross margins narrow in the fiscal third quarter ended October 31 due primarily to an increase in the companys Wholesale business, which carries lower margins than the retail side. Wholesale is now more than a third of the overall business as revenues in the segment jumped 26.4% for the quarter to roughly 34% of the total business in Q3 versus just 28% of the business in the year-ago period. The Wholesale business represents sales to franchisees as well as the close-out business acquired in the Gen-X Sports deal. The closeout business was roughly 13% of the mix for the quarter, “up slightly” from a year ago.
Due to new accounting rules for posing vendor rebates, the company was able to post an increase in net income and earnings per share versus Q3 last year despite flat margins in the Corporate Retail and Wholesale businesses. Excluding the impact of the rule change, EPS would have been flat at 23 cents per share.
Total retail system sales, which includes both Corporate and Franchise sales, declined 1.2% to $257.5 million for the third quarter, compared to $260.6 million in Q3 last year. Corporate store sales declined 1.8% for the period, while Franchise store sales inched up 0.1% to $81.5 million for the quarter. Corporate comp store sales were down 4.4%, driven largely by soft sales in the early weeks of the quarter and the increased competitive environment, specifically in Ontario. Franchise comparable store sales were flat. On a combined basis, comparable store sales were down 3.0%.
Forzani CEO Bob Sartor told analysts that comps in August were “very soft”, but were partially offset by a “very strong” September and a “relatively flat” October. The West was stronger than the East.
President and COO Bill Gregson said that most target categories were up, except Ski, Snowboard, and In-line Skates. Hockey, Golf, Bikes, and Team Sports were all up during the period. Technical Performance Apparel did well, but Outerwear suffered.
On the Franchise side of the Retail business, retail margins were slightly improved from last year. Tom Quinn, president of the Franchise group, said that Technical Athletic product and higher-end Sport Fashion goods showed “solid growth”. He said Footwear was positive and that Hockey, Bikes, and Exercise showed “strong” growth in Q3.
Inventory per square foot was down from last year on a comp basis.
The companys acquisition of Nevada Bobs is expected to close the second week of January, a bit late due to some work that had to be done on NBs side to “spin off their U.S. assets and U.S. business.” FGL had hoped to close the deal before Christmas.