Forzani Group Fiscal Fourth Quarter Profit Rises; First Quarter Comps Weaken

 

The Canadian-based retailer also said comps were running down so far in Q1 due to tough comparisons against last year's Vancouver Olympics as well as lingering winter weather.

Earnings reached CN$24.2 million, or 84 cents a share, in the fiscal fourth quarter, below the CN89 cents per share analysts polled by Thomson Reuters had, on average, been expecting. A charge related to the taxation of stock-based compensation costs reduced net earnings by CN$1.5 million, or CN5 cents per share, in the quarter.

On a conference call with analysts, CEO Bob Sartor said cold, wet seasonable weather in November drove its pre-Christmas winter business, Christmas and Boxing Week results were “solid,” and sales continued to grow in January with the aid of more aggressive marketing tactics.

“These tactics reduced [the] year-over-year margin rate for the quarter, but the plus side is it generated significant incremental margin dollars and maintained our very clean inventory position,” said Sartor. “This contributed to our fourth consecutive quarterly improvement in both EBITA and EPS.”

Fiscal Q4 revenue grew 10.2% to CN$410.9 million. The quarter's comp gain was helped by planned initiatives to expand key hardgoods categories, the impact that seasonably cold weather had on winter categories early in the quarter and improved consumer confidence throughout the Christmas and Boxing Day period.  Corporate same-store sales grew 9.5% while franchise comps advanced 3.7%.

The revenue gain included an 8.1% increase in retail sales to CN$343.5 million and a 22.4% increase in wholesale sales to third parties and the franchise network to CN$67.5 million. The wholesale gain was due to the earlier timing of spring shipments by its franchise and INA international divisions.

Gross margins fell 120 basis points to 39.7% of sales in the quarter, with improved margins for wholesale offset by a planned reduction in margins in corporate retail due to promotional strategies that drove volume. Store operating expenses were flat in absolute dollar terms and down 180 basis points to 22.3% as a percentage of revenue.

For the first eight weeks of the current year, comps, as expected, were down slightly versus the prior year's first quarter results. The first four weeks of sales were up against sales of Vancouver 2010 Winter Olympic licensed products, which offset positive comps in all other categories to post a decline of 3.3%. Excluding licensed product sales, comps advanced 5.1% across all categories. In the subsequent four weeks, continuing winter weather hampered sales of spring hardgoods categories to post an overall 2.8% comparative store decline.

Overall retail system same-store sales in the first eight weeks decreased by 2.1% against the prior year's increase of 14.5%. Of the total decline, same-store sales in the period decreased by 3.0% for corporate locations against the prior year's increase of 15.5%, and decreased by 0.2% for franchise stores against the prior year's increase of 12.7%.

On the call, President and COO Tom Quinn said not only were sales of weather sensitive products up in the quarter, but also sales of footwear, athletic clothing and hardgoods categories targeted by its strategic initiatives, such as fitness, hockey and cycling.

He said initiatives around golf, fitness and cycling had a positive impact in the quarter, and “we will take this to the next level in fiscal 2012. Also our footwear and apparel business remains strong and continues to grow.”

Forzani has almost completed the closure of its freestanding Nevada Bob's Golf stores, and is approximately halfway through the rollout of concept shops within its Sport Chek, Intersport and Sports Expert stores. This has resulted in positive golf sales and margin improvements in a still challenging golf environment. The Hockey Experts concept shop program will continue, and it is also begun to add S3 (Snow, Skate and Surf) and soccer concept shops this spring. In total, FGL had a combined total of 101 Nevada Bob's, Golf Hockey Experts, and S3 concept shops at year-end with plans for another 88 concept shops this year. The Atomosphere banner, focusing on cross-country and telemark skiing, snowshoeing, cycling and camping, delivered “very strong Q1 comparable store sales so far,” said Sartor.

The Pegasus franchise banner has been discontinued.

E-commerce revenues more than doubled in the quarter and are running ahead at triple-digit rates so far in Q1.