Forzani Group Fiscal Q2 Hurt by Renovations; Q3 Off to a Good Start

 

With most of the renovations done and more aggressive promotions, comps have also apparently picked up significantly in the last four weeks.  During a conference call with analysts, CEO Bob Sartor suggested that they “might have a nice little sales surprise, particularly on the apparel side in the third and fourth quarter.”

Comparable-store sales at corporate stores declined 6.5% in Q2, while comps at franchise stores were 0.6% lower. Total revenues rose 1.1% to CN$295.6 million. Corporate revenues climbed 4.3% to CN$221.3 million, reflecting the acquisition of the Athletes World chain in late 2007. Wholesale sales were reduced to CN$73.3 million from CN$83.3 million, reflecting declines in licensed sales to U.S. customers.

Net income fell to CN$1.5 million, or CN 5 cents a share, in the quarter ended Aug. 3, from CN$5.4 million, or CN 16 cents a share, in Q2 last year. Excluding the impact of liquidations at the Athletes World, profit was CN$1.9 million, or CN 6 cents a share.

While weather and the current economic climate impacted sales, the most significant drag on sales was the over 20 renovations that were carried out in the quarter in prime real estate locations, such as Yorkdale in Toronto, Pacific Center in Vancouver, and the West Edmonton Mall.  Tom Quinn, Forzani’s president and COO, suggested that the renovations impacted normal business anywhere between 50% and 80% of normal sales, depending on the location, and that “reported negative comps would have been all but erased” if the stores had been fully operational.

Forzani’s footwear business is positive in the year-to-date period, despite reduced sales in Crocs, Heely’s and sandals in the spring/summer period.  Apparel is also positive year-to-date with the exception of its sports licensed business, which is going up against the Junior World Cup business hosted in Canada last year for soccer.  Technical athletic clothing is continuing to appeal to its consumer base, Quinn said.  In equipment, bike, golf and water sports categories “were challenged” in its general sports chains, but golf was comping positively in its Nevada Bob’s specialty golf banner.

Racquet, hockey, fitness, travel and action sports categories have all reportedly exceeded last year’s levels year-to-date.

With the renovations completed in most cases within the last four weeks, along with several other initiatives, Forzani has realized a combined positive 8.2% increase in comp sales in the first four weeks of the third quarter.  That gain reflects a 9.8% comp increase in the corporate stores and a 5.4% comp increase in the franchise business.
Sartor said Forzani, which runs 565 stores across Canada, is better managing its inventory, cutting its senior staff to reduce a complex management structure, and exploring ways to further cut expenses overall. But he was particularly encouraged that comps have turned positive in Q3 and believes several initiatives to drive sales are working. This includes emphasizing promotions “that drive multiple-unit purchases and more frequent customer calls to action.”

Sartor also said the buying team is seeking out more close-outs to display on the front page of its fliers “that really drive traffic.”
At the same time, Forzani’s inventory position is down 7% per square foot and inventory aging “is at its best condition in the history of the company.” In particular, inventories in key summer categories are all substantially down versus year-ago levels. For instance, sandal inventory is down 18.3% year-over-year. Golf inventories are down 15.8% and bike inventories are down 17.8%. In-line skates are up 0.5% but that amounts to only CN$27,000 across the corporate business. Swimwear and all swim accessories are down 22%.

Looking ahead, Sartor said that success in the all-important fourth quarter “depends on how early or late winter comes.” But he believes the company has an opportunity to show improvement in the third quarter since it is going against weak year-ago results, dragged down by a particularly poor October 2007. Forzani has purposely kept its marketing and advertising dollars and close-out inventory dollars lean in order to chase opportunities in Q3 to make up some of the sales weakness experienced from the front half of the year.

Said Sartor, “What we will continue to do as a company is drive for sales as hard as we can, without overly hurting margins, making sure that were banking gross margin dollars at turning inventories. Well carefully manage our open buying and keep inventories lean and keep them as clean as they are today.”