Benefiting from “outstanding winter conditions” 
and an aggressive markdown posture, The Forzani Group Ltd. reported a 36% hike in Q4 earnings on a 13% consolidated comp gain.
Canada's largest sporting goods retailer reported that retail system sales increased 19.2% to CA $524.7 million (US$514.8 million) in the fourth quarter from last year's CA$440.2 million (US$430.4 million).
Same-store sales in corporate locations were up 10.6% and up 17.7% in franchise locations. Last year's Q4 results showed a 1.1% gain on the corporate side and negative 2.9% on the franchise side. All categories generated positive growth numbers in both franchise and corporate businesses in footwear, apparel, and equipment categories.
“Of particular note was our exceptional performance in ski and snowboard as a result of the phenomenal winter we had,” said Tom Quinn, Forzani president, corporate & franchise retail, on a conference call with analysts. “Hockey, golf, racket sport, footwear, and total apparel business all increased considerably on a comp store basis.”
Consolidated gross margins for the quarter were 40.0%, 120 basis points below last year. But the aggressive pricing stance was planned given the continued strength of the Canadian dollar.
“With the strong Canadian dollar and the speculation of increased cross-border and Internet shopping, we seized the opportunity to remind Canadians that great deals can be had at home and in our stores,” said Bob Sartor, Forzani's CEO, on the call.
Corporate store operating expenses as a percent of retail revenues were 21.9% against the prior year's 21.8%. G&A expenses were 8.6% of consolidated revenues versus 9.8% in the prior year. The bottom line also benefited from a reduced tax rate.
Net earnings rose to CA $28.7 million (US$28 million), or 85 cents a share, up from CA $21.09 million, (US$20.5 million), or 62 cents, a year ago. The acquired Athletes World chain had a negative impact on earnings for the quarter of something less than CA $300,000 (US$293k), or about CA one cent a share.
Quinn said Forzani's franchise stores continue to see steady growth and “continues to be a very financially healthy network.” He particularly cited an “exceptional performance” from some of its specialty banners such as Atmosphere, Fitness Source, and Nevada Bob's.
Forzani will be renovating a number of its Sport Chek stores, particularly in the apparel areas, where the company saw a marked improvement in the test of new layouts and fixtures initiated in this past year. Sport Chek will also introduce a number of brand shops with Under Armour, The North Face, Nike, Columbia Sportswear, and adidas in coming months. Where space allows, several Nevada Bob's Golf shops-in-shops will open within Sport Chek during June.
Forzani has also been testing a concept, entitled S3, representing snow, skate and surf and targeting a younger demographic, and they've been “performing well above expectations,” according to Quinn. Two additional S3 stores will open in 2009 with more aggressive expansion planned for 2009.
Overall, Forzani is adding 15 corporate and 23 franchise locations this year, in addition to the 70-plus Athletes World stores acquired last year. Quinn said this will add approximately 550,000 square feet to its real estate base, which will now total over 6.5 million square feet in with an average of 4 million consumer visits per week.
Inventories have “never been in better shape” as a result of the strong Q4 sell-throughs. On the downside, low inventories have impacted comp results at the start of this year, particularly in winter sports categories, especially given the prior year's aggressive liquidation efforts.
For the first eight weeks of the fiscal first quarter, comps from corporate stores were down 8.0% and franchise same store sales decreased 4.3% for an overall retail system sales decline of 6.6%. Corporate margins rose versus prior year as a result of cleaner winter inventories.
On the positive side, Quinn said he was encouraged that this past eight weeks the retailer had comp sales increases in its cycling, footwear, summer and athletic clothing, golf, inline skates, team sports, and racket sport categories. Its Nevada Bob's Golf banner is showing double-digit positive comps to date for the spring.
“Over the past nine days, our comp sales have been significantly more positive, and we anticipate a strong performance in our spring and summer categories in the… quarter,” said Quinn.
Sartor estimated the early Easter reduced comps by 3% over the eight weeks. But, he was encouraged by strong sales of key summer categories – bicycles, golf, inline skates, team sports and athletic apparel. He also noted that Q1 represents less than 3% of the companys EPS target.
