The Forzani Group, Ltd reported temperate weather and strong sales of 2010 Vancouver Olympics licensed apparel boosted revenues over a year-ago quarter that suffered from prolonged winter weather.

 

The Calgary-based sporting goods retailer reported adjusted earnings per share of 7 cents Canadian  (8 cents U.S.) for the quarter ended May 2, although a one-time marketing cost and an incremental stock-based compensation expense dropped Forzani to a quarterly loss of CN$691,000 ($660,000), or 2 cents Canadian (3 cents) per share.


The one-time marketing cost was related to a CN$1.9 million multi-channel advertising campaign to support the re-launch of the consolidation of Coast Mountain Sports and Atmosphere and for the subsequent opening of the first corporately-owned Atmosphere prototype store in Red Deer, Alberta.  As of the end of the first quarter, the company said it had successfully converted all Coast Mountain Sports locations into the Atmosphere banner.


Total retail systems sales, which include sales from corporate and franchise stores, improved by 6.9% for the quarter on consolidated same-store sales that surged 9.8%. In a conference call with analysts, CEO Bob Sartor said corporate comps were up 11.7% while franchise comps improved 6.3%. Sartor attributed retail growth to the aforementioned clement weather, “targeted increases in several categories” and marketing initiatives implemented during the quarter.

Specifically, management said the 11.7% comp improvement for its corporate banners was a result of a number of factors, including Forzani’s plan to increase is golf, fitness and cycling business within Sport Chek, which delivered a combined 27% comps increase in the respective categories. Secondly, the aforementioned seasonable weather positively impacted sales for all spring categories, most notably outerwear, athletic clothing, footwear and hockey equipment. Finally, the 2010 Vancouver Olympics spurred sales of licensed apparel – particularly the Team Canada hockey jersey.


Wholesale revenues for the quarter slipped 5.2% to CN$100.9 million (U.S.$98.2) from CN$106.4 (U.S.$85.7 million) a year ago. Management attributed the decline to a 7.7% drop in sales to franchisees as a result of the reduction in store count within the franchise network, most notably the conversion of nine Fitness Source locations to corporate along with the closures of Nevada Bob’s stand-alone locations as the company continues to transition Nevada Bob’s into boutiques within its Sport Chek, Intersports and Sports Experts environments. Management noted that the transition has resulted in “positive golf sales and margin improvements in an uncertain golf environment.”  Forzani added 30 Nevada Bob’s Golf boutiques to Sport Chek stores during the first quarter and plans to add a total of 38 more boutiques during fiscal 2011.


Gross margin for Q1 improved 140 basis points, an improvement management attributed to gains in the corporate retail business, “where previous improvements to the aging and mix of inventory allowed the company to avoid the discounting that was required a year earlier.”
Management also noted the continued positive results generated from the October 2009 launch of it new e-commerce initiative, sportchek.ca. With the launch, management said the company is now able to extend its retail reach to customers outside its normal trading area and provide support to the estimated 70% of Canadian consumers who research their purchases online. During the first quarter, the company also launched online customer surveys to measure service levels and assess areas for site enhancement.


Management added that Forzani has eliminated the Pegasus and Econosports banners in Quebec as brands and has completed the rollout of GNC Performance Nutrition boutiques in all of its Calgary stores. The company said it has identified 11 Alberta-based Sport Chek stores as the next test markets for GNC boutiques, with the boutiques scheduled to open during the next two quarters.


For the first four weeks of the fiscal second quarter, consolidated same-store sales were up 5.8% with comp growth of 4.3% and 8.4% in corporate and franchise banners, respectively.


Looking forward, management said the 2010 FIFA World Cup™ would likely pay big dividends for the company’s licensed business, with Sartor calling Forzani “World Cup Central” for fans around the globe. Sartor estimated Forzani’s licensed business would be “up triple digits” during World Cup competition. Management also noted extremely positive reaction to the fast-emerging toning footwear category, where Forzani is seeing “significant uptake” since introducing the product to stores in July/August of 2009.


Moreover, when asked about future acquisitions Sartor said there isn’t any current interest in brands, but added that he “would not rule out an acquisition of a retail business that has some brands that are of significant interest…”