Forzani Group Sees Accelerating Trends in Fiscal Fourth Quarter

 

Canada's largest sporting goods retailer reported overall retail system same-store sales increased by 15.9% for the first five weeks of the fiscal fourth quarter, which began Nov. 1 compared to the prior year's decrease of 10.7%.

The Q4 gains have been led by outerwear (+29%) winter apparel and accessories (+47%) and footwear (+41%), where FGL has been focusing on selling more fashion forward product to better serve the women who now account for 52% of store transactions. Sales of cycling, golf, fitness equipment and hockey equipment also grew in double digits.  Comps were up at all the company’s banners, which span team, outdoor, golf and other markets and include Sport Chek, Athletes World, Sport Mart, Nevada Bob’s Golf, Hockey Experts, Intersport and Atmosphere. Executives said the November/December surge reflects a reversal in weather patterns from last October and November that will be difficult to sustain in December and January.

FGL released the figures in its third quarter earnings report, in which the Canadian sporting goods retailer disclosed that total revenue rose 3.2% to CN$393.2 million ($382 mm) in the 13 weeks ended Oct. 31 versus the year-ago period. Third quarter sales growth consisted of a 2.2% increase in Retail sales to CN$260.8 million ($253 mm) from corporate stores and a 5.2% increase in Wholesale revenues to CN$132.4 million ($129 mm). 

Consolidated retail comp store sales rose 1.2% on top of a 2.3% increase in the third quarter of 2009. The more recent gains consisted of a 3.4% comp gain at corporate stores and a 2.8% comp decline at franchise stores. FGL has been focusing in recent years on narrowing the performance gap between the two, in part by increasing sales per square foot at the Sport Chek banner through better apparel and footwear assortments for women and children.

The Q3 gains came despite the fact that FGL shifted marketing dollars from the third quarter to the first and second quarters to support the Winter Olympics, FIFA World Cup, re-branding efforts of its Atmosphere outdoor stores and the launch of a Livestrong footwear, apparel and accessories program.

“At the same time, we maintained disciplined expense control at the store level, which contributed to a 21% improvement in EBIT over the strong results achieved a year earlier,” said CEO Bob Sartor.
The Wholesale growth included a 29.0% increase in wholesale sales  at the INA international division, which introduced Diadora clothing and footwear to franchisees and improved hockey, snowboard equipment and footwear shipments to wholesale customers in Canada and the United States.

Total retail system sales, which include sales from corporate and franchise stores, rose 0.5% to CN$392.9 million ($381 mm). Executives said the company continues to make big gains in selling footwear to women and children. Sales of hiking footwear at the company’s Atmosphere outdoor chain are also growing as are sales of more technical running footwear.

Gross margin improved 40 basis points to 33.6% of sales. Store operating expenses increased 1.1%, reflecting increased accruals for performance-based compensation costs. As a percentage of retail revenues, store operating expenses fell 30 basis points to 28.1% of sales.

Same-store operating expenses were 24.1% of corporate store revenue in Q3 compared to 25.8% in Q3 last year.

Company CFO Mike Lambert said that apparel sourcing costs are rising in China, but that FGL will be able to pass those costs on because they are affecting virtually all brands and retailers.

Net income jumped 20.5% to CN$13.7 million ($13 mm). Earnings per share reached 37 cents Canadian, 0r 46 cents U.S., beating the Q3 record set in 2009.

Forzani continued to expand its shop-within-a-shop initiatives at its Sport Chek banner during the quarter by adding 41 Nevada Bob’s Golf, 27 Hockey Experts and 11 GNC concept shops, which are focusing on sport recovery and nutrition rather than body-building products. The quarter also marked the anniversary of Sportchek.ca, which now carries 10,000 SKUs. The site, which hosted 10 million unique visitors in its first year, is comping “very, very, very well,” Sartor said.

Sartor said FGL is shifting much of its marketing dollars toward building customer relationships online. The company is also forging more ties with amateur sports organizations that allow it to send promotional materials to teams and participants. Last week, for instance, it signed on as an exclusive sponsor of Canada’s Gold Medal Alpine Ski Cross teams and the Canadian Alpine Ski Cross circuit.