The Forzani Group is still riding the momentum it built in the back half of last year with an extensive renovation initiative and heavy advertising spend to support the new look of its Sport Chek stores. The company has not only boosted its top-line with these initiatives, but also implemented several new programs to improve inventory management, planning, and gross margins. FGL is ramping up its efforts on the franchise side of the business as well, revealing expansion plans that will add 200,000 square feet of retail this year.
Corporate stores reported a comp sales increase of over 12% with double-digit comps in footwear, apparel, and equipment. All store banners and all provinces reported positive comps for the quarter with the West showing stronger results than the East. Comparable inventories are down 5% with most of the benefit coming from strong winter goods sell-through. During a conference call with analysts and the media, Forzanis COO Bill Gregson said that winter inventories were down “well into the double-digits” in all of the major categories.
Forzanis new inventory replenishment system and planning systems are coming up on their one year anniversary and the company has them running at almost peak efficiency. There is still some up-side to be had from the newly implemented allocation systems, which went live last week for the first time. Forzani will be running its manual allocation system in tandem with the new software to insure its reliability.
Gregson also called out several brands and categories that have recently been added to Forzanis mix and are helping to drive the comp-sales increases. Under Armour, Columbia, and The North Face have been helping the apparel side while Merrell is boosting footwear. The expansion of camping has also helped, but the most unusual development is that in-line skates were said to be a “surprisingly good category.” Management also said that they were very pleased with their adidas World Cup promotional partnership and they expect to be sold out of World Cup merchandise before the end of the tournament.
Forzani appears to be segmenting their full-line sporting goods banners with Sport Mart filling the value end of the spectrum and Sport Chek filling the premium end.
The only weakness Forzani has shown is its Gen-X business and its opportunity close-out buying business. Gen-X is suffering from a “timing issue on the foreign exchange side of things,” although the brands are showing “good sell-through.” The opportunity business was described as “feast or famine” and management said that there will be no issues in Q2 or Q3.
On the franchise end, Nevada Bobs Golf had “very strong” comp sales increases to boost the entire franchise division to a 6% comp sales increase. The company will be opening at least 26 stores this year under the Sports Experts, Atmosphere, Nevada Bobs, Pegasus, and Hockey Experts banners. The company also expects additional independent golf retailers to convert to the Nevada Bobs format by the end of the year. Finally, the franchise division is “aggressively pursuing” new multi-banner locations.
Looking forward, management feels that the company is currently doing well, but has not fully realized the potential from all of their initiatives. CEO Bob Sartor said that the organization as a whole “can do better.” The company is showing strong performances so far for the first four weeks of Q2. Comparable store sales from corporate stores grew by 7.8% and franchise comparable store sales increased 11.6%, with “strong” margins.
|Forzani Group Ltd.|
|First Quarter Results|
|(U.S. $ millions)||2006||2005||Change*|
|Gross Profit||32.1%||29.0%||+310 bps|
|Net Income||$0.3||($6.0)||vs. loss|
|Diluted EPS||1¢||(19¢)||vs. loss|
|*change in Canadain Dollars|