The Forzani Group benefited from its recent Fitness Source acquisition, an extended back-to-school season, and accelerated sales trends in October to report strong third quarter sales and earnings. Without the additional revenue from Fitness Source, the retail group still reported a sales increase of 8.8% for the quarter. On a comp-store basis, the West was stronger than the East, but all regions were positive in the quarter and all categories were positive in terms of hardgoods, apparel, and footwear, with footwear as the number one category.
On the Corporate side, all four of Forzanis banners — SportMart, SportChek, Coast Mountain, and National Sports — had positive comps in the quarter. All four also had higher margins, lower marketing spend, and better expenses. One-piece hockey sticks and Crocs were both called out as strong sellers for the quarter as well as North Face, Burton, and Columbia Titanium.
The Franchise side of the business had positive comp sales and the specialty retail banners, including Nevada Bob's Golf, Hockey Experts, Pegasus, and the Fitness Source banner continue to perform “as planned.” Forzanis franchisees were said to be experiencing “record margin performance with soft comp sales.”
FGL wholesale business performed “exceedingly well” for the quarter, with strong results from both the opportunity business and licensed branded business. Management said that the top-line increase at Gen-X was “material” and the bottom-line increase was “even more material” driven by both sales and margin expansion. However, management does see the opportunity business becoming more difficult.
“The supply base has gotten very intelligent and very scientific in terms of how it manages its inventories,” said Bob Sartor, Forzanis CEO. “Gone are the days where the businesses were driven by purely, purely the marketing side. It was just a question of just keep the factories running and we will figure out how to sell it later. So you really don't see that many closeouts and it is not just this year, it is actually in the past I am going to say three years or more.”
The group was able to boost its margins through a combination of better product mix, more private label sales, and higher price-points on private label merchandise. Better inventory management also contributed to the companys material increase in profits. Inventory at the end of the quarter for corporate stores on a comp basis was up 1.8% due to advanced receipts on certain Christmas merchandise. The company expects comp inventories to be down by the end of December.
So far, Q4 has had a relatively slow comparable store sales start due to very warm weather in Eastern Canada for much of November. On the corporate side, wihere half of the companys business is in the West and half in the East, the company was able to cancel that out. In the franchise business, management said it has been “pretty tough to sell outerwear and skis when it is plus 15C and people are golfing.” In spite of the slow start, margin expansion continues into the fourth quarter and the company still has very clean inventories.
Management expects franchise store openings to be very active next year as the several new specialty banners are rolled out, such as Nevada Bob's. On the corporate side, the growth will be more moderate with four Sport Cheks as a minimum, and a couple of expansions. On a per capita basis, Forzanis square-foot concentration in Ontario is materially lower than it is in Alberta, B.C. and in Quebec. So, management feels that the most populous market in Canada is still able to show some up-side and plans to invest in it.
|Forzani Group Ltd.|
|Third Quarter Results|
|(U.S. $ millions)||2006||2005||Change*|
|Gross Profit||34.5%||33.1%||+140 bps|
|*in Canadian Dollars|