The Forzani Group Ltd. had to contend with a rising Canadian Dollar,
deep promotional discounts and warm weather in the fiscal third quarter
ended October 28, but still managed to deliver an increase in overall
retail system sales, thanks to improved results in the company’s
franchise group.

Canada’s largest sporting goods retailer reported that retail system
sales increased 1.5% to CN$344.6 million ($336.9 mm) in the third
quarter, compared to CN$339.5 million ($332.2 mm) in the year-ago
quarter.  Comparable store sales were down 2.4% in corporate
locations, but increased 3.0% in franchise locations, resulting in an
overall 0.7% decline in same-store sales.  The results are
compared to a strong 7.7% increase in the third quarter of fiscal 2007
for the combined formats.

The business in the west of Canada was said to be “up slightly,” while
the east was down.  Footwear was called out as the best performing
category, followed by hardgoods.  Softgoods was the weakest
business, due to a “very slow start to the outerwear season in October.”

In the franchise business, the comp gain came despite unseasonably warm
weather that “did impact early season sales in winter clothing and ski
and snow categories.”  Footwear, hockey, outdoor racquet sports,
athletic clothing and leisure wear all continued to post positive comp
sales in the franchise stores.  The recently acquired Fitness
Source banner has reportedly been showing “very strong comp sales”
since FGL franchised the stores early in the year.

In the specialty retailing front, the Fitness Source banner, Hockey
Experts, Atmosphere and Nevada Bob stores are all posting positive
comps for the year-to-date and management described them as
“complementary” to their general sporting goods banners.

The retailer had reported improved sales and flat margins for the
fiscal 2008 back-to-school selling season, only to see those gains
evaporate in October with “unseasonably warm weather” that management
said “hurt sales of winter hard goods and outerwear and
accessories.”  Also troubling was the rise of the Canadian Dollar,
which rose to $1.10 against a weakening U.S. currency.  Company
CEO Bob Sartor also blamed “archaic, unnecessary and expensive Canadian
import duties,” but also pointed to “wholesale pricing to Canadian
retailers” that he feels aren’t justified versus similar product
pricing in the U.S.

Mr. Sartor said that pressure put on retailers due to a “media blitz”
about charges made by the country’s Finance Minister regarding retail
price-gouging and the ensuing U.S. shopping trips taken by consumers
and Internet purchases, resulted in reduced Canadian pricing and lower
margins.

Total revenue, including corporate store sales, wholesale sales,
service income, equipment rentals, franchise fees and franchise
royalties, was CN$333.5 million ($326.0 mm), down 3.7% from Q3 last
year.

A 30 basis point decline in gross margins for the period was attributed
to an aggressive pricing strategy precipitated by the “deterioration in
the U.S. dollar throughout the quarter and the impact of a slower start
to the winter selling season” when FGL usually sees higher margins on
winter apparel.  G&A declined 250 basis points to 6.0% of
sales, due in large part to lower accruals for year-end,
performance-based compensation.  Net earnings were CN$12.6 million
($12.3 mm), or CN 36 cents per share (35 cents), compared to the prior
year's third quarter of CN$11.9 million ($11.6 mm), or CN 35 cents (34
cents) per share.

Comp inventory at the end of Q3 was up 1% due to outerwear, but FGL expects to end the year with negative comp inventory.

For the fourth quarter-to-date through the first five weeks, comps were
up 4.9% versus flat comps for the same period last year, while
franchise store comp sales jumped 16.7%.  The sales increases have
been led by Saskatchewan, Manitoba and Ontario.  Outerwear is now
leading the category gains as weather turned more seasonal, followed by
footwear and clothing.  Hardgoods was the weakest category for the
five-week period.  The margin rate was down, but total margin
dollars are up due to a comp sales increase. Gift card sales for the
first five weeks of Q4 were up about 10%.

During the quarter, FGL opened one Sport Mart and two corporate Nevada
Bob's Golf stores and acquired eight Nevada Bob's Golf stores from a
former franchisee. In the franchise division, two stores were opened
(one Sports Experts and one Econosport) and three stores closed (two
Nevada Bob's Golf and one Buying Member), while eight Nevada Bob's Golf
stores were acquired by the company.  As a result, at the end of
the third quarter, the company had 271 corporate stores and 219
franchise locations. The company had 490 stores in operation at
quarter-end, a net gain of 20 doors versus the same time last year.