Forzani Group Third Quarter Net Jumps on Weather-Aided Sales Boost

On a conference call with analysts to discuss the quarterly results, company CEO Bob Sartor said the retailer is still facing a cautious consumer.  “I can tell you that our experience is that the consumer is buying based on need, not want, and buying very close to the time of use,” said Sartor. “We experienced some favorable weather at the tail end of the quarter, especially late in October, which really encourages sales. The good news is that obviously our mix is working.”

Another positive, according to Sartor, was that the weather-driven success also underscored that Forzani's banners “have a reputation that when it gets cold and snowy, we are the place to go for product that will protect you from the elements.”

The Q3 sales gain reflected a 7.0% gain in Wholesale system sales to third parties and the retailer’s franchise network, which management said was driven by continued restocking initiatives on the part of the franchisees after they had previously allowed their inventories to drop significantly in anticipation of weak consumer demand.

Corporate retail store sales grew 4.1% to CN$255.3 million (US$238 mm) due to improved consumer demand and favorable September and October weather.  Total Retail system sales, which include sales from corporate and franchise stores, grew 2.7% to CN$391.1 million (US$364 mm).

On the call, President and COO Tom Quinn said sales of weather sensitive products responded well to favorable weather trends during the quarter, mainly in October. Positive comps were seen in both corporate and franchised banners without undue promotional pricing. The notable exceptions to the positive trend were discretionary hard good winter categories, such as new ski equipment. Said Quinn, “We believe this is a result of continued consumer caution.”  Improved store standards due to investments in training are also helping drive the improved performance, Quinn said.

Quinn also noted that efforts at increasing its apparel business resulted in positive comps in the category during the quarter, with strength particularly in weather-sensitive categories. The transition of freestanding Nevada Bob's Golf stores to in-store shops in Sport Chek, Intersport and Sports Experts stores has resulted in positive golf sales and margin improvements despite the difficult golf environment. Thirty Nevada Bob's boutiques have been placed into its Sport Chek stores. A focus on apparel, accessories and footwear is also bolstering the golf category.

Both Athletes World and National Sports continued to achieve positive sales gains in the quarter, and both banners are contributing positively to the bottom line, according to Quinn.

Sartor said the Sport Mart banner migration is complete and is expected to reduce costs and streamline processes. Its Coast Mountain Sports locations will be converted into the Atmosphere banner in March 2010. The Econosports franchise banner was eliminated.

E-commerce at Sportchek.ca was launched through GSI Commerce in the third quarter and the website is experiencing more than 20,000 unique visitors a day. Conversion rates on the site have steadily increased and Sartor said the company “definitely seeing Christmas-type sales online.”

Gross margins improved 110 basis points to 34.4% of sales as Forzani did not need to aggressively reduce prices to maintain sales momentum as it had in the prior year's quarter when the global financial crisis first hit. Margins improved in both the Retail and Wholesale businesses.
Same store operating expenses grew to 25.6% of corporate store revenue compared to 24.8% in the prior year, reflecting additional corporate locations and the conversion to corporate ownership of nine formerly franchised Fitness Source locations. 

Looking ahead, comps for the first five weeks of the fourth quarter declined 8.6% for corporate locations, against last year's increase of 0.1%, and decreased 14.2% for franchise stores, compared with a prior year increase of 6.2%. Overall retail system comps decreased 10.7% versus a 2.4% increase a year ago. The decline was primarily attributed to unseasonably mild weather experienced in November. The firm noted sales have picked up lately as the weather has improved in many parts of the country.

Sartor nonetheless said a portion of the weak start to the fourth quarter can be traced to consumer caution largely to do unemployment concerns.

“I honestly believe retailers and consumers are playing a waiting game right now. And that waiting game is the consumers are waiting until the last possible minute to buy,” said Sartor.