The Forzani Group closed its deal to acquire Athletes World Limited last week. Forzani paid $1.5 million for the shares of Athletes World and the inter-company debt. Forzani also assumed the secured debt, which was approximately $20 million. Roughly $17 million in debt is owed to vendor partners. The 100% acquisition of Athletes World, which is headquartered in Toronto, Ontario, will be financed through existing credit facilities. In its most recently completed fiscal year, Athletes World generated $186 million in revenues, and currently operates 138 stores.
In order to maintain Athletes World's positioning and identity, FGL will maintain dedicated office staff, store employees and operational functions for Athletes World going forward. Currently, FGL management describes AWs product mix as 50% athletic and 50% “trend” or fashion-athletic. This mix is expected to carry forward.
During a conference call with financial analysts, FGL management said that they will close around 37 Athletes World locations and liquidate the inventory. Employees at these locations will be offered positions at other Athletes World stores or other Forzani retail banners. Liquidation of these stores will take place when landlord approval is obtained and when FGL has finished notifying the employees. Management would not provide an exact date, but said that it will happen in time to take advantage of the holiday season sales.
Bob Sartor, FGLs president and CEO, said that the single biggest issue with Athletes World wasn't sales or margin; it was leases that were prohibitive from a cost perspective and didn't allow them to make money. He is hoping that the CCAA process will allow FGL to correct that. Management also said that several vendors limited or completely cut off AWs credit in recent months. Now, FGLs first priority is to re-stock the overly lean inventories currently at AW.
Forzani also said that AW currently is really two separate businesses, the urban business and the rural business. As AW comes out of CCAA, it will have a smaller store base than today. That store base is expected to have a greater blend of rural stores because the stores FGL is most likely to lose will be in urban areas. Currently, Forzanis only banner that is mall-based is Sport Chek. Management said that after all AW store closures, there will still be several locations that have an Athletes World and Sport Chek in the same mall, but the product overlap is only about 50%.
Forzani management anticipates emerging from CCAA at the beginning of the second quarter of 2008, and believes that Athletes world will be accretive to earnings immediately upon emergence. However, while AW is under CCAA, it will be dilutive to earnings in Q4 2007 and Q1 2008.
