The Forzani Group Ltd. reported third quarter net earnings of $6.4 million, 20 cents per diluted share, versus $5.9 million, 18 cents per diluted share, a year earlier.
The results for the prior year have been restated in compliance with the Canadian Institute of Chartered Accountants (CICA) requirement for the adoption of a new guideline, more fully described below, – Accounting by a Customer for Certain Consideration Received from a Vendor, which is effective for periods ending after August 15, 2004.
In the absence of the impact of the adoption of this new accounting guideline, diluted earnings per share would have been $0.23 per share in both the current and prior year’s third quarters.
Retail system sales for the 13 weeks ended October 31, 2004 were $257.5 million, a $3.1 million decrease from sales for the 13 weeks ended November 2, 2003 of $260.6 million.
Revenue, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, was $265.7 million, a $15.5 million, or 6.2% increase over the 13-week period last year. Combined gross margin for the 13 weeks ended October 31, 2004 was down 140 basis points to 31.1% of revenue, from 32.5% in the prior year. This is due, primarily, to the change in the weighting of the retail sales versus wholesale components of total revenue, 66% retail and 34% wholesale in fiscal 2005 compared to 72% and 28%, respectively, in fiscal 2004. Retail sales generate a greater gross margin percentage than do wholesale sales, therefore, a decrease in the retail component of revenue will generally reduce the overall gross margin percentage. In absolute dollars, the combined gross margin increased $1.1 million, to $82.5 million, from the 13-week period last year.
Comparable store sales from corporate locations were down 4.4%, driven largely by soft sales in the early weeks of the quarter and the increased competitive environment, specifically in Ontario. Franchise comparable store sales were flat. On a combined basis, comparable store sales were down 3.0%. On a year-to-date basis, comparable sales in corporate stores decreased 3.9%, while franchise stores increased 0.5%, with total comparable retail system sales decreasing 2.4%.
Diluted earnings per share for the 13-week period ended October 31, 2004 were $0.20, compared to $0.18 in the prior year. Diluted earnings per share for the 39-week period ended October 31, 2004 were $0.30, compared to $0.37 in the prior year. Year to date cash flow from operations(1) increased to $35.6 million from $28.3 million. On a per share basis, cash flow increased 19.8% to $1.09 compared to $0.91 the prior year.
Bob Sartor, C.E.O. of the Company commented, “The retail sporting goods industry continues to be challenging and highly competitive, particularly in Ontario. In this environment, our Company has been able to maintain earnings through strengths in our wholesale business and by carefully managing costs.”
During the quarter, the Company opened 9 corporate stores (1 Sport Chek and 8 Sport Mart) and closed 1 corporate store (Sport Chek). In the franchise division, 1 store was closed (Intersport). As a result, at the end of the third quarter, the Company had 226 corporate stores and 173 franchise locations. This was a net increase of 60,073 square feet of retail selling space, a 1.3% increase versus the previous quarter. The Company now has 399 stores from coast to coast (fiscal 2004 – 387 stores).
THE FORZANI GROUP LTD.
Consolidated Statements of Operations and Retained Earnings
(in thousands, except per share data)
(unaudited)
For the thirteen For the thirty-nine
weeks ended weeks ended
October 31, November 2, October 31, November 2,
2004 2003 2004 2003
(restated) (restated)
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Revenue
Retail 176,013 179,178 489,271 493,688
Wholesale 89,713 70,986 221,451 193,487
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265,726 250,164 710,722 687,175
Cost of sales 183,152 168,796 479,315 463,025
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Gross margin 82,574 81,368 231,407 224,150
Operating and
administrative expenses
Store operating 47,108 46,537 136,725 133,838
General and administrative 14,436 15,759 45,854 42,238
Stock-based compensation 714 557 2,273 1,608
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62,258 62,853 184,852 177,684
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Operating earnings before
undernoted items 20,316 18,515 46,555 46,466
Amortization 8,731 7,791 25,675 23,056
Interest 1,522 1,239 3,462 4,125
Write-down of investment - - 1,814 -
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10,253 9,030 30,951 27,181
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Earnings before income
taxes 10,063 9,485 15,604 19,285
Income tax expense
(recovery)
Current 1,145 6,406 3,929 9,960
Future 2,528 (2,802) 1,768 (2,633)
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3,673 3,604 5,697 7,327
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Net earnings for
the period 6,390 5,881 9,907 11,958
Retained earnings,
beginning of period
(restated) 104,800 79,280 101,283 73,203
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Retained earnings, end of
period $ 111,190 $ 85,161 $ 111,190 $ 85,161
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Earnings per share $ 0.20 $ 0.19 $ 0.30 $ 0.38
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Diluted earnings
per share $ 0.20 $ 0.18 $ 0.30 $ 0.37
