The Forzani Group Ltd. reported that retail system sales for the first quarter ended May 2 grew by 2.8% to C$227.7 million compared to C$221.6 million for the same period of the previous year. Combined revenues from corporate and franchise divisions increased by C$7.3 million or 3.3% over the first quarter of last year.
During the quarter, total Company comparable store sales decreased 1.7%. Overall, franchise comparable store sales were down 1.0% against strong first quarter increases in the prior year of 11.1% and, corporate comparable store sales decreased 2.1%, driven primarily by a more price competitive Ontario market.
The Company experienced stronger margins at 31.0% of consolidated revenues, a 50 basis point increase on the prior year and continued its tight management of costs. And, as a result net earnings for the quarter increased 37.8% to C$1.612 million versus the prior year of C$1.170 million. On a fully diluted per share basis, earnings per share increased to C$0.05, from C$0.04 in the prior year.
Commenting on the results, CEO Bob Sartor stated, “As expected, price deflation was evident in all markets, but especially in Ontario. Overall, however, we are quite pleased with our unit sales. Unit sales in our stores were up 5.1% for the quarter, which will translate, again, into increased market share for the Company. We are pleased with the improvement in consolidated margins and our continued focus on cost management, which entirely mitigated the sales pricing pressure and drove the increase in earnings for the quarter. The growth in margin rate had also been expected, as more and better closeouts and private brand sales, along with less liquidation of inventory this past quarter due to our lean, fresh inventory position, combined to boost margins. We expect to be able to sustain growth in our margins as the year progresses and the full impact of our margin enhancing initiatives take hold. As for the cost management, it was a continuation of the great performance the Co
mpany has always exhibited on the cost side of the business. Finally, we believe the Company's strong balance sheet provides a good platform from which to compete in this more difficult retail environment.”
During the quarter, the Company opened 2 corporate stores (1 Sport Chek and 1 Sport Mart) and closed 2 corporate stores (1 Sport Mart and a clearance centre operating under the Intersport banner). In the franchise division, 1 store was opened (Econosport) and 1 store was closed (Intersport). In addition, during the first quarter, the Company assumed the operation of, and liquidated the inventory of, four stores previously operated under the Columbia Mountain Shops banner. Three of these locations have been closed and the fourth location will be closed by the end of June, 2004. As a result, at the end of the first quarter, the Company had 221 corporate stores and 174 franchise locations. This was a net increase of 30,485 square feet of retail selling space, a 0.7 % increase versus the previous quarter. The Company now has 395 stores from coast to coast (fiscal 2004 – 368 stores).
For the first three weeks of the second quarter of fiscal 2005, combined comparable store sales decreased 3.5%, with corporate comparable store sales up 1.2% and franchise comparable store sales down 10.6%.
THE FORZANI GROUP LTD.
Consolidated Statements of Operations and Retained Earnings
(in Canadian thousands, except per share data)
(unaudited)
For the thirteen weeks ended
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May 2, May 4,
2004 2003
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Corporate and Franchise Retail Sales $ 227,735 $ 221,629
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Revenue
Retail $ 150,552 $ 147,844
Wholesale 78,075 73,461
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228,627 221,305
Cost of sales 157,757 153,807
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Gross margin 70,870 67,498
Operating and administrative expenses
Store operating 44,795 42,929
General and administrative 13,438 13,237
Stock-based compensation 766 456
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58,999 56,622
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Operating earnings before undernoted items 11,871 10,876
Amortization 8,411 7,564
Interest 921 1,424
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9,332 8,988
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Earnings before income taxes 2,539 1,888
Income tax expense (recovery)
Current 904 993
Future 23 (275)
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927 718
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Net earnings for the period $ 1,612 $ 1,170
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Retained earnings, beginning of period 106,330 78,527
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Retained earnings, end of period $ 107,942 $ 79,697
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Basic and diluted earnings per share $ 0.05 $ 0.04
