The Forzani Group Ltd. reported net earnings for the fiscal second quarter ended August 1 were C$2.6 million, or 8 cents per diluted share, versus C$3.9 million, or 12 cents per diluted share, in the year-ago period. FGL took a four cents write-down of a passive investment in Huffy Corporation during the quarter. Excluding the write-down earnings from operations were C$3.8 million, or 12 cents per diluted share, in the most recent quarter.
Retail system sales for the 13 weeks ended August 1, 2004 were C$256.4 million, a C$6.3 million decrease from sales for the 13 weeks ended August 3, 2003 of C$262.7 million. Comparable sales in corporate stores decreased 4.6%, while franchise stores decreased 4.1%, with total comparable retail system sales decreasing 4.4%. The decrease in comparable store sales was primarily weather related, with this summer being much cooler than in the prior year, however, the Company was able to improve margins over the prior year, increasing 240 basis points to 36.6% due to improved merchandising and a fresher product mix. This resulted in absolute gross margin dollars of C$79.1 million versus C$73.7 million in the prior year.
As previously noted, during the quarter ended August 1, 2004, the Company reviewed the carrying value of its investment in Huffy .The initial investment resulted from the purchase, in fiscal 2003, by Huffy, of a company in which FGL held an investment. That transaction resulted in, a pre-tax gain of C$1.4 million, and the holding of Huffy shares by FGL. As a result of reviewing the carrying value of its remaining investment in Huffy, the Company determined that a decline in the value of this investment, that is other than temporary has occurred and, as a result, has recorded a pre-tax write-down in the amount of C$1.8 million against the carrying value of the investment. The remaining investment is valued at C$0.4 million.
General and administrative expenses were 8.3% of total revenue or C$18.0 million versus C$13.2 million in the same period last year. This increase in expenses was driven primarily by the addition of administrative costs associated with the acquisition of Gen-X Sports Inc. in the first quarter and by start-up costs associated with the Company's new distribution centre.
Exclusive of the investment write-down, earnings before income taxes for the 13 weeks ended August 1, 2004 were C$6.0 million, or 2.8% of revenues, compared to C$6.3 million, or 2.9% of revenues, for the 13-week period in the prior year. Diluted earnings per share for the 13-week period ended August 1, 2004, excluding the write down, were C$0.12, compared to C$0.12 in the prior year.
After accounting for the write down of the investment, earnings before income taxes for the 13 weeks ended August 1, 2004 were C$4.2 million, or 1.9% of revenues, compared to C$6.3 million, or 2.9% of revenues, for the 13-week period in the prior year. Diluted earnings per share for the 13-week period ended August 1, 2004 were C$0.08, compared to C$0.12 in the prior year.
Retail system sales for the 26 weeks ended August 1, 2004 were C$484.2 million, a C$0.2 million decrease from sales for the 26 weeks ended August 3, 2003 of C$484.4 million. Comparable sales in corporate stores decreased 3.6%, while franchise stores decreased 0.7%, with total comparable retail system sales decreasing 2.6%.
Revenue was C$445.0 million, an C$8.0 million, or 1.8% increase over the 26-week period last year. Combined gross margin for the 26-week period ended August 1, 2004 was up 140 basis points to 33.7% of revenue, from 32.3% in the prior year. In absolute dollars, the combined gross margin increased C$8.8 million, to C$150.0 million, from the 26-week period last year.
Exclusive of the previously mentioned investment write-down taken in the second quarter, earnings before income taxes for the 26 weeks ended August 1, 2004 were C$8.5 million or 1.9% of revenues compared to C$8.2 million, or 1.9% of revenues in the prior year. Basic and diluted earnings per share for the 26-week period ended August 1, 2004, excluding the write down, were C$0.17 compared to C$0.16 in the prior year.
Earnings before income taxes for the 26 weeks ended August 1, 2004, after taking into account the investment write down, were C$6.7 million, or 1.5% of revenues, compared to C$8.2 million, or 1.9% of revenues, for the 26-week period in the prior year. Diluted earnings per share for the 26-week period ended August 1, 2004 were C$0.13, compared to C$0.16 in the prior year. Cash flow from operations increased to C$20.4 million from C$17.2 million. On a per share basis, cash flow increased 14.5% to C$0.63 compared to C$0.55 the prior year.
THE FORZANI GROUP LTD.
Consolidated Statements of Operations and Retained Earnings
(in thousands, except per share data)
(unaudited)
For the thirteen For the twenty-six
weeks ended weeks ended
August 1, August 3, August 1, August 3,
2004 2003 2004 2003
-----------------------------------------------------------------------
Corporate and Franchise
Retail Sales $ 256,423 $ 262,749 $ 484,158 $ 484,378
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Revenue
Retail 162,706 166,666 313,258 314,510
Wholesale 53,663 49,040 131,738 122,501
-----------------------------------------------------------------------
216,369 215,706 444,996 437,011
Cost of sales 137,240 142,023 294,997 295,830
-----------------------------------------------------------------------
Gross margin 79,129 73,683 149,999 141,181
Operating and
administrative expenses
Store operating 44,823 44,372 89,617 87,301
General and administrative 17,980 13,243 31,418 26,480
Stock-based compensation 793 595 1,559 1,051
-----------------------------------------------------------------------
63,596 58,210 122,594 114,832
-----------------------------------------------------------------------
Operating earnings before
undernoted items 15,533 15,473 27,405 26,349
Amortization 8,533 7,700 16,945 15,264
Interest 1,019 1,462 1,940 2,886
Write-down of investment 1,814 - 1,814 -
-----------------------------------------------------------------------
11,366 9,162 20,699 18,150
-----------------------------------------------------------------------
Earnings before income taxes 4,167 6,311 6,706 8,199
Income tax expense (recovery)
Current 1,879 2,561 2,783 3,554
Future (358) (164) (335) (439)
-----------------------------------------------------------------------
1,521 2,397 2,448 3,115
-----------------------------------------------------------------------
Net earnings for the period 2,646 3,914 4,258 5,084
Retained earnings,
beginning of period 107,942 79,481 106,330 78,311
-----------------------------------------------------------------------
Retained earnings, end of
period $ 110,588 $ 83,395 $ 110,588 $ 83,395
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Earnings per share $ 0.08 $ 0.13 $ 0.13 $ 0.16
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Diluted earnings per share $ 0.08 $ 0.12 $ 0.13 $ 0.16
