The Forzani Group Ltd. reported that retail system sales for the second quarter of fiscal 2004 grew 7.5% to C$262.7 million compared to C$244.3 million for the same period of the previous year. Combined revenues from corporate and franchise divisions increased 8.2% or C$16.3 million to C$215.7 million.
During the quarter, total Company comparable store sales were up slightly at 0.1% in a retail environment that remains somewhat challenging. Overall franchise comparable store sales were up 3.0%, while corporate comparable store sales were down 1.5%. Gross margins of 34.2% were down 150 basis points, a reflection of the change in the mix of corporate and franchise revenues and of increased competitive activity, particularly in clothing, however, the margin softness was mitigated by strong expense controls. Operating and administrative expenses of C$58.2 million were down 180 basis points from the prior year.
As a result, earnings, before interest, taxes, depreciation and amortization (“EBITDA”), increased, as a percentage of revenue, 30 basis points to 7.2%, compared to 6.9% for the same period in the prior year. Net earnings increased 10.2% to C$3.9 million.
The Company reported an increase in the second quarter diluted earnings per share of C$0.12 versus C$0.11 last year, despite the negative impact of the Company's decision to expense options directly in the income statement (tax effected C$437,000 or C$0.01 per share, in the second quarter of fiscal 2004). Adjusting for this item, diluted earnings would have been C$0.13 versus C$0.11 in the previous year.
Commenting on the results, CEO Bob Sartor stated, “In what has proven to be a difficult retailing environment, the Company performed well, particularly against the benchmark U.S. sporting goods sector which aggregated a comparable store decrease of 1.4% in the most recently reported quarterly results. Further, recognizing that the margin pressure felt in the first quarter would be sustained through the second quarter, we aggressively managed expenses downward to achieve our targets for the quarter. We have now entered the back-half of the year with fresh inventories, a healthy balance sheet and a very strong promotional plan.”
During the quarter, the Company opened 6 corporate stores (1 Coast Mountain Sports, 2 Sport Mart and 3 Sport Chek). In the Franchise division, 8 stores were opened (4 Atmosphere, 1 Sports Experts, 1 Econosports, 1 Intersport and 1 Buying Member), and 2 franchise stores were closed. As a result, at the end of the second quarter, the Company had 205 corporate stores and 175 franchise locations. This was a net increase of 151,776 square feet of retail selling space.
The Company will disseminate a full “Back-to-School” sales and comparable store sales press release at the end of September, 2003, after the Back-to-School period.
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 3, July 28, August 3, July 28,
2003 2002 2003 2002
(restated) (restated)
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Corporate and
Franchise Retail
Sales C$262,749 C$244,298 C$484,378 C$445,078
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Revenue
Corporate 166,666 159,604 314,510 297,012
Franchise 49,040 39,770 122,501 99,039
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215,706 199,374 437,011 396,051
Cost of sales 142,023 128,266 295,830 261,404
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Gross margin 73,683 71,108 141,181 134,647
Operating and
Administrative expenses
Store operating 44,372 42,438 87,301 81,968
General and
administrative 13,243 14,750 26,480 26,599
Stock-based compensation 595 145 1,051 217
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58,210 57,333 114,832 108,784
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Operating earnings
before undernoted
items 15,473 13,775 26,349 25,863
Amortization 7,700 6,684 15,264 13,270
Interest 1,462 1,229 2,886 2,252
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9,162 7,913 18,150 15,522
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Earnings before
income taxes 6,311 5,862 8,199 10,341
Income tax expense
Current 2,561 2,493 3,554 4,416
Future (164) (182) (439) (336)
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2,397 2,311 3,115 4,080
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Net earnings for
the period 3,914 3,551 5,084 6,261
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Retained earnings,
beginning of
period, as
previously
reported 79,697 51,079 78,857 48,326
Change in
accounting policy
for stock-based
compensation 43 330
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Retained earnings,
beginning of
period, as
restated 79,697 51,036 78,527 48,326
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Retained earnings,
end of period C$83,611 C$54,587 C$83,611 C$54,587
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Earnings per share C$ 0.13 C$ 0.12 C$ 0.16 C$ 0.21
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Diluted earnings
per share C$ 0.12 C$ 0.11 C$ 0.16 C$ 0.21
