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)
-----------------------------------------------------------------------
Corporate and
 Franchise Retail
 Sales                   C$262,749    C$244,298   C$484,378   C$445,078
-----------------------------------------------------------------------
-----------------------------------------------------------------------
                                                                       
Revenue                                                                
  Corporate                166,666      159,604     314,510     297,012
  Franchise                 49,040       39,770     122,501      99,039
-----------------------------------------------------------------------
                           215,706      199,374     437,011     396,051
Cost of sales              142,023      128,266     295,830     261,404
-----------------------------------------------------------------------
                                                                       
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
-----------------------------------------------------------------------
                            58,210       57,333     114,832     108,784
-----------------------------------------------------------------------

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
-----------------------------------------------------------------------
                             9,162        7,913      18,150      15,522
-----------------------------------------------------------------------
                                                                    
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)
-----------------------------------------------------------------------
                             2,397        2,311       3,115       4,080
-----------------------------------------------------------------------
Net earnings for
 the period                  3,914        3,551       5,084       6,261
-----------------------------------------------------------------------
                                                                    
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            
-----------------------------------------------------------------------
Retained earnings,
 beginning of
 period, as
 restated                   79,697       51,036      78,527      48,326
-----------------------------------------------------------------------
Retained earnings,
 end of period            C$83,611     C$54,587    C$83,611    C$54,587
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Earnings per share        C$  0.13     C$  0.12    C$  0.16    C$  0.21
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Diluted earnings
 per share                C$  0.12     C$  0.11    C$  0.16    C$  0.21