Shares of Forzani Group Ltd. fell 13.1% last week to close at C$16.51 on Friday after Canadas largest sporting goods retailer reported sharply lower earnings for fiscal third quarter and lowered earnings estimates for the balance of the year.
Total retail system sales for Q3 grew 6.0% to C$260.6 million and combined revenues, consisting of retail sales from corporate stores and wholesale sales to franchisees increased by 2.6% to C$250.2 million. Comparable store sales from corporate stores were down 2.3% while franchise comparable store sales were up 2.6% as a result of strong results in Quebec where most of those stores are located. On a combined basis, comparable store sales were down 0.9%.
Net income fells 25.1% to C$7.5 million, or 23 Canadian cents per diluted share from C$10.0 million or 31 Canadian cents per diluted share, in the prior year.
Like its competitors in the States, Forzani is pointing to weakness in the casual apparel category for much of the decline in profits as the company moved to mark down goods and reduce “future dependence on casual clothing for sales growth”. The company feels they have “cleansed” their inventories of the casual goods and are better positioned moving into fourth quarter.
The retailer also cited warmer October weather that negatively impacted winter product sales, but more seasonal temperatures in November pushed fourth quarter-to-date comp store sales up 3.9% and corporate margins were said to have returned to historical levels as they replace reduced casual clothing sales with sales of technical athletic clothing, footwear and equipment. Franchise comps are flat in the QTD period.
Unfortunately, the improving Q4 results are not expected to offset the negative trends through the first nine months of the year. FGL now expects earnings in the C$1.01 to C$1.05 range, down from the previous estimate of C$1.35 per diluted share, but still up from the C$0.96 recorded last year.
