The Forzani Group Ltd. reported retail system sales for the third quarter were $307.6 million, an increase of $50.2 million, or 19.5% from $257.4 million. The increase was partly due to the addition of the Nevada Bob's franchise retail sales and the National Sports corporate retail volume, a result of their acquisition by FGL. Exclusive of these acquisitions, the existing retail business generated system retail sales of $279.0 million, an 8.4% increase over last year.
Revenue, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, was $305.4 million, up $39.7 million, or 14.9% over the comparable period last year. Again, this was partly driven by the Nevada Bob's and National Sports revenues. Excluding these two, revenues were $283.1 million, a 6.5% increase over the prior year. Comparable store sales from corporate stores were up 3.2%, while franchise comparable store sales increased by 8.1%. The corporate store performance was a combination of positive comparable store sales of 4.2% in the Sport Chek / Coast Mountain Sports banners, and a decline of 0.9% in the Sport Mart banner.
Combined gross margin for the 13 weeks ended October 30, 2005 was 33.1% of revenue, or $101.1 million, up from 31.1%, or $82.6 million in the previous year. The margin rate improvement was driven principally by results in the hockey equipment, athletic/casual/outdoor clothing, and footwear categories.
Store operating expenses, at 26.9% of corporate store revenues were flat with the prior year. The absolute dollar increase, from $47.4 million in fiscal 2005, to $56.5 million in fiscal 2006, was due to the addition of 19 National Sports stores coupled with the opening, in the past year, of 11 corporate stores (net of closings).
General and Administrative (“G&A”) expenses, at $23.0 million, were 7.5% of revenues versus $15.2 million or 5.7% in the prior year. Exclusive of the impact of National Sport expenses, comparable G&A costs were 7.2% of revenues, the increase primarily a result of the timing of, and focus on, advertising spend during the quarter as the Company moved to drive sales and margins.
The Company recorded earnings of $6.5 million for the third quarter, or $0.20 per share, an 11.1% increase, compared to $0.18 per share in the prior year.
Retail system sales for the 39 weeks ended October 30, 2005 were $872.5 million, a $130.9 million increase from sales for the 39 weeks ended October 31, 2004. As mentioned above, this is primarily a result of the acquisition of National Sports in the first quarter of fiscal 2006 and the addition of Nevada Bob's franchise retail. Comparable sales in corporate stores increased 0.2%, while franchise stores increased 7.2%, with total comparable retail system sales increasing 2.5%.
Revenue was $787.2 million, a $76.5 million, or 10.8% increase over the 39-week period last year. Combined gross margin for the 39 weeks ended October 30, 2005 was 32.2% of revenue, versus 32.6% in the prior year. In absolute dollars, the combined gross margin increased $22.0 million, to $253.4 million, from the 39-week period last year.
Store operating expenses, as a percent of corporate revenue, were 28.7% versus 28.1% in the prior year. General and administrative expenses were 7.6% of total revenue versus 6.8% in the prior year.
Basic and diluted earnings (loss) per share for the 39-week period ended October 30, 2005 were ($0.10), compared to $0.27 in the prior year. Cash flow from operations decreased from $35.6 million to $19.8 million. On a per share basis, cash flow was $0.60 compared to $1.09 the prior year.
“The progress in our corporate businesses, during the quarter, was a clear indication that the revitalization projects at both Sport Chek and Sport Mart are delivering results. The increase in earnings, despite costs of $0.02 per share incurred, in the quarter, as part of the Sport Mart revitalization, and the increased repositioning of a media spend of $0.04 per share, indicate a strong earnings momentum which continues 5 weeks into the all important fourth quarter.”
During the quarter, the Company opened 2 Sport Chek stores, closed 2 Sport Mart stores and assumed the operation of 1 franchise store. In the franchise division, 3 stores were opened (1 Nevada Bob's, 1 Intersport and 1 Atmosphere), 1 Buying Member store closed and 1 franchise store was assumed by corporate. As a result, at the end of the third quarter, the Company had 256 corporate stores and 198 franchise locations. This was a net increase of 53,958 square feet of retail selling space, a 1.0% increase versus the previous quarter. The Company now has 454 stores from coast to coast (Q3, Fiscal 2005 – 399 stores).
THE FORZANI GROUP LTD.
Consolidated Statements of Operations and Retained Earnings
(in thousands, except per share data)
(unaudited)
For the thirteen For the thirty-nine
weeks ended weeks ended
------------------------------------------------------------------------
October 30, October 31, October 30, October 31,
2005 2004 2005 2004
(restated) (restated)
------------------------------------------------------------------------
Revenue
Retail $ 210,262 $ 176,013 $ 568,348 $ 489,271
Wholesale 95,126 89,713 218,872 221,451
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305,388 265,726 787,220 710,722
Cost of sales 204,260 183,152 533,866 479,315
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Gross margin 101,128 82,574 253,354 231,407
Operating and
administrative
expenses
Store operating 56,461 47,379 163,200 137,565
General and
administrative 22,998 15,150 59,878 48,127
------------------------------------------------------------------------
79,459 62,529 223,078 185,692
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Operating earnings
before undernoted
items 21,669 20,045 30,276 45,715
Amortization 9,789 9,006 30,513 26,477
Interest 1,598 1,522 4,820 3,462
Write-down of investment - - - 1,814
------------------------------------------------------------------------
11,387 10,528 35,333 31,753
------------------------------------------------------------------------
Earnings (loss) before
income taxes 10,282 9,517 (5,057) 13,962
Income tax expense
(recovery)
Current 5,574 1,145 619 3,929
Future (1,821) 2,329 (2,465) 1,168
------------------------------------------------------------------------
3,753 3,474 (1,846) 5,097
------------------------------------------------------------------------
Net earnings (loss)
for the period $ 6,529 $ 6,043 $ (3,211) $ 8,865
------------------------------------------------------------------------
------------------------------------------------------------------------
Retained earnings,
beginning of period 112,381 104,350 122,121 101,528
------------------------------------------------------------------------
Retained earnings,
end of period 118,910 110,393 118,910 110,393
------------------------------------------------------------------------
------------------------------------------------------------------------
Earnings and diluted
earnings (loss)
per share $ 0.20 $ 0.18 $ (0.10) $ 0.27
------------------------------------------------------------------------
------------------------------------------------------------------------
