The Forzani Group Ltd. said sales rose 4.1% to Canadian $255.3 million (US$242.9 mm) for the third quarter ended Nov. 1, 2009, compared to CN$245.3 (US$233.4 mm) for the same quarter a year ago. Same store sales for the period rose 2.3% compared to 3.8% in the same quarter a year ago.

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“FGL's fiscal 2010 third quarter financial results show a return to profitability on a year to date basis and an improvement on reasonably solid quarterly results from the prior year,” said Bob Sartor, FGL's chief executive officer. “We are continuing to make significant progress on our long-term strategic initiatives. Favourable weather through late September and October drove customers to our stores, where our focus on improved standards and visual presentation made a difference in our results.”
“However, unseasonably warm weather and ongoing consumer caution had a negative impact on sales early in the fourth quarter,” continued Sartor. “Now that the weather has improved in many parts of the country, we are already noticing an increase in sales.”
Financial Summary (In Canadian Dollars):
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                            For the thirteen         For the thirty-nine
                               weeks ended                 weeks ended
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                     Nov. 1, 2009  Nov. 2, 2008  Nov. 1, 2009  Nov. 2, 2008
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Revenue ($000s)
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 Retail                   255,305       245,325       672,893       676,945
 Wholesale                125,780       117,569       312,430       289,001 
                ——————————————————–
 Total                    381,085       362,894       985,323       965,946
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EBITA Margin                  8.1%          7.5%          5.0%          5.2%
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Net Earnings ($000's)      11,384         6,647         5,855         5,387
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Earnings Per Share          $0.37         $0.22         $0.19         $0.17
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Same Store Sales(1)
 Corporate                    1.3%         -0.2%          0.3%         -2.1%
 Franchise                    4.2%         11.5%          0.6%          4.5%
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 Consolidated                 2.3%          3.8%          0.4%          0.3%
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Progress Against Strategic Objectives

FGL has made progress during the quarter against its strategic objectives to unify and simplify its business, expand its reach, and improve productivity. Specifically, and among other things:
  • FGL created operational and marketing plans to support the announced consolidation of its two outdoor and lifestyle banners, Coast Mountain Sports and Atmosphere, and has confirmed the Spring 2010 timeline to complete these conversions. 
  • During the third quarter, FGL opened 14 GNC performance nutrition boutiques within FGL stores in the Calgary market. Initial results have been encouraging, and we intend to add additional boutiques outside the Calgary test market in the coming fiscal year.
  •  During the third quarter, FGL added an additional 6 Nevada Bob's Golf boutiques to Sport Chek stores. These shops are operating at triple the sales volume of a regular Sport Chek golf department.
  • On October 28, 2009 FGL completed the design and launch of its new E-commerce initiative, Sportchek.ca. With the launch, FGL is now able to extend its retail reach to customers outside its normal trading area and provide support to the estimated 70% of Canadian consumers that research their purchases online. The state of the art site contains a catalogue with more than 5,000 unique product styles and colours. It is supported by world class E-commerce provider, GSI Commerce Inc. To date, the site is receiving an average of 20,000 unique visitors on a daily basis.

Fiscal Third Quarter Financial Results:

The 2.3% improvement in FGL's same-store sales from a year earlier was superior to its peer group of North American sporting goods retailers which reported an average same store sales decline for the quarter of 4.9% for the fall quarter.

FGL's total revenue was up 5.0% from a year earlier and included a 7.0% gain in wholesale sales to third parties and the franchise network. The gain in wholesale sales mainly reflected continued restocking initiatives on the part of our franchisees after they had previously allowed their inventories to drop significantly in anticipation of weak consumer demand.

Adding to the strong wholesale performance was a 4.1% increase in retail sales from corporate stores compared with a year earlier. Improving consumer demand and favourable weather in September and October drove retail performance.

Retail system sales, which include sales from corporate and franchise stores, were CN$391.1 million (US $372 mm), an increase of CN$10.1 million (US$9.6 mm), or 2.7%, from the comparable 13-week sales of CN$381.0 million (US$362.5 mm) a year earlier.

Gross profit was CN$131.0 million (US$124.6 mm), up 8.3% from CN$120.9 million (US$115 mm) a year earlier, and gross margin was 34.4% of revenue compared with 33.3% of revenue a year earlier. Gross profit as a percentage of sales returned to pre-recession levels as the company did not need to move as aggressively in reducing prices to maintain sales momentum as it had in the prior year's quarter when the international financial crisis sent wary consumers to the sidelines. Gross margin rates showed improvement during the quarter in both the retail and wholesale businesses.

Store operating expenses rose for the fiscal 2010 third quarter from a year earlier reflecting the opening, during the latest quarter, of additional corporate locations and the impact of the fiscal 2010 first quarter conversion to corporate ownership of nine formerly franchised Fitness Source locations. Same store operating expenses were 25.6% of corporate store revenue compared to 24.8% in the prior year. Same store expenses, in absolute dollars, increased 4.2% as a result of incremental marketing costs associated with the Nevada Bob's boutique launch and normalized accruals for year end performance based compensation costs. The prior year's quarterly run rate was positively impacted by the reversal of those accruals when annual targets were deemed to be unattainable. The company anticipates that same store operating expenses in the remainder of the year will reflect prior year run rates.

General and administrative expenses were 7.2% of revenues compared with 7.5% a year earlier. The prior year's run rate included incremental overhead from the Athletes World acquisition which was not fully integrated until the fourth quarter of fiscal 2009. In absolute dollars, general and administrative costs were up CN$0.2 million (US$0.2 mm) exclusively the result of increased stock based compensation expenses driven by relative changes in the company's stock price over the prior year's quarter. This increase was offset to a degree by savings associated with the Athletes World integration.

Earnings before income taxes were CN$16.5 million (US$15.7 mm), compared with pre-tax earnings of CN$12.7 million (US$12.1 mm)a year earlier. The earnings improvement for the fiscal 2010 third quarter was principally due to increased sales, strong margins and well controlled store operating expenses.

Net earnings for the quarter were CN$11.4 million (US$10.8 mm) or CN$0.37 per share versus CN$6.6 million (US$6.3 mm), or CN$0.22 in the prior year. The current year's earnings and EPS benefit from a lower prevailing tax rate versus the prior year.


Cash flow from operations increased to CN$24.5 million (US$23.3 mm), or CN$0.80 per share, from CN$15.6 million ($14.8 mm), or CN$0.51 per share, in the prior year.
 
Fiscal Third Quarter Store Activity:

During the quarter, the company opened 10 corporately-owned stores (8 Sport Chek, 1 Coast Mountain Sports and 1 Athletes World) and closed 4 stores (1 Sport Chek, 1 Nevada Bob's Golf, 1 Hockey Experts and 1 Sport Mart). Additionally, 2 corporately-owned Nevada Bob's Golf locations were converted to Fitness Source stores. In the franchise division, 2 stores were opened (1 Atmosphere and 1 Intersport), while 1 Buying Member store was closed. As a result, at the end of the third quarter, the company had 350 corporate stores and 218 franchise locations. This represents a net increase of 256,274 square feet of retail selling space, a 4.0% increase versus the year-earlier quarter.

 
The company now has 568 stores from coast to coast across Canada compared with 561 stores at November 2, 2008.

During the quarter, the company opened 6 Nevada Bob's Golf shops within Sport Chek stores and 14 GNC boutiques within Sport Chek, Coast Mountain Sports, Fitness Source and Hockey Experts locations.

Fiscal First Three Quarters Financial Results

The main drivers affecting financial results for the first three quarters include consumer caution, unseasonably wet weather in key urban markets in the first two quarters, and one time costs.

Certain key financial metrics for the fiscal year to date are provided in the financial summary table. Following are additional important metrics compared with a year earlier:
– Retail system sales-$1.058 billion, down 1.3% from $1.072 billion;
– Gross profit-$337.7 million, up 1.7% from $332.1 million;
– Gross margin-34.3% of revenue, compared with 34.4% of revenue;
– Store operating expenses-31.0% of corporate revenue compared with 29.9% of corporate revenue. Comparable store operating expenses were 28.5% versus 27.7% in the prior year. On an absolute dollar basis, store operating expenses were up $5.9 million from the prior year;
 – General and administrative expenses-8.1% of total revenue down from 8.3%. Overall, general and administrative expenses increased only CN$0.1 million in absolute dollars despite CN$1.6 million in one-time legal expenses and $0.4 million in one-time severance costs related to the completion of the technology harmonization program. Excluding these items, the G&A run rate would have been 7.9% down 40 basis points from the prior year of 8.3%;
– EBITA-CN$49.4 million, down 1.0% from CN$49.9 million;
– Earnings-$5.9 million compared with CN$5.4 million; and
– Cash flow from operations-CN$37.5 million or CN$1.23 per share, compared with CN$32.2 million or CN$1.02 per share.

Balance Sheet:
The company's working capital of CN$70.7 million increased 10.5% from the prior year.

Dividends:

On December 10, 2009, the company declared a dividend of $0.075 per Class A share, payable on February 1, 2010 to shareholders of record on January 18, 2010. All dividends paid by the Company are, pursuant to subsection 89 (14) of the Income Tax Act, designated as eligible dividends. An eligible dividend paid to a Canadian resident is entitled to the enhanced dividend tax credit.

Preliminary Q4 Results:

As in previous years, FGL will disclose its Holiday Season sales and margin results in mid-January. The Holiday Season period encompasses the first 10 weeks of the fiscal fourth quarter, including Christmas and Boxing Day.

Overall 2010 fourth fiscal quarter results will be challenging compared with a year earlier, the second best fourth quarter in FGL's history. Sales in the first five weeks of the 2010 fourth fiscal quarter have been hindered by unseasonably warm weather across much of the country and by continuing consumer caution. This stands in contrast to the positive effects of weather in Q3. Same-store sales for the first five weeks of the fiscal fourth quarter declined 8.6% for corporate locations, against last year's increase of 0.1%, and decreased 14.2% for franchise stores, compared with a prior year increase of 6.2% for an overall retail system sales decrease of 10.7% versus an increase of 2.4% in fiscal 2009.