Forzani started the year off on shaky ground on the sales front, thanks in large part to heavy price competition and a declining sporting goods market north of the border, but shook off the tougher market and posted a 38% increase in net income for the period.
Combined FGL corporate and franchise store sales increased 2.8% in the first quarter ended May 2 to C$227.7 million. Total company same-store sales declined 1.7% as the franchise stores dipped 1.0% versus an 11.1% gain in Q1 lat year and the corporate stores decreased 2.1% for the 2004 Q1 period, due primarily to heavy competition in Ontario.
In a conference call with analysts Bill Gregson, FGL President and COO, said that the Canadian sporting goods sector is experiencing a “very challenging environment,” but Forzani unit sales were up, demonstrating an increase in market share.
Sales in the West were said to be stronger than in the East. On a category basis, hard goods led the way, with footwear second, while clothing again lagged behind. FGL said that “at least one” of the three categories experienced positive comps, but would not elaborate.
Casual clothing had a “half decent quarter” with stronger margins than last year, but athletic apparel sales dropped in spite of a “very strong” Under Armor product introduction. The company is hoping that the Olympics and the Euro soccer tournament will boost sales of athletic apparel throughout the remainder of the year.
Gregson said that the company has been maintaining control of expenses, with inventories dropping 5.9% on a comp store basis, administrative costs dropping as a percentage of sales and comp-store expenses down in absolute dollar terms.
Gross margins increased 50 basis points mainly due to increased activity in close-outs, helped a bit we assume by the Gen-X acquisition. Gregson feels that Forzani can sell more close-outs than they currently sell, an attractive prospect the close-out goods generally have margins that are 10 basis points higher than average retail sales. A reduction in inventories in casual clothing, and less clearance activity also contributed to the increase in GM.
FGLs CEO, Bob Sartor, told analysts that comps would be a struggle for all retailers in their sector, mainly because “one of their privately help competitors” was having issues with their inventory, and selling off merchandise at “unsustainable prices.”
“The increased price competition in the near term is a great opportunity for us in the middle term,” Sartor said. “The only outcome is fewer competitors at the end of the day.”
Expansion will continue to be a priority for Forzani, and the company plans to open five Sport Chek stores, 15 Sport Mart stores, while 18 franchise stores will be opened, expanded, or remodeled this year. In spite of the success of the 70,000 square foot Sport Chek store in Ontario, and a second coming in Ottawa, Forzani maintains that real estate deals drove these stores, and the company model is for the 20,000 square foot size.
For the first three weeks of the second quarter, combined comparable store sales decreased 3.5%, with corporate comparable store sales up 1.2% and franchise comparable store sales down 10.6% versus last year.
>>>Why is everyone talking about their competitors inventory issues these days?
