The Forzani Group Ltd. reported a 1.5% increase in retail system sales for the third quarter to CAD$344.6 million ($336.9 mm) from CAD$339.5 million ($332.2 mm) in the year-ago quarter. The company said in a release that the increase came despite aggressive pricing actions taken in response to the stronger Canadian dollar. Same store sales in corporate locations were down 2.4% and increased 3.0% in franchise locations, for an overall same store sales decrease of 0.7% . The same store sales decrease is compared to a very robust 7.7% increase in the third quarter of fiscal 2007.
Revenue, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, was CAD$333.5 million ($326.0 mm), down 3.7% from the comparable period last year.
Net earnings for the third quarter were CAD$12.6 million ($12.3 mm), or CAD 36 cents per share (35 cents), compared to the prior year's third quarter of CAD$11.9 million ($11.6 mm), or CAD 35 cents (34 cents) per share, a 6.0% increase in profits and a 2.9% increase in earnings per share. Cash flow from operations was CAD 63 cents (62 cents) per share versus CAD 70 cents (69 cents) in the prior year.
Combined gross margin for the 13-weeks ended October 28, 2007 was 34.2% of revenue compared to 34.5% in the previous year. The margin rate and dollar reductions in the quarter reflect an aggressive pricing strategy in light of the deterioration in the U.S. dollar throughout the quarter and the impact of a slower start to the winter selling season where the company typically realizes the benefit of higher margins on winter apparel.
Store operating expenses, as a percent of corporate store revenue, were 27.2% against the prior year of 25.6% . Same store operating costs were 25.6% of corporate store revenue, 24.4% in the prior year. Same store costs, in absolute dollars, increased 2.5%. These increased costs, as a percentage of revenue are a reflection of the decreased sales volume rather than any unplanned increases in costs.
General and administrative expenses were 6.0% of total revenue versus the prior year's 8.5% . The rate decrease was attributable to lower accruals for anticipated, year-end, performance-based compensation which, in the prior year, were unusually elevated as the company neared the attainment of three-year performance targets. As noted in our second quarter press release, year over year performance-based compensation is expected to be approximately $10 million less in fiscal 2008 versus fiscal 2007 which will result in an annualized general and administrative expense run rate in line with historical rates. Third quarter, fiscal 2007 accruals for performance-based compensation anticipated the attainment of multi-year targets.
During the quarter, the company opened 1 Sport Mart and 2 corporate Nevada Bob's Golf stores and acquired 8 Nevada Bob's Golf stores from a former franchisee. In the franchise division, 2 stores were opened (1 Sports Experts and 1 Econosport) and 3 stores closed (2 Nevada Bob's Golf and 1 Buying Member) while 8 Nevada Bob's Golf stores were acquired by the company. As a result, at the end of the third quarter, the company had 271 corporate stores and 219 franchise locations. The company now has 490 stores from coast to coast (October 29, 2006 – 470 stores).
THE FORZANI GROUP LTD.
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
For the thirteen weeks For the thirty-nine weeks
ended ended
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October 28, October 29, October 28, October 29,
2007 2006 2007 2006
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Revenue
Retail $ 224,158 $ 228,381 $ 630,458 $ 632,424
Wholesale 109,313 117,968 289,950 278,356
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333,471 346,349 920,408 910,780
Cost of sales 219,545 226,954 606,332 604,580
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Gross margin 113,926 119,395 314,076 306,200
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Operating and
administrative
expenses
Store operating 60,915 58,351 177,401 173,026
General and
administrative 20,065 29,628 68,330 72,856
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80,980 87,979 245,731 245,882
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Operating earnings
before
undernoted items 32,946 31,416 68,345 60,318
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Amortization 11,137 10,458 33,039 31,676
Interest 1,831 2,104 4,737 5,633
Loss on sale of
investment - - 864 -
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12,968 12,562 38,640 37,309
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19,978 18,854 29,705 23,009
Earnings before income
taxes
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Income tax expense
(recovery)
Current 7,428 6,587 11,146 8,016
Future (36) 389 (194) 873
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7,392 6,976 10,952 8,889
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Net earnings for the
period $ 12,586 $ 11,878 $ 18,753 $ 14,120
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Earnings per share $ 0.37 $ 0.36 $ 0.55 $ 0.43
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Diluted earnings per
share $ 0.36 $ 0.35 $ 0.55 $ 0.42
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