The Forzani Group Ltd. net earnings for the third quarter were $11.9 million, or 35 cents per share, compared to the prior year's third quarter of $6.5 million, or 20 cents per share, an 83.1% increase in profits and a 75.0% increase in earnings per share. Retail system sales for the quarter were $339.5 million, an increase of $31.9 million, or 10.4% from the comparable 13-week sales of $307.6 million. The increase was due to continued, strong contributions from franchise and corporate stores and the addition, on January 31, 2006, of The Fitness Source Inc. (“Fitness Source”). Exclusive of the acquisition of Fitness Source, retail system sales increased $27.0 million, or 8.8%.
Same store sales in corporate locations were up 6.6% and increased 9.9% in franchise locations, for an overall same store sales increase of 7.7%. This versus a 4.7% overall increase in the third quarter of fiscal 2006, continuing the current year trend of strong quarterly, year over year same store sales increases.
Revenue, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, was $346.3 million, up $40.9 million, or 13.4% over the comparable period last year.
Combined gross margin for the 13 weeks ended October 29, 2006 was 34.5% of revenue, or $119.4 million, compared to 33.1%, or $101.1 million in the previous year. The margin rate and dollar improvements were driven by considerably stronger corporate store results, supported by solid franchise and wholesale operations results.
(1) Retail system sales are retail sales from corporate and franchise stores and are reported to give an indication of the size of the operation at retail.
Store operating expenses, as a percent of corporate store revenue, were 25.6% against the prior year of 26.9%. Same store operating costs were 24.5% of corporate store revenue, 25.5% in the prior year. Same store costs, in absolute dollars, increased $1.3 million or 2.6%. The overall store operating expense increase reflects the acquisition of 9 Fitness Source stores.
General and administrative expenses were 8.5% of total revenue versus the prior year's 7.5%. The rate increase, and absolute dollar increase of $6.6 million, was attributable to the addition of the Fitness Source infrastructure and accruals for anticipated, year-end, performance-based compensation.
Earnings before interest, taxes and amortization (“EBITA”) were $31.4 million or 9.1% of revenues, compared to $21.7 million or 7.1% of revenues for the 13-week period last year.
During the quarter, the Company opened 1 Sport Mart and 1 Golf Experts store, closed 1 Sport Chek and 2 Sport Mart stores. In the franchise division, 3 stores were opened (2 Hockey Experts and 1 Intersport), and 2 Intersport stores were closed. As a result, at the end of the third quarter, the Company had 262 corporate stores and 208 franchise locations. The Company now has 470 stores from coast to coast (October 30, 2005 – 454 stores).
Diluted earnings per share for the 39-week period ended October 29, 2006 were $0.42, compared to a loss of $0.10 in the prior year. Cash flow from operations increased to $45.1 million from $20.4 million. On a per share basis, cash flow increased 121.0% to $1.37 compared to $0.62 in the prior year.
Retail system sales for the 39 weeks were $976.5 million, an $104.0 million increase from sales for the comparative fiscal 2006 period. Exclusive of the sales attributable to Fitness Source locations, retail system sales increased $89.3 million or 10.2%. Same store sales in corporate stores increased 8.2%, while franchise stores increased 7.6%, with total same store retail system sales increasing 8.0%.
Revenue was $910.8 million, a $123.6 million, or 15.7% increase over the 39-week period last year. Combined gross margin for the 39 weeks ended October 29, 2006 was up 140 basis points to 33.6% of revenue, from 32.2% in the prior year driven primarily by strong corporate store margins. In absolute dollars, the combined gross margin increased $52.8 million, to $306.2 million, from the 39-week period last year.
Store operating expenses, as a percent of corporate revenue, were 27.4% versus 28.7% in the prior year. General and administrative expenses were 8.0% of total revenue versus 7.6% in the prior year.
EBITA was $60.3 million, or 6.6% of total revenue, compared to 3.8% for the same period last year. Earnings before income taxes for the 39 weeks ended October 29, 2006 were $23.0 million compared to a $5.1 million loss for the 39-week period in the prior year.
The Company's working capital of $138.8 million grew by 30.8% over the prior year due to stronger results and leaner inventories, which reduced debt levels considerably.
Management's Comments:
Revenue growth of 13.4%, translating into strong bottom line results, are evidence of the continued effects of our revitalization programs, as executed by our dedicated teams at store level. This, combined with our operational cost controls and the strong results in the franchise and wholesale businesses, produced an exceptionally strong quarter and we look forward to improved results throughout the remainder of the year. EBITA, on a trailing four-quarter basis, was $99.2 million, or 8.6%, compared to $61.0 million, or 5.2%, for the four quarters ending in the third quarter of last year, a 62.5% improvement.
For the first five weeks of the fourth quarter, same store sales from corporate stores were flat and franchise same store sales decreased 3.2% against prior year same store increases of 14.1% and 8.3% in corporate and franchise stores, respectively. These results are due to unseasonably warm weather in Ontario and Quebec, and are anticipated to improve as the quarter progresses. Margins continue their strong performance into the fourth quarter.
Financial Highlights:
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For the thirteen For the thirty-nine
weeks ended weeks ended
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October 29, October 30, October 29, October 30,
2006 2005 2006 2005
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Same Store Sales
Corporate 6.6% 3.2% 8.2% 0.2%
Franchise 9.9% 8.1% 7.6% 7.2%
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Consolidated 7.7% 4.7% 8.0% 2.5%
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Revenue ($000s)
Retail 228,381 210,262 632,424 568,348
Wholesale 117,968 95,126 278,356 218,872
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Total 346,349 305,388 910,780 787,220
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EBITA Margin 9.1% 7.1% 6.6% 3.8%
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Net Earnings (loss)
($000's) 11,878 6,529 14,120 (3,211)
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Earnings (loss) Per Share $ 0.35 $ 0.20 $ 0.42 ($0.10)
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