The Forzani Group Ltd. fiscal 2007 first quarter results for the 13 weeks ended April 30, 2006. Net earnings were CN$300,000, or one penny per share, compared to a loss in the prior year’s first quarter of CN$7.4 million, or 23 cents per share. Retail system sales for the quarter were CN$299.1 million, an increase of CN$39.3 million, or 15.1% from the comparable 13-week sales of CN$259.8 million. Same store sales in corporate locations were up 12.2% and, in franchise, up 6.0% over the fiscal 2006 first quarter for an overall same store sales increase of 10.0%.
The increase was due to 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 CN$33.2 million, or 12.8%.
Revenue, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, was CN$280.4 million, up CN$42.2 million, or 17.7% over the comparable period last year.
Gross Margins:
Combined gross margin for the 13 weeks ended April 30, 2006 was 32.1% of revenue, or CN$90.1 million, compared to 29.0%, or CN$69.1 million in the previous year. The margin rate and dollar improvements were driven by a combination of continued, solid franchise results, and improved corporate store results. All categories performed well, in particular hockey, team sports and ski hardgoods lines, athletic, casual and licensed clothing, and footwear.
Expenses:
Store operating expenses, as a percent of corporate store revenue, were 29.5% against the prior year of 30.9%. Same store operating costs were 28.2% of corporate store revenue, 29.6% in the prior year. Same store costs, in absolute dollars, increased CN$3.3 million or 7.1%. The overall store operating expense increase reflects the opening, in the past year, of 2 corporate stores (net of closings) and the addition of 9 Fitness Source stores.
General and administrative expenses were 7.0% of total revenue versus the prior year’s 7.3%. The absolute dollar increase of CN$2.1 million was a combination of standard year over year increases, the addition of the Fitness Source infrastructure and accruals for anticipated, year-end, performance-based compensation.
Store Activity:
During the quarter, the Company opened 1 Sport Chek store, acquired 9 Fitness Source stores and closed 5 Sport Mart stores, 1 Sport Chek store, and 1 corporately owned franchise location. In the franchise division, 8 stores were opened (6 Nevada Bob’s Golf, 1 Hockey Experts and 1 Atmosphere), and 4 stores were closed (3 Intersport and 1 Nevada Bob’s Golf). As a result, at the end of the first quarter, the Company had 263 corporate stores and 208 franchise locations. This was a net increase of 20,328 square feet of retail selling space, a 0.4% increase versus the previous quarter. The Company now has 471 stores from coast to coast (May 1, 2005 – 446 stores).
Balance Sheet:
The Company’s working capital of CN$113.5 million grew by 22.8% over the prior year due to stronger results and leaner inventories, which reduced debt levels.
Management’s Comments:
The significant turnaround in the Company’s first quarter of fiscal 2007 continues the momentum that had commenced in the third quarter of fiscal 2006. Franchise operations continue to perform to plan and, with last year’s Sport Chek revitalization and the ongoing work being done in the Sport Mart banner, corporate results are improving steadily. Store operating and general and administrative expenses are in line with historical rates and we look forward to improved results throughout the remainder of the year.
For the first four weeks of Q2, fiscal 2007, comparable store sales from corporate stores grew by 7.8% and franchise comparable store sales increased 11.6%, with strong margins.
THE FORZANI GROUP LTD.
Consolidated Statements of Operations and Retained Earnings
(in thousands, except per share data)
(unaudited)
For the thirteen weeks ended
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April 30, May 1,
2006 2005
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Revenue
Retail $ 195,855 $ 166,804
Wholesale 84,579 71,398
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280,434 238,202
Cost of sales 190,290 169,136
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Gross margin 90,144 69,066
Operating and administrative expenses
Store operating 57,697 51,589
General and administrative 19,619 17,458
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77,316 69,047
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Operating earnings before undernoted items 12,828 19
Amortization 10,731 10,188
Interest 1,630 1,510
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12,361 11,698
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Earnings (loss) before income taxes 467 (11,679)
Income tax expense (recovery)
Current 160 (4,309)
Future 13 47
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173 (4,262)
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Net earnings (loss) for the period $ 294 $ (7,417)
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Retained earnings, beginning of period 135,878 122,121
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Retained earnings, end of period $ 136,172 $ 114,704
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Basic and diluted earnings (loss) per share $ 0.01 $ (0.23)
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