The Forzani Group Ltd. saw fourth results negatively impacted by the deterioration in consumer confidence and a comparison to the extended quarter in the prior year. Retail system sales for the 13-week fourth quarter ended February 1 were down 3.4% to CN$506.9 million ($410.7 million) from CN$524.7 million ($425.1 million) in the year-ago quarter, which had 14 weeks. Same-store sales in corporate locations were down 8.1%, but up 0.4% in franchise locations, for an overall same-store sales decrease of 5.1% for the period. Excluding the impact of the extra week in the prior year's fourth quarter, total retail system sales rose 1.6% for the period.
Footwear, sport fashion, fitness, racquet sports, bikes, camping, hockey, snowboard all had positive growth in Fiscal 2009. However, it was a weaker ski and in-line skate year throughout the FGL network retail stores. Golf was slightly ahead of the previous year.
Total revenue, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, was CN$380.8 million ($307.7 million), down 7.3% from the fourth quarter last year.
Combined gross margin for the fourth quarter was 39.8% of revenue, compared to 40.0% in the previous year. The small margin rate decline was the result of weaker margins in corporate stores due to the impact of aggressive pricing actions taken to offset weaker consumer demand.
Store operating expenses, as a percent of corporate store revenue, were 23.5% against the prior year of 21.9%. Same-store operating costs were 21.0% of corporate store revenue, against 19.8% in the prior year, the increase a function of the decreased same-store sales volumes. Same-store costs, in absolute dollars, decreased 1.9% for the quarter. General and administrative expenses were 7.8% of total revenue versus the prior year's 8.6% of sales.
The company noted that the recently-acquired Athletes World stores added CN$0.2 million, or one Canadian penny per share, to consolidated net earnings. However, total FGL earnings slipped 15.7% in the fourth quarter, to CN$24.2 million ($19.6 million), or CN 79 cents (64 cents) per share, from CN$28.7 million ($23.5 million), or CN 85 cents (69 cents), a year ago.
“I was reminded by some of my folks that even though I was disappointed we didn't beat last year's [earnings] number, this is the second best Q4 in the history of the company – in the 35-year history of the company – and this amid some pretty tough economic news and some pretty grim consumer confidence,” said Bob Sartor, Forzanis CEO.
Forzani has a number of initiatives in the pipeline for 2009 that are designed to improve sales per square foot. One of the more successful tests is the “brand boutique,” or shop-in-shop concept. So far, stores that have implemented these “brand boutiques” have seen anywhere from a 60% to 100% increase in sales per square foot. Complete roll-out of program is expected by the end of 2009 with a special emphasis on brand boutiques for adidas, Under Armour, Nike, Colombia and The North Face.
Forzani is also rolling out Nevada Bob's concept shops within the Sport Chek environment. Six stores have already been tested and as a result of the positive performance in these shops, Forzani will be adding an additional 21 shops this year with 14 already up and running going into the Master's tournament weekend. FGL management also plans to significantly increase the number of these shops in spring 2010.
Each concept shop is roughly 2500 square feet and each will have a CPGA pro and a certified club fitter.
In addition to Forzanis planned retail expansion, the group inked an agreement to market Intersport International Corporation brands in the U.S. The previous agreement required an INTERSPORT retail presence, and FGL management found it “exceedingly difficult to get any traction.” This new agreement eliminates the need to have a physical retail presence so Forzani can now sell directly to “a select group of U.S. retailers.”
Looking at the first quarter so far, Sartor said that the new year has started off fairly well, with same-store sales up 1.5% for the first nine weeks on a consolidated basis and corporate same-store sales were up 2.7%. In addition, inventories are in “their best shape ever” and the recent changes made to Forzanis marketing and product assortment are having a positive impact on sales.
While Forzani did not provide forward looking guidance on their financial outlook, management did say that despite the tougher Canadian economy and a consumer that is certainly more reluctant to part with his or her cash, Forzanis early results indicate general optimism about the year head. So far this spring, footwear and sport fashion has been off to a positive start.
