THE FORZANI GROUP ANNOUNCES FIRST QUARTER RESULTS
THE FORZANI GROUP LTD./LE GROUPE FORZANI LTEE
TSX SYMBOL: FGL
FGL Announces First Quarter Results and Strategic Updates
CALGARY, ALBERTA--(Marketwire - June 8, 2010) - The Forzani Group Ltd. (TSX:FGL) ("FGL" or the "Company"), Canada's largest retailer of sporting goods, today reported first quarter fiscal 2011 results for the 13-weeks ended May 2, 2010.
"Our strategic initiatives, our strong market share and seasonal weather all contributed to improved same store sales, margin and operating cost in the first quarter of fiscal 2011." said Bob Sartor, FGL's Chief Executive Officer. "Even though the first quarter is seasonally the weakest of the year, and even though we incurred one-time re-branding costs for our Atmosphere stores and a significant increase in stock-based compensation costs due to the increase in our share price, we nevertheless reduced our loss per share by 50% from a year earlier."
"But for the one-time marketing costs and the incremental stock-based compensation expense, we would have achieved earnings of $0.07 per share for the first quarter of fiscal 2011 compared with the loss of $0.04 per share in the first quarter of fiscal 2010."
"During the first quarter of fiscal 2011, we made further progress against our strategic plan to unify and simplify our business, expand our reach and improve productivity. With each step forward, we are improving FGL's prospects for long term growth and profitability."
Progress Against Strategic Plan
FGL's progress during the first quarter against its strategic plan included, but was not limited to, the following:
- Executing on the planned consolidation of its two outdoor and lifestyle banners, Coast Mountain Sports and Atmosphere. As part of the operational and marketing plans, the Company undertook a one-time $1.9 million multi-channel advertising campaign to support the re-launch and, as previously reported, opened its first corporately-owned Atmosphere prototype store in Red Deer, Alberta.
- Identifying 11 Alberta based Sport Chek stores as the next test markets for GNC performance nutrition boutiques. These boutiques are planned to open within the next two quarters.
- Adding an additional 30 Nevada Bob's Golf boutiques to Sport Chek stores. Plans for fiscal 2011 are to add a total of 38 boutiques in existing Sport Chek locations.
- Commencing the next generation of purchasing, allocation and distribution information system enhancement project.
- FGL continued to benefit from the October 28, 2009 launch of its new e-commerce initiative, Sportchek.ca. With the launch, FGL is now able to extend its retail reach to customers outside its normal trading area and provide support to the estimated 70% of Canadian consumers that research their purchases online. The state of the art site launched with an initial catalogue of approximately 5,000 unique product styles and colours, has now grown to an offering of more than 8,000. The site is supported by world class e-commerce provider GSI Commerce Solutions Inc. By the end of the first quarter, the site had hosted in excess of 5.4 million unique daily visitors. During the first quarter, weekly site traffic continued to grow and is now equal to that seen during the 2009 Christmas season. In addition, during the first quarter, the Company launched online customer surveys to measure service levels and assess areas for continued site enhancement.
Fiscal First Quarter Financial Results
FGL's fiscal 2011 first quarter same-store retail system sale(3) increase of 9.8% was the result of a number of factors. First, the tactics of FGL's strategic plan to increase its golf, fitness and cycling businesses within Sport Chek delivered a combined 27% same-store sales increase in the quarter in those categories. Second, seasonable weather through much of the quarter positively impacted sales of all spring categories, most notably outerwear, athletic clothing, footwear and hockey equipment. Third, the 2010 Vancouver Olympics spurred sales of licensed apparel, in particular Team Canada hockey jerseys. The 9.8% sales increase compares favourably to the Company's Canadian retail peer group (increase of 3.5%) and those posted by the North American sporting goods group (increase of 4.9%) for their latest quarters.
(3) Refer to Non-GAAP measures below
FGL's total revenue was up 6.9% from a year earlier despite a 5.2% decline in wholesale sales to third parties and the franchise network. The decline in wholesale sales mainly reflected a 7.7% decline in sales to franchisees as a result of the year over year reduction in store count within the franchise network, primarily the result of the conversion of nine Fitness Source franchise locations to corporate late in the first quarter of fiscal 2010 and closures of Nevada Bob's "stand-alone" stores as part of our strategic initiative to improve the profitability of that business via Sport Chek based boutiques.
Retail system sales, which include sales from corporate and franchise stores, were $349.4 million, an increase of $30.8 million, or 9.7%, from the comparable 13-week sales of $318.6 million a year earlier.
Gross profit was $114.3 million, up 14.7% from $99.6 million a year earlier, and gross margin was 34.8% of revenue compared with 32.4% of revenue a year earlier. During the quarter, corporate distribution centre costs were reclassified to Cost of Goods Sold (previously included in general and administrative costs) in order to be more comparable to the Company's peer group. The improved gross margin rate was primarily due to gains in the corporate retail business, where previous improvements to the aging and mix of inventory allowed the Company to avoid the significant discounting that was required a year earlier. The shift in the revenue mix toward higher margined retail from lower margined wholesale revenues also helped boost the rate.
Store operating expenses increased $4.3 million for the fiscal 2011 first quarter from a year earlier, reflecting the opening, during the prior year, of additional corporate locations. Same-store operating expenses were 28.0% of corporate store revenue compared to 30.6% in the prior year. Same-store expenses, in absolute dollars, increased $1.1 million or 2.0%.
General and administrative expenses were 9.2% of revenues compared with 7.0% a year earlier. In absolute dollars, general and administrative costs were up $8.7 million. Much of this increase was the result of three key expense items:
1) $3.5 million in incremental marketing costs, of which $1.9 million was a one-time planned advertising campaign to costs to support the Coast Mountain Sports re-launch as Atmosphere;
2) $2.3 million increase in stock-based compensation costs due to share price appreciation during the quarter;
3) and $0.8 million increase in accruals for fiscal 2011 performance-based compensation costs due to the Company's estimate that a larger population of its key employees will achieve their performance targets for the year, than was estimated at the same time last year.
EBITA was $13.2 million or 4.0% of revenues, up $1.7 million and 0.3% respectively from the prior year's first quarter, as incremental sales and margins more than offset the increased operating and administrative costs.
The net loss for the first quarter of fiscal 2011 was $0.7 million, a 38% improvement compared with the net loss of $1.1 million in the first quarter of the prior year. The loss per share was $0.02 in the first quarter of fiscal 2011, a 50% improvement compared with the loss of $0.04 per share in the first quarter of fiscal 2010.
Cash flow from operations(4) increased to $10.4 million, or $0.34 per share, from $8.3 million, or $0.27 per share, in the prior year.
(4) Refer to Non-GAAP measures below
First Quarter Store Activity
At the end of the first quarter, the Company had 552 stores, which is nine less than a year earlier. However, the Company also had 2.5% more retail selling space (an extra 161,936 square feet) compared with a year earlier, due to FGL's strategy of increasing store size. Corporate stores totalled 337 at the end of the first quarter, down by six from a year earlier, while franchise stores totalled 215, down one from a year earlier.
During the quarter, the Company decreased the number of corporate stores by five. FGL closed three Sport Mart stores, two Athletes World stores, and one each of Nevada Bob's Golf and Fitness Source stores while opening one Atmosphere store and converting one Nevada Bob's Golf franchise location to corporate ownership.
The franchise division had a net reduction of one store during the quarter, as FGL franchisees opened three stores (two Atmosphere and one Intersport) while closing three (one Intersport, one Sports Experts and one Nevada Bob's Golf) and converting one Nevada Bob's franchise location to corporate ownership.
Balance Sheet
The Company's working capital was $95.6 million, up 27.6% from the prior year.
Preliminary Q2 Results
Results in the four weeks of the fiscal 2011 second quarter continued to show improvement over the prior year, despite somewhat unseasonable weather in Western Canada. On a same-store category basis, the increase was led by athletic clothing, footwear and fitness equipment.
Overall retail system sales increased by 5.8% for the first four weeks (against the prior year's increase of 0.2%). Of the total gain, same-store sales in the most recent period increased by 4.3% for corporate locations (over the prior year's increase of 0.8%), and increased by 8.4% for franchise stores, (against the prior year's decrease of 0.8%). The sales improvements have been made while retaining stronger gross margin performance.
Additional Quarterly Disclosure
In conjunction with this release, the Company invites you to listen to its teleconference call on Wednesday June 9th, 2010 at 10:30 a.m. Eastern Standard Time. The conference call will also be available simultaneously and in its entirety, including presentation materials, to all interested investors and the news media through a web cast which can be accessed on the Company's website at www.forzanigroup.com. Please visit the website at least 15 minutes prior to the indicated start time to download and install any necessary software.
Teleconference Call: To listen to the conference call, please dial one of the following numbers approximately five minutes prior to commencement:
Within Toronto: 416-644-3418
Outside Toronto: 877-974-0448
Replay: Should you be unable to join the conference call, an audio recording of the call will be available approximately three hours after the call until June 16th, 2010.
Replay Number: 1-416-640-1917 or 1-877-289-8525 (passcode 4307391#)
All individuals listening to the conference call or the replay are reminded that all conference call material is copyrighted by the Company and cannot be recorded or rebroadcast without the Company's express written consent. FGL invites investors to read it's more detailed disclosure contained in the fiscal 2010 Annual Report, Financial Statements and Management's Discussion and Analysis. These documents are available on the FGL website and SEDAR.
Non-GAAP Measures:
The use of the term "Retail System Sales" (retail sales from corporate and franchise stores) is not recognized under Canadian generally accepted accounting principles ("GAAP"). Management believes that this measure is useful supplemental information which provides the reader with an indication of the Company's total retail sales, but may not be comparable to measures used by other companies.
Same-store sales include sales from all of the Company's franchise and corporate stores that had been open for the comparable period in the prior year. This metric is commonly used throughout the retail industry, and by management as an appropriate comparison to other stores open during the period and to results in the prior period.
The use of the term "EBITA" (earnings before interest, taxes and amortization) is not recognized under Canadian GAAP. Management believes that in addition to net earnings, EBITA is a useful measure that provides an indication of the results generated by the Company's business activities prior to consideration of how activities were financed and how the results are taxed. Investors should be cautioned, however, that EBITA should not be construed as an alternative to net earnings, cash flows from operating activities or other measures of financial performance, determined in accordance with GAAP, as an indicator of the Company's performance. Furthermore, this measure does not have a standardized meaning under GAAP and may not be comparable to similar measures presented by other companies.
Cash flow from operations corresponds to "Cash provided by (used in) operating activities" before non-cash changes in working capital in our consolidated interim and annual statements of cash flows and is defined as net earnings for the period, adjusted for specific items not involving cash but excluding non-cash changes in elements of working capital. This metric is used by management to assess the quality of the Company's earnings.
Forward-Looking Information:
This press release contains certain statements that may constitute forward-looking information within the meaning of applicable securities laws. This forward-looking information relates to, among other things the Company's intentions in respect to the further implementation of its strategic plan including, without limitation: (a) the Company's 2011 timeline for opening the remaining 8 of the additional 38 Nevada Bob's Golf boutiques within Sport Chek stores planned for fiscal 2011; (b) the opening of additional GNC boutique stores in the next two quarters; (c) the success of the information system enhancement project in purchasing, allocation and distribution departments; (d) the Company's enhancements to the sportchek.ca e-commerce platform; and (e) the anticipated improvement in profitability of our Nevada Bob's Golf business.
Often, but not always, forward-looking information can be identified by the use of such words as "may", "will", "expect", "believe", "plan", "intend", "estimate", "outlook", "forecast", "should", "anticipate" and other similar terminology, including statements concerning possible or assumed future results. Forward-looking information is based on management's reasonable assumptions, analysis and estimates in respect of its experience and perception of trends, current economic conditions and expected developments, as well as other material factors that it considers to be relevant at the time of making such statements.
- those risks and uncertainties described in the Company's Annual Information Form filed with the securities regulatory authorities in Canada under the Company's profile at www.sedar.com.
The Forzani Group Ltd. is Canada's largest national retailer of sporting goods, offering a comprehensive assortment of brand-name and private-brand products, operating stores from coast to coast, under the following corporate and franchise banners: Sport Chek, Sport Mart, National Sports, Athletes World, Sports Experts, Intersport, Econosports, Atmosphere, Tech Shop, Pegasus, Nevada Bob's Golf, Hockey Experts, S3 and The Fitness Source. The Company also has websites for several of its corporate and franchise banners which can be accessed through its main website at www.forzanigroup.com.
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