Shares in Forzani Group soar after it says it's seeing some relief from challenges

Date: DEC 13th, 2007

Topic: Franchise News

CALGARY - Shares in the Forzani Group Ltd. (TSX:FGL) shot up on the Toronto Stock Exchange Monday after the Calgary-based sporting goods company said it is beginning to see some relief from the challenges it faced during the third quarter.

Forzani shares were up by about a dollar, or nearly seven per cent, to $16.40 in afternoon trading.

A soaring loonie and an unseasonably warm fall made for a rocky third quarter, chief executive Bob Sartor said Monday in a conference call to discuss his company's results.

"The third quarter certainly was not what we were looking for," he said, but the company "did increase earnings versus the prior year so we view that as a victory."

Like many other retailers, Forzani felt a great deal of pressure from the appreciating Canadian dollar, which hit 1.10 cents U.S. a month ago, but has since retreated to around parity with the greenback.

A flurry of cross-border and Internet shopping propelled by the loonie's rise took a bite out of Forzani's margins during the third quarter.

"The media, stoked by our friend Mr. (Finance Minister Jim) Flaherty, made all retailers look like they were gouging Canadian consumers," he said.

"The culprits here are archaic, unnecessary and expensive Canadian import duties and to a certain degree wholesale pricing to retailers across the board in Canada."

As a means to stem the sales leakage into the U.S. market, Forzani took on an aggressive pricing posture.

"We could have sat back and watched, or we could have got aggressive. And that's what we chose to do at that time," said Bill Gregson, the company's chief operating officer.

Much of Canada experienced summer-like temperatures well into October, which also led to a big dip in sales.

"The unseasonably warm weather did impact early season sales in winter clothing and ski and snow categories," said Tom Quinn, the president of Forzani's franchise business.

Now that wintry weather is settling in throughout Canada, things are looking better.

"Our fourth quarter is off to a pretty decent start, with near ideal winter weather conditions across the country," Sartor said.

Also helping out has been the introduction of redesigned Sport Chek locations in Winnipeg, Brampton, Ont., and Newmarket, Ont.

Those stores have a different fixturing package and layout designed to drive apparel sales.

"The results so far to date have been outstanding and we are very, very excited about taking this concept forward," Gregson said.

On Friday, Forzani reported third quarter net profit was $12.6 million, or 36 cents per share, compared to $11.9 million, or 35 cents per share a year earlier.

Retail system sales - which included corporate and franchise stores - were $344.6 million, an increase of $5.1 million, or 1.5 per cent from sales of $339.5 in 2006.

Same store sales for corporate locations were down 2.4 per cent, but increased three per cent in franchise locations, for an overall same store sales decrease of 0.7 per cent.

Forzani closed a $21.5 million deal to buy Athlete's World Ltd. earlier this month. Last week the company said it plans to close 37 insolvent Athletes World stores.

Athletes World is restructuring under court supervision and Forzani said it expects that process to be complete in the spring.