Forzani Posts Third Quarter Results and Completes Athletes World Restructuring

CALGARY, ALBERTA--(Marketwire - Dec. 12, 2008) - The Forzani Group Ltd. (TSX:FGL), Canada's largest retailer of sporting goods, today reported fiscal 2009 third quarter results for the 13 weeks ended November 2, 2008.


Financial Highlights:
----------------------------------------------------------------------------
For the thirteen For the thirty-nine
weeks ended weeks ended
----------------------------------------------------------------------------
November 2, October 28, November 2, October 28,
2008 2007 2008 2007
----------------------------------------------------------------------------
Same Store Sales
Corporate -0.2% -2.4% -2.1% -0.7%
Franchise 11.5% 3.0% 4.5% 6.5%
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Consolidated 3.8% -0.7% 0.3% 1.8%
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Revenue ($000s)
Retail 245,325 224,158 676,945 630,458
Wholesale 117,569 109,313 289,001 289,950
----------------------------------------------------
Total 362,894 333,471 965,946 920,408
----------------------------------------------------------------------------
EBITA Margin 7.6% 9.9% 5.2% 7.4%
----------------------------------------------------------------------------
Net Earnings ($000's) 6,586 12,586 5,156 18,753
----------------------------------------------------------------------------
Earnings Per Share
Excluding Tax Adjustment $0.28 $0.36 $0.22 $0.55
----------------------------------------------------------------------------
Earnings Per Share $0.22 $0.36 $0.16 $0.55
----------------------------------------------------------------------------


For the Third Quarter:

Earnings and Earnings Per Share:

Net earnings for the third quarter were $8.4 million, or $0.28 per share, exclusive of a one-time tax adjustment of $0.06 per share, compared to the prior year's third quarter of $12.6 million, or $0.36 per share.

The Company increased its tax provision as a result of an assessment which would deny interest deductions of certain payments by the Company to a subsidiary in the taxation years ended 2004 and 2005. The earnings impact in the current quarter totals $1.8 million and the Company has provided for the proposed settlement. Including the impact of this provision, net earnings for the Company were $6.6 million of $0.22 per share.

Cash flow from operations remained strong at $0.51 per share versus $0.63 in the prior year.

Sales:

Retail system sales (1) for the quarter were $381.0 million, an increase of $36.4 million, or 10.6% from the comparable 13-week sales of $344.6 million. Of the increased sales, approximately $18.6 million was attributable to Athletes World with the remainder derived in the franchise division which saw double digit same store increases despite the turbulent economic environment.

Same store sales in corporate locations were down 0.2% and increased 11.5% in franchise locations, for an overall same store sales increase of 3.8%.

(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.

Revenue, consisting of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties, was $362.9 million, up $29.4 million, or 8.8% from the comparable period last year.

Gross Margins:

Combined gross margin for the 13-weeks ended November 2, 2008 was 33.3% of revenue, or $121.0 million, compared to 34.2%, or $113.9 million in the previous year. The margin rate reduction in the quarter reflects an aggressive pricing strategy in light of the deterioration in consumer confidence and spending.

Expenses:

Store operating expenses, as a percent of corporate store revenue, were 27.0% against the prior year of 27.2%. Same store operating costs were 25.4% of corporate store revenue, 26.0% in the prior year. Same store costs, in absolute dollars, decreased $1.4 million or 2.5%. These decreased costs, in absolute dollars and as a percentage of revenue, are a reflection of reduced accruals for year end store performance-based compensation costs and continued efforts to control costs.

General and administrative expenses were 7.5% of total revenue versus the prior year's 6.0%. The absolute dollar increase of $7.2 million is attributable to $2.4 million in Athletes World infrastructure costs, $3.6 million in incremental advertising spending and standard year over year expense increases, while the rate increase reflects the reduced sales volumes versus plan rather than any unplanned expenses.

Earnings before interest, taxes and amortization ("EBITA") were $27.3 million or 7.6% of revenues, compared to $32.9 million or 9.9% of revenues for the 13-week period last year.

Store Activity:

During the quarter, the Company opened 1 Sport Chek and 1 corporate Nevada Bob's Golf store and closed 1 Nevada Bob's Golf, 1 Sport Mart and 3 Athletes World stores. In the franchise division, 5 stores were opened (2 Atmosphere, 1 Hockey Experts, 1 S3 and 1 Buying Member) and 6 stores closed (2 Intersport and 4 Nevada Bob's Golf). Additionally, 1 Buying Member converted to an Intersport franchise. As a result, at the end of the third quarter, the Company had 335 corporate stores and 226 franchise locations. The Company now has 561 stores from coast to coast (October 28, 2007 - 490 stores).

For the Year to Date:

Earnings per share for the 39-week period ended November 2, 2008 were $0.16, compared to $0.55 in the prior year. Excluding the impact of the Athletes World acquisition, earnings per share were $0.22. As noted above, the Alberta Finance settlement proposal reduced earnings by $0.06. Excluding both Athletes World and the Alberta Finance settlement, earnings per share were $0.28 for the 39 weeks ending November 2, 2008.

Cash flow from operations was $32.2 million or $1.02 per share compared to $1.41 per share, in the prior year.

Retail system sales for the 39 weeks were $1.072 billion, a $67.4 million increase from sales for the comparative fiscal 2008 period. Same store sales in corporate stores decreased 2.1%, while franchise stores increased 4.5%, with total same store retail system sales increasing 0.3%.

Revenue was $965.9 million, a $45.5 million, or 4.9% increase over the 39-week period last year. Combined gross margin for the 39 weeks ended November 2, 2008 was up 30 basis points to 34.4% of revenue, from 34.1% in the prior year driven by improvements in our wholesale businesses. In absolute dollars, the combined gross margin increased $18.0 million, to $332.1 million, from the 39-week period last year.

Store operating expenses, as a percent of corporate revenue, were 29.9% versus 28.1% in the prior year. General and administrative expenses were 8.3% of total revenue versus 7.4% in the prior year.

EBITA was $49.9 million, or 5.2% of total revenue, compared to 7.4% for the same period last year. Earnings before income taxes for the 39 weeks ended November 2, 2008 were $10.4 million compared to $29.7 million for the 39-week period in the prior year.

Management's Comments:

As noted in our Q2 and Back to School press releases, business in Q3 was a roller coaster ride, starting well before Labour Day, dropping off during September, as the financial crisis sent nervous consumers to the sidelines, and finishing well in October as our promotional strategy kicked in during the last 5 weeks and brought value conscious consumers back to our stores.

Our regularized earnings for the quarter, although reduced by the impact of additional promotional activities on margins and general and administrative costs, are satisfactory when viewed in terms of the extreme economic turbulence seen during the quarter. Additionally, we are pleased to note that Athletes World broke even for the quarter, and should be accretive to earnings for the balance of the year and in the future. The reorganization and rationalization of Athletes World back-office functions were completed during November. We look forward to solid results throughout the remainder of the year. EBITA, on a trailing four-quarter basis, was $104.5 million, or 7.6% of revenues, compared to $115.3 million, or 9.1%, for the four quarters ending in the third quarter of last year, a 9.4% decrease.

On December 12, 2008 the Company declared a dividend of $0.075 per Class A common share, payable on February 2, 2009 to shareholders of record on January 19, 2009. All dividends paid by The Forzani Group Ltd. are, pursuant to subsection 89 (14) of the Income Tax Act, designated as eligible dividends. An eligible dividend paid to a Canadian resident is entitled to the enhanced dividend tax credit.

For the first five weeks of the fourth quarter, same store sales from corporate stores increased 0.1% and franchise same store sales 6.2%. These results were on top of same store sales increases in the prior year of 4.9% and 16.7% respectively. Corporate store margins improved on both a rate and dollar basis.

In conjunction with this release, the Company invites you to listen to its teleconference call that will take place Monday, December 15, 2008 at 8:00 am MST.

Teleconference Call: To listen to the teleconference call, please dial the following number approximately five minutes prior to commencement:
Within Toronto: 416-644-3415
Outside Toronto: 800-732-9307

Replay: Should you be unable to join the conference call, an audio recording will be available approximately three hours after the call until Monday December 29, 2008 at 416-640-1917 or 877-289-8525 (pass code 21290802#).

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, Coast Mountain Sports, 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 banners which can be accessed through its main website www.forzanigroup.com.

The foregoing information may contain forward-looking statements relating to the future performance of The Forzani Group Ltd. Forward-looking statements, specifically those concerning future performance, are subject to certain risks and uncertainties, and actual results may differ materially. The Company, in compliance with the reporting requirements of the Canadian securities commissions, details these risks and uncertainties from time to time.


The Forzani Group Ltd.


Consolidated Balance Sheets
(in thousands)
(unaudited)


November 2, February 3, October 28,
As at 2008 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------


ASSETS
Current
Cash and cash equivalents $ 1,996 $ 47,484 $ 9,854
Accounts receivable 154,455 75,506 138,548
Inventory (Note 1) 378,978 319,445 376,620
Prepaid expenses 2,863 14,501 3,647
----------------------------------------------------------------------------
538,292 456,936 528,669
Capital assets 191,761 188,621 185,812
Goodwill and other intangibles 91,499 89,335 89,338
Other assets 8,423 3,863 3,950
Future income tax asset 16,013 16,209 309
----------------------------------------------------------------------------


$ 845,988 $ 754,964 $ 808,078
----------------------------------------------------------------------------
----------------------------------------------------------------------------


LIABILITIES
Current
Indebtedness under revolving
credit facility $ 90,643 $ - $ -
Accounts payable and
accrued liabilities 381,214 279,910 349,058
Current portion of
long-term debt 2,398 51,863 51,671
----------------------------------------------------------------------------
474,255 331,773 400,729
Long-term debt 4,623 6,586 6,685
Deferred lease inducements 49,824 55,089 55,367
Deferred rent liability 5,927 6,033 6,140
----------------------------------------------------------------------------
534,629 399,481 468,921
----------------------------------------------------------------------------


SHAREHOLDERS' EQUITY
Share capital (Note 3) 147,161 157,105 160,105
Contributed surplus 6,401 7,210 6,821
Accumulated other
comprehensive earnings (loss) 928 (8) (166)
Retained earnings (Note 1) 156,869 191,176 172,397
----------------------------------------------------------------------------
311,359 355,483 339,157
----------------------------------------------------------------------------
$ 845,988 $ 754,964 $ 808,078
----------------------------------------------------------------------------
----------------------------------------------------------------------------






The Forzani Group Ltd.


Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)


For the thirteen For the thirty-nine
weeks ended weeks ended
November 2, October 28, November 2, October 28,
2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Revenue
Retail $ 245,325 $ 224,158 $ 676,945 $ 630,458
Wholesale 117,569 109,313 289,001 289,950
----------------------------------------------------------------------------
362,894 333,471 965,946 920,408
Cost of sales 241,948 219,545 633,835 606,332
----------------------------------------------------------------------------
Gross margin 120,946 113,926 332,111 314,076
----------------------------------------------------------------------------


Operating and
administrative expenses
Store operating 66,302 60,915 202,545 177,401
General and
administrative 27,310 20,065 79,690 68,330
----------------------------------------------------------------------------
93,612 80,980 282,235 245,731
----------------------------------------------------------------------------


Operating earnings
before undernoted items 27,334 32,946 49,876 68,345
----------------------------------------------------------------------------
Amortization of capital
assets 12,076 11,137 34,861 33,039
Interest 2,609 1,831 4,568 4,737
Loss on sale of investment - - - 864
----------------------------------------------------------------------------
14,685 12,968 39,429 38,640
----------------------------------------------------------------------------


Earnings before
income taxes 12,649 19,978 10,447 29,705
----------------------------------------------------------------------------


Income tax expense
(recovery)
Current 5,667 7,428 5,095 11,146
Future 396 (36) 198 (194)
----------------------------------------------------------------------------
6,063 7,392 5,293 10,952
Net earnings for
the period $ 6,586 $ 12,586 $ 5,154 $ 18,753
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per share
(Note 3) $ 0.22 $ 0.37 $ 0.16 $ 0.55
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Diluted earnings per
share (Note 3) $ 0.22 $ 0.36 $ 0.16 $ 0.55
----------------------------------------------------------------------------





The Forzani Group Ltd.


Consolidated Statements of Retained Earnings, Comprehensive Earnings and
Accumulated Other Comprehensive
Earnings (Loss)
(in thousands)
(unaudited)


For the thirteen For the thirty-nine
Consolidated weeks ended weeks ended
Statements of November 2, October 28, November 2, October 28,
Retained Earnings 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Retained earnings,
beginning of period $ 152,567 $ 169,410 $ 191,176 $ 171,095
Adjustment arising
from adoption of new
accounting policy
(Note 1) - - (1,357) -
----------------------------------------------------------------------------
Adjusted Retained
earnings, beginning
of period 152,567 169,410 189,819 171,095
Net earnings 6,586 12,586 5,154 18,753
Dividends (Note 3(e)) (2,284) - (7,042) -
Adjustment arising from
shares purchased under
a normal course issuer
bid (Note 3 (b)) (9,599) (31,062) (17,451)
----------------------------------------------------------------------------
Retained earnings,
end of period $ 156,869 $ 172,397 $ 156,869 $ 172,397
----------------------------------------------------------------------------
----------------------------------------------------------------------------





Consolidated Statement of Comprehensive Earnings
----------------------------------------------------------------------------
For the thirteen For the thirty-nine
Consolidated weeks ended weeks ended
Statement of November 2, October 28, November 2, October 28,
Retained Earnings 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings $ 6,586 $ 12,586 $ 5,154 $ 18,753
----------------------------------------------------------------------------
Other comprehensive
earnings (loss):
Unrealized foreign
currency gains and
losses on cash flow
hedges 1,391 (264) 1,439 (389)
Tax impact (486) 98 (503) 144
----------------------------------------------------------------------------
Other comprehensive
earnings (loss) 905 (166) 936 (245)
----------------------------------------------------------------------------
Comprehensive earnings $ 7,491 $ 12,420 $ 6,090 $ 18,508
----------------------------------------------------------------------------
----------------------------------------------------------------------------





Consolidated Statement of Accumulated Other Comprehensive Earnings (Loss)
("AOCE")
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the thirteen For the thirty-nine
weeks ended weeks ended
November 2, October 28, November 2, October 28,
2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated other
comprehensive earnings
(loss), beginning of
period $ 23 $ - $ (8) $ -
Reclassification of
foreign currency
translation
(transitional
adjustment) - - - 79
----------------------------------------------------------------------------
Accumulated other
comprehensive
earnings (loss),
beginning of period,
as restated 23 - (8) 79
Other comprehensive
earnings (loss) 905 (166) 936 (245)
----------------------------------------------------------------------------
Accumulated other
comprehensive earnings
(loss), end of period $ 928 $ (166) $ 928 $ (166)
----------------------------------------------------------------------------
----------------------------------------------------------------------------






The Forzani Group Ltd.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)


----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the thirteen For the thirty-nine
weeks ended weeks ended
November 2, October 28, November 2, October 28,
2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Cash provided by
(used in) operating
activities
Net earnings for
the period $ 6,586 $ 12,586 $ 5,154 $ 18,753
Items not involving
cash:
Amortization of
capital assets 12,076 11,137 34,860 33,039
Amortization of
deferred finance
charges 37 189 333 731
Amortization of
deferred lease
inducements (2,821) (2,754) (8,591) (8,260)
Rent expense (Note 5) 70 151 74 606
Stock-based compensation
(Note 3(c)) (1,120) 76 (174) 2,338
Future income tax
expense (recovery) 395 (36) 196 (194)
Loss on sale of investment - - - 864
Unrealized loss on
ineffective hedges 345 8 344 37
----------------------------------------------------------------------------
15,568 21,357 32,196 47,914
Changes in non-cash
elements of working
capital related to
operating activities
(Note 5) 39,469 27,042 (31,087) (30,629)
----------------------------------------------------------------------------
55,037 48,399 1,109 17,285
----------------------------------------------------------------------------
Cash provided by (used in)
financing activities
Proceeds from issuance
of share capital
(Note 3(b)) - 1,087 2,384 13,115
Share repurchase via
normal course issuer bid
(Note 3(b)) - (12,785) (44,027) (22,695)
Decrease in long-term debt (879) (64) (1,762) (2,011)
Increase (decrease) in
revolving credit
facility (38,801) (18,809) 90,643 -
Dividends paid
(Note 3(e)) (2,284) - (7,042) -
Lease inducements
received 2,028 2,690 3,327 5,084
----------------------------------------------------------------------------
(39,936) (27,881) 43,523 (6,507)
Changes in non-cash
elements of financing
activities (Note 5) (555) (150) (50,675) (1,462)
----------------------------------------------------------------------------
(40,491) (28,031) (7,152) (7,969)
----------------------------------------------------------------------------
Cash provided by (used in)
investing activities
Capital assets (11,538) (11,740) (34,611) (26,743)
Other assets (2,373) 269 (2,402) 3,303
----------------------------------------------------------------------------
(13,911) (11,471) (37,013) (23,440)
Changes in non-cash
elements of investing
activities (Note 5) (1,429) 213 (2,432) 1,220
----------------------------------------------------------------------------
(15,340) (11,258) (39,445) (22,220)
----------------------------------------------------------------------------
Increase (decrease)
in cash (794) 9,110 (45,488) (12,904)
Cash position, opening 2,790 744 47,484 22,758
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Cash position, closing $ 1,996 $ 9,854 $ 1,996 $ 9,854
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###

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