September 3, 2008 / 11:47 AM / 10 years ago

Forzani profit takes hit from economy, weather

OTTAWA (Reuters) - Canada’s biggest sporting goods retailer, Forzani Group Ltd FGL.TO, reported a 72 percent drop in second-quarter profit on Wednesday as cool and wet summer weather, a tough economy and store renovations hurt results.

Forzani said renovations at about 20 key locations had a huge impact on sales growth, but will leave the company well-positioned for its back-to-school and Christmas sales periods.

“As some of these reno sales start kicking in, we might have a nice little sales surprise, particularly on the apparel side in the third and fourth quarter,” Chief Executive Bob Sartor told analysts during a conference call.

Amid weaker consumer spending, Forzani said that net income fell to C$1.5 million ($1.4 million), or 5 Canadian cents a share, in the quarter ended August 3, from C$5.4 million, or 16 Canadian cents a share, a year earlier.

Excluding the impact of its Athletes World acquisition, profit was C$1.9 million, or 6 Canadian cents a share.

The results trailed the average estimate of analysts for a profit of 9 Canadian cents a share before exceptions, according to Reuters Estimates.

“I’m not positive on the results and I’m not positive on the outlook,” said an analyst who asked not to be named.

“I believe the Canadian consumer is shifting to a little bit of a conservative stance and I believe our retailing sector, especially the discretionary apparel sector, and the stocks, will lag what you’re seeing in the States.”

Shares in the Calgary, Alberta-based company were down 1.4 percent at C$13.32 on the Toronto Stock Exchange at midday. So far this year the stock is down about 20 percent.

Forzani said revenue rose 1 percent to C$295.6 million.

Sales growth at corporate stores open more than one year declined 6.5 percent, while sales at franchise stores were 0.6 percent lower.

Executives said that in some cases, the renovations, which typically take six to 12 weeks, reduced sales by up to 70 percent to 90 percent in a given week.

In the first four weeks of the third quarter, sales are up 9.8 percent in corporate stores and 5.4 percent for franchise locations.

Corporate-owned stores, including flagship Sport Chek, represent about 60 percent of revenue, but their performance typically lags sales growth at franchise stores, such as Sports Experts and Nevada Bob’s Golf.

The sporting goods company, founded in 1974 by John Forzani and three other Calgary Stampeder football team players, has grown through a string of acquisitions amid sector consolidation.

It acquired the Athletes World chain, which was under bankruptcy protection until June 30, in late 2007.

Forzani, which runs 565 stores across Canada, said it is better managing its inventory and has cut senior staff to reduce a complex management structure and costs.

($1=$1.06 Canadian)

Additional reporting by Jennifer Kwan in Toronto; editing by Rob Wilson

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