April 10, 2008 / 11:48 AM / 9 years ago

Forzani profit gets lift from winter, tax rate

OTTAWA (Reuters) - Fourth-quarter profit at Forzani Group FGL.TO rose 36 percent, helped by an additional week of sales, lower taxes and a cold winter, Canada's biggest sporting goods retailer said on Thursday.

The company's shares dropped by as much as 6 percent after the news, however, with the market concerned about a slow start to the first quarter. Forzani said sales were down 6.6 percent in the first eight weeks of the first quarter.

"The good news...is, for the first time in my 11 years here, we just about ran out of inventory of skis, snowboards and outerwear," Chief Executive Bob Sartor said on a conference call. "The bad news is we ran out of inventory in late January and had very little to sell in February, March."

Forzani, whose banners include Sport Chek, Sports Experts and Coast Mountain Sports, said fourth-quarter earnings were a record C$28.7 million ($28.1 million), or 85 Canadian cents a share, in the three months ended February 3. That is up from a net profit of C$21.1 million, or 62 Canadian cents a share, in the year-before period.

Lower corporate income tax rates added C$2.2 million, or 6 Canadian cents a share, to earnings, Forzani said.

Desjardins Securities analyst Keith Howlett expected a profit of 75 Canadian cents a share, he said in a note ahead of the results.

"Forzani had good numbers, surprisingly stronger," said Sprung & Co. Investment Counsel President Michael Sprung. "The consumer in Canada, thus far, has been able to show more signs of strength than that in the U.S."

Revenue rose about 16 percent to C$410.6 million.

Sales at stores open for at least one year increased 10.6 percent in corporate stores and 17.7 percent in franchise locations.

Gross margin slipped to 40 percent of revenue from 41.2 percent, reflecting "aggressive pricing" to offset a stronger Canadian dollar.

Operations of Athletes World stores, which Forzani acquired in November, reduced earnings by less than C$300,000, or 1 Canadian cent a share, but lifted revenue.

Sartor said he was "not at all" concerned about the slow start to the first quarter because sales of summer gear were up and, over the past two weeks, same-store sales have improved.

"It's a heck of a long year and Q1 represents less than 3 percent of our (annual) EPS target," he said.

The company also plans a series of moves to bolster sales and margins this year. It will spend about C$30 million as it opens 38 new stores and renovates another 12 to 14.

Forzani said it will also test new types of retail offerings. It has opened three S3 stores, which sell snow, skate and surf gear, and plans to open two more this year and accelerate that pace in 2009.

Forzani had 344 corporate stores and 223 franchise locations at the end of the quarter, an 18 percent jump from the total of 479 stores it had at yearend 2007.

Its shares were off about 3 percent at C$17.10 on the Toronto Stock Exchange on Thursday afternoon.

($1=$1.02 Canadian)

Reporting by Jonathan Spicer and Susan Taylor; Editing by Peter Galloway

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