June 11, 2008 / 11:38 AM / 10 years ago

Forzani blames loss on low inventory, stock drops

OTTAWA (Reuters) - Forzani Group FGL.TO, Canada’s biggest sporting goods retailer, posted a first-quarter loss on Wednesday, blaming a lack of inventory, and its shares dropped 7 percent in early trade.

The company’s shares were down C$1.15 at C$15.35 on the Toronto Stock Exchange, their lowest level since February.

Forzani reported a net loss of C$2.9 million ($2.8 million), or 9 Canadian cents a share, for the quarter ended May 4, saying inventory was depleted by a strong fourth quarter, when cold weather spurred demand.

That compares with earnings of C$739,000, or 2 Canadian cents, in the same quarter a year earlier.

The results included a C$1.3 million loss at the Athletes World chain it acquired last November. Forzani said that spring inventory was hit by order cancellations while the chain operated under bankruptcy protection. Athletes World is expected to exit creditor protection at month’s end.

Despite a “slow start,” the company said it expects to meet its targets for the year and sees Athletes World becoming profitable once it receives fresh inventory.

Adjusted to exclude the impact of Athletes World, the company said it lost 5 Canadian cents a share.

Analysts on average had expected a profit of 2 Canadian cents before exceptions, according to Reuters Estimates.

Spring merchandise sales were also hurt by unseasonal weather and came in below expectations, said Forzani, adding that results were further squeezed by a new statutory holiday in Ontario, its biggest market.

Sales and margins improved late in the quarter, but could not offset weak demand in the first eight weeks of the period, the company said.

Forzani, which sells under names including Sport Chek, Sports Experts and Coast Mountain Sports, said revenue rose 4.4 percent to C$307.5 million.

Consolidated revenue includes equipment rentals, service income, franchise fees and royalties, along with store and wholesale sales.

Sales at corporate stores open more than one year fell 5.2 percent in the quarter, but rose 3.1 percent at franchise locations. On a consolidated basis, same-store sales fell 2.1 percent.

Gross margin increased to 34.3 percent of revenue, or C$105.4 million, from 33.3 percent in the same period last year.

Calgary-based Forzani said the first-quarter traditionally represents about 2 percent of earnings.

Forzani operates 568 stores in Canada. It has said it plans to test new types of retail offerings, including S3 stores, which sell snow, skate and surf merchandise.

($1=$1.02 Canadian)

Reporting by Susan Taylor and John McCrank; Editing by Peter Galloway

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