Forzani close to settling dispute

Forzani Group Ltd. is close to settling a dispute with the Competition Bureau involving allegations of advertising misleading sale prices, prompting the country's largest sporting goods retailer to take a fourth-quarter financial provision for the settlement and legal fees.

The Globe and Mail
March 25, 2004

Forzani close to settling dispute
Competition Bureau says sporting goods retailer advertised misleading sales prices
Marina Strauss

Forzani Group Ltd. is close to settling a dispute with the Competition Bureau involving allegations of advertising misleading sale prices, prompting the country's largest sporting goods retailer to take a fourth-quarter financial provision for the settlement and legal fees.

Sources said the retailer is expected to pay a penalty of roughly $1-million, about the same amount that women's clothier Suzy Shier shelled out last year for a similar transgression. As well, Forzani will be required to put notices about the matter in newspapers, on-line and in stores, and change its advertising to comply with the rules on pitching prices, among other things.

Forzani revealed it was taking a provision for the settlement yesterday as it released fourth-quarter results, which were in line with preliminary, lowered estimates, although revenue slipped a bit in light of the tough, competitive market.

As well, the company said it is buying Toronto-based Gen-X Sports, which purchases manufacturers' excess sporting goods, resells them to retailers that subsequently offer the products to shoppers at cheaper prices.

These so-called close-out deals are becoming increasingly popular among retailers such as Hudson's Bay Co. as they search for ways to offer bargains to value-conscious consumers and take on the giant, low-priced Wal-Mart Canada.

Forzani has been selling close-outs for years, using Gen-X as a supplier, but the acquisition "cements" the importance of the business during this time of fierce price competition, company executives told analysts. Forzani will spend almost $4-million in shares to acquire Gen-X, based on yesterday's stock price.

"One could view this as a natural hedge in the competitive environment that we have today," Robert Sartor, Forzani's chief executive officer, told an analysts' conference call.

The move to acquire Gen-X underlines the challenges in the sporting-goods sector, which is experiencing one of its slowest periods of growth in the past five years.

Forzani suffered its worst January — usually a strong month for the chain — in six years, Mr. Sartor said.

He expects further consolidation in the industry in the next 12 to 18 months.

To bolster the business, Forzani plans to remodel its Sport Chek stores, brightening them up and making the clothing area more appealing. Clothing and footwear make up about 65 per cent of total sales.

It is also putting outdoor sporting goods that previously were carried only in its Coast Mountain Sports chain into its Sport Chek stores.

And it is stepping up its private-label program, as well as close-out sales, while introducing a new promotion strategy that will entail more signature events, such as the "hockey plus" $99 ski sales, analysts were told.

By the fall, it will start to heavily market its banner names rather than simply advertising prices.

For the 52 weeks ended Feb. 1, profit fell to $28-million or 90 cents a share from $30-million or $1 in the 53 weeks of the previous year. Sales rose to $1.11-billion from $1.05-billion.

Same-store sales for the year dropped 0.7 per cent. Those are sales at stores open more than a year, and considered a crucial measure in retailing.

Same-store sales continued to slip — by 0.8 per cent — in the first seven weeks of the current year.

For the coming year, the company is taking a conservative approach, forecasting a profit of between $1.02 a share and $1.10 — reflecting its belief that heated competition will continue in fiscal 2005.

It expects same-store sales in fiscal 2005 to rise 1 per cent. In past years, the company looked for same-store sales gains in the 3- to 4-per-cent range.

Forzani's stock closed up 15 cents at $13.20 on the Toronto Stock Exchange yesterday.

Keith Howlett, retailing analyst at Desjardins Securities, said apparel has been a big driver of Forzani's profit up to about 1½ years ago. Now, "it appears to be creating some difficulties for them."

Young consumers no longer find the athletic look as appealing as they did in the past , he said.

As well, heightened competition from new foreign apparel chains such as Old Navy and American Eagle Outfitters have pinched Forzani's business, he said.

Mr. Howlett said he is surprised Mr. Sartor mentioned during the conference call that the company was taking a provision for the expected Competition Bureau settlement. Company executives had suggested earlier that the amount wasn't going to be material, he said.

Company executives did not return calls for comment.


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