Fitness financials: Forzani Group reports 3Q earnings, plus Bally, Finish Line, Wal-Mart, Sears, Costco, Lifetime Fitness

Canada’s Forzani Group reports higher 3Q earnings, lower comps
Forzani Group (FGL.TO), Canada’s largest sporting goods retailer that announced big plans in October to take on specialty fitness by mid-2005, reported third-quarter net earnings of CDN $6.4 million (USD $5.36 million), or CDN $0.20 (USD $0.17) per diluted share, versus CDN $5.9 million (USD $4.94 million), or CDN $0.18 (USD $0.15) per diluted share, a year earlier. Its earnings were higher than expected and CEO Bob Sartor said the gain was from a strong wholesale business and managing costs.

Results from last year were restated due to a new accounting guideline, the company said. Forzani would have earned CDN $ 0.23 (USD $0.19) per share in both the current and previous year’s third quarters in the absence of the accounting change.

Third-quarter revenue — which is made up of corporate store sales, wholesale sales, service income, equipment rentals, franchise fees and franchise royalties — was CDN $265.7 million (USD $223 million), a 6.2 percent increase over 2003’s CDN $250.2 million (USD $210 million). Combined gross margin for the quarter was down 140 basis points to 31.1 percent of revenue, from 32.5 percent in the prior year. Forzani said it has changed how it weighs the retail sales versus wholesale components of total revenue: 66 percent retail and 34 percent wholesale in fiscal 2005 compared to 72 percent and 28 percent, respectively, in fiscal 2004. Retail sales generate a greater gross margin percentage than wholesale sales, and a decrease in the retail component of revenue generally reduces the overall gross margin percentage. In absolute dollars, the combined gross margin increased CDN $1.1 million (USD $921,300), to CDN $82.5 million (USD $69.1 million), from the 13-week period last year.

Same-store sales from corporate locations were down 4.4 percent, driven largely by soft sales in the early weeks of the quarter and the increased competitive environment, specifically in Ontario, according to the company. Franchise same-store sales were flat. On a combined basis, comparable store sales were down 3.0 percent.

Forzani operates under the banners Sport Chek, Coast Mountain Sports and Sport Mart. At the end of the third quarter, it had 226 corporate stores and 173 franchise locations. On Dec. 3, Forzani opened a 75,000-square-foot Sport Chek Supercentre in Place d’Orleans in Ottawa, Canada. Sport Chek is the largest retailer of its kind in Canada, and carries more than 46,000 brand name and private-brand products. The new specialty fitness branch planned would incorporate equipment sales with a training studio under one roof. (See SNEWS® story, Oct. 11, 2004, “Forzani Group to take on specialty fitness in Canada with a twist.”)

(Conversion of Canadian dollars to U.S. dollars is for information only, is not necessarily relative to earnings, and is based on the currency rate as of Dec. 3.)

Bally increases fee payable to noteholders
Bally Total Fitness Holding (NYSE: BFT) has increased the fee payable to holders of its 10-1/2 percent Senior Notes due 2011 and 9-7/8 percent Senior Subordinated Notes due 2007 who consent to waivers of defaults under the indentures governing the notes in accordance with the requirements set forth in Bally’s Consent Solicitation Statements dated Nov. 15, 2004, and the related Letters of Consent. The Initial Consent Fee has been increased to $5 (from $2.50) per $1,000 in principal amount of 10-1/2 percent Senior Notes due 2011 and 9-7/8 percent Senior Subordinated Notes due 2007. Any Additional Consent Fees payable in accordance with Bally’s Consent Solicitation Statements will remain at $2.50 per $1,000. Bally also announced that it has extended the Consent Date to Dec. 7, 2004. Bally has retained Deutsche Bank Securities Inc. to serve as its solicitation agent and MacKenzie Partners, Inc. to serve as the information agent and tabulation agent for the consent solicitation.

Internet sales boost Finish Line’s 3Q sales
Third-quarter net sales for Finish Line (Nasdaq: FINL) were up 16 percent to $235.3 million from 2003’s $202 million. Its same-store sales increased 8 percent during the third quarter — marking the eighth consecutive quarter of comp gains. It also said Internet sales boosted same-store sales by 2 percent during the third quarter. The retailer reconfirmed its earnings expectations for the period. Finish Line said it still expects third-quarter earnings of 4 cents to 6 cents per share. Analysts expect the company to post earnings of 6 cents per share when it reports results on Jan. 4. During the third quarter, Finish Line opened 30 stores, remodeled 12 existing stores and closed two stores.

Wal-Mart posts low November same-store sales
Wal-Mart Stores, Inc. (NYSE:WMT) reported November net sales for the Wal-Mart Stores division were $15.739 billion up 6.6 percent from 2003’s $14.764 billion. Same-store sales were 0.3 percent compared to 2003’s 3.7 percent. For the December five-week period, the mega-retailer forecasts U.S. comparative sales to be up in the 1 percent to 3 percent range.

Sears reports a 3Q increase in domestic sales to $2.51 billion
Sears (NYSE: S) said same-store sales for its domestic stores increased by 2.8 percent. Sales for all domestic stores went up 1.9 percent, coming in at $2.51 billion. The year-to-date figures are still in the negative, though: same-store sales are down 1.5 percent, while total sales are down 2.8 percent.

November store sales up 5 percent for Costco
Net sales for Costco Wholesale Corp. (Nasdaq: COST) for November were $4.08 billion, an increase of 7 percent from 2003’s $3.80 billion. Same-store sales for November were up 5 percent. For the first 13 weeks of its 2005 fiscal year ended Nov. 28, 2004, Costco reported net sales of $12.40 billion, an increase of 10 percent from last year’s $11.29 billion. Same-store sales for the 13-week period were 7 percent.

LTM gets thumbs-up “outerperform/buy” from CSFB
Credit Suisse First Boston’s (CSFB) equity research report reiterated its rating of Life Time Fitness (NYSE: LTM) as an “outperform/buy” stock. CSFB has set its 12-month target price for LTM shares at $32 on Nov. 30. LTM closed at $24.85 and has been going up daily, closing at $27 on Dec. 3. CFSB also said that LTM clubs are “performing well in excess of (their) 90 percent capacity goal,” and that attrition rates at these clubs “have remained consistent at 30 percent to 35 percent per year.”

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