A disgruntled punter on an investment chat board recently described chief executive Bob Sartor and other Forzani Group managers as a “bunch of farmers” in response to the company’s blaming plummeting profits on the weather.
Presumably, this was meant to be a slight against the brass at Canada’s largest sporting goods retailer, but Sartor and Co. should take it as a compliment. Whether they are deserving of such lavish praise is another question.
The farmers I know in Saskatchewan may bitch about the weather, but they are also known for persevering in the face of adversity. When they have a bumper crop devastated by frost as has been the case this fall, the farmers still go out in the field and take off their crops, using the straw as bedding for livestock and low-grade grain for pig feed.
Many farmers spent Thanksgiving this year toiling in the field to salvage whatever they can to save their farms, which leads us to wonder what actions Forzani’s might be entertaining to get its operation back on track.
Shareholders and analysts are growing weary of Sartor’s explanations for Forzani Group’s recent financial shocks.
Even farmers would be hard- pressed to come up with the excuses employed by public companies such as Forzani Group (TSX: FGL) in explaining lousy financial results.
I can’t ever recollect a farmer point the finger at the calendar for grasshopper crop damage, but the calendar has cropped up in Forzani’s latest press release as a factor to explain disappointing back-to-school sales and the slashing of its earnings forecast.
In the release before Thanksgiving weekend, Sartor said: “Heavy competitive discounting in August combined with the change in the calendar, pushing Labour Day one week later, impacted sales in August.”
There was no mention from the company about whether the calendar arrived late this year.
Judging by the response of shareholders, they have become fed up with surprises from the Calgary-based company and are more interested in seeing results than hearing about how competitive issues or ruthless calendars are cutting into the bottom line.
The latest warning, calling for full-year earnings of 84 cents to 90 cents from previous estimates of $1.02 to $1.10 for the current fiscal year, gutted the share price by another $1.15 to $10.93 and the selloff may not be done.
From a technical perspective, the stock’s chart isn’t showing any sign of bottoming.
The one-time whiz kid of Canada’s retailers, which runs the Sport Chek, Sport Mart and Coast Mountain Sports chains, has seen its stock tank 40 per cent in the past 12 months and investor sentiment is also waning (sentiment on the stock recently rated an extremely bearish 18 out of 100, according to the Stockscores.com system of technical analysis.)
George Hartman, an analyst at Dundee Securities, believes Forzani Group’s results reflect “deeper problems in strategy and inventory management” and has promptly put his target price where his mouth is. Hartman has downgraded the shares to “market underperform” – that’s usually a polite way of screaming “Sell!” – with a target price of $8.50.
Two other analysts followed Hartman’s lead by downgrading the stock. Kathleen Wong of CIBC World Markets reduced her target to $12 from $18 – “we believe this (revision of earnings forecast) is a serious blow to management credibility,” she wrote. Keith Howlett of Desjardins Securities reduced his target to $11 to $13.
From a public relations standpoint, the company founded by former Calgary Stampeder football player John Forzani also took a credibility hit in July when the Competition Bureau alleged the company had violated rules about “ordinary selling price” in its advertising.
While the company admitted no wrongdoing, it paid a $1.7-million penalty to settle the issue and avoid the negative publicity of a court battle.
When Forzani Group reported this summer that second-quarter profit was off by 30 per cent from the year-ago period, it cited cool, damp weather as a factor.
And now the shareholders are also feeling a little under the weather – cool and damp.
Considering Forzani’s lacklustre harvest in recent months, there doesn’t seem to be any compelling reason right now to bet the farm on this stock. And you might be wise to wait a spell before calling the CEO Farmer Bob.
* AIR SICKNESS? Air Canada is operating in a very sick airline industry and experienced a bumpy takeoff in its first week of trading on the TSX as ACE Aviation Holdings (TSX:ACE.B), but that hasn’t dissuaded some analysts from pounding the table.
The most bullish of the analysts is Nick Morton of RBC Capital Markets, who has a 12-month target price of $49. Shares of ACE opened for trading at $26 and drifted downward to $22.50 in their first week.
Morton estimates revenue of $2.6 billion and earnings per share of $1.45 when the company reports third-quarter results on Nov. 11.
Based on Morton’s optimism, I had to check to see if Robert Milton is still the CEO. Yup, sure enough, the man who steered Air Canada into bankruptcy protection is still in the pilot’s seat.
* FOUR YEARS AGO IN THE EDGE: The Edge asked Calgary entrepreneur Cameron Chell about the outlook for C Me Run Corp., a search-engine company of which he was the founder and chairman.
“I believe the C Me Run service will be as dominant a service as basically the largest telcos or as dominant as a Yahoo or an Intel brand within the new economy,” boasted Chell.
“There are going to be lots of people interested in buying it out and that’s going to become a shareholders’ decision. But I believe if left alone to continue on its path, it will have the strength of a Yahoo brand within, I’ll say, three to five years.”
At the time, C Me Run was trading at $1.52 US on the lowly U.S. OTC Bulletin Board Exchange.
Last seen, it was on the still lowlier U.S. Pink Sheets service, trading at 0.001.
* SAGE WORDS: “I like thinking big. If you’re going to think, you might as well be thinking big.”
– Donald Trump (no relation to Cameron Chell)
HOT STOCK: CREO INC.
CRE-TSX $15.20
Up $4.50 (+42.1%) on 6.6 million shares (for week ending Oct. 15).
Now here’s a novel way to get your punch-drunk shares up off the canvas. Creo’s two biggest shareholders, Toronto hedge fund Goodwood Inc. and U.S. turnaround firm Burton Capital Management, pumped some life into their shares by attempting to have CEO Amos Michelson ousted. That gave the shares a 31-per-cent boost and then they continued to rally when the software company announced it was open for takeover offers. But even that was little consolation to those eternal optimists who paid $75 for the shares back in 2000.
COLD STOCK: BAKBONE SOFTWARE
BKB-TSX .93
Down 37 cents (-28.5%) on 2.4 million shares (for week ending Oct. 15).
How do you become a penny stock in no time flat? Here’s how San Diego-based software firm BakBone does it. You scare The living daylights out of shareholders by announcing that your independent auditor, KPMG LLP, has resigned. Then, you don’t give a reason. If there are two things the market hates, it’s companies without auditors and companies without explanations.
(Gyle Konotopetz can be reached at gyle@businessedge.ca)
