Press release from CNW Group
Brick Announces Increased Profitability and Cash Reserves
Tuesday, June 07, 2011
/NOT FOR DISTRIBUTION THROUGH U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE U.S./
Focused on increased profitability - 21.4% EBITDA Growth for Q1 2011
Focused on building cash reserves - $111 million at May 31, 2011
EDMONTON, June 7, 2011 /CNW/ - The Brick Ltd. (TSX: BRK) (the "Brick Group" or the "Brick") today announces preliminary highlighted financial information relating to first quarter results for the three months ended March 31, 2011 and provides an early look to second quarter trends. 2011 financial information, and 2010 comparatives, have been presented in accordance with International Financial Reporting Standards ("IFRS"). As previously announced, full Q1 release and regulatory filings will be completed on June 13, 2011 following their approval by the Audit Committee and the Board of Directors.
Q1 2011 EBITDA of $18.0 million up 21.4%, or $3.2 million, over Q1 2010.
$2.4 million pre-tax net income in Q1 2011 or $4.1 million higher than
Q1 2010's net loss of $1.7 million before income taxes and charges
related to a change in the fair value of warrants as a result of the
adoption of IFRS.
$111.0 million cash and cash equivalents at May 31, 2011 compared to
$45.2 million at May 31, 2010.
- Sales improvement as the year progresses:
For the first 2 months of Q2 2011, combined April and May 2011 same
store corporate sales was 0.6%, over and above the 22.4% growth in the
same 2 month period of 2010.
- For Q1 2011 total sales and operating revenue declined 4.1% (up 12.8% in Q1 2010) while corporate same store sales declined 5.3% (up 8.6% in Q1 2010).
Gross margin rate increase of 100 basis points in Q1 2011 to 44.4% as
compared to 43.4% in Q1 2010
- Q1 2011 SG&A decreased $5.1 million from Q1 2010 and, as a percentage of sales and operating revenue, remained flat.
Bill Gregson, President and CEO of The Brick Group, stated "We have previously stated that the first half of 2011 would be unpredictable, however, despite our earlier caution, I believe we have performed extremely well in this environment, as our results have demonstrated. Although our top line sales were slightly down from last year, we performed better than many other public companies in our sector. We believe we have gained additional market share from our competitors, while increasing margin rates and decreasing costs. The result of taking market share, increasing margin rates and reducing absolute expense dollars has resulted in a significant increase in profitability".
"We are issuing our preliminary first quarter results to provide more timely information to the market, as our official release on June 13, 2011 takes advantage of the 30 day extension provided for IFRS adoption" commented Mr. Gregson.
Sales and Operating Revenue:
For the quarter ended March 31, 2011, consolidated sales and operating revenue of $293.6 million decreased by $12.7 million or 4.1% as compared to the same quarter of 2010. First quarter same store sales growth was negative 5.3% compared to positive 8.6% in the same quarter of 2010. Although sales were down compared to the same period in 2010, the Brick Group's sales results faired better than many of its public reporting competitors. Of particular note, the Brick Group's furniture, mattress and appliance categories experienced combined sales decline of only 2.0% for the quarter. Sales for these categories in April and May 2011 grew by 4.9% over the same period last year. Combined same store sales for all categories, including electronics, strengthened in April and May 2011 with a combined increase of 0.6%, on top of the 22.4% increase experienced in the same 2 month period of 2010. For the second half of 2011, management expects certain economic conditions to be more comparable to those in 2010, namely HST in Ontario and British Columbia, and the expiration of the home renovation tax credit in spring 2010. Management remains optimistic about increased same store sales for the second half of the year, with the expectation of a slightly more robust economic environment for our sector.
Compared to the same quarter a year ago, total sales at franchise stores increased by 1.2% to $38.5 million. Same store sales growth for franchise stores was negative 1.9% compared to positive 8.5% for the same quarter of 2010. We added one franchise store in the first quarter of 2011.
Compared to the same quarter a year ago, consolidated gross margin percentage improved from 43.4% to 44.4%. Margin rate improvements resulted from a reduced blend of low margin electronics sales and included a benefit from rigid inventory controls. Management expects the positive margin rate trend through the second quarter of 2011.
Selling, General and Administrative Expenses ("SG&A"):
First quarter consolidated SG&A was lower by $5.1 million or 4.3% and remained flat as a percentage of sales at 38.6% as compared to the same quarter of 2010. Approximately $1.1 million of the $5.1 million reduction relates to lower stock based compensation charges. A great amount of work has been done to reduce fixed costs and to ensure maximum variability of costs with sales. Management expects to continue to demonstrate effective cost control in the second quarter of 2011.
Management reports strong EBITDA performance for the quarter ended March 31, 2011. First quarter consolidated EBITDA was $18.0 compared to $14.8 million for the same quarter of 2010.
Income or Loss before Income Taxes
First quarter consolidated income before income taxes of $2.4 million increased by $116.8 million from the loss before income taxes of $114.4 million in the same quarter of 2010. The 2010 first quarter loss before income taxes included a charge of $112.7 million related to the change in fair value of warrants as a result of the adoption of IFRS. Excluding the impact of this charge, the 2010 first quarter loss before income taxes would have been $1.7 million resulting in an improvement of $4.1 million in income before income taxes.
The Brick's cash and cash equivalents at March 31, 2011 were $57.6 million compared to $69.8 million at December 31, 2010 and $9.6 million at March 31, 2010. The Brick has not borrowed under the Asset-Based Credit Facility since the second quarter of 2010. Borrowing capacity under the Asset-Based Credit Facility at March 31, 2011 was $76.2 million. As a result of improved operating performance, no distributions as an income fund since February 2009, controlled capital investment and inventory control improvements, the Brick Group's net cash position has improved dramatically:
Negative $35.7 million at March 31, 2009 (including borrowings of $39.0
$9.6 million at March 31, 2010
$57.6 million at March 31, 2011
- $111.0 million at May 31, 2011
The strengthening cash position has enabled the Brick Group to begin to reduce the dilutive effect of the May 2009 recapitalization transaction:
174.2 million combined shares (units) and warrants outstanding at May
31, 2009 (post re-financing)
179.5 combined shares (units) and warrants outstanding at August 31,
2009 (post Fairfax LC)
- 170.8 million combined shares and warrants outstanding at May 31, 2011 (post NCIB)
"Our first step was to commence a normal course issuer bid in August of 2010. This was completed in May 2011 with our maximum re-purchase of 2.8 million shares/units and 5.9 million warrants being made at a total cost of approximately $16.0 million. The next step to addressing the dilutive effect was the announcement of a cashless exercise offer to warrant holders in May 2011. This offer was possible as we do not believe that, due to our strong cash position and no borrowings, we will require the proceeds from future warrant exercises in order to satisfy our debenture obligation at maturity in May 2014. We have the support of 86% of our warrant holders, so long as the minimum $2.80 preceding 5 days volume weighted average trading price (VWAP) is met, as outlined in the offer letter. In this case, warrants would be exchanged at a ratio of $1.80 over $2.80 or for approximately 64% of a share effective June 29, 2011. With 100% support from warrant holders, our fully diluted position would be reduced by 41.5 million to 129.2 million shares, with no remaining warrants. Following the outcome of the cashless exercise, management and the Brick Group's board of directors will determine the next course of action to best utilize available cash. We have stated that, for the time being, the Brick Group will maintain a minimum cash balance of $50 million with no GE borrowings as a prudent measure during uncertain economic times. However we estimate that we will have an additional $50 to $80 million, beyond our stated reserve, by the end of 2011. This estimate is after a $24 million capital investment during the year" added Mr. Gregson.
Mr. Gregson concluded "We performed well in the first quarter, with relative sales results outperforming our competitors and we have taken additional market share. At the same time, we have increased margin rates and reduced overall SG&A costs. The result is a $3.2 million or 21.4% increase in EBITDA and a $4.1 million increase in net income before taxes and other non-recurring items. Following the completion of the Brick Group's normal course issuer bid, we have reduced the fully diluted outstanding share and warrant float by 8.7 million or approximately 5%, at a total re-purchase cost of approximately $16.0 million. We have also announced the offer for a cashless exercise of warrants that could further reduce the Brick Group's fully diluted float by 41.5 million or 24.3%, if 100% exercised. We also anticipate approximately $50 to $80 million excess cash by the end of 2011. We are very pleased with the results of our income statement and our balance sheet".
The Brick Group is scheduled to release its Q1 results on June 13, 2011 and to hold an investor conference call and webcast on June 14th at 10:00 a.m. Eastern Time (8:00 a.m. Alberta Time). To access the call, dial 647-427-7450 or 1-888-231-8191. Conference call ID: 67497819. For a listen-only webcast, log on to http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3536060.
A telephone replay of the call will be available until June 21, 2011, at 11:59 p.m. Eastern Time. To access it, dial either 416-849-0833 or 1-800-642-1687 and enter passcode 67497819.
Previous financial statements and Management's Discussion and Analysis are available on the investor relations page of Brick Group's website at www.thebrick.com.
About the Brick Group
The Brick Group, together with its subsidiaries, is one of Canada's largest volume retailers of household furniture, mattresses, appliances and home electronics, operating under five banners: The Brick, United Furniture Warehouse, The Brick Superstore, The Brick Mattress Store, and Urban Brick. In addition, through its corporate sales division, the Brick Group services the subdivision, condominium, hospitality and high-rise builder market. The Brick Group's retail operations are located in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Prince Edward Island, Nova Scotia, New Brunswick, the Northwest Territories and Yukon.
Non-IFRS Financial Measures
The Brick Group prepares its financial statements in accordance with IFRS. The Brick Group also discloses and discusses certain non-IFRS financial information used to evaluate its operating performance as a complement to results provided in accordance with IFRS. The Brick Group believes that current shareholders and potential investors in The Brick Group use non-IFRS financial measures, such as EBITDA and same store sales, in making investment decisions about The Brick Group and measuring its operational results.
References to "EBITDA" are to net income before finance costs, income taxes, depreciation, amortization, non-cash asset impairment charges and non-cash valuation adjustments. EBITDA is not a measure recognized by IFRS and does not have a standardized meaning prescribed by IFRS. Therefore, EBITDA may not be comparable to similar measures presented by other issuers. Investors are cautioned that EBITDA should not be construed as an alternative to net income as determined in accordance with IFRS.
Same Store Sales
Comparable same store sales are calculated to include merchandise sales for new stores that have been open 14 full calendar months and sales from all relocated and rebannered stores. No stores have been excluded due to cannibalization. Same store sales is not a measure recognized by IFRS, and does not have a standardized meaning prescribed by IFRS. Therefore, same store sales as discussed in this press release may not be comparable to similar measures presented by other issuers. Investors are cautioned that same store sales should not be construed as an alternative to sales and operating revenue as determined in accordance with IFRS.
This news release contains "forward-looking statements" within the meaning of applicable Canadian securities laws, including (but not limited to) statements about the Brick's consolidated sales and operating revenue, consolidated EBITDA, consolidated net loss, sales and operating revenue in the financial services and retail segments, same store sales growth and goodwill and indefinite life intangible asset impairment charges, capital investment, minimum cash balances, anticipated borrowings, cash position, the financial flexibility and capital resources necessary to manage the business in the current economic environment, our cashless exercise offer to warrantholders and similar statements concerning anticipated future events, results, circumstances, performance or expectations, that reflect management's current expectations and are based on information currently available to management of the Brick and its subsidiaries. The words "may", "will", "should", "believe", "expect", "plan", "anticipate", "intend", "estimate", "predict", "potential", "continue" or the negative of these terms, or other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters, identify forward-looking matters. Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Brick to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements. The Brick undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by applicable law.
For further information:
|Bill Gregson||David Merkley|
|President and CEO||Chief Financial Officer|
|The Brick Group||The Brick Group|
|(780) 930-6300||(780) 930-6300|