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Press release from CNW Group

Brick Ltd. Reports 19.7% Second Quarter 2011 EBITDA Growth

Wednesday, August 10, 2011

Brick Ltd. Reports 19.7% Second Quarter 2011 EBITDA Growth19:21 EDT Wednesday, August 10, 2011/NOT FOR DISTRIBUTION THROUGH U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE U.S./Focused on increased profitability and building cash reserves - $100 million cash at June 30, 2011EDMONTON, Aug. 10, 2011 /CNW/ - The Brick Ltd. (TSX: BRK) (the "Brick Group" or the "Brick") today announced its second quarter results for the three and six months ended June 30, 2011. Financial statements and Management's Discussion and Analysis are available on the Brick Group's website at www.thebrick.com and on SEDAR.Q2 highlights include:EBITDA of $24.6 million up 19.7% or $4.1 million, over Q2 2010.$9.8 million pre-tax net income in Q2 2011 or $4.4 million higher than Q2 2010's net income of $5.4 million, before taxes, charges related to a change in the fair value of warrants and the reversal of certain impairments, as a result of the adoption of IFRS.$100.2 million cash and cash equivalents at June 30, 2011 compared to $69.8 million at December 31, 2010; and $24.1 million at June 30, 2010.Gross margin rate increase of 210 basis points in Q2 2011 to 44.3% as compared to 42.2% in Q2 2010SG&A decreased by $0.8 million from Q2 2010, before accounting for $0.6 million related to the Brick Group's recent cashless exercise offering and a $1.5 million non-cash increase in share based compensation, resulting solely from a change in the fair value of certain stock options between 2011 and 2010.Same store sales decreased 1.5% for the quarter, compared to Q2 2010's same store sales growth of 26.4% over Q2 2009.First half 2011 highlights include:EBITDA of $42.6 million up 20.4% or $7.2 million over the first half of 2010.$12.2 million pre-tax net income or $8.5 million higher than the first half 2010's net income of $3.7 million, before taxes, charges related to a change in the fair value of warrants and the reversal of certain impairments, as a result of the adoption of IFRS.Gross margin rate increase of 150 basis points to 44.3% as compared to 42.8% in the same period of 2010.SG&A decreased $4.9 million from the first half of 2010, excluding the $0.6 million cashless exercise charge and a $0.5 million increase in non-cash stock-based compensation.Same store sales decreased 3.3% for the first half, compared to first half 2010's same store sales growth of 17.3% over 2009.Consolidated Results Summary:          For the three months ended June 30For the six months ended June 30 20112010$ Increase% Increase20112010$ Increase% Increase(000's of $ except % and per share amounts)  (Decrease)(Decrease)  (Decrease)(Decrease)Sales $ 324,822  $ 329,431(4,609)-1.4% $ 618,381  $ 635,679(17,298)-2.7%Cost of sales(180,835)(190,349)(9,514)-5.0%(344,147)(363,679)(19,532)-5.4%Gross margin143,987 139,0824,9053.5%274,234 272,0002,2340.8%          Gross margin as a percentage of sales44.3%42.2%2.1% 44.3%42.8%1.5%          Selling, general and administrative expenses(119,985)(118,659)1,3261.1%(233,166)(236,944)(3,778)-1.6%Finance income and other income598 121477394.2%1,549 3331,216365.2%EBITDA24,600 20,5444,05619.7%42,617 35,3897,22820.4%         EBITDA as a percentage of sales7.6%6.2%  6.9%5.6%           Finance costs(7,154)(7,045)1091.5%(14,323)(15,900)(1,577)-9.9%Depreciation and amortization(7,635)(8,103)(468)-5.8%(16,055)(15,790)2651.7%Income before undernoted items and income taxes9,811 5,3964,41581.8%12,239 3,6998,540230.9%Change in fair value of warrants- 38,685(38,685)-100.0%- (73,990)(73,990)-100.0%Reversal of intangible asset impairment- 35,503(35,503)-100.0%- 35,503(35,503)-100.0%Income (loss) before income taxes9,811 79,584(69,774)-87.7%12,239 (34,788)47,027135.2%Income tax expense(3,432)(12,703)(9,271)-73.0%(4,724)(11,587)(6,863)-59.2%Net Income (loss) $ 6,379  $ 66,881(60,502)-90.5% $ 7,515  $ (46,375)53,890116.2%Basic weighted average number of common shares55,398,713 56,302,428  55,716,908 55,889,849  Basic earnings (loss) per share $ 0.12  $ 1.19(1.07)90.3% $ 0.13  $ (0.83)0.96116.3%Diluted weighted average number of common shares131,790,474 130,977,571   133,037,645 55,889,849  Diluted earnings (loss) per share $ 0.05  $ 0.51(0.45)88.5% $ 0.06  $ (0.83)0.89107.0%Stores at period end235 236  235 236   Segmented Results Summary:         (000's of $ except %, and store amounts)For the three months ended June 30For the six months ended June 3020112010$ Increase (Decrease)% Increase (Decrease)20112010$ Increase (Decrease)% Increase (Decrease)Retail Segment - Sales $ 303,909  $ 308,386(4,477)-1.5% $ 576,361  $ 594,956(18,595)-3.1%Financial Services Segment - Sales20,913 21,045(132)-0.6%42,020 40,7231,2973.2%Consolidated - Sales324,822 329,431(4,609)-1.4%618,381 635,679(17,298)-2.7%Franchise sales42,766 37,2535,51314.8%81,289 75,3025,9878.0%Consolidated sales and franchise sales $ 367,588  $ 366,6849040.2% $ 699,670  $ 710,981(11,311)-1.6%Same Store Sales Growth (corporate stores)-1.5%26.4%  -3.3%17.3%           Same Store Sales Growth (corporate and franchise stores)-0.6%26.1%  -2.7%17.1%           Retail Segment - EBITDA $ 19,549  $ 15,9193,63022.8% $ 31,854  $ 26,2965,55821.1%Financial Services Segment - EBITDA5,051 4,6254269.2%10,763 9,0931,67018.4%Consolidated - EBITDA $ 24,600  $ 20,5444,05619.7% $ 42,617  $ 35,3897,22820.4% EBITDA as a percentage of consolidated sales7.6%6.2%  6.9%5.6%   For the Quarter:Sales:For the quarter ended June 30, 2011, consolidated sales of $324.8 million decreased by $4.6 million or 1.4% as compared to the same quarter of 2010.  By segment, retail sales of $303.9 million decreased by $4.5 million or 1.5%, and financial services sales of $20.9 million decreased by $0.1 million or 0.6%.  Second quarter same store sales growth was negative 1.5% compared to positive 26.4% in the same quarter of 2010.In the financial services segment, sales growth attributable to third-party insurance business was more than offset by decreased revenues from the warranty business, resulting in a net decrease in revenue.  In the warranty business, warranty sales are recorded as deferred revenue and recognized as earned revenue over the warranty coverage period.  Consequently, earned warranty revenue recognized in the current period relates to warranties sold in previous periods.Franchise Sales:Compared to the same quarter a year ago, sales at franchise stores increased by 14.8% to $42.8 million.  Same store sales growth for franchise stores was 6.2% compared to 23.2% for the same quarter of 2010.  We began the quarter with 55 franchise stores and ended with 58, while in 2010, we began and ended the quarter with 52 franchise stores.Gross Margin:Compared to the same quarter a year ago, consolidated gross margin percentage improved from 42.2% to 44.3%.  Consolidated gross margin increased by $4.8 million in the retail segment, and increased by $0.1 million in the financial services segment.  Fluctuations in our consolidated gross margin are driven primarily by the retail segment.In the retail segment, the $4.8 million increase in gross margin was driven by improvements in gross margin percentage which more than offset lower sales.  Improvement in gross margin percentage reflected a sales mix with a reduced blend of low margin electronics and an increased blend of high margin mattress as compared to the same quarter of 2010. Gross margin improvements also resulted from rigid inventory controls and continued use of early payment discounts. Selling, General and Administrative Expenses ("SG&A"):Second quarter consolidated SG&A decreased by $0.8 million from 2010, excluding $0.6 million related to the recent cashless exercise offering and a $1.5 million non-cash increase in share based compensation, relative to 2010. The variance in share-based compensation reflects a decrease in fair value of the CEO options that occurred during the 2010 second quarter.  Prior to the Conversion on December 30, 2010, the Brick Group was structured as an income trust and as a result, the CEO options were classified as liabilities with changes in their fair value recorded in income.  During the 2010 second quarter, the price of the Brick Group's shares decreased causing a reduction in the fair value of the CEO options and related compensation expense.  Subsequent to the conversion the CEO options are classified as equity and changes in their fair value no longer impact income. Overall, SG&A was higher by $1.3 million or 1.1% and as a percentage of sales was 36.9% compared to 36.0% in the same quarter of 2010.  Essentially all of The Brick's SG&A expenses are incurred in the retail segment.EBITDA:The Brick's financial results reflect strong EBITDA performance for the quarter ended June 30, 2011.  Second quarter consolidated EBITDA of $24.6 million improved by 19.7% compared to EBITDA of $20.5 million for the same quarter of 2010.  By segment and compared to the same quarter of 2010, retail segment EBITDA of $19.6 million was higher by $3.6 million or 22.8%, and financial services segment EBITDA improved by $0.4 million or 9.2% to $5.1 million.  EBITDA improvement in the retail segment was driven by a 2.2% improvement in gross margin percentage.  In the financial services segment, improvement in second quarter EBITDA was attributable primarily to improvement in gross margin percentage for the warranty business.Net IncomeSecond quarter income before income taxes of $9.8 million represents an improvement of $4.4 million, or 81.8%, over the 2010 second quarter income before income taxes, changes in warrant fair value and the impairment charge reversal.  2010 second quarter net income included income of $38.7 million related to the change in fair value of warrants, and income of $35.5 related to a partial reversal of intangible asset impairment charges recorded in fiscal 2008 and 2009.  Prior to The Brick's conversion from an income trust to a corporation on December 30, 2010, (the "Conversion"), The Brick's warrants were classified as liabilities and carried at fair value with changes in fair value recorded in net income.  In conjunction with the Conversion, the warrants were transferred at their fair value to equity.  For warrants classified as equity, changes in their fair value do not impact The Brick Group's financial statements.  Under IFRS, previously recognized impairment charges, with the exception of impairment charges related to goodwill, may potentially be reversed if the circumstances causing the impairment have improved or are no longer present.  Including the above impacts from changes in warrant fair value for 2010, and impairment charge reversal for 2010, 2011 second quarter consolidated net income of $6.4 million was lower by $60.5 million when compared to net income of $66.9 million in the same quarter of 2010.Year to Date Results:Sales:For the six months ended June 30, 2011, consolidated sales of $618.4 million decreased by $17.3 million or 2.7% as compared to the same period of 2010.  By segment, retail sales of $576.4 million decreased by $18.6 million or 3.1%, and financial services sales of $42.0 million increased by $1.3 million or 3.2%.  First half same store sales growth was negative 3.3% compared to positive 17.3% in the first half of 2010.  In the financial services segment, essentially all of the revenue growth was attributable to third-party insurance business.Franchise Sales:Compared to the same period in 2010, year-to-date sales at franchise stores increased by 8.0% to $81.3 million.  First half same store sales growth for franchise stores was 2.2% compared to 15.4% for the same period of 2010.  We began the period with 54 franchise stores and ended with 58, while in 2010, we began and ended the period with 52 franchise stores.Gross Margin:Compared to the same period in 2010, consolidated gross margin percentage improved from 42.8% to 44.3%.  Gross margin increased by $1.9 million in the retail segment, and by $0.3 million in the financial services segment.  Fluctuations in our consolidated gross margin are driven primarily by the retail segment.In the retail segment, the $1.9 million increase in gross margin was the result of improvement in gross margin percentage which more than offset a sales decrease of 3.1%.  Improvement in gross margin percentage reflected a sales mix with a reduced blend of low margin electronics and an increased blend of high margin mattress as compared to the same period of 2010.In the financial services segment, the $0.3 million gross margin improvement was attributable to revenue growth of 3.2% which more than offset decreased gross margin percentage attributable to the insurance business, and to improved gross margin percentage for the warranty business.  In the insurance business, gross margin percentage has decreased due to a shift in the mix of revenue towards the lower margin third-party business.Selling, General and Administrative Expenses ("SG&A"):Year-to-date consolidated SG&A decreased $4.9 million from the first half of 2010, excluding the $0.6 million cashless exercise charge previously noted and a $0.5 million increase in non-cash stock-based compensation. Overall SG&A was lower by $3.8 million or 1.6% and remained relatively flat as a percentage of sales at 37.7% as compared to 37.3% for the same period of 2010.  Essentially all of The Brick's SG&A expenses are incurred in the retail segment.EBITDA:The Brick's financial results reflect strong EBITDA performance for the six months ended June 30, 2011.  Year-to-date consolidated EBITDA was $42.6 million compared to $35.4 million for the same period of 2010.  By segment and compared to the same period of 2010, retail segment EBITDA of $31.9 million was higher by $5.6 million or 21.1%, and financial services segment EBITDA improved by $1.7 million or 18.4% to $10.8 million.  EBITDA improvement in the retail segment resulted from a 1.7% improvement in gross margin percentage combined with SG&A that was relatively flat as a percentage of sales.  In the financial services segment, improvement in year-to-date EBITDA was attributable to higher segment revenues and improved gross margin percentage in the warranty business.Net IncomeAs discussed above for the quarter, the 2010 first half operating results include charges related to changes in the fair value of warrants and a partial reversal of previously recognized intangible asset impairment charges.  Excluding the impact of these 2010 items, the 2011 first half income before income taxes of $12.2 million represents an improvement of $8.5 million, or 231%, over 2010.  This $8.5 million improvement comprises improved gross margin and reduced SG&A which provided a combined improvement of $6.0 million, $1.7 million in amortization of deferred financing costs expensed in the first half of 2010, and a $0.8 million net improvement in other items including finance income, other income, and depreciation and amortization.  Including the impacts from changes in warrant fair value for 2010 and the impairment charge reversal for 2010, 2011 year-to-date consolidated net income of $7.5 million increased by $53.9 million from the loss of $46.4 million in the same period of 2010.Cash PositionThe Brick's cash and cash equivalents at June 30, 2011 was $100.2 million compared to $69.8 million at December 31, 2010 and $24.1 million at June 30, 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 June 30, 2011 was $78.4 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 from the $37.0 million net cash borrowings at June 30, 2009.Bill Gregson, President and CEO of the Brick Group commented "We once again performed very well with a continuation of strong results and a healthy financial position, despite a somewhat uncertain economic environment. We increased market share during the first quarter of 2011 and although same store sales decreased slightly in Q2 2011, I believe we are still performing well against our peer group. At the same time, we increased margin rates and reduced overall SG&A costs during the first half of 2011. The result of our team's efforts is a $4.1 million or 19.7% increase in Q2 EBITDA and a $4.4 million increase in net income before taxes and other non-recurring items. Our strengthening cash position has enabled the Brick Group to begin to reduce the dilutive effect of the May 2009 recapitalization transaction and I am pleased that, on June 29, 2011, we completed our offer to holders of Class A common share purchase warrants to submit their warrants for exercise on a cashless basis. As of August 10, 2011 our fully diluted position was 133.3 million common shares/warrants. Additionally, we are seeking TSX approval to initiate another NCIB to repurchase, for cancelation, up to 5% of our outstanding shares and warrants"."The Brick Group's management team and board of directors will determine the next course of action to best utilize available cash and we expect to announce our strategy in the second half of 2011. We held in excess of $100 million cash at the end of June 2011 and management will closely monitor global economic factors, and the potential impact on our business, as we continue to explore our use of cash alternatives", added Mr. Gregson.The Brick Group will hold an investor conference call and webcast on August 11th at 9:00 a.m. Eastern Time (7:00 a.m. Alberta Time). To access the call, dial 647-427-7450 or 1-888-231-8191. Conference call ID: 85821718. For a listen-only webcast, log on to http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3610860A telephone replay of the call will be available until August 18, 2011, at 11:59 p.m. Eastern Time. To access it, dial either 416-849-0833 or 1-855-859-2056 and enter passcode 85821718.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 GroupThe 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.Forward-Looking Statements 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, the financial flexibility and capital resources necessary to manage the business in the current economic environment, 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        President and CEO  The Brick Group       (780) 930-6300        investor@thebrick.com      Ken Grondin Chief Financial Officer The Brick Group (780) 930-6300 investor@thebrick.com www.thebrick.com