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Press release from CNW Group

The Brick Ltd. Reports 16.6% Third Quarter 2011 EBITDA Growth with a 1.3% Same Store Sales Increase

Wednesday, November 09, 2011

The Brick Ltd. Reports 16.6% Third Quarter 2011 EBITDA Growth with a 1.3% Same Store Sales Increase20:14 EST Wednesday, November 09, 2011Focused on increased profitability and building cash reserves - $139.5 million cash at September 30, 2011/NOT FOR DISTRIBUTION THROUGH U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE U.S./EDMONTON, Nov. 9, 2011 /CNW/ - The Brick Ltd. (TSX: BRK) (the "Brick Group" or the "Brick") today announced its results for the three and nine months ended September 30, 2011. Financial statements and Management's Discussion and Analysis are available on the Brick Group's website at thebrick.com and on SEDAR.Q3 2011 highlights include:EBITDA of $35.3 million up 16.6% or $5.0 million, over Q3 2010.$21.2 million pre-tax net income, $6.6 million or 45.3% higher than Q3 2010's net income of $14.6 million, before taxes and other items. Q3 2010 included charges related to a change in the fair value of warrants and the reversal of certain asset impairments, as a result of the adoption of IFRS;  Q3 2011 net income was $15.1 million or $36.0 million higher than the $20.8 million net loss recorded in Q3 2010.$139.5 million cash and cash equivalents at September 30, 2011 compared to $69.8 million at December 31, 2010; and $44.8 million at September 30, 2010.Gross margin rate increase of 100 basis points to 43.7% as compared to 42.7% in Q3 2010SG&A, as a percentage of sales, was reduced to 34.3% compared to 34.4% in Q3 2010.Same store sales increased 1.3% over Q3 2010.Total system sales, including franchise sales at retail, increased 2.5% over Q3 2010.Year to date September 2011 highlights include:EBITDA of $77.9 million up 18.7% or $12.3 million over the first nine months of 2010.$33.4 million pre-tax net income, $15.1 million or 82.9% higher than the first nine months of 2010's net income of $18.3 million, before taxes and other items; Year-to-date 2011 net income was $22.7 million or $89.9 million higher than the $67.2 million net loss recorded during the same period in 2010.Gross margin rate increase of 140 basis points to 44.1% as compared to 42.7% in the same period of 2010.SG&A decreased $2.7 million or 0.7% from the first nine months of 2010, and as a percentage of sales was 36.4% in 2011 compared to 36.2% in 2010.Same store sales decreased 1.6% for the first nine months, over the same period in 2010.Total system sales, including franchise sales at retail, decreased 0.1%Consolidated Results Summary:                                        Forthe three months ended September 30  For thenine months ended September 30 (000's of $ except % and per share amounts)2011 2010$ Increase(Decrease)% Increase(Decrease)20112010$ Increase(Decrease)% Increase(Decrease)Sales    $  370,903  $  367,756   3,147   0.9%  $  989,284  $  1,003,434   (14,150)   -1.4%Cost of sales     (208,829)   (210,898)   (2,069)   -1.0%   (552,975)   (574,576)   (21,601)   -3.8%Gross margin     162,074   156,858   5,216   3.3%   436,309    428,858   7,451   1.7%                                    Gross margin as a percentage of sales     43.7%   42.7%   1.0%       44.1%   42.7%   1.4%                                       Selling, general and administrative expenses     (127,381)   (126,317)   1,064   0.8%   (360,547)   (363,259)   (2,712)   -0.7%Finance income and other income (expense)     613   (262)   875   334.0%   2,163   70   2,093   2999.0%EBITDA     35,306   30,279   5,027   16.6%   77,925   65,669   12,256   18.7%                                   EBITDA as a percentage of sales     9.5%   8.2%           7.9%   6.5%                                           Finance costs     (7,191)   (7,080)   111   1.6%   (21,515)   (22,981)   (1,466)   -6.4%Depreciation and amortization     (6,953)   (8,637)   (1,684)   -19.5%   (23,008)   (24,427)   (1,419)   -5.8%Income before undernoted items and income taxes     21,162   14,562   6,600   45.3%   33,402    18,261   15,141   82.9%Change in fair value of warrants     -   (46,757)   46,757   -100.0%   -   (120,747)   (120,747)   -100.0%Reversal of intangible asset impairment     -   17,506   (17,506)   -100.0%   -   53,009   (53,009)   -100.0%Income (loss) before income taxes     21,162   (14,689)   35,851   244.1%   33,402   (49,477)   82,879   167.5%Income tax expense     (6,022)   (6,145)   (123)   -2.0%   (10,746)   (17,732)   (6,986)   -39.4%Net Income (loss)    $  15,140  $  (20,834)   35,974   172.7%  $  22,656  $  (67,209)   89,865   133.7%                                   Basic weighted average number of common shares     122,295,062   56,769,401           78,153,502   56,186,255                                           Basic earnings (loss) per share    $  0.12  $  (0.37)   0.49   133.7%  $  0.29   $  (1.20)   1.49   124.2%                                   Diluted weighted average number of common shares     131,996,644   56,769,401            132,907,893   56,186,255                                           Diluted earnings (loss) per share    $  0.11  $  (0.37)   0.48   131.3%  $  0.17   $  (1.20)   1.37   114.5%                                   Total corporate and franchise stores at period end     233   236           233   236         Segmented Results Summary:                                     (000's of $ except % and per share amounts)     For the three months ended September 30   Forthe ninemonthsended September30    2011  2010   $ Increase(Decrease)   % Increase(Decrease)   2011  2010   $ Increase(Decrease)   % Increase(Decrease)Retail Segment - Sales    $  349,989  $  345,815   4,174   1.2%   $  926,350  $  940,771   (14,421)   -1.5%Financial Services Segment - Sales     20,914   21,941   (1,027)   -4.7%    62,934   62,663   271   0.4%Consolidated - Sales     370,903   367,756   3,147   0.9%    989,284   1,003,434   (14,150)   -1.4%Franchise sales      48,114   41,107   7,007   17.0%    129,403   116,409   12,994   11.2%Total system sales     $  419,017  $  408,863   10,154   2.5%   $  1,118,687  $1,119,843   (1,156)   -0.1%                                    Same Store Sales Growth (corporate stores)     1.3%   8.9%            -1.6%   14.0%                                            Same Store Sales Growth (corporate and franchise stores)     2.1%   9.1%            -0.9%   13.9%                                            Retail Segment - EBITDA    $  29,967  $ $ 25,428   4,539   17.9%   $  61,823    $ 51,725   10,098   19.5%Financial Services Segment - EBITDA     5,339   4,851   488   10.1%    16,102   13,944   2,158   15.5%Consolidated - EBITDA    $  35,306  $  30,279   5,027   16.6%   $  77,925    $ 65,669   12,256   18.7%                                     EBITDA as a percentage of consolidated sales     9.5%   8.2%            7.9%   6.5%                                            Retail Segment - Net income (loss)    $  11,100  $(25,743)   36,843   143.1%      11,020  $  (81,203)   92,223   113.6%Financial Services Segment - Net income     4,040   4,909   (869)   -17.7%   $11,636   13,994   (2,358)   -16.9%Consolidated - Net income (loss)    $  15,140  $ (20,834)   35,974   172.7%   $  22,656  $  (67,209)   89,865   133.7%                                     For the Quarter:Sales:For the quarter ended September 30, 2011, consolidated sales of $370.9 million increased by $3.1 million or 0.9% as compared to the same quarter of 2010.  By segment, retail sales of $350.0 million increased by $4.2 million or 1.2%, and financial services sales of $20.9 million decreased by $1.0 million or 4.7%.  Third quarter same store sales growth was 1.3%.  In the financial services segment, the decrease in sales was attributable to that segment's third-party insurance businessFranchise Sales:Compared to the same quarter a year ago, sales at franchise stores increased by 17.0% to $48.1 million.  Same store sales growth for franchise stores was 8.1% compared to 10.7% for the same quarter of 2010.  We began the quarter with 58 franchise stores and ended with 60.Gross Margin:Compared to the same quarter a year ago, consolidated gross margin percentage improved from 42.7% to 43.7%.  This improvement in gross margin percentage combined with a 0.9% increase in consolidated sales resulted in an increase in gross margin earned of $5.2 million.  In the retail segment, improvement in gross margin percentage reflected a change in sales mix with an increased blend of high margin mattress as compared to the same quarter of 2010.  In the financial services segment, improvement in gross margin percentage reflected reduced claims experience for both the warranty and insurance business.  Fluctuations in our consolidated gross margin are driven primarily by the retail segment.Selling, General and Administrative Expenses ("SG&A"):Third quarter consolidated SG&A of $127.4 million was higher by $1.1 million or 0.8% and as a percentage of sales improved to 34.3% from 34.4% from the same quarter of 2010. Essentially all of The Brick's SG&A expenses are incurred in the retail segment.Finance Income and Other Income or ExpenseThird quarter consolidated finance income and other income was $0.6 million compared to an expense of $0.3 million for the same period of 2010.  The majority of the change was driven by increased interest and investment income.  Interest income has increased in conjunction with increases in the Brick's cash and cash equivalent position.  The same quarter of 2010 included provisions for potential commodity tax liabilities accrued in conjunction with changes to commodity tax regulations.  These provisions were reversed in the first quarter of 2011 upon receipt of a favourable decision from the relevant tax authority.EBITDAThe Brick's financial results reflect strong EBITDA performance for the quarter ended September 30, 2011.  Third quarter consolidated EBITDA of $35.3 million improved by 16.6% compared to EBITDA of $30.3 million for the same quarter of 2010.  By segment and compared to the same quarter of 2010, retail segment EBITDA of $30.0 million was higher by $4.5 million or 17.8%, and financial services segment EBITDA improved by $0.5 million or 10.1% to $5.3 million.  EBITDA improvement in the retail segment was driven by a 1.3% increase in same store sales, increased franchise royalty and initial fees, resulting primarily from new franchise locations and a 100 basis point increase in gross margin rate. Additionally, retail segment EBITDA benefited from controlled SG&A expenses, which were 34.3% of sales compared to 34.4% of sales for the same quarter a year ago.  In the financial services segment, improvement in third quarter EBITDA was attributable to reduced warranty and insurance claims, in addition to improved investment income.Net IncomeThird quarter income before income taxes of $21.2 million represents an improvement of $6.6 million or 45.3% over the 2010 third quarter income before income taxes, changes in warrant fair value and impairment charge reversal.  2010 third quarter net income included a charge of $46.8 million related to the change in fair value of warrants, and income of $17.5 million related to a partial reversal of intangible asset impairment charges recorded in fiscal 2008 and 2009.  Including the above impacts from changes in warrant fair value and impairment charge reversal for 2010, 2011 third quarter consolidated net income of $15.1 million was higher by $36.0 million when compared to net loss of $20.8 million in the same quarter of 2010.Year to Date Results:SalesFor the nine months ended September 30, 2011, consolidated sales of $989.3 million decreased by $14.2 million or 1.4% as compared to the same period of 2010.  By segment, retail sales of $926.4 million decreased by $14.4 million or 1.5%, and financial services sales of $62.9 million increased by $0.3 million or 0.4%.  Same store sales growth was negative 1.6% compared to positive 14.0% in the same period of 2010.Franchise Sales Compared to the same period in 2010, year-to-date sales at franchise stores increased by 11.2% to $129.4 million.  Same store sales growth for franchise stores was 4.4% compared to 13.6% for the same period of 2010.Gross MarginCompared to the same period in 2010, consolidated gross margin improved by 140 basis points from 42.7% to 44.1%.  Consolidated gross margin increased by $7.5 million with $7.1 million of the increase attributable to the retail segment, and by $0.4 million attributable to the financial services segment.  Fluctuations in our consolidated gross margin are driven primarily by the retail segment.In the retail segment, the $7.1 million increase in gross margin was the result of improvement in gross margin percentage which more than offset a sales decrease of 1.5%.  Improvement in gross margin percentage reflected a change in 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 $0.4 million gross margin improvement was attributable to improvement in gross margin percentage in the warranty and insurance business, and to improved investment income.  In the insurance business, gross margin percentage has benefited from stronger growth in the Brick Card business relative to the pace of growth of the lower margin third-party businessSelling, General and Administrative ExpensesYear-to-date consolidated SG&A was lower by $2.7 million or 0.7% and remained relatively flat as a percentage of sales at 36.4% as compared to 36.2% for the same period of 2010.  Essentially all of The Brick's SG&A expenses are incurred in the retail segment.Finance Income and Other Income or ExpenseYear-to-date consolidated finance income and other income was $2.2 million compared to $0.1 million for the same period of 2010.  Approximately half of this increase comprises increased interest and investment income, and approximately half is the result of the reversal of prior year provisions.EBITDAThe Brick's financial results reflect strong EBITDA performance for the nine months ended September 30, 2011.  Year-to-date consolidated EBITDA was $77.9 million compared to $65.7 million for the same period of 2010.  By segment and compared to the same period of 2010, retail segment EBITDA of $61.8 million was higher by $10.1 million or 19.5%, and financial services segment EBITDA improved by $2.2 million or 15.5% to $16.1 million.  Despite a 1.6% decrease in same store sales, improvement in retail segment EBITDA was driven by a 140 basis point improvement in gross margin rate combined with improved 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 improved gross margin percentage in the warranty and insurance business and increased investment incomeNet IncomeYear to date income before income taxes of $33.4 million represents an improvement of $15.1 million or 82.9% over the same period in 2010 income before income taxes, changes in warrant fair value and impairment charge reversal.  This $15.1 million improvement primarily results from improved gross margin and reduced SG&A which provided a combined improvement of $10.2 million.  The remaining balance of the improvement of $4.9 million reflects expenses recognized in 2010 that did not recur in 2011; namely $1.7 million for amortization of deferred financing costs and $1.3 million for transaction costs written off in conjunction with the July 2010 amendment of The Brick's Asset-Based Credit Facility, and also includes increased interest and investment income of $0.7 million and $1.2 million net improvement in other items.  Including the impacts from changes in warrant fair value and an impairment charge reversal for 2010, 2011 year-to-date consolidated net income of $22.7 million increased by $89.9 million from the loss of $67.2 million in the same period of 2010.Cash PositionThe Brick's cash and cash equivalents at September 30, 2011 were $139.5 million compared to $69.8 million at December 31, 2010 and $44.8 million at September 30, 2010.  The Brick has not borrowed under its GE Asset-Based Credit Facility since the second quarter of 2010.  Borrowing capacity under the GE Asset-Based Credit Facility at September 30, 2011 was $85.5 million.Bill Gregson, President and CEO of the Brick Group commented "We performed extremely well this quarter, despite turbulent economic conditions, with a continuation of strong results and a healthy financial position. Our total system sales increase of 2.5% and gross margin rate increase of 100 basis points demonstrates the sustainability of our prior initiatives. The result of our team's efforts is a $5.0 million or 16.6% increase in quarterly EBITDA and a $6.6 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 with a second Normal Course Issuer Bid (NCIB).  In the third quarter of 2011, we repurchased 281,924 shares and 418,032 warrants for cancelation. Since our first NCIB initiative began in Q3 2010, we have repurchased a total of 3,044,990 shares and 6,363,522 warrants for cancelation""Management has also directed available cash towards capital expenditures to ensure the Company is investing in its assets and infrastructure for a better tomorrow.  Other uses of cash will be determined by the Brick Group's management and board of directors and will be centred on enhancing shareholder value. Our use of cash strategy also includes maintaining prudent cash reserves as a minimum safeguard against any potential macroeconomic risks in Canada and corresponding consumer reaction", added Mr. Gregson.The Brick Group will hold an investor conference call and webcast on November 10, 2011 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: 20318968. For a listen-only webcast, log on to http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3705240A telephone replay of the call will be available until November 17, 2011, at 11:59 p.m. Eastern Time. To access it, dial either 416-849-0833 or 1-855-859-2056 and enter passcode 20318968.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.www.thebrick.comFor further information: Contact Information: Bill Gregson President and CEO  The Brick Group (780) 930-6300 investor@thebrick.com                                                      Ken Grondin CFO and President, Financial Operations The Brick Group (780) 930-6300 investor@thebrick.com