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Press release from Marketwire

Coast Wholesale Appliances Inc. Reports 2011 Fourth Quarter and Annual Results

Much stronger sales in second half substantially offset first-half revenue dip; multi-family contract order backlog continues to grow

Thursday, March 15, 2012

Coast Wholesale Appliances Inc. Reports 2011 Fourth Quarter and Annual Results16:05 EDT Thursday, March 15, 2012VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 15, 2012) -Coast Wholesale Appliances Inc. (TSX:CWA) will host a conference call and webcast to discuss its 2011 fourth quarter and year-end financial results on Friday, March 16, 2012 at 8:00 am Pacific Time (11:00 am Eastern). The call can be accessed by dialing: 1-877-440-9795 or 416-340-8527 (GTA).A replay will be available through March 30, 2012 at: 1-800-408-3053 or 905-694-9451, passcode 5050000. The live and archived webcast, as well as an mp3 download, can be accessed at http://www.investorcalendar.com/IC/CEPage.asp?ID=167574 or on Coast's website at www.coastwholesaleappliancesinc.com.Coast Wholesale Appliances Inc. (Coast), formerly Coast Wholesale Appliances Income Fund (the Fund), today reported financial results for the three and 12 months ended December 31, 2011. The three-month period represents the fourth quarter of Coast's 2011 fiscal year. Performance Highlights(in thousands of dollars except percentages and per-share / unit amounts) 2011Q4 2010Q4 2009Q42011Fiscal year2010Fiscal year2009Fiscal yearSales35,28132,79035,617133,594135,251144,050Gross profit8,6678,1868,76832,60833,60634,132As a percentage of sales24.6%25.0%24.6%24.4%24.8%23.7%Profit before goodwill impairment & related deferred tax recovery1,4681,9671,0863,5021,5154,527Goodwill impairment net of deferred tax recovery(30,375)--(30,375)--Profit (loss)(28,907)1,9671,086(26,873)1,5154,527Diluted net income (loss) per share / unit(2.881)N/A0.166(2.678)N/A0.694EBITDA before other costs2,6002,0992,5878,1058,91910,472EBITDA margin before other costs7.4%6.4%7.3%6.1%6.6%7.3%EBITDA per share / unit before other costs0.259N/A0.2580.808N/A1.044EBITDA2,6001,8872,5877,2038,32110,472EBITDA margin7.4%5.8%7.3%5.4%6.2%7.3%EBITDA per share / unit0.259N/A0.2580.718N/A1.044Fourth Quarter Operating ResultsCoast's sales revenues of $35.3 million for the three months ended December 31, 2011 were up by $2.5 million, or 7.6%, from $32.8 million in Q4 2010, building on the positive trend that emerged in the third quarter when total sales were up by 3.0%. A 12.1% year-over-year boost in its fourth quarter sales to builders and developers was tempered somewhat by a more modest 3.2% retail sales gain. As a result, Coast's business mix for the three months continued to shift in favour of builder sales. Revenues from warranty sales, freight and installation, sales of glass products and commission sales increased by 14.6%. In British Columbia, revenues generally improved over Q4 2010 levels, particularly in the multi-family builder sector. In Alberta, sales improved modestly over 2010, with moderate growth in revenues from both the retail and builder sectors. In Saskatchewan and Manitoba, sales continued to benefit from strong single-family home construction activity, increasing year-over-year in Saskatchewan and remaining in line with 2010 levels in Manitoba. Finally, revenues at Coast's Greater Toronto Area (GTA) store were up significantly from 2010. In this market, while retail business was off slightly year-over-year, builder sales increased significantly due to the completion of sales logged in 2010 with single-family and multi-family builders.Coast's fourth quarter gross profit improved to $8.7 million from $8.2 million in 2010, while its gross margin decreased slightly to 24.6% from 25.0% in 2010. The modest decline in gross margin percentage was due to the combined impact of a more competitive retail environment, and shifts in Coast's business and product mixes, including line-up changes. The increase in revenue brought Coast's fourth quarter EBITDA up to $2.6 million from $1.9 million in 2010 and improved EBITDA margin to 7.4% from 5.8% in 2010. Profitability was significantly impacted by a $33.9 million goodwill impairment recorded by Coast in response to its economic forecasts. The impairment, which was partially offset by a $3.5 million deferred tax recovery, drove a loss of $28.9 million for the quarter. It had no cash impact in Q4 2011 and will have no effect on future cash flows. Before the goodwill impairment and income tax, net income was $2.0 million. This compares to net income before income tax and non-controlling interest of $1.2 million in Q4 2010, as reported under Canadian GAAP, or, as restated under IFRS after unit items, net income of $2.0 million. During the fourth quarter, as part of its ongoing strategy to enhance profitability by increasing sales from its existing stores, Coast completed a major upgrade of its Surrey, BC store. The company also began work on an upgrade of its Coquitlam, BC location, which will be completed by the end of the first quarter of 2012. In late 2011, as previously announced, Coast secured national distribution rights for the popular KitchenAid® brand of major household appliances. Already sold by Coast at its stores in Saskatchewan, Manitoba and the GTA of Ontario, the higher-end brand was added at the beginning of 2012 at Coast's 12 locations in BC and Alberta. The KitchenAid roll-out followed a comprehensive product offering review completed by Coast in the third quarter of 2011."Taking a close look at our product offering has enabled us to both adjust our product and supplier mix to better fit our core markets, and to improve our focus on our key suppliers," said Maurice Paquette, President, CEO and a director of Coast. "We have also refined our inventory ordering process to reduce the time that special order products are held in our warehouses. As a result of these actions, we expect to see a reduction of our inventory levels during the first half of 2012, and a concurrent improvement in our inventory turns." Full-Year Operating ResultsRevenue for the 12 months ended December 31, 2011 was $133.6 million, down by 1.2% from $135.3 million in 2010, with a much stronger second half substantially offsetting weaker sales performance in the first two quarters of the year. Coast's annual builder and retail sales decreased by 2.5% and 1.2%, respectively, year-over-year. Revenue from warranty sales, freight and installation, sales of glass products and commission sales increased by 7.8%. Consistent with 2010, annual revenues from product sales were split approximately evenly between the builder and retail segments. In BC, annual sales were down somewhat from 2010, due mainly to a softening of Coast's retail business. Sales in Alberta were generally down year-over-year, while sales in both Saskatchewan and Manitoba increased over 2010, due to the strong single-family home construction activity in these markets. In the GTA, Coast's annual revenues rose dramatically as a result of its increased sales to single-family and multi-family builders.Gross profit of $32.6 million, or 24.4% of sales, was down from $33.6 million, or 24.8% of sales, in 2010. As with the quarterly result, the decrease in gross margin percentage was mainly due to a more competitive retail environment, and shifts in Coast's business and product mixes. Twelve-month EBITDA of $7.2 million was down by $1.1 million from the $8.3 million reported in 2010, reducing Coast's EBITDA margin for the year to 5.4% from 6.2% in 2010. The decrease in EBITDA was mainly due to the revenue decline and resulting $1.0 million gross profit shortfall when compared to 2010. In addition, EBITDA was also affected by an increase in other costs, as the $0.9 million of severance and recruitment costs associated with the change in Coast's CEO in 2011 was greater than the $0.6 million recorded in 2010 in relation to Coast's conversion to a corporation. The negative impact was partially offset by a $0.2 reduction in expenses.After the fourth quarter goodwill impairment, Coast recorded a loss of $26.9 million for the 12 months. Net income before the goodwill impairment and income tax was $4.8 million. This compares to net income before taxes and non-controlling interest of $5.6 million in 2010, or, as restated under IFRS after unit items, net income of $1.5 million. The year-over-year decrease in profitability before goodwill impairment was mainly due to the lower level of sales in 2011 and consequent gross profit shortfall."Given the sluggish state of the Canadian economy and generally challenging business environment faced by our industry, we are relatively pleased with our performance in 2011," said Paquette. "Our retail revenues were eroded by low consumer confidence and highly competitive market conditions, particularly in the first half of the year. However, our builder sales benefitted from strong single-family home construction in Saskatchewan and Manitoba throughout the year, and increased multi-family construction activity across all our markets in the second half."Dividends During the fourth quarter, monthly dividends of $0.035 per share were declared on each of October 19, November 16 and December 14, 2011, payable on or about the fifth day of the month following. Going forward, subject to the discretion of its Board of Directors, Coast expects to continue to pay cash dividends of $0.035 per share on a monthly basis, equivalent to $0.42 per share per annum. Outlook The following discussion is qualified in its entirety by the forward-looking statements report at the end of this news release. The outlook for Coast's business remains cautious. On the builder side, the company expects that its sales to the multi-family sector will continue to improve through the first half of 2012. However, the improvement may be tempered somewhat by a softening of its single-family business, due to a general downward trend in single-family housing starts that began in the second quarter of 2011 and persisted through the end of the year. Overall, Coast does not anticipate that total housing starts for 2012 will be significantly different from 2011 levels. On the retail side, while sales improved year-over-year in every quarter of 2011 except the first, Coast expects that consumers will remain careful about making major purchases and that unusually competitive retail pricing will persist through 2012, putting downward pressure on sales and margins. "Increasing multi-family development activity through 2011 allowed us to enter 2012 with a healthy order backlog in this sector of our builder business," said Paquette. "Moving through the year, we expect to continue to benefit from our balanced business model, which allows us to draw revenues from all of the new home, home renovation and retail markets. We anticipate that economic growth will remain slow in our western Canadian and GTA markets through 2012 and into 2013."Paquette added, "We expect that the extension of the popular higher-end KitchenAid brand to our stores in BC and Alberta at the beginning of 2012 will have a significant positive effect on our revenues over the long-term."During the first half of 2012, Coast will be updating its store in Saskatoon, Saskatchewan. The company is also preparing for the relocation of its Greater Toronto Area store to a new facility that is better suited to Coast's business and offers needed additional warehouse space. The company expects to complete the move by the end of the second quarter of 2012. A more detailed discussion of Coast's financial results can be found in its 2011 annual Management's Discussion and Analysis, which will be posted with financial statements for the year on Coast's website (www.coastwholesaleappliancesinc.com) and SEDAR (www.sedar.com) on or before March 16, 2012.Coast ProfileCoast is a leading independent supplier of major household appliances and accessories to builders and developers of multi-family and single-family housing, and to retail customers. Founded in 1978, Coast currently operates 15 stores across the four western provinces and one store in the Greater Toronto Area of Ontario, as well as a network of warehouse distribution centres strategically situated to serve these locations. Forward-looking Statements This news release includes forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause actual results, performance, or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are identified by the use of terms and phrases such as "anticipate", "believe", "estimate", "expect", "may", "plan", "will", and similar terms and phrases, including references to assumptions. Such statements may involve, but are not limited to, comments with respect to the sustainability of Coast's dividends to shareholders, economic performance in Canada and its sales expectations. Forward-looking statements are included in, but not limited to, the sections titled Fourth Quarter and Full-Year Operating Results, Dividends and Outlook. These forward-looking statements reflect current expectations of Coast's management regarding future events and operating performance as of the date of this news release. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to: sensitivity to general economic conditions; changes in consumer confidence in the economy; maintenance of profitability and management of changes to the company's business; competition; increases to interest rates; reliance on suppliers and their ability to supply product for sale on a timely basis; changes in consumer preferences; changes in the mix of product sales; fluctuations in fuel and commodity pricing, which may impact freight and other costs; usage of extended warranty programs and the costs to deliver these services; changes to planning and supply chain processes; lack of long-term supplier agreements; reliance on key personnel; and foreign exchange rates as they relate to imported products.Although the forward-looking statements contained in this news release are based upon what management believes to be reasonable assumptions, Coast cannot assure investors that actual results will be consistent with these forward-looking statements. The forward-looking statements reflect management's current beliefs and are based on information currently available to Coast. They speak only as of the date of this news release, and reflect current assumptions regarding future events and operating performance. These assumptions include, without limitation: slow economic growth during 2012 in both Western Canada and the GTA, Coast's current markets; continued fluctuations in exchange rates with the Canadian dollar trading near par with the US dollar; continued low interest rates through 2012; continuing cautious credit markets for Coast's major builder customers to obtain financing for their current and future building activities; weak consumer confidence due to the slow economic recovery, which may be reflected in lower retail sales; and no significant change to the total housing starts recorded in 2011. These forward-looking statements are made as of the date of this news release and Coast assumes no obligation to update or revise them to reflect new events or circumstances, other than as required by law.Non-IFRS Financial MeasuresEBITDA and EBITDA margin are non-IFRS financial measures that are defined in the 2012 annual Management's Discussion and Analysis to be posted on Coast's website and SEDAR on or before March 16, 2012.FOR FURTHER INFORMATION PLEASE CONTACT: Jack PeckCoast Wholesale Appliances Inc.Chief Financial Officer(604) 301-3400invest@coastappliances.comwww.coastwholesaleappliancesinc.com