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Press release from Marketwire

Coast Wholesale Appliances Inc. Reports 2012 Q2 and First-Half Results

Strong Second Quarter Builder Sales Drive Double-Digit Revenue Growth; Order Backlog for Single-Family and Multi-Family Developments Continues to Increase

Tuesday, August 07, 2012

Coast Wholesale Appliances Inc. Reports 2012 Q2 and First-Half Results16:05 EDT Tuesday, August 07, 2012VANCOUVER, BRITISH COLUMBIA--(Marketwire - Aug. 7, 2012) - Coast Wholesale Appliances Inc. (TSX:CWA) - Coast Wholesale Appliances Inc. will host a conference call and webcast to discuss its 2012 second quarter and first-half financial results on Wednesday, August 8, 2012 at 8:00 am Pacific Time (11:00 am Eastern). The call can be accessed by dialing: 1-877-240-9772 or 416-340-8527 (GTA and International).A replay will be available through August 22, 2012 at: 1-800-408-3053 or 905-694-9451, passcode 2341751.The live and archived webcast, as well as an mp3 download, can be accessed at http://www.investorcalendar.com/IC/CEPage.asp?ID=169250 or on Coast's website at www.coastwholesaleappliancesinc.com.Coast Wholesale Appliances Inc. (Coast or the company), today reported financial results for the three and six months ended June 30, 2012. The three-month period represents the second quarter of the company's 2012 fiscal year.Performance Highlights(in thousands of dollars except percentages and per-share amounts) 201220112010201220112010Q2Q2Q2YTDYTDYTDSales37,72934,22537,06167,76562,31167,514Gross profit8,5058,3499,37515,38815,10116,845As a percentage of sales22.5%24.4%25.3%22.7%24.2%25.0%Profit1,1241,0817,3341,1205943,297Basic and diluted net income per share0.1120.108N/A0.1120.059N/AEBITDA before other costs2,0622,0742,9162,6782,8364,399EBITDA margin before other costs5.5%6.1%7.9%4.0%4.6%6.5%EBITDA2,0622,0742,5712,6782,0314,013EBITDA margin5.5%6.1%6.9%4.0%3.3%5.9%EBITDA per share0.2050.207N/A0.2670.202N/ASecond Quarter ResultsIn its fourth consecutive quarter of year-over-year revenue growth, Coast recorded sales of $37.7 million for the three months ended June 30, 2012, up by $3.5 million, or 10.2%, from $34.2 million in Q2 2011. A healthy 19.6% increase in its second quarter sales to builders was offset by a modest 1.2% decrease in sales to retail customers. Other revenues, generated by warranty sales, freight and installation, sales of glass products and commission sales, increased by 0.8%. As a result, Coast's business mix for the three months continued to shift in favour of builder sales.Revenues increased in all of Coast's geographic markets. Sales in British Columbia were particularly strong in the multi-family builder sector, while Alberta revenue growth was concentrated in the single-family builder sector. In Saskatchewan and Manitoba, sales continued to benefit from strong single-family and multi-family home construction activity, increasing year-over-year in both provinces, and particularly in Saskatchewan. Finally, revenues at Coast's Greater Toronto Area (GTA) store were again up significantly from 2011, with strong sales growth in both the retail and builder segments.Coast's second quarter gross profit improved to $8.5 million from $8.3 million in 2011, while its gross margin percentage decreased to 22.5% from 24.4% in 2011. The 1.9% decline in gross margin percentage was due in large part to price compression in the builder segment of Coast's business, which brought contract sales margins below historical levels. The shift in its business mix in favour of builder sales also contributed to the drop, as sales to this segment typically generate a lower margin than retail sales. At the same time, gross margin continued to be pressured by extremely competitive retail pricing in all of the company's markets. In addition, discounted sales of floor models to accommodate Coast's extension of the KitchenAid® line to its 12 BC and Alberta stores in January and clearance pricing on selected items to reduce inventory had a negative impact on gross margin. Finally, the gross margin percentage generated from other revenues was down year-over-year, due mainly to a reduction in commission sales of products marketed under an agency agreement.Second quarter EBITDA of $2.1 million was slightly below the amount reported in 2011, while the year-over-year reduction in gross margin percentage reduced EBITDA margin to 5.5% from 6.1% last year. A $1.1 million profit was recorded for Q2, which was consistent with the 2011 amount.Six-Month ResultsFor the six months ended June 30, 2012, Coast's revenues of $67.8 million were up by $5.5 million, or 8.8%, from $62.3 million in the same period of 2011. Builder sales increased by 15.6% year-over-year, retail revenues improved by a modest 0.4% and other revenues grew by 3.0%. As with the quarterly result, the company's first-half sales mix shifted in favour of the builder segment.Gross profit of $15.4 million was up slightly from the $15.1 million reported for the first six months of 2011, while gross margin percentage dipped to 22.7% from 24.2% last year. The 1.5% decrease in gross margin percentage was mainly due to more competitive pricing in both the builder and retail segments of Coast's business and the proportionate increase in its lower-margin builder sales.First-half EBITDA of $2.7 million was up by $0.7 million from the $2.0 million reported after other costs in 2011 ($2.8 million before other costs), while EBITDA margin improved to 4.0% from 3.3% last year (4.6% before other costs). Coast recorded a profit of $1.1 million for the six months, compared to a profit of $0.6 million in the first half of 2011. The difference between the two years was mainly due the $0.8 million in other costs that were incurred in 2011."While we are very pleased with our second quarter sales improvement, particularly given that we have been operating in an increasingly competitive business environment, we remain disappointed with our margin performance," said Maurice Paquette, President, CEO and a director of Coast. "Over the past two years, our average retail pricing has decreased markedly, requiring additional unit sales to maintain comparable revenues year-over-year. In recent months, this compression of pricing has extended to our builder business, as we have been realizing contract sales that were logged in the second half of 2010 and in 2011 at unit prices reflecting the more challenging economic conditions that have prevailed since the beginning of the recession in 2008.""Despite the growing competitive pressure, we continued to strengthen our backlog of contract orders for future delivery across all of our markets in Q2," continued Paquette. "We are also happy to report that our KitchenAid® sales in BC and Alberta again exceeded our expectations."Operating HighlightsDuring the second quarter, as part of its ongoing strategy to enhance profitability by increasing sales from its existing stores, Coast entered the final stages of upgrade work at its Victoria, BC store. The company also neared completion of improvements to its Coquitlam, BC store and began renovation work at its Calgary South store in Alberta, scheduled for completion by year-end. In Saskatchewan, Coast added new warehouse space adjacent to its Saskatoon store, where the existing in-store warehouse space will be converted to a clearance centre.Also in keeping with its profitability enhancement strategy, Coast discontinued the sale of glass products at its BC Lower Mainland stores, leaving its Kelowna, BC store the only location active in this business. At the company's Surrey, BC store, the space formerly utilized for glass assembly and glass inventory storage will be converted to a clearance centre during the third quarter.As planned, Coast completed the relocation of its GTA store in June. The new location features a state-of-the-art showroom and an adjoining warehouse providing sufficient space to accommodate the future addition of other stores in the region. A grand opening event will be held at the new GTA location in Q3.Due mainly to the additional inventory required to support the introduction of the KitchenAid® brand at Coast's BC and Alberta stores, the company did not achieve the inventory reductions planned for Q2. "The review of our product offering we completed in Q3 of last year enabled us to eliminate some marginal product lines and improve our focus on our key suppliers, but we need to further reduce the number of items we stock in our warehouses," said Paquette. "We will be completing a more in-depth product review in the third quarter, which will enable us to do some additional streamlining of our offering over the balance of 2012." He noted that Coast has shortened its purchase-to-delivery cycle for special order products, which should favourably impact inventory levels and turns.During the quarter, Coast renegotiated its financing arrangement with its existing lender, creating a new revolving loan and using funds from the new facility to repay both its existing revolving loan and term debt. Paquette stated that the new asset-backed loan structure is better suited to the company's business and will give Coast greater flexibility in its ongoing borrowing requirements. The company also made good progress with its search for a new CFO to replace Jack Peck, who retires in the fall. Coast expects to be able to announce its new CFO by the end of the third quarter. Mr. Peck will work closely with his successor to ensure a smooth and orderly transition.DividendsDuring the second quarter, monthly dividends of $0.035 per share were declared on each of April 17, May 16 and June 13, 2012, 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.OutlookThe preceding paragraph about dividends and the following outlook discussion are qualified in their entirety by the forward-looking statements report at the end of this news release.A cautious outlook persists for Coast's business. In the builder segment, the company expects that revenues will continue to grow through 2012 as projects in its order backlog move into the final stages of development, particularly in the multi-family sector. However, Coast anticipates that the rate of growth will slow from the 15.6% year-over-year sales gain reported for the first half of the year. The expected second half revenue improvement may be tempered somewhat by a softening of its single-family business, reflecting an on-going downward trend in single-family housing starts. Coast anticipates that total housing starts for 2012 will be similar to the 2011 level, and that competitive market conditions will continue to compress unit prices and hence margins on its builder sales for the foreseeable future. On the retail side, while Coast's retail sales have continued to be relatively strong, the company expects that consumers will remain careful about making major purchases and that extremely competitive retail pricing will persist through the balance 2012, again putting downward pressure on sales and margins."We expect that our financial performance will continue to be impacted by slow economic growth and fragile consumer confidence in our western Canadian and GTA markets into 2013," said Paquette. "However, as we have previously stated, we are confident in our ability to grow our business over the longer-term as economic conditions improve. In particular, the sales momentum we have been gaining in the GTA is setting the stage for expansion in this, the country's largest market."Over the balance of the year, in addition to completing renovations at its Coquitlam and Calgary South stores, and opening clearance centres at its Surrey and Saskatoon locations, Coast plans to begin a major upgrade at the Saskatoon store. Improvements to the store's showroom are expected to be completed in the first part of 2013.A more detailed discussion of Coast's financial results can be found in its 2012 Second Quarter Management's Discussion and Analysis, which will be posted with unaudited interim condensed financial statements for the period on Coast's website (www.coastwholesaleappliancesinc.com) and SEDAR (www.sedar.com) on or before May 8, 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 StatementsThis 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 all sections of this news release.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; 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 through the balance of 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; weak consumer confidence due to the slow economic recovery; and no significant change to total housing starts recorded in 2012 compared to 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 Second Quarter Management's Discussion and Analysis to be posted on Coast's website and SEDAR on or before August 8, 2012.FOR FURTHER INFORMATION PLEASE CONTACT: Jack PeckCoast Wholesale Appliances Inc.Chief Financial Officer(604) 301-3400invest@coastappliances.comwww.coastwholesaleappliancesinc.com