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Press release from CNW Group

The Brick Ltd. reports 53.5% second quarter growth in income, before finance costs related to debentures redeemed and income taxes, and declares first quarterly dividend of $0.02 per common share

Tuesday, August 14, 2012

The Brick Ltd. reports 53.5% second quarter growth in income, before finance costs related to debentures redeemed and income taxes, and declares first quarterly dividend of $0.02 per common share22:41 EDT Tuesday, August 14, 2012/NOT FOR DISTRIBUTION THROUGH U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE U.S./Strong operating performance leveraged from same-store-sales growth of 0.4%, in the second quarter of 2012  EDMONTON, Aug. 14, 2012 /CNW/ - The Brick Ltd. (TSX: BRK) (the "Brick Group" or the "Brick") today announced its results for the three and six months ended June 30, 2012. Financial statements and Management's Discussion and Analysis are available on the Brick Group's website at thebrick.com and on SEDAR.Q2 2012 highlights include:Income before finance costs related to the April 2012 debenture redemption and income taxes, was $15.1 million compared to $9.8 million in 2011, an increase of $5.2 million or 53.5%.Earnings per share (diluted) of $0.06, before finance costs related to debentures redeemed, net of related income tax expense impact.EBITDA of $25.7 million, up 4.5% or $1.1 million over Q2 2011.Corporate same store sales increased 0.4%.Gross margin rate continues to be strong at 44.4%, up from 44.3% in Q2 2011.Second-quarter consolidated operating expenses of $118.0 million were lower by $2.0 million or 1.7%, and as a percentage of sales, were lower at 36.7% as compared to 36.9% in the same quarter of 2011.Cash and cash equivalents totaled $52.0 million at June 30, 2012 (after the April 12, 2012 debenture redemption payment of $88.1 million), compared to $141.1 million at December 31, 2011 and $100.2 million at June 30, 2011. The Brick Group has not borrowed under its asset-based credit facility since the second quarter of 2010.The Brick Ltd. declares its first quarterly dividend in the amount of $0.02 per common share, or $0.08 per share per year.2012 Year to Date highlights include:Income, before finance costs related to the April 2012 debenture redemption and income taxes, increased 76.8% to $21.6 million compared to $12.2 million the first half of 2011.Earnings per share (diluted) of $0.10, before finance costs related to debentures redeemed, net of related income tax expense impact.EBITDA of $46.2 million increased by $3.6 million or 8.5% compared to same period in 2011.Gross margin rate improved 50 basis points to 44.8% in the first half of 2012 from 44.3% in the first half of 2011.Operating expenses have decreased $1.1 million and remain consistent as a percentage of sales, compared to the first six months of 2011, at 37.6%Vi Konkle, President and CEO of the Brick Group commented "I am excited about the strides that the team has made in the second quarter and pleased that our Board of Directors has approved a plan to introduce a quarterly dividend. Management and the Board of Directors believe that the Brick Group's healthy balance sheet, strong earnings, free cash flow and financing capacity will allow us to support a quarterly dividend program while still focusing on our growth strategy and our debt and share reduction initiatives aimed at enhancing shareholder value and increasing earnings per share. Our team continues to demonstrate their ability to successfully manage during uncertain times generating 0.4% corporate same store sales growth. Our gross margin rate continues to remain strong and we continue to execute on our value-added initiatives to strengthen our bottom line, delivering a 53.5% increase in income before costs related to the debenture redemption and income taxes".Ms. Konkle added "Our strong performance in the second quarter continues to reflect key ongoing operational improvements, many of which were initiated in 2009, which have provided the platform for profitable operations and have set the stage for milestone performance events, of which the more recent include:The cashless warrant exercise in 2011, and ongoing normal course issuer bids, have reduced the combined number of shares and share purchase warrants outstanding from a peak of 179.5 million at September 30, 2009 to 129.1 million at June 30, 2012;Our new 5 year $100 million asset-based credit facility has reduced borrowing rates and includes a $50.0 million accordion feature, which was not present under the previous facility, providing the flexibility to increase total borrowing capacity to $150.0 million;Through early redemptions of our debentures on December 2, 2011 and April 12, 2012, we have reduced the outstanding principal amount of debentures from $120.0 million in May, 2009 to $32.8 million as of June 30, 2012 and have removed many negative covenants and events of default, including covenants restricting our ability to pay dividends. The April 12, 2012 redemption will result in a gross reduction to cash interest payments of approximately $19.8 million to Debenture maturity on May 30, 2014, or a net reduction of $9.0 million after the $10.8 million repurchase premium. Based on the remaining $32.8 million principal amount of Debentures outstanding at June 30, 2012, combined cash and non-cash Debenture interest expense expected to be recognized in fiscal 2013 is reduced by $11.8 million to $6.1 million, and in fiscal 2014 is reduced by $5.1 million to $2.6 million.After paying $88.1 million to settle the debentures redeemed on April 12, 2012, we still ended the quarter with $52.0 million cash on hand, confirming our readiness to introduce a quarterly dividend".Consolidated Results Summary                    For the three months ended June 30  For the six months ended June 30   2012  2011$ Increase% Increase  2012  2011$ Increase% Increase(000's of $ except % and per share amounts)      (Decrease)(Decrease)      (Decrease)(Decrease)Sales $   321,588  $   324,822(3,234)-1.0% $   617,416  $   618,381(965)-0.2%Cost of sales  (178,774)  (180,835)(2,061)-1.1%  (340,972)  (344,147)(3,175)-0.9%Gross margin  142,814   143,987(1,173)-0.8%  276,444   274,2342,2100.8% Gross margin as a percentage of sales  44.4%  44.3%0.1%   44.8%  44.3%0.5%                  Operating expenses  (117,964)  (119,985)(2,021)-1.7%  (232,080)  (233,166)(1,086)-0.5%Finance income and other income  860   59826243.8%  1,869   1,54932020.7%EBITDA  25,710   24,6001,1104.5%  46,233   42,6173,6168.5%EBITDA as a percentage of sales  8.0%  7.6%    7.5%  6.9%  Finance costs  (4,203)  (7,154)(2,951)-41.2%  (11,141)  (14,323)(3,182)-22.2%Depreciation and amortization  (6,450)  (7,635)(1,185)-15.5%  (13,450)  (16,055)(2,605)-16.2%Income before finance costs related to Debentures redeemed and income taxes  15,057   9,8115,24653.5%  21,642   12,2399,40376.8%Finance costs related to Debentures redeemed  (17,083)  -17,083100.0%  (17,083)  -17,083100.0%Income tax expense  (1,062)  (3,432)(2,370)-69.1%  (2,899)  (4,724)(1,825)-38.6%Net (loss) income $   (3,088) $   6,379(9,467)-148.4% $   1,660  $   7,515(5,855)-77.9%Basic weighted average number of common shares   120,307,209   55,398,713     120,590,017   55,716,908  Basic (loss) earnings per share $   (0.03) $   0.12(0.15)-125.0% $   0.01  $   0.13(0.12)-92.3%Diluted weighted average number of common shares   120,307,209   131,790,474     130,424,614   133,037,646  Diluted (loss) earnings per share $   (0.03) $   0.05(0.08)-160.0%    0.01  $   0.06(0.05)-83.3%Basic earnings per share before finance costs related to Debentures redeemed net of related impact to income tax expense $   0.07  $   0.12(0.05)-41.7% $   0.11  $   0.13(0.02)-15.4%Diluted earnings per share before finance costs related to Debentures redeemed net of related impact to income tax expense $   0.06  $   0.050.0120.0% $   0.10  $   0.060.0466.7%Total corporate and franchise stores at period end  228   235    228   235   Segmented Results Summary:   (000's of $ except %, and store amounts)For the three months ended June 30For the six months ended June 30  2012  2011$ Increase% Increase  2012  2011$ Increase% Increase      (Decrease)(Decrease)      (Decrease)(Decrease)Retail Segment - Sales $301,717  $  303,909(2,192)-0.7% $  577,858   $576,3611,4970.3%Financial Services Segment - Sales  19,871   20,913(1,042)-5.0%  39,558   42,020(2,462)-5.9%Consolidated - Sales  321,588   324,822(3,234)-1.0%  617,416   618,381(965)-0.2%Franchise sales   42,580   42,766(186)-0.4%  84,660   81,2893,3714.1%Total system sales  $  364,168  $  367,588(3,420)-0.9% $  702,076  $  699,6702,4060.3%                 Retail Segment - EBITDA  $  20,448  $  19,5498994.6% $  35,764  $  31,8543,91012.3%Financial Services Segment - EBITDA   5,262   5,0512114.2%  10,469   10,763(294)-2.7%Consolidated - EBITDA  $  25,710  $  24,6001,1104.5% $  46,233  $  42,6173,6168.5% EBITDA  as a percentage of consolidated sales  8.0%  7.6%    7.5%  6.9%                   Retail Segment - Net income (loss) before finance costs related to Debentures redeemed net of related impact to income tax expense  $  4,337  $  1,7952,542141.6% $  5,114  $  (1,610)6,724417.6%Finance costs related to Debentures redeemed net of related impact to income tax expense   (11,293)  -(11,293)100.0%  (11,293)  -(11,293)100.0%Retail Segment - Net (loss) income $  (6,956) $  1,795(8,751)-487.5% $  (6,179) $  (1,610)(4,569)-283.8%Financial Services Segment - Net income  3,868   4,584(716)-15.6%  7,839   9,125(1,286)-14.1%Consolidated - Net (loss) income $  (3,088) $  6,379(9,467)-148.4% $  1,660  $  7,515(5,855)-77.9%                 Declaration of First Quarterly DividendThe Brick Group announced today that its Board of Directors has approved a quarterly dividend for holders of its common shares of $0.02 per common share. The Brick Group's first quarterly dividend will be paid on October 15, 2012 to shareholders of record at the close of business on September 28, 2012.The Board of Directors expects to declare dividends each quarter in the amount of $0.02 per common share, or $0.08 annually, and believes that this level of dividend is appropriate at this time. Dividends are anticipated to remain at the stated level subject to the Board of Directors' on-going assessment of the Brick Group's future cash requirements, financial performance, liquidity and outlook. The payment of each dividend will remain subject to the declaration of that dividend by the Board of Directors. The actual amount of each quarterly dividend, as well as each declaration date, record date and payment date is subject to the discretion of the Board of Directors. The Brick Group's dividend policy is also expected to be reviewed on an annual basis. The Brick Group's quarterly dividend is designated as an "eligible dividend" for Canadian tax purposes.For the QuarterSalesFor the quarter ended June 30, 2012, consolidated sales of $321.6 million decreased by $3.2 million or 1.0% as compared to the same quarter of 2011.  In the retail segment, sales of $301.7 million decreased by $2.2 million or 0.7% and were partially impacted by store closures.  We ended the second quarter with 164 corporate stores compared to 177 corporate stores at the end of the same quarter in 2011.  Second-quarter same store sales increased by 0.4%. In the financial services segment, sales of $19.9 million decreased by $1.0 million or 5.0%.  In the financial services segment, growth in the insurance companies' Brick Card business was more than offset by decreases in third-party insurance business.Franchise Sales Compared to the same quarter a year ago, sales at franchise stores decreased by 0.4% to $42.6 million.  In 2011, second-quarter sales at franchise stores were increased by sales to replace home furnishings of homes damaged by forest fires in Slave Lake, Alberta.  Excluding the impact of those sales in 2011, second-quarter 2012 sales at franchise stores would have increased by 2.1%.  Second-quarter 2012 same store sales for franchise stores decreased by 6.0% (3.2% decrease excluding Slave Lake).  We began the quarter with 62 franchise stores and ended with 64, while in 2011 we began the quarter with 55 franchise stores and ended with 58.Gross Margin Second-quarter consolidated gross margin rate was relatively flat at 44.4% compared to 44.3% for the same quarter of 2011.  With consolidated gross margin rate relatively unchanged, the 1.0% decrease in consolidated sales resulted in a decrease in gross margin earned of $1.2 million.  In the retail segment, sales mix and overall margin rates have remained relatively unchanged compared to the same quarter of 2011.  In the financial services segment, the gross margin rate has improved as the result of reduced claims expense in the warranty business.  As well, decreases in low-margin third-party insurance sales and increases in higher-margin Brick Card insurance sales have resulted in higher gross margin rate in this segment.Operating ExpensesSecond-quarter consolidated operating expenses of $118.0 million were lower by $2.0 million or 1.7%, and as a percentage of sales were lower at 36.7% as compared to 36.9% in the same quarter of 2011.  Essentially all of The Brick's operating expenses are incurred in the retail segment.EBITDA The Brick's financial results reflect strong EBITDA performance for the quarter ended June 30, 2012.  Second-quarter consolidated EBITDA of $25.7 million improved by $1.1 million or 4.5% compared to the same quarter of 2011.  By segment and compared to the same quarter of 2011, retail segment EBITDA of $20.4 million was higher by $0.9 million or 4.6%, and financial services segment EBITDA of $5.3 million was higher by $0.2 million or 4.2%.In the retail segment, EBITDA improvement was driven by reductions to operating expenses which more than offset the sales-driven quarter-over-quarter decline in gross margin earned.In the financial services segment, EBITDA improvement was attributable to a reduced sales mix of lower-margin third-party insurance sales and reduced claims expenses in the warranty company.Finance Costs and Finance Costs Related to Debentures RedeemedSecond-quarter finance costs of $4.2 million were lower by $3.0 million as compared to $7.2 million in the same quarter of 2011.  This $3.0 million reduction is attributable primarily to the reduced balance of Debentures outstanding subsequent to the Debenture redemption which was settled on April 12, 2012.The Debenture redemption is discussed further in the Brick Group's MD&A under the heading Financing Resources.Finance costs incurred to redeem $77.3 million aggregate principal amount of Debentures on April 12, 2012 were $17.1 million and included a premium of $10.8 million reflecting the amount paid in excess of the principal value, and $6.3 million in respect of accelerated accretion, de-recognition of deferred financing fees, and transaction fees.Substantially all of The Brick Group's finance costs relate to the Debentures and finance lease obligations.Net Loss and Loss per ShareThe second-quarter net loss of $3.1 million includes non-recurring finance costs of $17.1 million related to the Debenture redemption which is discussed further in the Brick Group's MD&A under the heading Financing Resources.Income before finance costs related to the April, 2012 debenture redemption transaction and income taxes, increased 53.5% or $5.2 million to $15.1 million compared to $9.8 million in 2011.The second-quarter basic and diluted loss per share was 3 cents compared to basic earnings per share of 12 cents and diluted earnings per share of 5 cents for the same quarter of 2011.  Excluding the $17.1 million of finance costs related to the Debenture redemption and the related impact on income tax expense, 2012 second-quarter basic and diluted earnings per share would have been 7 cents and 6 cents, respectively.Cash PositionSubsequent to the April 12, 2012 Debenture redemption payment of $88.1 million, The Brick's cash and cash equivalents at June 30, 2012 were $52.0 million as compared to $141.1 million at December 31, 2011 and $100.2 million at June 30, 2011.  The Brick has not borrowed under the Asset-Based Credit Facility since the second quarter of 2010.  Borrowing capacity under The Brick's $100.0 million Asset-Based Credit Facility at June 30, 2012 was $100.0 million.Year to DateSalesFor the six months ended June 30, 2012, consolidated sales of $617.4 million decreased by $1.0 million or 0.2% as compared to the same period of 2011.  In the retail segment, sales of $577.9 million increased by $1.5 million or 0.3%, and first half same store sales growth was positive 1.1%. During the first half of 2012, the corporate store count has decreased from 172 to 164, while in the same period of 2011 the corporate store count decreased from 183 to 177.  In the financial services segment, sales of $39.6 million decreased by $2.5 million or 5.9% as growth in the insurance companies' Brick Card business was more than offset by decreases in third-party insurance business.Franchise Sales Compared to the same period in 2011, year-to-date sales at franchise stores increased by 4.1% to $84.7 million due to the addition of new franchise stores.  In 2011, year-to-date sales at franchise stores were increased by sales to replace home furnishings of homes damaged by forest fires in Slave Lake, Alberta.  Excluding the impact of those sales in 2011, year-to-date 2012 sales at franchise stores would have increased by 5.3%.  Year-to-date 2012 same store sales for franchise stores decreased by 1.4%.Gross MarginCompared to the same period in 2011, consolidated gross margin rate improved from 44.3% to 44.8%.  Fluctuations in our consolidated gross margin rates are driven primarily by the retail segment.  Consolidated gross margin earned increased by $2.2 million with $1.5 million of this increase attributable to the retail segment and $0.7 million attributable to the financial services segment.In the retail segment, the $1.5 million increase in gross margin earned resulted from the combination of improvements in gross margin rate and a sales increase of 0.3%.  Improvement in gross margin rate reflected a sales mix with a reduced blend of lower margin electronics and appliances and an increased blend of higher margin furniture and mattresses as compared to the same period of 2011.In the financial services segment, the $0.7 million increase in gross margin earned was attributable to improvement in gross margin rate as sales in this segment decreased by 5.9%.  Improvement in gross margin rate was attributable to reduced claims expenses in the warranty business, and also to a reduced mix of lower-margin third-party insurance sales in the insurance business.Operating ExpensesYear-to-date consolidated operating expenses were lower by $1.1 million or 0.5% and remained relatively flat as a percentage of sales at 37.6% as compared to 37.7% for the same period of 2011.  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, 2012.  Year-to-date consolidated EBITDA of $46.2 million increased by $3.6 million or 8.5% as compared to the same period of 2011.  By segment and compared to the same period of 2011, retail segment EBITDA of $35.8 million was higher by $3.9 million or 12.3%, while financial services segment EBITDA decreased by $0.3 million or 2.7% to $10.5 million.The $3.9 million EBITDA improvement in the retail segment resulted from combined gross margin and sales improvements which added $1.5 million, from reduced operating expenses which added $1.3 million, and from approximately $1.1 million of other income driven primarily by gains related to derecognition of finance leases.  Consistent with The Brick's franchise growth strategy, where certain Brick store locations are being converted to franchise operations, lease extension options are not being exercised resulting in derecognition of the associated finance lease.In the financial services segment, 2011 year-to-date EBITDA included the reversal of a $0.6 million commodity tax provision which was recorded upon receipt of a favourable decision from the relevant tax authority.  Excluding the impact of this item, 2012 year-to-date EBITDA in the financial services segment would have been approximately $0.3 million higher as compared to the same period of 2011.Finance Costs and Finance Costs Related to Debentures RedeemedYear-to-date finance costs of $11.1 million were lower by $3.2 million as compared to $14.3 million in the same period of 2011.  This $3.2 million reduction is attributable primarily to the reduced balance of Debentures outstanding subsequent to the Debenture redemption which was settled on April 12, 2012.The Debenture redemption is discussed further in the Brick Group's MD&A under the heading Financing Resources.Finance costs incurred to redeem $77.3 million aggregate principal amount of Debentures on April 12, 2012 were $17.1 million and included a premium of $10.8 million reflecting the amount paid in excess of the principal value, and $6.3 million in respect of accelerated accretion, de-recognition of deferred financing fees, and transaction fees.Substantially all of The Brick Group's finance costs relate to the Debentures and finance lease obligations.Net Income and Earnings per ShareYear-to-date net income of $1.7 million includes the non-recurring finance costs of $17.1 million related to the Debenture tender offer discussed above.Income before finance costs related to the April, 2012 debenture redemption transaction and income taxes, increased 76.8% or $9.4 million to $21.6 million compared to $12.2 million in 2011.The year-to-date basic and diluted earnings per share were 1 cent compared to basic earnings per share of 13 cents and diluted earnings per share of 6 cents for the same period of 2011.  Excluding the $17.1 million of finance costs related to the Debenture redemption and the related impact on income tax expense, 2012 year-to-date basic and diluted earnings per share would have been 11 cents and 10 cents, respectively.The Brick Group will hold an investor conference event on Wednesday August  15, 2012 at 10:00 a.m. Eastern Time (8:00 a.m. Alberta Time), hosted by Vi Konkle, President & CEO and Ken Grondin, CFO & President, Financial Operations, to discuss Q2 2012 financial results.To access the call, dial 647-427-7450 or 1-888-231-8191. Conference call ID: 12406059.For a listen-only webcast, log on to http://www.newswire.ca/en/webcast/detail/1008819/1089971 prior to the scheduled meeting time.A telephone replay of the call will be available until August 22, 2012, at 11:59 p.m. Eastern Time. To access it, dial either 416-849-0833 or 1-855-859-2056 and enter passcode 12406059, followed by the number sign.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 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 and franchise 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.   SOURCE: The Brick Ltd.For further information: Vi Konkle 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.comwww.thebrick.com