VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 6, 2012) - Coast Wholesale Appliances Inc. (TSX:CWA) will host a conference call and webcast to discuss its 2012 third quarter and nine-month financial results on Wednesday, November 7, 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 November 21, 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=170066 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 nine months ended September 30, 2012. The three-month period represents the third quarter of the company's 2012 fiscal year.
(in thousands of dollars except percentages and per-share amounts)
|As a percentage of sales
|Basic and diluted net income per share
|EBITDA before other costs
|EBITDA margin before other costs
|EBITDA per share
Third Quarter Results
In its fifth consecutive quarter of year-over-year revenue growth, Coast recorded sales of $38.9 million for the three months ended September 30, 2012. This represented a $2.9 million, or 8.0%, improvement from revenue of $36.0 million in Q3 2011. Sales to builders increased by 13.8% while retail sales improved by 2.4%. Other revenues, generated by warranty sales, freight and installation, sales of glass products and commission sales, were down by 7.8% from Q3 2011. As a result, Coast's business mix for the three months continued to shift in favour of builder sales. The decline in other revenues was mainly due to the discontinuation of glass sales at all but one of Coast's British Columbia stores in the second quarter of this year.
As in the second quarter, revenues increased in all of Coast's geographic markets, with the growth driven mainly by strong single-family and multi-family home construction activity. Double-digit increases in overall sales revenues were recorded in Saskatchewan and Manitoba. The recently-relocated GTA store again experienced robust sales growth, particularly in the builder segment.
With the higher revenues, Coast's third quarter gross profit was maintained at the $8.8 million recorded in 2011, despite a reduction in its gross margin percentage to 22.6% from 24.6% last year. The 2.0% decline in gross margin percentage was due mainly to on-going competitive pressure and the resulting price compression in the builder segment of Coast's business. These factors brought contract sales margins down from historical levels.
Third quarter EBITDA of $2.4 million was below the $2.6 million reported in Q3 2011 but improved over both the first and second quarters of 2012. The year-over-year reduction in gross margin percentage reduced EBITDA margin to 6.2% from 7.1% last year. A $1.4 million profit after taxes was recorded for Q3, the same level reported after taxes in 2011.
For the nine months ended September 30, 2012, Coast's revenues of $106.7 million were up by $8.4 million, or 8.5%, from $98.3 million in the same period of 2011. Builder sales increased by 14.8% year-over-year, retail revenues improved by 1.1% and other revenues were down by 0.9%. As a result, the company's year-to-date sales mix also shifted in favour of the builder segment.
Nine-month gross profit of $24.2 million was up slightly from the $23.9 million reported in 2011, while gross margin percentage dipped to 22.7% from 24.4% last year. As with the quarterly result, the 1.7% decrease in gross margin percentage was mainly due to more competitive pricing in the builder segment of Coast's business.
Nine-month EBITDA of $5.1 million was up by $0.5 million from the $4.6 million reported after other costs in 2011 ($5.5 million before other costs), while EBITDA margin of 4.8% was consistent with the 4.7% reported last year (5.6% before other costs). Coast recorded a profit after taxes of $2.5 million for the nine months, compared to a profit after taxes of $2.0 million in the same period of 2011. The difference between the two years was mainly due the $0.9 million in other costs that were incurred in 2011.
"Given the current highly competitive business environment, we are pleased with our sales results for the third quarter and year-to-date," said Maurice Paquette, President, CEO and a director of Coast. "However, we remain unhappy with our gross margin percentages, which continue to reflect the compression of pricing we have experienced in our core builder business since the beginning of the year. With the typical 18 to 24-month lag between when a contract sale to a builder is logged and when the appliances are delivered, we are now realizing sales that were negotiated in the second half of 2010 and in 2011 at unit prices that reflect the more challenging economic conditions that have prevailed since the beginning of the recession in 2008."
"Despite the growing competitive pressure, we have maintained a very strong backlog of contract orders for future delivery across all of our markets," continued Paquette. "We are also happy to report that our addition of the KitchenAid® brand at our 12 BC and Alberta stores in January continues to generate sales in excess of our expectations."
During the third quarter, as part of its ongoing strategy to enhance profitability by increasing sales from its existing stores, Coast completed improvements to its Coquitlam, British Columbia store and proceeded with renovation work at its Calgary South store in Alberta, scheduled for completion by year-end. In Saskatoon, Saskatchewan, where it added new warehouse space adjacent to its store in Q2, Coast completed the planned conversion of its former in-store warehouse to a dedicated clearance centre. Refurbishments were also completed during the quarter at Coast's Surrey, BC store, where space previously used for glass assembly and glass inventory storage was converted to a clearance centre.
"The store upgrades we have undertaken over the past 18 months have been extremely well received by our customers, generating increased traffic by enhancing their appeal as a shopping destination for retail buyers," said Paquette. "The addition of the new clearance centres will support our focus on clearing out eliminated and discontinued products."
Paquette added that Coast was disappointed with the progress it made in the third quarter in reducing inventory, which stood at $27.3 million at September 30, 2012, compared to $26.0 million at the end of the second quarter. "Our inventories have remained at higher than normal levels due to the increased product required to support both our sales growth and our introduction of KitchenAid® in BC and Alberta. Reducing our inventory remains a priority and we are continuing to closely review our product offering. Over the coming months, we will be working with our key suppliers in order to decrease the number of items we need to stock in our warehouses. We will also be eliminating additional marginal items and further refining our inventory ordering and control processes."
As previously reported, Coast successfully completed its search for a replacement for retiring CFO Jack Peck during the quarter. Gordon Howie joined Coast as CFO on September 1, 2012. A Chartered Accountant, Mr. Howie has more than 25 years of financial and operational management experience with a focus on retail consumer products and supply chain management.
Also as previously reported, Harlow Burrows resigned as a director of Coast in order to pursue personal interests and Jack Peck was appointed to the company's Board of Directors, effective September 19, 2012. Mr. Burrows was one of three founders of Coast in 1978 and is a former Chief Executive Officer of the company. He served on the company's Board from its formation with the conversion of Coast from a privately held business to a publicly traded entity in 2005. As a principal of CWAL Investments Ltd., Mr. Burrows will remain a major shareholder of Coast.
During the third quarter, monthly dividends of $0.035 per share were declared on each of July 18, August 15 and September 19, 2012, payable on or about the fifth day of the month following. This amount is equivalent to $0.42 per share per annum.
The following outlook 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 very cautious. In the builder segment, the company expects that revenues will continue to grow in the fourth quarter of 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 continue to slow and that revenues may be impacted by a softening of its single-family business, reflecting an on-going downward trend in single-family housing starts. Coast continues to anticipate that total housing starts for 2012 will be similar to the 2011 level, and that very competitive market conditions will compress unit prices and hence margins on its builder sales for the foreseeable future. On the retail side, while Coast's retail sales were strong in Q3, the company expects that consumers will remain careful about making major purchases and that extremely competitive retail pricing will persist into 2013, again putting downward pressure on sales and margins.
"There is no question that our financial performance will continue to be impacted by slow economic growth and fragile consumer confidence in our western Canadian and GTA markets for some time yet," said Paquette. "However, we remain confident that the builder-focused business strategy we currently have in place is the right one to sustain us through the challenges we currently face, and that this strategy will enable us to grow our business over the longer-term as economic conditions improve. Based on our very strong sales performance in the GTA this year, we remain very optimistic about the potential for our expansion in the country's most populous market."
Over the balance of the year, Coast will be completing renovations at its Calgary South store and finalizing plans for a major upgrade to the retail showroom of its Saskatoon store. The Saskatoon upgrade is expected to begin by early 2013.
A more detailed discussion of Coast's financial results can be found in its 2012 Third Quarter Management's Discussion and Analysis, which will be posted with unaudited condensed interim financial statements for the period on Coast's website (www.coastwholesaleappliancesinc.com) and SEDAR (www.sedar.com) on or before November 7, 2012.
Coast 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.
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 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 Measures
EBITDA and EBITDA margin are non-IFRS financial measures that are defined in the Third Quarter Management's Discussion and Analysis to be posted on Coast's website and SEDAR on or before November 7, 2012.