Coast Wholesale Appliances Inc. (TSX:CWA) -
Coast Wholesale Appliances Inc. will host a conference call and webcast to discuss its 2012 fourth quarter and fiscal year financial results on Wednesday, March 20, 2013 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 April 2, 2013 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=170634 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 12 months ended December 31, 2012. The three-month period represents the final quarter of the company's 2012 fiscal year.
| Performance Highlights | ||||||
| (in thousands of dollars except percentages and per-share amounts) | ||||||
| 2012 Q4 | 2011 Q4 | 2010 Q4 | 2012 Fiscal year | 2011 Fiscal year | 2010 Fiscal year | |
| Sales | 38,533 | 35,281 | 32,790 | 145,196 | 133,594 | 135,251 |
| Gross profit | 9,300 | 8,667 | 8,186 | 33,493 | 32,608 | 33,606 |
| As a percentage of sales | 24.1% | 24.6% | 25.0% | 23.1% | 24.4% | 24.8% |
| Profit before goodwill impairment & related deferred tax recovery | 1,701 | 1,468 | 1,967 | 4,195 | 3,502 | 1,515 |
| Goodwill impairment net of deferred tax recovery | - | (30,375) | - | - | (30,375) | - |
| Profit (loss) | 1,701 | (28,907) | 1,967 | 4,195 | (26,873) | 1,515 |
| Diluted net income (loss) per share | 0.169 | (2.881) | N/A | 0.418 | (2.678) | N/A |
| EBITDA | 2,862 | 2,600 | 1,887 | 7,969 | 7,203 | 8,321 |
| EBITDA margin | 7.4% | 7.4% | 5.8% | 5.5% | 5.4% | 6.2% |
| EBITDA per share | 0.285 | 0.259 | N/A | 0.794 | 0.718 | N/A |
| Dividends / distributions per share | 0.070 | 0.105 | N/A | 0.385 | 0.385 | N/A |
In its sixth consecutive quarter of year-over-year revenue growth, Coast recorded sales of $38.5 million for the three months ended December 31, 2012. This represented a $3.2 million, or 9.2%, improvement from revenue of $35.3 million in Q4 2011. Sales to builders increased by 15.2% and retail sales improved by 2.6%. Other revenues, generated by warranty sales, freight and installation, sales of glass products and commission sales, were down by 2.9% from Q4 2011. 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 2012.
As in the second and third quarters of the year, revenues increased in all of Coast's geographic markets, with the growth driven mainly by strong single-family and multi-family home construction activity. The company achieved double-digit increases in overall sales revenues in Saskatchewan, Alberta and the Greater Toronto Area (GTA) of Ontario.
With the higher revenues, Coast's fourth quarter gross profit improved to $9.3 million from $8.7 million in 2011. The 7.3% increase in gross profit dollars was due to the combined impact of the company's strong builder sales growth and annual supplier volume incentives that were attained in the fourth quarter of the year. Gross margin as a percentage of sales continued to be negatively affected by on-going competitive pressure and the resulting price compression in the builder segment of Coast's business, declining by half a percentage point to 24.1%.
Fourth quarter EBITDA of $2.9 million was up by $0.3 million from the $2.6 million reported in Q4 2011, while EBITDA margin of 7.4% was maintained at the prior year level. The increase in EBITDA was due mainly to the 2012 revenue improvement and resulting $0.6 million gross profit gain. A $2.2 million profit before income tax was recorded for Q4, compared to net profit before taxes and goodwill impairment of $2.0 million in 2011.
Full-Year Results
For the 12 months ended December 31, 2012, Coast's revenues of $145.2 million were up by $11.6 million, or 8.7%, from $133.6 million in 2011. As with the quarterly result, the annual revenue improvement was due to the sustained strength of the company's builder business. Sales to builders increased by 14.9% year-over-year and retail revenues improved by 1.5%. Other revenues were down by 1.5%, again due mainly to the discontinuation of glass sales at all but one location. Sales increased over the 12 months in all of Coast's geographic markets, with particularly strong growth in the Prairie provinces and the GTA.
Gross profit for the year benefited from the higher builder sales, increasing by 2.7% to $33.5 million from $32.6 million in 2011. As with the quarterly result, gross margin percentage was impacted by more competitive pricing in the builder segment of Coast's business, decreasing to 23.1% from 24.4% in 2011.
Full-year EBITDA of $8.0 million was up by $0.8 million from the $7.2 million reported after other costs in 2011 ($8.1 million before other costs), while EBITDA margin improved modestly to 5.5% from 5.4% in 2011 (6.1% before other costs). SG&A expenses rose in dollar terms with the higher revenues but were reduced as a percentage of sales to 17.6% from 18.3% in 2011.
Profitability for 2012 was favourably impacted by Coast's improved sales and gross profit performance. The company recorded net income of $5.5 million before income tax for the 12 months, compared to net income before taxes and goodwill impairment of $4.8 million in 2011.
"In light of the sluggish economic environment and highly competitive market conditions that have prevailed for the past few years, we are pleased with the revenue improvement we posted in 2012," said Maurice Paquette, President, CEO and a director of Coast. "We are also happy with the steady progress we made through the year in reducing our expenses as a percentage of sales."
"While our gross margin percentage dipped by 1.3% due to the pricing compression we have experienced in our core builder business since the beginning of the year, we are encouraged by the gross profit improvement in dollar terms," continued Paquette. "We are also encouraged that, despite the growing competitive pressure, we have maintained a very strong backlog of contract orders for future delivery across all of our markets. In the coming months, we will be working diligently on a number of fronts to improve margins."
Operating Highlights
During 2012, as part of its ongoing strategy to enhance profitability by increasing sales from its existing stores, Coast completed improvements to its Victoria and Coquitlam stores in BC, and proceeded with renovation work at its Calgary South store in Alberta, now expected to be completed by mid-2013. The company also relocated its GTA store to a new site with a state-of-the-art showroom and expanded warehouse facilities.
In Saskatoon, Saskatchewan, Coast added new warehouse space adjacent to its store. In support of its continued focus on selling off eliminated and discontinued products, the company converted its former in-store Saskatoon warehouse to a dedicated clearance centre. It also converted the space previously used at its Surrey, BC store for glass assembly and glass inventory storage to a clearance centre.
Revenues in 2012 benefited from the roll-out of KitchenAid major home appliances to Coast's 12 locations in BC and Alberta at the beginning of the year. Previously sold at the company's stores in Saskatchewan, Manitoba and the GTA, the popular higher-end brand generated sales well in excess of expectations in both the builder and retail sides of Coast's business in 2012.
Paquette said that inventories remained at higher than normal levels throughout the year, due mainly to the increased product required to support Coast's sales growth and its expanded KitchenAid offering. Inventory levels were also pressured by a higher than normal rate of supplier line-up changes. At December 31, 2012, inventory stood at $25.8 million, which was down from $27.3 million at September 30, 2012 and in line with 2011 year-end inventory of $25.9 million.
Changes to Coast's senior management and Board of Directors in 2012 included the appointment of Gordon Howie as CFO in September, taking over from Jack Peck, who retired from the position. Mr. Peck was subsequently appointed a director, replacing business founder Harlow Burrows, who retired from Coast's Board in order to pursue personal interests. At the end of November, Patrick Dennett stepped down as a director and Chairman of the company's Board for personal reasons, and director Donald Smith assumed the role of Chairman on an interim basis. An independent management consulting firm was retained to conduct a search for a new director. Both a permanent Chairman and the new director are expected to be appointed during the first half of 2013.
Dividends
In 2012, Coast declared monthly dividends of $0.035 per share for each month from January through November. In December, the Board of Directors determined that it would be prudent to suspend that month's dividend and reduce Coast's rate of shareholder dividends going forward to $0.025 per share. The 2012 payments resulted in an annualized dividend of $0.385 per share. The new dividend rate, which was implemented in January 2013, equates to $0.30 per share on an annualized basis, representing a yield of approximately 10% per annum at recent Coast share trading prices.
Outlook
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 in 2013 remains cautious. In the builder segment, the company expects that revenues will continue to grow as projects in its order backlog move into the final stages of development, particularly in the multi-family sector, but at a somewhat slower rate than in 2012. While Coast anticipates a slight softening of housing starts in 2013, it does not expect that total starts will be significantly different from the 2012 level. The company anticipates that very competitive market conditions will continue to compress unit prices and hence margins on its builder sales for the foreseeable future. On the retail side, market conditions and pricing are expected to remain similarly competitive through 2013 as consumers continue to be extremely cautious about making major purchases.
"Based on our current order backlogs, we expect that our sales growth in 2013 will be concentrated in the Prairie provinces and the GTA region, with a soft-to-flat market in BC," said Paquette. "Given the strong sales momentum we gained in the GTA in 2012, and the groundwork we have laid for future expansion with our new location and expanded warehouse capacity, we are poised to increase our share of Canada's largest market."
In the months to come, Coast will continue to focus on reducing costs, improving its margin performance and reducing inventory. The company will be implementing upgrades to its existing inventory and pricing management systems, expected to be in place by the end of the year. "Our goals are to better manage our margins, increase inventory turns and monitor how pricing can be used to create more effective marketing programs, primarily in the retail segment of our business," said Paquette.
Over the first half of the year, building on its successful extension of the KitchenAid brand in 2012, Coast will be significantly expanding its current retail offering of Whirlpool major appliances. The company will also be adding this popular mid-to-high-end brand to its builder product selection.
"We expect that broadening our retail Whirlpool line-up will enhance Coast's appeal to discerning consumers who seek a value-added purchase experience," said Paquette. "These are customers who are attracted by our state-of-the-art designer showrooms and working kitchens, our highly knowledgeable sales staff, and our exceptional after-sales service. We believe that having a wider range of Whirlpool models will make Coast an even more attractive retail shopping destination. We anticipate that the new line will also contribute incremental revenue to our builder business."
Paquette added that, due in part to the expansion of its Whirlpool offering, Coast expected that its inventory would increase in the first quarter of the year. During 2013, in addition to completing renovations at its Calgary South store, Coast will be undertaking a major upgrade to the retail showroom at its Saskatoon store, with completion slated for the third quarter.
A more detailed discussion of Coast's financial results can be found in its 2012 Year-End 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 20, 2013.
Coast Profile
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.
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, the performance of the Canadian economy and the company's sales expectations. Forward-looking statements are included in all sections of this news release.
These forward-looking statements reflect current expectations of 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 Coast'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 Coast's 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 in 2013 in both Western Canada and the Greater Toronto Area (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; continuing relatively stable credit markets for Coast's major builder customers; weak consumer confidence due to the slow economic recovery; and a slight softening of total housing starts in 2013 compared to 2012. 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 Year-End Management's Discussion and Analysis to be posted on Coast's website and SEDAR on or before March 19, 2013.
Coast Wholesale Appliances Inc.
Gordon Howie
Chief Financial Officer
(604) 301-3400
invest@coastappliances.com
www.coastwholesaleappliancesinc.com
Source:
Coast Wholesale Appliances Inc. Reports 2012 Q4 and Year-End Results
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