Coast Wholesale Appliances Income Fund

Coast Wholesale Appliances Income Fund

May 02, 2007 16:01 ET

Coast Wholesale Appliances Income Fund Reports 2007 First Quarter Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 2, 2007) -

Coast Wholesale Appliances Income Fund (TSX: CWA.UN) will host a conference call and webcast to discuss its first quarter financial results on Thursday, May 3, 2007 at 8:00 a.m. Pacific Time (11:00 a.m. Eastern). The call can be accessed by dialing: 1-800-814-3911 or 416-644-3423.

A replay will be available through May 18, 2007 at: 1-877-289-8525 or 416-640-1917 Passcode: 21230976 followed by the number sign.

The live and archived webcast can be accessed at or on the Fund's website at

Coast Wholesale Appliances Income Fund (the Fund) today reported financial results for the three months ended March 31, 2007, the first quarter of its 2007 fiscal year.

The Fund holds a 65% indirect interest in Coast Wholesale Appliances LP (Coast), a leading independent supplier of major household appliances, and its results are entirely dependent upon Coast's operating results. The remaining 35% interest has been retained by the previous ownership. Distributions to the retained interest are subordinated to distributions to public unitholders for a minimum of two years from the Fund's inception, subject to it meeting certain EBITA and cash distribution targets as set out in its June 15, 2005 prospectus.

First quarter operating results

In the three months ended March 31, 2007, Coast generated sales of $31.2 million, up by $3.5 million, or 12.4%, from the $27.7 million recorded in the first quarter of 2006. Sales at comparable stores - locations open for more than one year - increased by $2.5 million, or 9.1%, quarter-over-quarter, with equal growth across the four western provinces. Incremental sales growth during the first three months of 2007 came primarily from Coast's new Calgary store, its second location in that city, which opened in August 2006. Two additional new Alberta stores opened in the latter part of the quarter contributing more modestly to the sales gain. Coast marked the official opening of its second Edmonton location on February 17 and its first Red Deer location on March 31, bringing its total store count to 15. These two stores will begin to have a greater sales impact in the second quarter and are expected to be profitable within six months of opening.

Consistent with 2006, this year's first quarter sales through Coast's developer/builder and retail channels were approximately equal. As anticipated, the lag in contract sales to developers and builders that Coast experienced in British Columbia during the second half of 2006 began to show signs of catching up in the early months of 2007. Coast expects to realize the remainder of the delayed sales in the second and third quarters of the year.

"We are very pleased with our performance in Coast's seasonally slower first quarter," said Blain Lawson, who assumed the role of president and CEO of Coast on January 2, 2007 following the retirement of Harlow Burrows at the end of 2006. "Our sales growth is in line with our expectations and continues to be fuelled by the strong housing market in Western Canada, particularly in the Prairie provinces."

Cost of sales for the first quarter was $23.4 million, or 75.2% of sales, which resulted in a gross profit of $7.7 million, or 24.8% of sales. By comparison, in the first quarter of 2006 cost of sales was $21.1 million, or 76.0% of sales, providing a gross profit of $6.7 million, or 24.0% of sales. The year-over-year gross margin improvement was partially due to a slight shift in Coast's business mix toward retail sales, which generate a higher margin than its contract business. The company also continued to benefit from the new, higher-margin product lines it added to its core offerings in early 2006 to increase sales to the higher end of the multi-family sector.

EBITA for the three months ended March 31, 2007 was $2.8 million, compared to $2.7 million for the first quarter of 2006. Coast's EBITA margin of 9.0% for the current quarter was down from 9.9% in the same period of 2006. Removing the impact of its new stores, the 2007 first quarter EBITA margin would equal the prior year's 9.9%.

Net income before non-controlling interest was $2.0 million, or 6.5% of sales, compared to $1.8 million, or 6.7% of sales, in the first quarter of 2006. Removing the impact of the new stores, the 2007 net income before non-controlling interest would have been 7.3% of sales.

Cash distributions

The Fund declared monthly cash distributions of $0.10 per unit for each of January, February and March 2007. By the end of the quarter, the Fund had paid a total of 21 consecutive monthly cash distributions to its public unitholders, as well as six consecutive quarterly cash distributions to the subordinated non-controlling interest held by the previous owners of the business. As previously announced, a subsequent monthly distribution of $0.10 per unit to public unitholders has been declared for the month of April 2007.

In the first quarter of 2007, the Fund earned $2.6 million in distributable cash (before the non-controlling interest), or $0.26 per unit. This compares to $2.5 million, or $0.24 per unit, in the same period of 2006. In both quarters, the Fund distributed and accrued for payment $3.0 million, or $0.30 per unit, to unitholders and the non-controlling interest. The Fund's distributable cash payout ratio varies throughout the year according to the seasonality of Coast's business. While the Fund has levelled distributions to provide a regular stream of income to unitholders, Coast expects that the less profitable first half of the year will be offset by historically higher earnings in the second half.

For the first quarter of 2007, Coast's payout ratio improved to 117.4% from 122.8% in the same period of 2006. Removing the impact of the three new stores, the first quarter 2007 payout ratio would be 109.7%. On a 12-month trailing basis, Coast's payout ratio of 93.4% compares favourably to its fiscal 2006 payout ratio of 94.3%.


Moving through 2007, the outlook for Coast's business remains positive. The company expects continued, steady sales growth from its existing stores, as well as incremental sales gains from its ongoing expansion in Alberta. As previously announced, Coast is currently developing a new location to replace its original Edmonton store, targeted to open in early 2008, and is also seeking additional locations in both BC and Alberta.

"We are continually reviewing opportunities for expansion, both by increasing our coverage of Western Canada and by potentially entering the eastern Canadian market," said Lawson, who added that Coast is proceeding with a number of initiatives to increase sales from existing stores and enhance profitability. The company plans to relocate its Calgary warehouse to a newer, larger facility in the third quarter of 2007. In addition, over the next 12 months, Coast plans to relocate three of its stores to higher-traffic areas.

Lawson said that the Fund continues to evaluate the potential impact of the proposed new tax on income trusts announced by the federal government on October 31, 2007. If passed into legislation, the proposed changes would result in taxation of distributions at the trust level starting in 2011. "We will determine the most appropriate course of action for our Fund as more information becomes available," stated Lawson.

A more detailed discussion of the Fund's financial results can be found in its first quarter 2007 Management's Discussion and Analysis, which will be posted with financial statements at the Fund's website ( and at SEDAR ( on or before May 3, 2007.

Company profile

Coast Wholesale Appliances is a leading independent supplier of major household appliances to developers and builders of multi-family and single-family housing and to retail customers in Western Canada. Founded in 1978, Coast currently operates 15 locations and four warehouse distribution centres across the four western provinces.

Forward-looking statements

This news release may contain forward-looking statements relating to expected future events and financial and operating results of Coast that involve risks and uncertainties. The actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons. These include market and general economic conditions and the risks and uncertainties detailed from time to time in Coast's continuous disclosure materials filed with Canadian securities regulatory authorities, including the first quarter 2007 and year-end Management's Discussion and Analyses filed at SEDAR ( These forward-looking statements are based on assumptions that management considered reasonable at the time they were prepared. Due to the potential impact of these factors, Coast disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law.

Non-GAAP Financial Measures

Distributable cash and distributable cash per unit are non-GAAP financial measures that are defined in the first quarter 2007 Management's Discussion and Analysis posted on the Fund's website and SEDAR.

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