Coast Wholesale Appliances Income Fund
TSX : CWA.UN

Coast Wholesale Appliances Income Fund

May 08, 2008 16:15 ET

Coast Wholesale Appliances Income Fund Reports 2008 First Quarter Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Dec. 18, 2008) -

Coast Wholesale Appliances Income Fund (TSX: CWA.UN) will host a conference call and webcast to discuss its first quarter financial results on Friday, May 9, 2008 at 8:00 a.m. Pacific Time (11:00 a.m. Eastern). The call can be accessed by dialing: 1-800-796-7558 or 416-644-3426.

A replay will be available through May 23, 2008 at: 1-877-289-8525 or 416-640-1917, Passcode: 21270840 followed by the pound sign.

The live and archived webcast can be accessed at http://www.investorcalendar.com/IC/CEPage.asp?ID=129074 or on the Fund's website at www.coastincomefund.com.

Coast Wholesale Appliances Income Fund (the Fund) today reported financial results for the three months ended March 31, 2008, the first quarter of its 2008 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 is held by the former owner, CWAL Investments Ltd. (CWAL). Previously, distributions to CWAL were subordinated to those of the public unitholders, subject to the Fund meeting certain EBITDA and cash distribution targets, as set out in its June 15, 2005 prospectus. All of the conditions for removal of the subordination were met during 2007 and the subordination was removed on March 24, 2008.

Performance highlights



(in thousands of dollars except percentages
and per-unit amounts) 2008 2007 2006
Q1 Q1 Q1
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Sales 33,876 31,161 27,717
Gross profit 8,466 7,732 6,659
As a percentage of sales 25.0% 24.8% 24.0%

Net income before non-controlling interest 1,941 2,015 1,843
Basic and diluted net income per unit 0.194 0.200 0.184

EBITDA 2,849 2,793 2,747
EBITDA margin 8.4% 9.0% 9.9%

Maintenance capital expenditures 181 5 50
Adjusted distributable cash 2,415 2,555 2,450
Adjusted distributable cash per unit 0.24 0.25 0.24
Distribution per unit 0.31 0.30 0.30
Adjusted distribution ratio 127.8% 117.8% 122.9%
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Operating results

Coast's revenues for the three months ended March 31, 2008 were $33.9 million, up by $2.7 million, or 8.7%, from the $31.2 million recorded in the first quarter of 2007. At comparable stores - locations open for more than one year - sales increased by $2.1 million, or 7.1%, despite two fewer shipping days in 2008 due to timing of the Easter break. New store sales growth during the quarter came from the Edmonton and Red Deer, Alberta locations, respectively added in mid-February and late March of 2007.

During the quarter, Coast's business mix shifted slightly in favour of contract sales to developers and builders. Traditionally, revenues have been fairly evenly split between contract sales and direct sales to retail customers. Retail sales growth in the first quarter was comparable to that achieved in the second half of 2007, but down from the particularly strong growth rates experienced in the first half of last year, due to more cautious consumer spending. As anticipated, Coast's contract business continued to benefit from the strong housing market throughout Western Canada, and particularly in Alberta.

First quarter cost of sales was $25.4 million, or 75.0% of sales. This resulted in a gross profit of $8.5 million, or 25.0% of sales. By comparison, in the first quarter of 2007, cost of sales was $23.4 million, or 75.2% of sales, resulting in a gross profit of $7.7 million, or 24.8% of sales. The modest improvement in gross margin in 2008 was mainly due to Coast's increased focus on higher-margin products and brands. In addition, inventory turnover improved by 7% year-over-year.

Coast's first quarter EBITDA of $2.8 million was unchanged from 2007, while its EBITDA margin of 8.4% was down from 9.0 % in the prior year. The reduction in EBITDA margin was due mainly to the impact of generally higher expenses as a result of the new stores and with the growth of Coast's business. Net income before non-controlling interest for the quarter was $1.9 million, or 5.7% of sales, down from $2.0 million, or 6.5% of sales, in 2007.

"We are pleased with our sales performance in the first quarter, which historically is a seasonally slower period for Coast. The performance of our Alberta stores was boosted by particularly strong contract sales completions," said Blain Lawson, President and CEO of Coast, who added that Coast is continuing to focus on enhancing its profitability.

As part of its strategy to drive up comparable store sales, Coast completed the planned relocation of its Abbotsford store to a new facility in a higher-traffic area at the end of February 2008. The new location marked its official grand opening subsequent to quarter-end, on April 19, 2008. A similar relocation of Coast's Regina store is scheduled for the third quarter of 2008. In addition, Coast is streamlining its non-selling functions to drive greater operating efficiency, and has upgraded its inventory management and computer systems to support the future growth and expansion of its business. Testing of the new inventory management system is substantially completed. It will be rolled-out to the balance of Coast's locations over the next quarter.

Cash distributions

Distributions in the amount of $0.1025 per unit were declared for each of the first three months of the year. This represents an annualized distribution rate of $1.23 per unit. By the end of the first quarter, the Fund had paid a total of 33 consecutive monthly cash distributions to its public unitholders, as well as 11 consecutive quarterly cash distributions to the non-controlling interest held by CWAL. Beginning with the April 2008 distribution, all cash distributions to both public unitholders and the retained interest will be paid monthly.

During the seasonally slower first quarter, the Fund earned $2.4 million, or $0.24 per unit, in adjusted distributable cash (before the non-controlling interest). This was down from $2.6 million, or $0.25 per unit, in the same period of 2007. With the per-unit monthly distribution increase introduced in October 2007, the amount distributed and accrued for payment to unitholders and the non-controlling interest increased in 2008 to $3.1 million, or $0.31 per unit, from $3.0 million, or $0.30 per unit, in 2007.

The Fund's adjusted payout ratio for the first quarter of 2008 was 127.8%, up from the 117.8% it reported in 2007. The higher payout ratio in 2008 was due mainly to Coast's increased maintenance capital expenditures and the increased monthly distribution amount in the first quarter of the year. The capital expenditures were primarily for the Abbotsford store relocation, necessary building improvements and other expenditures required for normal operations. These planned expenditures exceeded the 2007 level by $0.2 million.

Outlook

In 2008, Coast expects ongoing sales growth from its existing stores. The company is continuing to actively review opportunities for expansion by increasing its coverage of Western Canada and potentially entering the eastern Canadian market.

"We remain cautious, but optimistic, about the outlook for our business," said Lawson. "Although we are still seeing a slowing of single-family housing starts in Western Canada, the multi-family market remains robust and we continue to expect that total housing starts will be close to the record levels of the past two years."

He added that the Fund continues to consider the potential impact of the taxation of distributions at the trust level set to begin in 2011, but is unable to determine the most appropriate course of action for Coast until information about the transition process is made available by taxation authorities.

A more detailed discussion of the Fund's financial results can be found in its first quarter 2008 Management's Discussion and Analysis, which will be posted with unaudited financial statements at the Fund's website (www.coastincomefund.com) and at SEDAR (www.sedar.com) on or before May 8, 2008.

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 2008 Management's Discussion and Analysis filed at SEDAR (www.sedar.com). 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

EBITDA, EBITDA margin, maintenance capital and adjusted distributable cash are non-GAAP financial measures that are defined in the first quarter 2008 Management's Discussion and Analysis posted on the Fund's website and SEDAR.

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