Coast Wholesale Appliances Income Fund

Coast Wholesale Appliances Income Fund

May 11, 2009 16:15 ET

Coast Wholesale Appliances Income Fund Reports First Quarter 2009 Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 11, 2009) - Coast Wholesale Appliances Income Fund (the Fund) (TSX:CWA.UN)

Coast Wholesale Appliances Income Fund (TSX: CWA.UN) will host a conference call and webcast to discuss its first quarter financial results on Tuesday, May 12, 2009 at 8:00 am Pacific Time (11:00 am Eastern). The call can be accessed by dialing: 1-800-589-8577 or 416-644-3430 (GTA).

A replay will be available through May 26, 2009 at: 1-877-289-8525 or 416-640-1917. Passcode: 21305339, followed by the pound sign.

The live and archived webcast, as well as an mp3 download, 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, 2009. The three-month period represents the first quarter of the Fund's 2009 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 of the business, CWAL Investments Ltd. (CWAL).

Performance Highlights

(in thousands of dollars except percentages 2009 2008 2007
and per-unit amounts) Q1 Q1 Q1
Sales 33,179 33,876 31,161
Gross margin 7,723 8,466 7,731
As a percentage of sales 23.3% 25.0% 24.8%
Income before non-controlling interest 1,050 1,941 2,014
Basic and diluted net income per unit 0.105 0.194 0.201

EBITDA 1,990 2,849 2,793
EBITDA margin 6.0% 8.4% 9.0%
EBITDA per unit 0.198 0.284 0.278

Maintenance capital expenditures 43 181 5
Adjusted distributable cash 1,614 2,415 2,555
Adjusted distributable cash per unit 0.161 0.241 0.255
Distribution per unit 0.166 0.308 0.300
Adjusted distribution ratio 103.5% 127.8% 117.8%

First Quarter Operating Results

Despite continued difficult market conditions, Coast's first quarter revenues of $33.2 million were only $0.7 million, or 2.1%, lower than the $33.9 million reported in 2008. While retail sales declined year-over-year due to much more cautious consumer spending, Coast's contract business with developers, designers and builders continued to benefit from strong project completions. As a result, its sales blend continued to shift in favour of contract sales.

In BC, the softening of Coast's retail business was offset by the sustained strength of its contract sales. Sales were also maintained at the 2008 levels in Saskatchewan and Manitoba. Coast's business was generally down in Alberta, particularly in the contract segment, and its new store in the Greater Toronto Area (GTA) had a slow start to 2009, performing slightly below expectations due to the exceptionally challenging economic environment in the store's market area. As previously announced, Coast acquired the assets and business of leading independent appliance dealer Morley's Appliance Centre on January 2, 2009, achieving its long-time strategic objective of expanding into Ontario.

First quarter cost of sales was $25.5 million, or 76.7% of sales. This resulted in a gross margin of $7.7 million, or 23.3% of sales. By comparison, in the first quarter of 2008, cost of sales was $25.4 million, equal to 75% of sales, resulting in a gross margin of $8.5 million, or 25.0% of sales. The reduction in gross margin was mainly due to the year-over-year decrease in retail sales, which generate a higher margin than contract sales. In addition, within the contract segment of its business, Coast saw a proportionate increase in sales to developers of multi-family projects, which generate a lower margin than sales to builders of single-family properties.

EBITDA for the first quarter was $2.0 million, down by $0.8 million from $2.8 million in 2008, driving Coast's EBITDA margin down to 6.0% from 8.4%. The decrease in EBITDA was mainly due to the slight revenue reduction and lower gross margin in 2009. Net income before non-controlling interest decreased to $1.1 million, or 3.2% of sales, from $1.9 million, or 5.7% of sales, in the same period of 2008.

"As expected, our performance in the first quarter was impacted by continuing economic uncertainty in Canada and worldwide, as well as by the sustained slowdown in housing starts across the country, particularly in the single-family residential market," said Blain Lawson, President and CEO of Coast. "In response to these challenges, we are concentrating our sales efforts on essential needs, such as refrigeration and laundry, while maintaining a sharp focus on cost and inventory control."

In response to the decline in its gross margin, Coast has eliminated all discretionary spending outside of growth-related expenditures to support its new GTA store. In addition, it has cut back on non-essential capital expenditures and is continuing to work to streamline operations and trim overhead. Coast has also reduced marketing expenditures, in part by making more effective use of the co-op advertising dollars available from suppliers.

"Our cost control initiatives are definitely paying off," continued Lawson. "Even with the added costs of operating our new store in the GTA, our first quarter selling, warehouse, facility and general and administrative expenses were only slightly higher than in 2008."

During the quarter, Coast also enhanced its product offering, introducing Miele appliances under an agency agreement signed in the final quarter of 2008. The addition of this high-quality European line has created new sales opportunities across Coast's business, and particularly in the contract sector. Since the Miele products are sold on a consignment basis, there was no cost to Coast to add the new line to its inventories.

In early February, Coast opened a new warehouse to support its strategic position in Edmonton, where it operates two stores. One of these, the Edmonton North store, will be relocated to a smaller facility in a higher-traffic area close to the new warehouse in the third quarter of 2009. The Edmonton North store relocation is part of Coast's on-going strategy to drive up comparable store sales. With this relocation, all of Coast's original stores will have been renovated or relocated since the Fund's inception in 2005.

Cash Distributions

For the month of January 2009, the Fund declared and paid distributions in the amount of $0.0833 per unit, representing an annualized distribution rate of $1.00 per unit. Effective with the February 2009 distribution, the Trustees reduced the per-unit monthly amount to $0.0416, or $0.50 per annum, in order to match the Fund's distribution level with its forecast distributable cash flow, thereby maintaining balance sheet strength and financial flexibility. A distribution in the new amount was also paid in March 2009. Since its inception, the Fund has paid a total of 46 consecutive monthly cash distributions to its public unitholders, and equivalent cash distributions to the non-controlling interest held by CWAL.

During the seasonally slower first quarter, the Fund generated adjusted distributable cash (before non-controlling interest) of $1.6 million, or $0.16 per unit. This compares to $2.4 million, or $0.24 per unit, in 2008. The amount distributed and accrued for payment to unitholders and the non-controlling interest in the first quarter decreased to $1.7 million, or $0.17 per unit, in 2009 from $3.1 million, or $0.31 per unit, in 2008.

The Fund's adjusted payout ratio for the first quarter of 2009 was 103.5%, down from the 127.8% it reported in 2008. The lower payout ratio in 2008 was due mainly to the reduction in the Fund's distribution level. On a cumulative basis, from the Fund's inception, the Fund's adjusted payout ratio is 97.8%.


The following 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 through the balance of 2009 remains very cautious. The Canadian economy continues to perform poorly. Housing starts are continuing to decline in most markets and total starts for the year are expected to fall substantially from 2008 levels. The ability of Coast's major contract customers to start new projects continues to be constrained by tight credit markets, and retail customers remain cautious about major purchases due to their general lack of confidence in the Canadian economy.

"We remain confident of our ability to manage through the current market challenges, thanks in large part to our balanced business model and the cost control initiatives we have successfully implemented," said Lawson. "Over the longer-term, with a bridgehead now established in the Greater Toronto Area, we are well positioned to expand our presence in Canada's most populous region when economic conditions improve."

The Fund is continuing to evaluate its most advantageous course of action in response to the taxation of distributions at the trust level set to begin in 2011, as well as the timing of any such action. It expects to complete these plans in the coming year.

A more detailed discussion of the Fund's financial results can be found in its 2009 first quarter Management's Discussion and Analysis, which will be posted with the consolidated financial statements on the Fund's website ( and on SEDAR ( on or before May 12, 2009.

Coast profile

Coast is a leading independent supplier of major household appliances to developers and builders 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. These 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 the Fund's distributions and the level of its payout ratio in the future.

These statements reflect current expectations of the Fund'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; maintenance of profitability and management of growth; competition; fluctuations in fuel and commodity pricing, which may impact freight and other costs; usage of extended warranty programs and the costs to deliver these services; changes to planning and supply chain processes; changes in consumer preferences; changes in the mix of product sales; reliance on suppliers; lack of supplier agreements; reliance on key personnel; foreign exchange rates as they relate to imported products; and interest rates.

Although the forward-looking statements contained in this news release are based upon what management believes to be reasonable assumptions, the Fund 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 the Fund. They are made and 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: a continuing recession in the Canadian economy, including Western Canada and the Greater Toronto Area (the Fund's current market areas); continuing access to current credit facilities; volatility in exchange rates; low and stable interest rates; difficult credit markets for the Fund's major builder customers to obtain financing for their current and future building activities; reduced consumer confidence in light of the recessionary environment and its impact on the willingness of consumers to purchase household appliances; and a significant reduction in new building permits compared to the last few years. These forward-looking statements are made and speak only as of the date of this news release and the Fund assumes no obligation to update or revise them to reflect new events or circumstances, other than as required by 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 2009 Management's Discussion and Analysis posted on the Fund's website and SEDAR.

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