Coastal Contacts Inc.

Coastal Contacts Inc.

June 10, 2009 09:00 ET

Coastal Contacts Reports Financial Results for the Second Fiscal Quarter of 2009

VANCOUVER, BRITISH COLUMBIA--(Marketwire - June 10, 2009) - Coastal Contacts Inc. ("Coastal") (TSX:COA) today announced its unaudited financial results for the three and six months ended April 30, 2009.

Key figures as at and for the three months ended April 30, 2009 include:

- Sales of $33.3 million, a 16% increase over Q2 2008

- 325,000 total orders shipped, an 11% increase over Q2 2008

- $1.4 million of Adjusted EBITDA, a 56% increase over Q2 2008

- $0.01 of net earnings per share versus a net loss per share of $0.01 in Q2 2008

- $4.0 million of cash generated from operations

- $14.6 million of cash

- Purchased 1.2 million common shares of Coastal stock at an average price of $0.80 per share.

Key figures for the six months ending April 30, 2009 include:

- Sales of $64.6 million, a 20% increase over the same period last year

- 624,000 total orders shipped, a 10% increase over the same period last year

- $3.5 million of Adjusted EBITDA, a 310% increase over the same period last year

- $0.03 per share of net earnings on a diluted basis versus a net loss per share of $0.02 during the same period last year

Sales for the quarter were $33.3 million, an increase of $4.7 million or 16% from the same period in 2008. Gross profit was $9.4 million or 28% of sales, compared to 28% in the same period in 2008. Adjusted EBITDA during the quarter was $1.4 million, which represented a 56% increase over the same period last year, and net earnings for the quarter was $0.5 million or $0.01 per share. The company generated $4 million in operating cash flow and ended the quarter with $14.6 million of cash.

"Coastal is pleased with its ability to combine revenue, earnings and cash flow growth with investments in our global retail brands and our prescription eyeglasses business. Our second quarter results reflect this balance," said Roger Hardy, Coastal's President and CEO.

"The Company is gaining traction in both the contact lens and prescription eyeglasses markets. The adoption of eCommerce for the purchase of vision care products is increasing as discerning consumers seek value propositions that combine savings and convenience. Additionally, a challenging economy is providing incentive to consumers to test new shopping models and new retailers in order to identify new ways to save money and drive down their family's health care costs. Coastal is positioning itself to benefit from these trends.

We entered the prescription eyeglasses market in fiscal 2008 with an operating structure that eliminated the need for expensive retail space. Our relatively low overhead burden and direct purchasing allows us to deliver eyeglasses to customers at prices that are typically lower than the traditional model. Leveraging our database of vision corrected customers is a particular opportunity for us as it allows us to introduce prescription eyeglasses at a lower cost than many of our online competitors.

During the quarter we announced that Coastal had shipped its first 100,000 pairs of eyeglasses since we launched this business in 2008. We believe the direct to consumer channel for eyeglasses has the potential to materially disrupt the $40 Billion annual market for eyeglasses. We are positioning Coastal to be a leader in this new and important channel."

Other events that occurred during the second quarter:

- Appointed Mr. Scott Turnbull, formerly of Essilor Canada, as Senior Lab Manager in charge of scaling up Coastal's prescription eyeglasses manufacturing.

- Launched progressive lens eyeglasses line, which seamlessly combines distance vision correction with reading vision correction which represents 26% of all prescription eyeglasses sold in the United States.

- Launched a "Virtual Mirror" which allows consumers to virtually try on eyeglasses and share the images with their friends and family through Facebook, Twitter, blogs or email in order to gain affirmation on the best choice or choices from their social network.

The following selected financial information is qualified in its entirety by, and should be read in conjunction with, our unaudited consolidated financial statements as at and for the three and six month period ended April 30, 2009 and accompanying notes and Management's Discussion and Analysis of Financial Condition and Results of Operations filed on SEDAR.

Coastal Contacts' risks and uncertainties are discussed in detail in the Company's 2008 Annual Information Form (the "AIF") dated January 29, 2009. The AIF is available on SEDAR.

Adjusted EBITDA, orders, reorders and reorder rate are non-GAAP financial measures. Refer to "Supplemental Non-GAAP Measures" herein for definitions and a reconciliation of Adjusted EBITDA to net earnings.


April 30 October 31
2009 2008

Cash and cash equivalents 14,627 15,206
Accounts receivable 7,578 7,279
Income tax receivable - 57
Inventory 14,759 9,495
Prepaid expenses 1,518 1,693
Future income tax 160 157
Due from related parties 370 361
39,012 34,248

Property, equipment and leasehold improvements 2,977 3,038
Intangible assets 9,940 11,061
Goodwill 7,602 7,908
59,531 56,255

Accounts payable and accrued liabilities 22,312 18,787
Income tax payable 230 -
Deferred revenue 32 27
Lease inducement 66 67
22,640 18,881

Long-term lease inducement 40 79
Future income tax 3,570 3,825
26,250 22,785

Share capital
Unlimited common shares without par value
Unlimited Class A preferred shares without
par value
Issued and outstanding:
57,699,619 common shares (2008 - 58,318,643) 40,812 41,250
Shares held in treasury
599,000 common shares (2008 - nil) (473) -
Contributed surplus 1,896 1,600
Accumulated other comprehensive loss (3,915) (2,904)
Deficit (5,039) (6,476)
33,281 33,470
59,531 56,255

(Unaudited) ($000's, except share and per share amounts)

Three months Six months
ended ended
April 30 April 30
----------------- -----------------
2009 2008 2009 2008

Sales 33,301 28,632 64,643 54,007
Cost of sales 23,857 20,503 45,590 39,515
Gross profit 9,444 8,129 19,053 14,492

Advertising 4,252 3,544 8,378 6,680
Selling, general and
administration expenses 3,805 3,618 7,465 7,166
Share-based compensation 148 179 296 334
Amortization on property,
equipment and leasehold
improvements 240 249 455 478
Amortization on intangible assets 364 420 763 791
Foreign exchange (gains) losses (39) 50 (241) (195)
Interest income, net (14) (155) (56) (387)
Restructuring charges - 844 - 844
Earnings (loss) before income
taxes 688 (620) 1,993 (1,219)
Income tax expense 160 72 497 174
Net earnings (loss) 528 (692) 1,496 (1,393)

Other comprehensive earnings (loss)
Unrealized foreign exchange gains
(losses) on translation of
financial statements of
self-sustaining foreign operations 202 1,468 (1,011) 2,749
Comprehensive earnings (loss) 730 776 485 1,356

Basic earnings (loss) per share 0.01 (0.01) 0.03 (0.02)
Diluted earnings (loss) per share 0.01 (0.01) 0.03 (0.02)

Weighted average number of
common shares outstanding

Basic 57,974,911 65,091,658 58,149,443 68,217,592
Diluted 57,988,378 65,091,658 58,155,121 68,217,592

Supplemental Non-GAAP Measures

We report our results in accordance with Canadian GAAP, however in this release, we present non-GAAP measures such as adjusted EBITDA, the number of orders shipped, reorders and the reorder rate, which is defined as the percentage of orders in the quarter shipped to customers that we estimate have ordered from us in the past, as we believe that our investors may use these figures to make more informed investment decisions about us.

Adjusted EBITDA does not have any standardized meaning prescribed by Canadian GAAP and is therefore unlikely to be comparable to similar measures presented by other companies.

Adjusted EBITDA should be considered in addition to, and not as a substitute for, net earnings, cash flows and other measures of financial performance and liquidity reported in accordance with Canadian GAAP. Adjusted EBITDA is defined as earnings before interest, income taxes, restructuring costs, amortization and share-based compensation expense.

The following table provides a reconciliation of net earnings to Adjusted EBITDA:

For the three months ended April 30
($000's) 2009 2008
Net earnings (loss) 528 (692)
Amortization 604 669
Interest income, net (14) (155)
Income tax expense 160 172
Share-based compensation 148 179
Restructuring Costs - 844
Adjusted EBITDA 1,426 917

About Coastal Contacts Inc.:

Coastal Contacts Inc. ( is the world's leading direct-to-consumer vision products company which designs, produces and distributes a diversified offering such as contact lenses and eyeglasses. The Company's unique combination of branded and private label products represent quality, value and above all, service. Coastal sells into more than 150 countries through proprietary web properties which reflect the culture and consumer preference of the target market. As new markets for eyeglasses and contact lenses evolve, the Company is positioned to become the vision product consumer's retailer of choice owing to its unbeatable value proposition combining value and service. A leader in many of its markets, Coastal is rapidly advancing toward its goal of becoming the "World's Optical Store".

All statements made in this news release, other than statements of historical fact, are forward-looking statements. The words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect", "goal", "target", "should", "likely", "potential", "continue", "project", "forecast", "prospects", and similar expressions typically are used to identify forward-looking statements. Examples of such forward looking statements within this document include statements relating to: our perception of the contact lens and eyeglasses industry or market and anticipated trends in those markets in any of the countries in which we do business; our anticipated business operations and implementation of strategies; customer perceptions of and responses to our business and strategy; the effect of the current economic climate on our business and consumer behaviour; the results of further investments in our retail brands; opportunities presented by our customer database; the extent to which our business will benefit from consumers seeking lower cost alternatives; the restructuring initiatives we completed in fiscal 2008; and our ability to address challenges and opportunities resulting from current economic conditions.

Forward-looking statements are based on the then-current expectations, beliefs, assumptions, estimates and forecasts about our business and the industry and markets in which we operate. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Assumptions underlying our expectations regarding forward-looking statements or information contained in this news release include, among others: that we are positioning ourselves appropriately to take advantage of trends; that our customer database presents an opportunity for expanding our business; that we will be successful in implementing our strategy; that we will be able to generate and maintain sufficient cash flows to support our operations; that we will be successful in responding to challenges resulting from current economic conditions; and that current economic conditions will result in consumers seeking lower cost alternatives in our industry from which we will benefit. The foregoing list of assumptions is not exhaustive.

Persons reading this news release are cautioned that forward-looking statements or information are only predictions, and that our actual future results or performance may be materially different due to a number of factors. These factors include, but are not limited to: changes in the market; downturns in economic conditions; consumer credit risk; our ability to implement our business strategies; competition; limited suppliers; inventory risk; disruption in our distribution facilities; mergers and acquisitions; foreign currency exchange rate fluctuations; regulatory requirements; demand for contact lenses and related vision care products; competition; and dependence on the internet and other risks detailed in our filings with the Canadian securities regulatory authorities. Reference should be made to the section entitled "Risk Factors" contained in our most recently filed Annual Information Form dated January 29, 2009, for a detailed description of the risks and uncertainties relating to our business. These risks, as well as others, could cause actual results and events to vary significantly. Accordingly, readers should not place undue reliance on forward-looking statements and information, which are qualified in their entirety by this cautionary statement. These forward-looking statements are made as of the date of this news release and we expressly disclaim any intent or obligation to update these forward-looking statements, unless we specifically state otherwise and except as required by applicable law.

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