Coastal Contacts Inc.
TSX : COA

Coastal Contacts Inc.

December 18, 2008 09:00 ET

Coastal Contacts Reports Fiscal Year 2008 Results

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

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Coastal Contacts Inc. ("Coastal" or "the Company") (TSX: COA) today announced its financial results for the fourth quarter and fiscal year ended October 31, 2008. Revenue for the 2008 fiscal year increased 16% to a record of $119 million compared with $102 million in 2007. Adjusted EBITDA for fiscal 2008 was $3.5 million compared with $4.2 million for fiscal 2007.

Revenue for the fourth quarter of 2008 increased 20% to $32.0 million versus $26.7 million in the fourth quarter of 2007. Adjusted EBITDA during the quarter was $1.3 million compared to $1.0 million in the fourth quarter of 2007. Net income for the fourth quarter of 2008 increased to $0.4 million, or $0.01 per share, from $0.3 million, or $0.00 per share in the fourth quarter of 2007.

Mr. Roger Hardy, Coastal's President and CEO, commented, "We are encouraged by the trends in our business and believe we are well positioned for the future. Revenue in the year grew in all of our geographic market segments. We have a solid balance sheet with no bank debt and a history of operating cash flow.

With the investments the company has made over the past eight years, Coastal has achieved No. 1 market positions and meaningful profitability in a number of maturing geographic markets which have largely adopted our model for buying contact lenses. Our goal is to replicate this success in other markets by investing in similar service level and brand building activities.

A significant achievement this year was our successful launch of direct to consumer discount eyeglass businesses in North America and Europe. Early results of our eyeglass businesses are encouraging and we will continue to invest in this exciting product category.

Consumers have indicated that they are price conscious when it comes to buying eyeglasses. Our lower retail pricing combined with high quality and service levels may well become more popular in today's challenging economic environment.

With more than 1.5 million active vision corrected customers around the world, we are executing on our plan of expanding Coastal's product offering to capture more of their annual vision care spending. In the markets where we participate around the world, we are now able to access a $34 billion eyeglass market in addition to the $5 billion contact lens market where we are the international market leader in the direct to consumer category."

During the year we also completed the integration of two businesses previously acquired in Singapore and The Netherlands. These integrations are already benefiting the Company and we expect they will continue to do so in the future.

The Company noted the following financial highlights for 2008:

- Total order volume exceeded 1.2 million orders in fiscal 2008.

- Repeat orders accounted for approximately 65% to 70% of total orders.

- Cash balance of $15.2 million and no bank debt at the end of fiscal 2008.

- $0.26 per fully diluted share of cash, cash equivalents and short-term investments at the end of fiscal 2008.

- Generated operating cash flow of $4.5 million in fiscal 2008.

- Company had a current ratio of 1.8 at the end of fiscal 2008.

- Company had a quick ratio of 1.2 at the end of fiscal 2008.

- Revenues outside the United States accounted for 85% of sales.

- Acquired and retired 13.1 million common shares of the Company for an aggregate of $15 million.

The Company noted the following non-financial highlights for 2008:

- Named as one of British Columbia's Top 25 Exporters for 2008.

- Partnered with Blue Cross in Canada under their "Blue Advantage" program to offer special pricing on all Coastal vision care products to more than 8 million Canadians.

- The Company's European subsidiary partnered with Memira, one of Europe's leading laser eye surgery chains to offer its surgical and eye exam services.

Mr. Hardy continued, "As Coastal's business matures it can now be separated into two complimentary categories. First, the established markets where the company enjoys leadership and consistent repeat order rates, resulting in predictable and profitable revenue streams. Second are markets and product categories where we are investing to increase our customer base and enhance our annuity revenue stream going forward. We are now in a position where we can optimize the weighting between these two categories resulting in what we believe will be growing revenues and improving earnings over time.

We also enjoy a strong balance sheet in a challenging climate for public companies, allowing us to execute on our plan.

Finally, recent trends have shown that consumers are now being even more demanding when shopping for items like contact lenses or eyeglasses and are seeking the best possible value proposition whenever possible. In the United States, for example, retail store sales have declined this year while transactions conducted through eCommerce have grown. We believe this conversion from traditional channels to eCommerce will continue for some time and that Coastal is well positioned to take advantage of the opportunity."

Coastal Contacts will host a conference call on December 18, 2008 at 1:00 pm (EST) to discuss the Company's financial results and operations. Participating in the call will be Roger Hardy, President and Chief Executive Officer and Glen Kayll, Chief Financial Officer.

To attend the conference call, participants in Toronto may dial 416-850-9140. Participants outside the greater Toronto area may dial the North American toll-free number at 1-866-400-3320.

A replay of the call will be available for 7 days. To access the replay in Toronto listeners may dial 416-915-1035. Elsewhere in North America call toll-free at 1-866-245-6755. The passcode to access the replay is 659688.

The following selected financial information is qualified in its entirety by, and should be read in conjunction with our audited consolidated financial statements for the fiscal year ended October 31, 2008 and accompanying notes and Management's Discussion and Analysis which may be viewed on SEDAR at www.sedar.com.

Coastal's risks and uncertainties are discussed in detail in the Company's Annual Information Form dated January 2, 2008, which is also available on SEDAR.

Adjusted EBITDA as referenced in this news release is a Non-GAAP measure and is defined as earnings before interest, taxes, depreciation and amortization, share based compensation and restructuring charges. See "Supplemental Non-GAAP Measures" herein.



CONSOLIDATED STATEMENTS OF NET INCOME (LOSS)
($000's)

Three months ended Year ended
---------------------- -----------------------
October 31, October 31, October 31, October 31,
2008 2007 2008 2007
------------------------------------------------------------------------
Sales 32,027 26,657 118,759 102,174
Cost of sales 22,953 19,443 86,243 74,497
------------------------------------------------------------------------
Gross profit 9,074 7,214 32,516 27,677
------------------------------------------------------------------------

Selling, general and
administration 7,399 5,616 28,919 23,484
Stock-based compensation 133 128 627 443
Amortization on property,
equipment and leasehold
improvements 528 218 1,237 802
Amortization on intangible
assets 120 316 1,343 1,230
Foreign exchange losses
(gains) 361 632 102 (37)
Interest income, net (69) (207) (547) (833)
Restructuring charges - - 844 -
------------------------------------------------------------------------
Income (loss) before income
taxes 602 511 (9) 2,588
Income tax expense - current 241 88 908 901
Income tax expense (recovery)
- future (36) 166 (131) 62
------------------------------------------------------------------------
Net earnings (loss) 397 257 (786) 1,625
------------------------------------------------------------------------
------------------------------------------------------------------------

Basic earnings (loss)
per share 0.01 0.00 (0.01) 0.02
Diluted earnings (loss)
per share 0.01 0.00 (0.01) 0.02
------------------------------------------------------------------------

------------------------------------------------------------------------

Weighted average number
of commons shares
outstanding - basic 58,450,970 72,015,500 64,559,267 72,948,602
Weighted average number
of common shares
outstanding - diluted 58,604,621 72,193,725 64,559,267 73,074,756
------------------------------------------------------------------------
------------------------------------------------------------------------


COASTAL CONTACTS INC.
CONSOLIDATED BALANCE SHEETS
($000's)

As at October 31 2008 2007
------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents 15,206 23,367
Short-term investments - 3,976
Accounts receivable 7,279 6,649
Income tax receivable 57 -
Inventory 9,495 8,531
Prepaid expenses 1,693 1,270
Future income tax asset 157 -
Due from related parties 361 348
------------------------------------------------------------------------
34,248 44,141
------------------------------------------------------------------------

Property, equipment and leasehold improvements 3,038 2,700
Intangible assets 11,061 11,712
Goodwill 7,908 7,529
------------------------------------------------------------------------
56,255 66,082
------------------------------------------------------------------------
------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 18,787 13,881
Income tax payable - 711
Deferred revenue 27 23
Current portion of lease inducement 67 68
------------------------------------------------------------------------
18,881 14,683
------------------------------------------------------------------------

Long-term lease inducement 79 158
Future income tax liabilities 3,825 3,661
------------------------------------------------------------------------
22,785 18,502
------------------------------------------------------------------------
Shareholders' equity
Share capital
Authorized:
Unlimited common shares without par value
Unlimited Class A preferred shares without
par value
Issued and outstanding:
58,318,643 common shares (2007 - 71,426,512) 41,250 50,857
Shares held in Treasury
nil common shares (2007 - 78,500) - (89)
Contributed surplus 1,600 973
Accumulated other comprehensive loss (2,904) (4,091)
Deficit (6,476) (70)
------------------------------------------------------------------------
33,470 47,580
------------------------------------------------------------------------
56,255 66,082
------------------------------------------------------------------------
------------------------------------------------------------------------


Supplemental Non-GAAP Measures

Coastal Contacts reports its results in accordance with Canadian GAAP, however, it presents Adjusted EBITDA and the number of orders shipped and the reorder rate in our filings because the Company believes our investors use these figures to make investment decisions about us.

Adjusted EBITDA is a non-GAAP measure that 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 a measure we believe is useful in assessing performance and highlighting trends on an overall basis. Adjusted EBITDA differs from the most comparable GAAP measure, net earnings, primarily because it does not include interest, income taxes, amortization, restructuring cost and share-based compensation expense.

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



Three months ended Years ended
October 31, October 31,
------------------- -------------------
($000's) 2008 2007 2008 2007
------------------------------------------------------------------------

Net earnings (loss) $ 397 $ 257 $ (786) $ 1,625

Amortization 648 534 2,580 2,032
Interest income, net (69) (207) (547) (833)
Income tax expense
- current 241 88 908 901
Income tax expense
(recovery) - future (36) 166 (131) 62
Stock-based compensation 133 128 627 443
Restructuring charges(i) - - 844 -
------------------------------------------------------------------------
Adjusted EBITDA $ 1,314 $ 966 $ 3,495 $ 4,230
------------------------------------------------------------------------
------------------------------------------------------------------------

(i) Adjusted EBITDA excludes non-operational, non recurring restructuring
charges


About Coastal:

Coastal Contacts Inc. (www.coastalcontacts.com) 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 its products in 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. Already No. 1 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 industry or market and anticipated trends in that market in any of the countries in which we do business; ability to fill and timely ship orders, ability to achieve greater marketing efficiency or similar statements; sufficiency of cash flows; and our perceptions regarding volatility in and impact of foreign currency exchange rates.

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 will maintain our position in the markets we operate in and expand into other markets in a favourable manner; that we will have sufficient capital to continue making investments in advertising and personnel to support our business and new product lines, including our prescription eyeglass business; that we will be able to generate and maintain sufficient cash flows to support our operations. 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; potential 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 2, 2008, 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.

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