Coastal Contacts Inc.
TSX : COA

Coastal Contacts Inc.

September 09, 2009 09:00 ET

Coastal Contacts Reports Record Financial Results for the Third Fiscal Quarter of 2009

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Sept. 9, 2009) - Coastal Contacts Inc. (TSX:COA) the leading online retailer of contact lenses and eyeglasses reported its financial results for the three and nine months ended July 31, 2009.

Key figures for the three months ended July 31, 2009 include:

- Record sales of $37.5 million, a 15% increase over the third quarter of 2008. Sales grew 20% excluding the impact of foreign currency exchange rate fluctuations.

- Gross profit was $10.7 million or 28% of sales.

- 370,882 total orders shipped, a 15% increase over the third quarter of 2008.

- $2.0 million of adjusted EBITDA, a 54% increase over the third quarter of 2008.

- Sales, General and Administrative expenses were reduced to 10% of sales, a 2% improvement over the same period in 2008.

- Net earnings were $0.6 million, or $0.01 per share.

- $14.0 million of cash and no bank debt.

- Earnings excluding non-cash items generated $1.7 million of positive cash flow

Key figures for the nine months ending July 31, 2009 include:

- Sales of $102.2 million, an 18% increase over the same period last year.

- Gross margins increased to 29% compared with 27% in the same period last year.

- 995,314 total orders shipped, a 12% increase over the same period last year.

- $5.2 million of adjusted EBITDA, a 169% increase over the same period last year.

- $0.04 per share of net earnings on a diluted basis, a $0.06 per share improvement over the same period last year.

Sales for the quarter were a record $37.5 million, an increase of $4.8 million or 15% from the same period in 2008. Gross profit was $10.7 million or 28% of sales, compared to $8.9 million or 27% in the same period in 2008. Adjusted EBITDA during the quarter was $2.0 million, which represented a 54% increase over the same period last year, and net earnings for the quarter was $0.6 million or $0.01 per share. The Company ended the quarter with $14.0 million of cash.

"Coastal continued to deliver strong performance in the third fiscal quarter amidst a challenging retail environment. Excluding the impact of foreign exchange rate fluctuations, Coastal's business grew by approximately 20% in the quarter," said Roger Hardy, Coastal's President and CEO. "The financial results reflect the way in which Coastal Contacts' brands and compelling value proposition are resonating with consumers."

Coastal experienced positive growth in the eyeglasses business. Sales in the month of July exceeded $1 million for the first time in the Company's history. We believe our success to date is part of a larger trend in the eyeglasses business, where savvy consumers are moving away from traditional channels, seeking value, quality and timely delivery. We are encouraged by these early results and look forward to updating shareholders on the progress in eyeglasses as the upcoming year unfolds.

In our mature markets we have been able to maintain or grow our customer base and leading market positions. Much of Coastal's revenue growth during the third quarter of 2009 came from outside of Coastal's mature markets, where the Company experienced sales increases in excess of 30% in key growth markets. We are becoming the dominant online retailer in more targeted geographies around the world.

As well, Coastal diligently managed Sales, General and Administrative (SG&A) expenses and demonstrated a decline in SG&A expenses in real terms and as a percentage of sales during Q3, 2009 while generating a $4.8 million increase in sales revenue. We continued to invest in advertising during the quarter to grow our business in new markets and create awareness for our eyeglasses business."

Other events that occurred during the third quarter of 2009:

- Announced that during the month of July 2009 the Company had sold more than $1 million in eyeglasses.

- Announced that Coastal's proprietary "Virtual Mirror" grew at an incredible rate with more than 150,000 users now having uploaded their digital image in order to "virtually" try on eyeglasses.

- Coastal announced the acquisition of the assets of EyePassion Ltd., a private company selling contact lenses directly to consumers.

- Coastal management presented at two leading investor conferences, the 8th Annual JMP Securities Research Conference and the 29th Annual Piper Jaffray Consumer Conference.

- Coastal accepted an invitation to present at the Rodman and Renshaw Annual Global Investment Conference in New York on September 11, 2009.

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 nine month period ended July 31, 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.



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

July 31, October 31,
2009 2008
---------------------------------------------------------------------------
(Unaudited)
ASSETS
Current
Cash and cash equivalents 14,000 15,206
Accounts receivable 7,503 7,336
Inventory 12,610 9,495
Prepaid expenses 1,354 1,693
Future income tax 108 157
Due from related parties 374 361
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35,949 34,248
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Property, equipment and leasehold improvements 2,939 3,038
Intangible assets 9,577 11,061
Goodwill 7,598 7,908
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56,063 56,255
---------------------------------------------------------------------------
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LIABILITIES
Current
Accounts payable and accrued liabilities 18,220 18,787
Income tax payable 455 -
Deferred revenue 25 27
Lease inducement 60 67
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18,760 18,881
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Long-term lease inducement 26 79
Future income tax 3,450 3,825
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22,236 22,785
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SHAREHOLDERS' EQUITY
Share capital
Authorized:
Unlimited common shares without par value
Unlimited Class A preferred shares without par
value
Issued and outstanding:
56,901,719 common shares (2008 - 58,318,643) 40,248 41,250
Contributed surplus 2,085 1,600
Accumulated other comprehensive loss (3,961) (2,904)
Deficit (4,545) (6,476)
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33,827 33,470
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56,063 56,255
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COASTAL CONTACTS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS (LOSS)
(Unaudited) ($000's, except share and per share amounts)

Three months ended Nine months ended
July 31 July 31
----------------------- ----------------------
2009 2008 2009 2008
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Sales 37,511 32,725 102,154 86,731
Cost of sales 26,834 23,775 72,424 63,289
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Gross profit 10,677 8,950 29,730 23,442
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Advertising 5,042 3,987 13,420 10,667
Selling, general and
administration expenses 3,668 3,687 11,133 10,852
Share-based compensation 189 160 485 495
Amortization on property,
equipment and leasehold
improvements 264 231 719 697
Amortization on intangible
assets 352 432 1,115 1,234
Foreign exchange (gains)
losses 252 (64) 11 (259)
Interest income, net (12) (91) (68) (477)
Restructuring charges - - - 844
---------------------------------------------------------------------------
Earnings (loss) before
income taxes 922 608 2,915 (611)
Income tax expense 319 397 816 573
---------------------------------------------------------------------------
Net earnings (loss) 603 211 2,099 (1,184)

Other comprehensive
earnings (loss)
Unrealized foreign exchange
gains (losses)
on translation of
financial statements of
self-sustaining foreign
operations (46) (491) (1,057) 2,257
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Comprehensive earnings
(loss) 557 (280) 1,042 1,073
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Basic earnings (loss) per
share 0.01 0.00 0.04 (0.02)
Diluted earnings (loss) per
share 0.01 0.00 0.04 (0.02)
---------------------------------------------------------------------------
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Weighted average number of common
shares outstanding

Basic 57,057,145 63,430,443 57,781,343 68,217,592
Diluted 57,374,702 63,534,580 57,909,739 68,217,592
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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 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 income, primarily because it does not include interest income, income taxes, amortization, unrealized foreign currency exchange gains and losses, share-based compensation expense and restructuring charges.

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



For the three For the nine
months ended months ended
July 31, July 31,
-------------- ---------------
($000's) 2009 2008 2009 2008
--------------------------------------------------------------------------

Net earnings 603 211 2,099 (1,184)

Depreciation and amortization 616 663 1,834 1,931
Interest income, net (12) (91) (68) (477)
Income tax expense 319 397 816 573
Share-based compensation 189 160 485 495
Unrealized foreign exchange (gain)
loss 252 (64) 11 (259)
Restructuring cost - - - 844
--------------------------------------------------------------------------
Adjusted EBITDA 1,967 1,276 5,177 1,923
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--------------------------------------------------------------------------


Beginning in the third fiscal quarter of 2009, the Company will exclude unrealized foreign exchange gains and losses from adjusted EBITDA in order to better reflect the operating performance of the business and measure the business more consistently with how management monitors the business. Prior period adjusted EBITDA amounts have been revised to conform with the current period adjusted EBITDA presentation and have been summarized below.



Adjusted
EBITDA -
Historical
Method (76) 917 1,340 1,313 2,025 1,426 4,230 3,495
Unrealized
FX (Gain)
or Loss (245) 50 (64) 361 (202) (39) (37) 102
--- --- ----- ----- ----- ----- ----- -----
Adjusted
EBITDA -
Current
Method (321) 967 1,276 1,674 1,823 1,387 4,193 3,597
--- --- ----- ----- ----- ----- ----- -----
--- --- ----- ----- ----- ----- ----- -----


About Coastal Contacts Inc.:

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 of 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".

Forward Looking Statements

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: the stability of foreign currency exchange rates; that our planned advertising campaigns and investments will be adequate; that our reorder rate will be consistent with prior periods; 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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