Coastal Contacts Inc.

Coastal Contacts Inc.

June 12, 2008 09:00 ET

Coastal Contacts Reports Second Quarter 2008 Financials

VANCOUVER, BRITISH COLUMBIA--(Marketwire - June 12, 2008) -


Coastal Contacts Inc. (TSX:COA) today announced its unaudited financial results for the second quarter ended April 30, 2008. Revenue for the quarter was a record $28.6 million, an increase of $4 million or 16% from the same period in 2007. Gross profit was a record $8.1 million, an increase of 23% over the same period in 2007. Adjusted EBITDA during the quarter was $0.9 million versus $1.0 million in the second quarter of 2007. Net loss for the quarter was $0.7 million or $0.01 per share, versus net income of $0.3 million or $0.00 per share for the same period in 2007. Net income was impacted by a one time restructuring charge of $0.8 million in the second quarter related to the consolidation of businesses previously acquired in The Netherlands and Singapore. The Company ended the quarter with $17.5 million in cash and cash equivalents.

"Our financial results for the second fiscal quarter of 2008 are encouraging as we execute on two major initiatives that we believe have the potential to take Coastal's revenue and earnings to the next level," said Roger Hardy, Coastal Contacts' Chairman and CEO.

Firstly, we completed the consolidation of businesses acquired in the Netherlands and Singapore, concentrating operations in our Stockholm and Vancouver distribution hubs. We previously guided for this one time restructuring charge and anticipate a positive return on this expense which we will invest in long term growth oriented initiatives.

Secondly, based on our experience since the beginning of 2008, we have committed fully to building a direct to consumer eyeglasses business. By extending our product offering into the eyeglasses category, which is at least eight times larger than the contact lens market globally, we can leverage our existing customer base of more than 1.5 million active customers and access the more than 50% of the world's population that currently corrects their vision with eyeglasses. The eyeglasses industry, like the contact lens market, has been characterized by high prices and inconsistant service levels owing to significant channel inefficiencies between the manufacturers and end users. Our approach is to offer consumers the highest quality designer and private label eyeglasses frames and combine them in our labs with state of the art lenses to provide a product offering which is complete, simple and affordable. We are also undertaking innovative marketing strategies and are providing service offerings which are designed to bridge any objection a consumer may have when considering the purchase of eyeglasses over the Internet."

Highlights for the second quarter of 2008:

- Revenue grew to a record $28.6 million, an increase of $4 million or 16% from the same period in 2007.

- Gross profit was a record $8.1 million, an increase of 23% over the same period in 2007.

- Total order volume for the quarter was 291,607 orders, an increase of 14% over the same period in 2007.

- Reorders represented 60-65% of the orders in the quarter.

- Cash and cash equivalents at the end of the quarter totalled $17.5 million.

Key events during the quarter included the following:

- Launched a new eyeglasses business unit in North America and Europe.

- Purchased for cancellation approximately 7.7 million common shares of the Company pursuant to its previously announced issuer bids. After the purchase, approximately 63.4 million common shares of the Company remained outstanding.

- Announced that the Supreme Court of British Columbia denied the petition filed by the College of Opticians of British Columbia seeking to restrict the Company and its subsidiary Clearly Contacts Ltd. from selling contact lenses to members of the public in British Columbia.

- Ranked 5th in the Health and Beauty Category of the top 500 e-Retailers in the United States by industry leading Internet Retailer magazine.

"Coastal's vision products business model is based on the philosophy of providing consumers with greater choice as to where to purchase optical products. We will vigorously defend the basic right of consumers to choose their supplier." stated Mr. Hardy. "Given our growing list of more than 1.5 million active customers we know with certainty the model works and are now extending that value proposition into the dynamic eyeglasses sector. The efficiencies being created through offering an expanded product line by leveraging our marketing efforts combined with operating improvements in the second quarter, should contribute positively to both revenue and earnings through the remainder of fiscal 2008 and into 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 month period ended April 30, 2008 and related 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 2007 Annual Information Form (AIF) dated January 2, 2008. The AIF is available on SEDAR.

Adjusted EBITDA as referenced in this release is a non-GAAP measure and is defined as earnings before interest, taxes, depreciation, amortization, stock based compensation and restructuring costs.

(Unaudited) ($000's)

Three months ended Six months ended
April 30 April 30
---------------- ----------------
2008 2007 2008 2007

Sales 28,632 24,602 54,007 48,207
Cost of sales 20,503 17,977 39,515 35,282
Gross profit 8,129 6,625 14,492 12,925

Selling, general and
administration expenses 7,162 5,767 13,846 11,582
Share-based compensation 179 77 334 183
Amortization on property, equipment
and leasehold improvements 249 214 478 374
Amortization on intangible assets 420 243 791 587
Foreign exchange (gains) losses 50 (149) (195) (834)
Interest income, net (155) (198) (387) (450)
Restructuring charges 844 - 844 -
Earnings (loss) before income taxes (620) 671 (1,219) 1,483
Income tax expense - current 94 385 206 545
Income tax recovery - future (22) (27) (32) (56)
Net Earnings (loss) (692) 313 (1,393) 994

Coastal Contacts Inc.

April 30, October 31,
2008 2007

Cash and cash equivalents 17,544 23,367
Short-term investments - 3,976
Accounts receivable 7,343 6,649
Inventory 9,563 8,531
Prepaid expenses 1,630 1,270
Due from related parties 363 348
36,443 44,141
Property, equipment and leasehold improvements 3,143 2,700
Intangible assets 12,548 11,712
Goodwill 8,486 7,529
60,620 66,082

Accounts payable and accrued liabilities 16,722 13,881
Income taxes payable 164 711
Deferred revenue 25 23
Current portion of lease inducement 68 68
16,979 14,683
Long-term lease inducement 119 158
Future income tax liability 4,203 3,661
21,301 18,502

Shareholders' equity
Share capital
Unlimited common shares without par value
Unlimited Class A preferred shares
without par value
Issued and outstanding:
63,430,443 common shares (2007 - 71,426,512) 44,996 50,857
Shares held in Treasury
nil (2007 - 78,500 common shares) - (89)
Contributed surplus 1,305 973
Accumulated other comprehensive loss (1,343) (4,091)
Deficit (5,639) (70)
39,319 47,580
60,620 66,082

Coastal Contacts will host a conference call on Thursday, June 12 at 1:00pm (EST) to discuss financial results and operations.

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 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. The North American toll-free number for the replay is 1-866-245-6755. The passcode to access the replay is 297466.

About Coastal Contacts:

Coastal Contacts 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. Already No. 1 in many of its markets, Coastal is rapidly advancing toward its goal of becoming the "World's Optical Store".

This news release contains certain forward-looking statements that reflect the current views and/or expectations of Coastal Contacts Inc. with respect to its performance, business and future events. Investors are cautioned that all forward-looking statements involve risks and uncertainties including, without limitation, those relating to changes in the market, potential downturns in economic conditions, consumer credit risk, limited suppliers, inventory risk, disruption in our distribution facilities, foreign exchange fluctuations, changes in business strategy, regulatory requirements, demand for contact lenses and other vision care products, competition and dependence on the internet. These risks, as well as others, could cause actual results and events to vary significantly. Coastal Contacts does not undertake any obligations to release publicly any revisions for updating any voluntary forward-looking statements.

Neither the TSX nor any other regulatory body has reviewed and therefore does not accept responsibility for the adequacy or accuracy of this release.

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