Coastal Contacts Inc.
TSX : COA

Coastal Contacts Inc.

September 11, 2008 09:00 ET

Coastal Contacts Reports Third Quarter 2008 Financials

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Sept. 11, 2008) -

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

Coastal Contacts Inc. ("Coastal") (TSX:COA) today announced its unaudited financial results for the third fiscal quarter ended July 31, 2008.

Revenue for the quarter was a record $32.7 million, an increase of $5.4 million or 20% from the same period in 2007. Gross profit was a record $9.0 million, an increase of 19% over the same period in 2007. Adjusted EBITDA during the quarter was $1.3 million versus $1.1 million in the third quarter of 2007. Net income for the quarter was $0.2 million or $0.00 per share, versus net income of $0.4 million or $0.01 per share for the same period in 2007. The Company ended the quarter with $20.0 million in cash and cash equivalents.

"Coastal achieved another quarter of record results and further strengthened our position as the world's leading direct to consumer retailer of vision care products. The Company experienced growth in all key markets, demonstrating a balanced and sustainable multi-market strategy, unique to Coastal Contacts. There are several key factors aligning in our markets which give us confidence in the Company's prospects going forward," said Roger Hardy, Coastal Contacts' President and CEO.

"First, from an available market perspective an increasing number of adults around the world now require vision correction, owing to an aging population and growing computer usage. In markets such as the United States, market research now indicates that more than 86% of the adult population use some form of corrective or non-corrective eyewear.

Second, the market for contact lenses continues to show strong growth worldwide at approximately 9% compounded annually. Advances in contact lens technology now allow users as young as 10 years old and have enhanced the market for users between the ages of 35 and 49. As well, improving economic status of consumers in markets such as Asia have created a new customer base seeking traditionally "Western" consumer products like contact lenses.

Third, eCommerce usage continues to grow at a rate faster than traditional "brick and mortar" channels as consumers seek convenience and value when buying personal consumable items such as vision care products. In the US between 2001 and 2006 retail e-sales increased at an average annual growth rate of 25.4% compared with 4.8% for total retail sales."

Hardy continued, "By combining these factors with our leadership position in multiple markets around the world, we are encouraged by our results and the potential that lies ahead. Our estimates indicate that approximately 10% of the $5 billion contact lens market is purchased using the direct to consumer channel. We estimate that some markets may have grown to more than 40% penetration, which gives us significant opportunity to expand our business globally. Further expansion of our product offering to include eyeglasses provides our customers with another opportunity to take advantage of Coastal's value proposition. We are the only direct-to-consumer retailer of vision care products to be executing an international multi market strategy and are ideally positioned to take advantage of this exciting opportunity.

We continue to believe that Coastal shares are significantly undervalued in the current stock market environment. In the interest of enhancing future shareholder value, the Company executed a further buyback of common shares on August 1, 2008, acquiring and cancelling 5 million common shares for $5 million, representing approximately 8% of the outstanding shares immediately prior to purchase."

Highlights for the third quarter of 2008:

- Revenue grew to a record $32.7 million, an increase of $5.4 million or 20% from the same period in 2007.

- Gross profit was a record $9.0 million, an increase of 19% over the same period in 2007.

- Total order volume for the quarter was 323,786 orders, an increase of 16% over the same period in 2007.

- Reorders represented 65-69% of the orders in the quarter.

- Cash and cash equivalents totalled $20.0 million as at July 31, 2008.

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 periods ended July 31, 2008 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 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, share-based compensation and restructuring costs.



Coastal Contacts Inc.
CONSOLIDATED BALANCE SHEETS
($000's)

July 31, October 31,
2008 2007
-------------------------------------------------------------------------
(unaudited)

ASSETS
Current
Cash and cash equivalents 19,959 23,367
Short-term investments - 3,976
Accounts receivable 7,833 6,649
Inventory 10,624 8,531
Prepaid expenses 2,095 1,270
Due from related parties 367 348
-------------------------------------------------------------------------
40,878 44,141
-------------------------------------------------------------------------

Property, equipment and leasehold improvements 2,901 2,700
Intangible assets 12,225 11,712
Goodwill 8,537 7,529
-------------------------------------------------------------------------
64,541 66,082
-------------------------------------------------------------------------
-------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 20,220 13,881
Income tax payable 161 711
Deferred revenue 21 23
Current portion of lease inducement 68 68
-------------------------------------------------------------------------
20,470 14,683
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Long-term lease inducement 99 158
Future income tax liability 4,159 3,661
-------------------------------------------------------------------------
24,728 18,502
-------------------------------------------------------------------------

Shareholders' equity
Share capital
Authorized:
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 2,081 973
Accumulated other comprehensive loss (1,834) (4,091)
Deficit (5,430) (70)
-------------------------------------------------------------------------
39,813 47,580
-------------------------------------------------------------------------
64,541 66,082
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Coastal Contacts Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) ($000's, except share and per share amounts)

Three months ended Nine months ended
July 31 July 31
------------------- -------------------
2008 2007 2008 2007
------------------------------------------------------------------------

Sales 32,725 27,310 86,731 75,517
Cost of sales 23,775 19,772 63,289 55,054
------------------------------------------------------------------------
Gross profit 8,950 7,538 23,442 20,463
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Selling, general and
administration expenses 7,674 6,286 21,519 17,868
Share-based compensation 160 132 495 315
Amortization on property,
equipment and leasehold
improvements 231 210 697 584
Amortization on intangible
assets 432 327 1,234 914
Foreign exchange (gains)
losses (64) 165 (259) (669)
Interest income, net (91) (176) (477) (626)
Restructuring charges - - 844 -
------------------------------------------------------------------------
Earnings (loss) before income
taxes 608 594 (611) 2,077
Income tax expense - current 460 268 668 813
Income tax recovery - future (63) (48) (95) (104)
------------------------------------------------------------------------

Net earnings (loss) 211 374 (1,184) 1,368
------------------------------------------------------------------------
------------------------------------------------------------------------

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

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

Weighted average number
of common shares
outstanding
- basic 63,430,443 72,454,142 68,217,592 73,263,054
Weighted average number
of common shares
outstanding
- diluted 63,534,580 73,030,749 68,217,592 73,853,395
------------------------------------------------------------------------
------------------------------------------------------------------------


Coastal Contacts will host a conference call on Thursday, September 11 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 417948.

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 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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