Coast Wholesale Appliances Inc.

Coast Wholesale Appliances Inc.

May 24, 2011 17:40 ET

Coast Wholesale Appliances Inc. Reports 2011 First Quarter Results

Contract Sales to Builders and Developers Maintained at Close to Prior Year Level; Retail Sales Negatively Impacted by Reduced Consumer Confidence

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 24, 2011) -Coast Wholesale Appliances Inc. (TSX:CWA) will host a conference call and webcast to discuss its first quarter financial results on Wednesday, May 25, 2011 at 8:00 am Pacific Time (11:00 am Eastern). The call can be accessed by dialing: 1-888-340-9655 or 416-340-2219 (GTA).

A replay will be available through June 8, 2011 at: 1-800-408-3053 or 905-694-9451 Passcode 1283245.

The live and archived webcast, as well as an mp3 download, can be accessed at or on the Fund's website at

Coast Wholesale Appliances Inc. (Coast or the corporation), formerly Coast Wholesale Appliances Income Fund (the Fund), today reported financial results for the three months ended March 31, 2011. This period represents the first quarter of Coast's 2011 fiscal year and is the first quarter for which it has reported financial results since converting from an income trust to a publicly traded corporation.

Performance Highlights

(in thousands of dollars except percentages and per-share / unit amounts)
Gross margin6,7527,4707,723
As a percentage of sales24.0%24.5%23.3%
Net income (loss) (2010 and 2009 before non-controlling interest)(487)7291,050
Basic and diluted net income per share / unit(0.049)0.0730.105
EBITDA before other costs7621,4821,989
EBITDA margin before other costs2.7%4.7%6.0%
EBITDA per share / unit before other costs0.0760.1480.198
EBITDA margin-0.2%4.7%6.0%
EBITDA per share / unit(0.004)0.1440.198

First Quarter Operating Results

During its seasonally slower first quarter, Coast generated sales revenue of $28.1 million, a 7.8% decrease from the $30.5 million reported in 2010. Retail sales were affected by more cautious consumer spending as a result of decreased confidence in the Canadian economy, dropping by 12.6% year-over-year. In the contract segment, Coast's sales to developers and builders were down by a relatively modest 3.0% from the first quarter of 2010. As a result, the corporation's business mix shifted in favour of contract sales.

The softening of Coast's retail sales was concentrated in British Columbia, which continued to experience particularly low levels of consumer confidence. Contract business in BC also remained slow, bringing overall sales in the province down from the 2010 level. In Saskatchewan and Manitoba, Coast benefited from strong single-family home construction activity, which drove sales up year-over-year. In Alberta, sales were down from the first quarter of 2010 as single-family building starts slowed in this market. Finally, sales at Coast's Greater Toronto Area (GTA) store showed considerable strength over the prior year as the corporation began to fulfill contract orders placed in 2010.

Coast's first quarter gross margin decreased to $6.8 million, or 24.0% of sales, from $7.5 million, or 24.5% in 2010. The 0.5% reduction in gross margin percentage was mainly due to the shift in sales mix in favour of contract business with developers and builders, which typically generates a lower margin than retail sales.

The $0.7 million drop in gross margin dollars brought first quarter EBITDA, before one-time severance costs of $0.8 million, down to $0.8 million from $1.5 million in 2010. The severance costs related to the departure of former Chief Executive Officer (CEO) Blain Lawson in February 2011. Coast's EBITDA margin declined to 2.7% from 4.9% last year. Primarily due to the combined impact of the gross margin shortfall and one-time costs, Coast recorded a loss of $0.5 million for the first quarter, compared to a profit of $0.7 million in 2010.

"Our results continue to reflect the present generally uncertain economic climate, particularly on the retail side of our business," said Harlow Burrows, interim CEO of Coast and a member of its Board of Directors. "In the contract segment, housing starts remained below 2010 levels in Q1 and, while we continued to benefit from strong single-family building activity in some of our markets, development of larger multi-family projects is still being slowed by the reduced rate of economic recovery. However, we are beginning to see more multi-family contract orders for delivery later this year and into 2012, and we are very encouraged by the ground we are gaining in the GTA builder and developer market."


On February 16, 2011, Coast declared its first monthly dividend in the amount of $0.035 per share, which was paid on March 7, 2011 to shareholders of record on February 28, 2011. Dividends in the same amount were subsequently declared on each of March 15, 2011, April 13, 2011 and May 18, 2011, payable on or about the fifth day of the month following. Going forward, subject to the discretion of its Board of Directors, Coast expects to continue to pay cash dividends of $0.035 per share on a monthly basis, equivalent to $0.42 per share per annum.


The following discussion is qualified in its entirety by the forward-looking statements report at the end of this news release.

The outlook for Coast's business remains cautious. On the retail side, Coast expects that consumers will continue to be careful about major purchases and that the retail pricing environment will remain extremely competitive, putting downward pressure on sales and margins. In the contract segment, based on the year-over-year increase in multi-family building activity it saw in the second half of 2010, Coast expects to begin to see an improvement in this business in the second half of the year. In the GTA market, it expects that its contract sales will continue to increase throughout the year.

"We anticipate that economic growth in all of our geographic markets will remain sluggish through 2011," said Burrows. "However, Canadian credit markets continue to be relatively stable, providing our builder and developer customers with reasonable access to financing for current and future projects."

In light of the challenging market environment, Coast has continued to focus on streamlining its non-selling functions in order to increase operating efficiency as it aggressively pursues additional sales opportunities. It has also continued to refine its product offering by fine-tuning its inventory based on sales successes with individual product lines.

"While we have no plans to reduce our major brand offering, which remains a key competitive advantage for Coast, some streamlining of selected product lines will enable us to trim our inventory levels," said Burrows.

Coast is currently conducting a replacement search for a permanent CEO and the Board has established a committee to oversee the process.

A more detailed discussion of Coast's financial results can be found in its 2011 first quarter Management's Discussion and Analysis, which will be posted with unaudited interim financial statements for the period on Coast's website ( and SEDAR ( on or before May 25, 2011.

Coast Profile

Coast is a leading independent supplier of major household appliances and accessories to developers and builders of multi-family and single-family housing, and to retail customers. Founded in 1978, Coast currently operates 15 stores across the four western provinces and one store in the GTA of Ontario, as well as a network of warehouse distribution centres strategically situated to serve these locations.

Forward-looking Statements

This news release includes forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause actual results, performance, or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are identified by the use of terms and phrases such as "anticipate", "believe", "estimate", "expect", "may", "plan", "will", and similar terms and phrases, including references to assumptions. Such statements may involve, but are not limited to, comments with respect to the sustainability of Coast's dividends to shareholders, economic performance in Canada and its sales expectations. Forward-looking statements are included in, but not limited to, the sections titled First Quarter Operating Results, Dividends and Outlook.

These forward-looking statements reflect current expectations of Coast's management regarding future events and operating performance as of the date of this news release. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to: sensitivity to general economic conditions; changes in consumer confidence in the economy; maintenance of profitability and management of changes to Coast's business; competition; increases to interest rates; reliance on suppliers and their ability to supply product for sale on a timely basis; changes in consumer preferences; changes in the mix of product sales; fluctuations in fuel and commodity pricing, which may impact freight and other costs; usage of extended warranty programs and the costs to deliver these services; changes to planning and supply chain processes; lack of long-term supplier agreements; reliance on key personnel; and foreign exchange rates as they relate to imported products.

Although the forward-looking statements contained in this news release are based upon what management believes to be reasonable assumptions, Coast cannot assure investors that actual results will be consistent with these forward-looking statements. The forward-looking statements reflect management's current beliefs and are based on information currently available to Coast. They speak only as of the date of this news release, and reflect current assumptions regarding future events and operating performance. These assumptions include, without limitation: slow economic growth during 2011 in both Western Canada and the Greater Toronto Area (Coast's current market areas); continued fluctuations in exchange rates with the Canadian dollar at or above par with the US dollar; low but increasing interest rates through 2011; continuing cautious credit markets for Coast's major builder customers to obtain financing for their current and future building activities; weak consumer confidence due to the slow economic recovery, which may be reflected in lower retail sales; and housing starts down somewhat in 2011 compared to 2010. These forward-looking statements are made as of the date of this news release and Coast assumes no obligation to update or revise them to reflect new events or circumstances, other than as required by law.

Non-IFRS Financial Measures

EBITDA and EBITDA margin are non-IFRS financial measures that are defined in the 2011 first quarter Management's Discussion and Analysis to be posted on Coast's website and SEDAR on or before May 25, 2011.

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