Coast Wholesale Appliances Inc.

Coast Wholesale Appliances Inc.

November 07, 2011 16:21 ET

Coast Wholesale Appliances Inc. Reports 2011 Third Quarter Results

Sales Up by 3% Year-Over-Year, Contract Order Backlog Continues to Strengthen

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 7, 2011) - Coast Wholesale Appliances Inc. (TSX:CWA) -

Coast Wholesale Appliances Inc. will host a conference call and webcast to discuss its third quarter financial results on Tuesday, November 8, 2011 at 8:00 am Pacific Time (11:00 am Eastern). The call can be accessed by dialing: 1-877-440-9795 or 416-340-8527 (GTA).

A replay will be available through November 22, 2011 at: 1-800-408-3053 or 905-694-9451, passcode 5050000.

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

Coast Wholesale Appliances Inc. (Coast), formerly Coast Wholesale Appliances Income Fund (the Fund), today reported financial results for the three and nine months ended September 30, 2011. The three-month period represents the third quarter of Coast's 2011 fiscal year.

Performance Highlights

(in thousands of dollars except percentages and per-share / unit amounts)
2011 2010 2009 2011 2010 2009
Sales 36,001 34,947 37,341 98,313 102,461 108,433
Gross profit 8,840 8,575 8,813 23,941 25,421 25,364
As a percentage of sales 24.6% 24.5% 23.6% 24.4% 24.8% 23.4%
Net income (loss) 1,440 (130) 1,457 2,035 2,358 3,441
Diluted net income per share / unit 0.144 0.031 0.223 0.203 0.366 0.527
EBITDA before other costs 2,670 2,422 3,117 5,507 6,821 7,886
EBITDA margin before other costs 7.4% 6.9% 8.3% 5.6% 6.7% 7.3%
EBITDA per share/unit before other costs 0.266 0.241 0.311 0.549 0.680 0.786
EBITDA 2,573 2,422 3,117 4,605 6,435 7,886
EBITDA margin 7.1% 6.9% 8.3% 4.7% 6.3% 7.3%
EBITDA per share / unit 0.256 0.241 0.311 0.459 0.641 0.786

Third Quarter Operating Results

Coast's sales revenues of $36.0 million for the third quarter were up by $1.1 million, or 3.0%, from $34.9 million in 2010. Contract sales to developers and builders increased by 3.5%, while retail sales grew by a more modest 1.7%. As a result, Coast's business mix for the three months shifted in favour of contract sales.

In British Columbia, revenues generally improved over last year, and particularly in the multi-family contract sector. In Saskatchewan and Manitoba, sales continued to benefit from strong single-family home construction activity, increasing year-over-year in Saskatchewan and remaining in line with 2010 levels in Manitoba. In Alberta, sales declined from 2010, due to the combined impact of flat retail revenues and reduced single-family housing activity. Finally, revenues at Coast's Greater Toronto Area (GTA) store were up significantly over last year, as retail business improved considerably and contract business benefited from the completion of sales logged in 2010 with single-family and multi-family builders.

Coast's third quarter gross profit increased to $8.8 million, or 24.6% of sales, from $8.6 million, or 24.5% in 2010. The slight improvement in gross margin percentage was mainly due to changes in the mix of products sold during the quarter.

The revenue improvement and resulting gross profit gain brought third quarter EBITDA up to $2.6 million from $2.4 million in 2010 and improved Coast's EBITDA margin to 7.1% from 6.9% last year. Third quarter net income, after income tax of $0.5 million, was $1.4 million. This compares to net income before income tax and non-controlling interest of $1.8 million in Q3 2010, as reported under Canadian GAAP, or, as restated under IFRS after exchangeable unit items, a loss of $0.1 million. The loss in the 2010 period resulted because, under IFRS, both distributions to the Fund's exchangeable units and an increase in the fair value of the exchangeable units are treated as expenses.

Nine-Month Operating Results

Revenue for the nine months ended September 30, 2011 was $98.3 million, down by 4.0% from $102.5 million in 2010. Contract sales for the period decreased by 6.9% year-over-year, while retail sales dipped by 2.8%, shifting Coast's business mix for the first three-quarters of the year in favour of the retail segment. Gross profit of $23.9 million, or 24.4% of sales, was down from $25.4 million, or 24.8% of sales, in 2010. The decrease in gross margin percentage was mainly due to a year-over-year reduction in volume-related supplier rebates, as not all of the purchase thresholds to obtain the rebates were reached in 2011.

Nine-month EBITDA of $4.6 million was down by $1.8 million from the $6.4 million reported in 2010, reducing Coast's EBITDA margin for the period to 4.7% from 6.3% in 2010. The decrease in EBITDA was mainly due to the revenue decline and resulting $1.5 million gross profit shortfall when compared to 2010. In addition, EBITDA was also impacted by an increase in other costs, as the $0.9 million of severance and recruitment costs associated with the change in Coast's CEO in 2011 was more than double the $0.4 million recorded in 2010 in relation to Coast's conversion to a corporation.

Net income for the nine months, after the $0.9 million of other costs and $0.7 million of income tax, was $2.0 million. This compares to net income before taxes and non-controlling interest of $4.4 million in 2010, or, as restated under IFRS after exchangeable unit items, net income of $2.4 million. The year-over-year decrease in profitability was mainly due to the lower level of sales in 2011 and consequent gross margin shortfall.

"We are pleased with the improvement in our revenues in Q3, particularly in the GTA, and with the general strength of our contract business," said Maurice E. Paquette, President, CEO and a director of Coast. "As we expected, sales began to flow from our backlog of orders for multi-family and single-family housing projects, with a number of these developments moving into the final stages, ready for delivery of appliances. At the same time, continued development activity in the multi-family sector allowed us to further strengthen our contract sales log during the quarter with orders for delivery in 2012 and beyond. However, low consumer confidence has continued to take a bite out of our retail sales and the business environment has remained generally challenging across our industry."


During the third quarter, monthly dividends of $0.035 per share were declared on each of July 19, August 17 and September 14, 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 contract side, Coast expects that its sales to the multi-family sector will continue to improve through the remainder of 2011 and into 2012. However, the improvement may be tempered somewhat by a softening of its single-family business, as single-family housing starts in the second and third quarters of 2011 were down from 2010. Overall, Coast does not anticipate that total housing starts for the fourth quarter of 2011 and for 2012 will be significantly different from 2010 levels. On the retail side, while third quarter sales exceeded the 2010 level, Coast expects that consumers will remain careful about making major purchases and that unusually competitive retail pricing will persist through the final quarter of the year, putting downward pressure on sales and margins.

"Thus far in 2011, the Canadian economy has exhibited only moderate growth and we anticipate that economic growth in our western Canadian and GTA markets will remain sluggish through Q4 and into 2012," said Paquette. "On the positive side, we expect that Canadian credit markets will remain at or near current levels until the latter part of 2012, so our builder and developer customers should continue to enjoy reasonable access to financing for current and future projects."

A more detailed discussion of Coast's financial results can be found in its 2011 third 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 November 8, 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 Greater Toronto Area 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 Third Quarter and Nine-Month 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 our 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 the remainder of 2011 and into 2012 in both Western Canada and the GTA, Coast's current markets; continued fluctuations in exchange rates with the Canadian dollar trading near par with the US dollar; continued low interest rates through 2011 with expected increases to rates in late 2012; 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 continuing to improve 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 third quarter Management's Discussion and Analysis to be posted on Coast's website and SEDAR on or before November 8, 2011.

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