Coast Wholesale Appliances Inc.
TSX : CWA

Coast Wholesale Appliances Inc.

August 12, 2013 16:05 ET

Coast Wholesale Appliances Inc. Reports 2013 Second Quarter Results

Robust Builder Sales Drive Record Quarterly Revenue, Healthy Gross Profit and EBITDA Growth; Stronger Retail Margins Push Up Gross Margin Percentage

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Aug. 12, 2013) - Coast Wholesale Appliances Inc. (TSX:CWA) -

Coast Wholesale Appliances Inc. will host a conference call and webcast to discuss its 2013 second quarter and year-to-date financial results on Tuesday, August 13, 2013 at 8:00 am Pacific Time (11:00 am Eastern). The call can be accessed by dialing: toll-free 1-877-240-9772 or 416-340-8527 (GTA and International).

A replay will be available through August 27, 2013 at: 1-800-408-3053 or 905-694-9451 - Passcode: 2341751.

The live and archived webcast, as well as an mp3 download, can be accessed at http://www.investorcalendar.com/IC/CEPage.asp?ID=171431 or on Coast's website at www.coastwholesaleappliancesinc.com.

Coast Wholesale Appliances Inc. (TSX:CWA) (Coast or the company), today reported financial results for the three and six months ended June 30, 2013. The three-month period represents the second quarter of Coast's 2013 fiscal year.

Performance Highlights

(in thousands of dollars except percentages and per-share amounts)

2013 2012 2011 2013 2012 2011
Q2 Q2 Q2 YTD YTD YTD
Sales 41,970 37,729 34,225 76,330 67,765 62,311
Gross profit 9,566 8,505 8,349 16,984 15,388 15,101
As a percentage of sales 22.8 % 22.5 % 24.4 % 22.3 % 22.7 % 24.2 %
Profit 1,560 1,124 1,081 1,919 1,120 594
Basic and diluted net income per share 0.155 0.112 0.108 0.191 0.112 0.059
EBITDA 2,658 2,062 2,074 3,728 2,678 2,031
EBITDA margin 6.3 % 5.5 % 6.1 % 4.9 % 4.0 % 3.3 %
EBITDA per share 0.265 0.205 0.207 0.372 0.267 0.202
Dividends per share 0.075 0.105 0.105 0.150 0.210 0.175

Second Quarter Results

For the three months ended June 30, 2013, in its eighth consecutive quarter of year-over-year revenue growth, Coast recorded sales of $42.0 million, its highest ever quarterly revenues. This was up by $4.2 million, or 11.2%, over Q2 2012. Sales to builders increased by 18.6%, while retail sales were equal to the 2012 level. Other revenues, generated by warranty sales, freight and installation, and commission sales were up by 4.6% over the same period last year.

Revenues improved in all of Coast's geographic markets except Manitoba, where sales decreased from the 2012 level. The company recorded particularly strong growth in the Greater Toronto Area (GTA) of Ontario and in Saskatchewan.

With the higher revenues, second quarter gross profit increased to $9.6 million from $8.5 million in 2012, a 12.5% improvement. Gross margin benefited from the positive impact of supplier-supported promotional programs on Coast's retail margins, improving to 22.8% from 22.5% in Q2 2012. With the growth in sales, selling, warehouse, facility, and general and administrative (SG&A) expenses for the three months increased in dollar terms but were reduced as a percentage of sales to 16.5% from 17.1% in 2012.

Second quarter EBITDA of $2.7 million was up by $0.6 million from the $2.1 million reported in 2012, while EBITDA margin improved to 6.3% from 5.5% last year. The increase in EBITDA was due mainly to this year's higher revenues and the resulting $1.1 million gross profit gain. The company recorded net income of $1.6 million for the three months, up from $1.1 million in 2012.

"As in the first three months of the year, our second quarter revenues exceeded our expectations, with a strong flow of contract sales to single and multi-family homebuilders moving through to completion in our western Canadian and GTA markets," said Maurice Paquette, President and CEO of Coast. "In the retail segment, we are very encouraged by the improvement in our gross margins and the strong support we have received from our suppliers."

Mr. Paquette continued, "Given the competitive sales climate, maintaining our Q2 retail revenues at last year's level was no small achievement. We believe that our continued strong performance in the retail segment is due in large part to our builder-focused business model and, in particular, to our ability to deliver a value-added service offering to consumers who purchase new homes from our builder customers. Our ongoing investment in store upgrades has worked to maintain retail traffic in our stores and has helped us preserve market share in an extremely difficult sales environment."

First-Half Results

For the six months ended June 30, 2013, revenues of $76.3 million were up by $8.6 million, or 12.6%, from the $67.8 million reported for the first half of 2012. Builder sales increased by 21.5%, retail revenues dipped by a modest 0.2% and other revenues were up by 3.4%.

As with the quarterly result, revenues for the first half improved in all of Coast's geographic markets except Manitoba. Double-digit sales growth was recorded in all other markets.

Gross profit for the first half increased by 10.4% to $17.0 million from $15.4 million in 2012, while gross margin dipped to 22.3% from 22.7% last year. The 0.4% decrease in gross margin percentage was mainly due to changes in sales mix, as Coast recorded a proportionate increase in its typically lower-margin builder sales. SG&A expenses for the six months increased with the higher sales volume but were reduced as a percentage of sales to 17.4% from 18.8% in 2012.

First-half EBITDA improved to $3.7 million, a $1.0 million gain from the $2.7 million reported in 2012. EBITDA margin increased to 4.9% from 4.0% last year. As with the quarterly result, the growth in first-half EBITDA was due mainly to this year's higher revenues and the resulting $1.6 million gross profit gain. Net income for the six months was $1.9 million, up from $1.1 million in 2012.

Operating Highlights

During the second quarter, as part of its ongoing strategy to enhance profitability by increasing sales from its existing stores, Coast proceeded with showroom upgrade work at its Calgary South store in Alberta and its Saskatoon, Saskatchewan location. The Calgary improvements are now expected to be completed in the third quarter and the Saskatoon improvements by year-end. Since the beginning of 2011, approximately 70% of Coast's stores have been renovated or relocated to updated facilities.

As planned, Coast began implementing major upgrades to its inventory and pricing management systems in June. In addition to helping the company better manage gross margins, reduce inventory levels and increase inventory turns, the upgraded systems will enable it to monitor how pricing can be used to create more effective marketing programs, primarily in the retail segment of its business. Phased testing of the new systems is scheduled to take place over the balance of the year and Coast anticipates that both systems will be fully operational by mid-2014.

As expected, inventory levels remained higher than normal during the second quarter, due both to the increased sales volumes and recent changes to Coast's product offering. At June 30, 2013, inventory stood at $26.8 million, compared to $25.8 million at December 31, 2012.

Dividends

During the second quarter, monthly dividends of $0.025 per share were declared for each of April, May and June, payable on or about the fifth day of the month following. This dividend rate equates to $0.30 per share on an annualized basis, representing a yield of approximately 10% per annum at recent Coast share trading prices. Coast's Board of Directors closely monitors the company's dividend level on a continuous basis.

Outlook

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

The outlook for Coast's business in the second half of 2013 remains cautious. In the builder segment, the company expects that its revenues will continue to grow as projects in its order backlog move into the final stages of development in both the single and multi-family sectors but at a slower rate than in the first half of the year. Coast anticipates that housing starts will soften slightly from 2012 levels and that very competitive market conditions will continue to compress unit prices and hence margins on its builder sales for the foreseeable future. On the retail side, it expects that market conditions and pricing will remain similarly competitive through 2013 as consumers continue to be extremely cautious about making major purchases.

"While our second quarter sales were at an all-time high and we still have a strong backlog of contract orders for future delivery, economic growth in Canada remains sluggish and an uncertain business environment persists," said Mr. Paquette. "Any significant setbacks could have a negative impact on our sales to builder customers, who may defer or cancel planned projects, and to retail customers, who may decide to delay or cancel their purchase plans."

Mr. Paquette added that, based on Coast's current order backlogs, the company anticipates that its revenue growth over the balance of 2013 will be concentrated in the GTA, Saskatchewan and Alberta, with a softening in the BC market.

A more detailed discussion of Coast's financial results can be found in its 2013 Second Quarter Management's Discussion and Analysis, which will be posted with unaudited interim condensed financial statements for the period on Coast's website (www.coastwholesaleappliancesinc.com) and SEDAR (www.sedar.com) on or before August 13, 2013.

Coast Profile

Coast is a leading independent supplier of major household appliances and accessories to builders and developers 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, the performance of the Canadian economy and the company's sales expectations. Forward-looking statements are included in most sections of this news release.

These forward-looking statements reflect current expectations of 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 Coast's mix of product sales; fluctuations in fuel and commodity pricing; 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 through the balance of 2013 in both Western Canada and the Greater Toronto Area (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; continuing relatively stable credit markets for Coast's major builder customers; weak consumer confidence due to the slow economic recovery; and a slight softening of total housing starts in 2013 compared to 2012. 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 Second Quarter Management's Discussion and Analysis to be posted on Coast's website and SEDAR on or before August 13, 2013.

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