Coastal Contacts Inc.
TSX : COA

Coastal Contacts Inc.

March 13, 2008 15:05 ET

Coastal Contacts Reports First Quarter 2008 Financials

VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 13, 2008) -

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

Coastal Contacts Inc. (TSX:COA) today announced its unaudited financial results for the first quarter ended January 31, 2008. Revenue for the quarter was $25.4 million, an increase of $1.8 million or 7% from the same period in 2007. EBITDA during the quarter was $(0.1) million versus $1.2 million in the first quarter of 2007. Net loss for the quarter was ($0.7) million or ($0.01) per share versus net income of $0.7 million or $0.01 per share for the same period in 2007. The Company ended the quarter with $27.3 million in cash and cash equivalents, and generated $0.4 million in cash from operations in the first fiscal quarter of 2008.

Foreign currency exchange rate fluctuations, including the strengthening of the Canadian dollar relative to the Swedish Krona and the U.S. dollar over the last year, contributed to a negative foreign exchange impact on revenue growth in the quarter of $1.9 million. Excluding the impact of foreign currency exchange rate fluctuations, revenue in the first quarter of 2008 would have grown by $3.7 million or 16%, compared to the first quarter of 2007.

"Our financial results for the first fiscal quarter of 2008 reflect the long term strategic investments that Coastal is making towards building a diversified vision products company with the potential to generate a robust earnings stream," said Roger Hardy, Coastal Contacts' Chairman and CEO. "We are investing in three major initiatives from which we believe we will generate significant lasting value:

1) We built two eyeglass manufacturing labs and initiated a trial campaign of a prescription eyeglasses business this quarter. With more than 1.5 million active vision corrected customers we are encouraged by the early results of the trial campaign from both a revenue and margin perspective. We believe that Coastal's eyeglass business will become an integral component of our business model, which we hope will contribute up to 10% of revenue and meaningful margins by the end of fiscal 2008.

2) The vision products industry is evolving and the direct to consumer channel is being endorsed by major traditional retailers. We have tightened our strategic focus in order to be prepared for potential partnerships and other opportunities that we are developing.

3) We are optimizing our business operations around the world, and subsequent to the end of the first fiscal quarter began initiatives to improve efficiency. We expect to incur one-time restructuring charges of approximately $0.8 million relating to severance and other costs relating to these initiatives in the second quarter of 2008, and as a result expect related annual savings of approximately $0.8 million".

Highlights for the first quarter of 2008:

- Revenue for the period was $25.4 million, an increase of $1.8 million or 7% from the same period in 2007.

- Total order volume for the quarter was 277,018 orders, an increase of 28,529 orders or 11% 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 $27.3 million.

Strategic initiatives undertaken during the quarter included the following:

- Launched a successful prescription glasses trial campaign to existing customers resulting in more than 1,000 pairs of eyeglasses successfully delivered.

- Launched three private label brands of eyeglasses as part of our product offering.

- Held strategic meetings to consider several acquisition targets.

- Retained both DoubleClick and its performance marketing division, DoubleClick Performics, to assist with USA search campaign management.

- Presented at ICR Exchange Conference in the United States.

- Presented at the Roth Capital Growth Stock Conference in the United States.

- Announced Intent to purchase up to 7,000,000 common shares of Coastal in a modified "Dutch Auction" issuer bid.

Subsequent to the end of the first quarter of 2008 the Company:

- Launched a new eyeglasses business unit in North America and Europe following the results of a successful trial campaign.

- Purchased for cancellation approximately 6.8 million common shares of the Company under the terms of its previously announced issuer bid. After the purchase, approximately 64.2 million common shares of the Company remain outstanding.

"We believe that the combination of optimizing our operations, broadening our offering with high margin products such as eyeglasses and significantly reducing our shares outstanding will serve our shareholders well going forward. We see tremendous value in the business we are building and large strategic partners are taking note" stated Mr. Hardy. "Since October, 2006 the Company has repurchased for cancellation approximately 11 million shares representing approximately 15% of our outstanding shares, while maintaining a strong cash balance and incurring no long term debt. We anticipate several positive catalysts as we move forward this year, including further progress with our new eyeglass business, entry into additional geographic markets and potential partnerships."

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 January 31, 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.

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



CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) ($000's)

Three months ended January 31 2008 2007
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Sales 25,375 23,605
Cost of sales 19,012 17,305
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Gross profit 6,363 6,300
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Selling, general and administration expenses 6,684 5,802
Share-based compensation 155 106
Amortization on property, equipment and leasehold
improvements 229 160
Amortization on intangible assets 371 344
Foreign exchange gain (245) (685)
Interest income, net (232) (239)
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Income (loss) before income taxes (599) 812
Income tax expense - current 112 160
Income tax recovery - future (10) (29)
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Net income (loss) (701) 681
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CONSOLIDATED BALANCE SHEETS
(Unaudited) ($000's)

January 31, October 31,
2008 2007
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ASSETS
Current
Cash and cash equivalents 27,334 23,367
Short-term investments - 3,976
Accounts receivable 6,866 6,649
Inventory 10,200 8,531
Prepaid expenses 1,404 1,270
Due from related parties 347 348
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46,151 44,141
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Property, equipment and leasehold improvements 2,901 2,700
Intangible assets 12,285 11,712
Goodwill 7,986 7,529
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69,323 66,082
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 16,763 13,881
Income taxes payable 337 711
Deferred revenue 48 23
Current portion of lease inducement 68 68
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17,216 14,683
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Long-term lease inducement 138 158
Future income tax liability 3,964 3,661
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21,318 18,502
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Shareholders' equity
Share capital
Authorized:
Unlimited common shares without par value
Unlimited Class A preferred shares without
par value
Issued and outstanding:
71,214,912 common shares (2007 - 71,426,512) 50,707 50,857
Shares held in Treasury
139,700 common shares (2007 - 78,500) (160) (89)
Contributed surplus 1,128 973
Accumulated other comprehensive income (loss) (2,810) (4,091)
Retained earnings (deficit) (860) (70)
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48,005 47,580
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69,323 66,082
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Coastal Contacts will host a conference call on Thursday, March 13 at 6:00pm (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 392448.

About Coastal Contacts:

Coastal Contacts is one of the world's fastest growing vision care suppliers. Leveraging its world class operations in North America and Europe, Coastal is building a predictable recurring revenue stream in the contact lens segment and is developing complementary branded vision care products. 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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