Liquidation World Inc.
TSX : LQW

Liquidation World Inc.

January 04, 2011 21:22 ET

Liquidation World Announces Fiscal 2010 Results

BRANTFORD, ONTARIO--(Marketwire - Jan. 4, 2011) - Liquidation World Inc. (TSX:LQW) today announces the results of the 2010 fiscal year, representing the 52-week period ended October 3, 2010.

Notable achievements in fiscal 2010 include:



-- Closing of 10 underperforming stores;
-- Opening of 6 new "LW - Everybody's Outlet Store" branded stores;
-- Conversion of 27 legacy "Liquidation World" branded stores to the new
"LW - Everybody's Outlet Store" brand;
-- Successful testing and launch of new marketing programs;
-- Consolidation and expansion of the Company's distribution centers;
-- Addition of new members to the Company's senior management team;
-- Raising $13.5 million of new capital and the expansion of the Company's
credit facility from $20 million to $25 million; and
-- The addition of more new name brand vendors than ever before.


Fiscal 2010 Annual Results

Revenue decreased 2.8% to $153.4 million from $157.8 million in the prior year. Same store sales in fiscal 2010 decreased 2.3% as compared to fiscal 2009. In 2010, the Company recorded a net loss of $12.3 million ($0.67 per share) compared to a net loss of $17.6 million ($1.32 per share) in the prior year.

During fiscal 2010, same store sales increased 10.4%, or $1.2 million in the weeks following the conversions, for store locations that were renovated and reopened under the "LW - Everybody's Outlet Store" banner. During the same time period, same store sales decreased 3.5%, or $4.3 million, for legacy "Liquidation World" banner stores. In total, same store sales declined 2.3%, or $3.1 million. Other factors causing a variance in the Company's fiscal 2010 revenue versus the Company's fiscal 2009 revenue include (i) a decline in liquidation services fee revenue of $0.5 million, (ii) a decline of $0.8 million in US wholesale revenue, (iii) an increase of $11.9 million in sales from seven new store openings and (iv) a decline of $11.5 million from 10 store closures.

Some of the factors to be considered with these results reflect management's strategy to re-align its infrastructure and transform the company from a liquidator of closeout goods into Canada's premier retailer for value based shoppers. Consequently, these results include a series of restructuring and other costs impacting the resulting net loss. These events include: (i) the closing of ten underperforming stores; (ii) opening six new "LW - Everybody's Outlet Store" branded stores; and (iii) converting twenty-seven legacy "Liquidation World" branded stores to the new "LW - Everybody's Outlet Store" brand during fiscal 2010.

It is notable that as the strategy is executed, it is generating expected performance. In the weeks following their conversions, stores that were renovated and reopened under the "LW - Everybody's Outlet Store" banner demonstrated an increase in revenue of $1.2 million, or 10.4 percent. During that same period, legacy store revenue decreased by $4.3 million, or 3.5 percent. Other factors to be considered when comparing results in fiscal 2010 and 2009 include: (i) a decline in liquidation services fee revenue of $0.5 million; (ii) a decline of $0.8 million in US wholesale revenue; (iii) an increase of $11.9 million in sales from seven new store openings; and (iv) a decline of $11.5 million in sales from ten store closures.



2010 2009 Change
($ millions) ($ millions) ($ millions)
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Annual revenue $ 153.4 $ 157.8 $ (4.4)
Gross margin - $ $ 54.6 $ 47.8 $ 6.8
Gross margin - % $ 35.6% $ 30.3% $ 5.3%
SG&A $ (61.9) $ (60.9) $ (1.0)
Annual net loss and
comprehensive loss $ (12.3) $ (17.6) $ 5.3


Q4 Results

In the fourth quarter, fiscal 2010 revenue declined 2.5% to $34.7 million from $35.6 million in fiscal 2009. In the weeks following their conversions, stores that were renovated and reopened under the "LW - Everybody's Outlet Store" banner demonstrated an increase in revenue of $0.6 million, or 6.8 percent. During that same period, legacy store revenue decreased by $1.1 million, or 4.6 percent. Other factors to be considered when comparing the fourth quarters, fiscal 2010 and 2009 include: (i) a decline of $0.4 million in US wholesale revenue; (ii) an increase of $3.0 million in sales from seven new store openings; and (iii) a decline of $2.7 million in sales from ten store closures.

During the fourth quarter of fiscal 2010, same store sales increased 6.8%, or $0.6 million in the weeks following the conversions for store locations that were renovated and reopened under the "LW - Everybody's Outlet Store" banner. During the same time period, same store sales decreased 4.6%, or $1.1 million, for legacy "Liquidation World" banner stores. In total, same store sales declined 1.6% or $0.5 million during the fourth quarter of fiscal 2010. Other factors causing a variance in the Company's fourth quarter fiscal 2010 revenue versus its fourth quarter fiscal 2009 revenue include (i) a decline of $0.4 million attributable to US wholesale revenue, (ii) an increase of $3.0 million from seven (six in Canada; one in the US) new store openings in fiscal 2010 and (iii) a decline of $2.7 million from 10 store closures in fiscal 2010.

Gross margin was $9.2 million (26.6% of sales) in Q4 2010 compared to $13.0 million (36.6% of sales) in Q4 2009. The reduction in gross margin can be attributed to markdowns taken during the quarter on slow moving inventory, increased distribution costs, shrink and net realizable value.

Distribution centre costs increased to $1.9 million (5.4% of sales) in the quarter over last year $1.6 million (4.3% of sales). The Company booked shrink and valuation adjustments of $0.9 million (2.6% of sales) versus a positive adjustment of $0.3 million ((0.8)% of sales) in the same quarter last year. The Company increased provisions for declines in expected net realizable value of slow moving inventory by $0.8 million (2.2% of sales) versus $0.2 million (0.5% of sales)in the same quarter last year.

Q4 Gross Margin Analysis ($ millions)



2010 2009 Variance
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$ % $ % $ %
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Sales 34.7 100.0% 35.6 100.0%

Landed Cost 21.9 63.2% 21.1 59.4% 0.8 3.8%

DC Cost 1.9 5.4% 1.6 4.3% 0.3 1.1%
Shrink & Valuation 0.9 2.6% (0.3) (0.8)% 1.2 3.4%
NRV 0.8 2.2% 0.2 0.5% 0.6 1.7%
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Total Cost of Sales 25.5 73.4% 22.6 63.4% 2.9 10.0%
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Gross Margin 9.2 26.6% 13.0 36.6% (3.8) (10.0)%
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In the fourth quarter, fiscal 2010, the Company recorded a net loss of $7.9 million ($0.31 per share) compared to a net loss of $3.4 million ($0.21 per share) in the fourth quarter, fiscal 2009.



2010 2009 Change
($ millions) ($ millions) ($ millions)
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Q4 revenue $ 34.7 $ 35.6 $ (0.9)
Gross margin - $ $ 9.2 $ 13.0 $ (3.8)
Gross margin - % $ 26.6% $ 36.6% (10.0)%
SG&A $ (15.9) $ (15.0) $ (0.9)
Q4 net loss and
comprehensive
loss $ (7.9) $ (3.4) $ (4.5)


Additional details are provided in the financial statements below.

"Building on the momentum from February 2009 when the Company completed a recapitalization, we continued our rebuilding efforts this year and several signs of support that our strategy has appeal were generated. We succeeded in attracting fresh capital during this year, improving LW's market capitalization, important milestones for public companies undergoing transformational positive change. We also recruited some very talented and experienced senior management and now have a seasoned, solid team in place to execute our objectives", commented Seth Marks, President and CEO.

"As is the case in many turnaround situations, the process has been more challenging than I had thought it would be 18 months ago, when we embarked on our goal of transforming Liquidation World from a liquidator of closeout goods to Canada's premier retailer for value based shoppers. Although I am disappointed that LW did not achieve profitability in fiscal 2010, I am more convinced than ever that the foundation required for LW to achieve profitability year in and year out is nearly complete", said Marks.

Fiscal 2011 Strategy

In fiscal 2011, the Company intends to continue to (i) convert legacy "Liquidation World" branded stores to new "LW - Everybody's Outlet Store" branded locations, (ii) open new stores under the "LW - Everybody's Outlet Store" brand, and (iii) refine its marketing programs with flyers, the development of VIP email campaigns and the use of new social media programs.

In addition, LW plans to roll out new initiatives which should drive more everyday traffic into its stores as well as working with vendors, creditors and investors to ensure that it is in the strongest financial position to achieve its objectives. Similar to most growth companies and companies in transition, we continue to need to invest additional capital to facilitate and accelerate our growth. In that regard, we review financing alternatives as they arise. The company intends to take the usual steps to be able to facilitate future equity financing using the short form prospectus system in Canada.

"One of our goals for fiscal 2011 is to create a program that allows the Company to have specific stock-keeping units, or SKU's, - that will always be available in our stores. To date, the Company has not had a program of buying and restocking specific replenishable SKU's", said Marks.

"All successful closeout retailers use replenishable SKU's to drive every day traffic and supplement sales generated from one time "deal" buys. The addition of this "Always In" program requires changes in the Company's distribution systems and purchasing practices. These changes will help make the Company more efficient and will not only drive the expansion of top line sales, but will also drive cost savings and help the Company focus on achieving its goal of sustainable profitability. The impact of our "Always In" replenishment initiative should improve and grow our sales per square foot."

"I'd like to thank all of our associates, vendors and investors for their contributions and support during this past year of change. I am personally energized and excited by the strategies and business initiatives which will come to life in 2011", said Marks.

Forward-Looking Statements

This release includes forward-looking statements and potential future circumstances and developments. Forward-looking statements regarding future performance are subject to risks and uncertainties, and actual results may differ materially. Due to fluctuations in gross margins and expenses, an increase in revenue does not directly correlate to an increase in net earnings.

About Liquidation World

Liquidation World operates 92 stores in Canada and one in the United States. Liquidation World is based in Brantford, Ontario. The Company opened its first store in Calgary, Alberta in 1986 and today, with more than 1,500 employees, is Canada's largest operator of closeout retail stores.




LIQUIDATION WORLD INC.
Consolidated Balance Sheets As at October 3, 2010 and October 4, 2009

(In thousands of Canadian dollars)
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2010 2009
Audited Audited
Assets

Current assets
Accounts receivable $ 533 $ 1,554
Deposits 120 113
Inventory 39,619 33,941
Prepaid expenses 1,679 1,622
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41,951 37,230

Lease deposits 376 247
Property and equipment 9,074 8,613
Intangibles - 653
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$ 51,401 $ 46,743
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Liabilities and Shareholders' Equity

Current liabilities
Bank indebtedness $ 15,797 $ 8,758
Accounts payable and accrued liabilities 15,623 17,408
Current portion of obligations under capital
leases 127 710
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31,547 26,876
Obligations under capital leases - 145
Subordinated notes 1,557 -
Deferred lease inducements 2,272 2,321

Shareholders' equity
Share capital 32,224 22,330
Warrants 1,020 -
Contributed surplus 1,595 1,554
Deficit (18,814) (6,483)
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16,025 17,401

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$ 51,401 $ 46,743
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LIQUIDATION WORLD INC.
Consolidated Statements of Loss and Comprehensive Loss and Retained
Earnings(Deficit)
For the periods ended October 3, 2010 and October 4, 2009


(In thousands of Canadian dollars, except per share amounts)
----------------------------------------------------------------------------
13 weeks 13 weeks 52 weeks 52 weeks
ended ended ended ended
October 3, October 4, October 3, October 4,
Unaudited Unaudited Audited Audited
----------------------------------------------------------------------------
Revenue $ 34,722 $ 35,564 $ 153,399 $ 157,809
Cost of sales 25,491 22,552 98,812 109,965
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Gross margin 9,231 13,012 54,587 47,844

Expenses
Selling, general
and administrative 15,874 15,037 61,918 60,877
Depreciation and
amortization 844 851 3,021 3,345
Impairment of
intangibles - - 618 -
Impairment of
goodwill - 233 - 233
Interest
Short term 343 177 1,300 582
Long term 104 12 163 74
Foreign exchange
(gain) loss (71) 90 (102) 314
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17,094 16,400 66,918 65,425
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Net loss (7,863) (3,388) (12,331) (17,581)
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Net loss and
comprehensive loss (7,863) (3,388) (12,331) (17,581)
Retained
earnings(deficit),
beginning of period (10,951) (3,095) (6,483) 11,098
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Deficit, end of
period $ (18,814) $ (6,483) $ (18,814) $ (6,483)
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Basic and diluted
loss per share $ (0.31) $ (0.21) $ (0.67) $ (1.32)
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LIQUIDATION WORLD INC.
Consolidated Statements of Cash Flows
For the periods ended October 3, 2010 and October 4, 2009

(In thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
13 weeks 13 weeks 52 weeks 52 weeks
ended ended ended ended
October 3, October 4, October 3, October 4,
2010 2009 2010 2009
Unaudited Unaudited Audited Audited
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Cash provided (used)
in:
Operating activities
Net loss $ (7,863) $ (3,388) $ (12,331) $ (17,581)
Add (deduct)
non-cash items:
Depreciation and
amortization 844 851 3,021 3,345
Impairment of
intangibles - - 618 -
Impairment of
goodwill - 233 - 233
Leasehold
inducements (104) (53) (74) 132
Loss (gain) on
disposal of capital
assets 10 (2) 63 89
Stock based
compensation 18 (42) 41 147
Accretion on long
term debt 39 - 83 -
Change in non-cash
working capital
items 876 (4,589) (7,460) 15,655
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(6,180) (6,990) (16,039) 2,020

Investment
activities
Purchase of capital
assets (1,130) (802) (3,515) (1,546)
Business acquisiton - (140) - (140)
Proceeds on disposal
of capital assets - - 5 5
Change in non-cash
working capital
items - (171) - (1,006)
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(1,130) (1,113) (3,510) (2,687)

Financing activities
Increase(decrease)
in bank indebtedness (1,458) 7,950 7,039 (2,668)
Repayment of capital
leases (71) (297) (728) (1,203)
Deposits (109) (50) (129) (174)
Lease inducements - 500 979 750
Proceeds from
subordinated notes
and warrant
financing - - 2,000 -
Fees for issue of
subordinated notes
and warrant
financing - - (47) -
Proceeds on issuance
of common shares and
warrants 10,000 - 11,500 4,750
Fees for issuance of
common shares and
warrants (1,052) - (1,065) (788)
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7,310 8,103 19,549 667
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Increase(decrease)
in cash - - - -

Cash, beginning of
period - - - -

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Cash, end of period $ - $ - $ - $ -
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Supplemental
disclosure of cash
paid for:
Income taxes $ - $ - $ - $ 5
Interest 410 180 1,373 648

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$ 410 $ 180 $ 1,373 $ 653
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