Liquidation World Inc.
TSX : LQW

Liquidation World Inc.

May 12, 2005 08:00 ET

Liquidation World Announces Second Quarter Results and Inventory Write-Downs

CALGARY, ALBERTA--(CCNMatthews - May 12, 2005) -

Stage is set to revitalize brand and outlets to capitalize on popularity of extreme value shopping

Liquidation World Inc. (TSX:LQW) today announced results for the second quarter of fiscal 2005, representing 13 weeks of operations ending April 3, 2005. The company recorded a total loss of $6.5 million, compared to earnings of $0.7 million in the same period last year. Included in the loss is a $3.2 million ($2.2 million after tax recovery) write-down of inventory to reflect anticipated markdowns in inventory further described below. On a cumulative basis, the loss for the first half of the 2005 year totals $5.6 million compared to net earnings of $2.5 million in 2004.

Revenue totaled $39.4 million, a 9.8% decrease from $43.7 million during the corresponding period in 2004. On a cumulative basis, revenue for the first two quarters of 2005 totaled $91.1 million, a 3.4% decrease from $94.2 million during the 26 weeks ending April 4, 2004. Further detail is provided in the financial statements below.

Liquidation World has scheduled a conference call to begin promptly at 11:00 a.m. Calgary time (1:00 p.m. EST), May 12th.

Conference call dial in number is 1-877-888-3490 or 416-695-9753

A replay of the conference call will be accessible on Liquidation World's website within twenty-four hours at http://www.liquidationworld.com by selecting "Investor Info", "News Releases", and "Q2 Conference Call".

The new President and Chief Executive Officer, Jonathan Hill, who was appointed to the position on February 18th, said:

"The loss is the result of the following:

1. The company is implementing new policies and procedures to recognize underperforming inventory on a more timely basis. We have therefore written down aged and inventory deemed unsaleable at prior prices. These controls will help reduce inventory write-downs in the future.

2. We reduced purchasing in the first quarter that resulted in reduced merchandise in our stores during the second quarter. This was reflected in our average transaction amounts and overall sales. We are developing a more focused merchandising (purchasing) team to prevent these issues from arising in the future.

3. Operating costs that were not adjusted early enough to the lower sales activity experienced during the quarter. Cost reduction initiatives were implemented during the latter part of the quarter, the results of some of which are reflected in total selling and store expenses.

4. Severance costs in the amount of $550,000 before tax related to the departure of one of the company's executives.

"These results reflect the transition of our company. We must become more disciplined in recognizing under-performing inventory and the cost associated with carrying these goods." said Mr. Hill.

"Our strategic plans reflect the fact that our customer expects an ever-changing and wide variety of merchandise. The availability of more value merchandise, as global retailers place more pressure on their suppliers to manage merchandise, will provide greater opportunities for our business to increase. We are implementing changes that will allow our buyers to focus more on the overall management of merchandise, including planning, allocation, merchandising and marketing, competitive analysis and global sourcing. We are also creating a formal business development group that will market our business to non-traditional sources of supply, which generate the unique value inventories in our stores. There are a number of areas where we have a distinct advantage over many of our North American competitors," said Mr. Hill.

"These changes will soon be supported by our new merchandise management system that we are in the process of implementing. This system is designed to provide for all our current and future information requirements."

"In addition, we have begun work on a number of other important initiatives for our business. These include:

- Renovations to existing outlets. While the results of our upgraded outlets have been very positive in recent new store openings, the company will test its hypothesis that sensible investing in established markets will deliver increased sales by upgrading the three stores in the key Calgary market through its "Extreme Makeover: Liquidation World Edition" initiative. The results will be evaluated as soon as possible following completion of the work, and the project will be used as a template to create a schedule of store improvements based on anticipated best return, remaining length of lease and other considerations.

- An updated and expanded marketing of the Liquidation World brand. In conjunction with the store renovations in our home market, we will also test a new and exciting marketing plan that will focus on the mainstream popularity of extreme value shopping and the unique merchandise assortment available in our outlets. Our objective is to introduce our cleaner, brighter outlets to new customers and reinforce our unique value proposition.

- Involve customers as deal hunters. The company is implementing a program to enlist the more than 150,000 customers who shop at Liquidation World outlets each week in the quest for great deals. The program will include a 1-800 tip line and posted rewards for successful transactions, so customers can alert the company to small opportunity purchases, such as local business closures, which create a high level of in-store excitement."

"I strongly believe that by putting these plans into action, we can better position the company not only to take advantage of the current popularity among shoppers for extreme value and bargain shopping, but to use the expertise of our staff to our best advantage and manage our inventory better. While the fundamentals of our business and this sector remain strong, we must improve and adapt how we do things to reflect the size and scope of our business today," said Mr. Hill.

"I take great pride in Liquidation World and its people, who have met and embraced change in the past and show the same attitude today. I am also encouraged by the support of our customers for our business and the need for our company in a market of increasingly larger retailers that are less flexible than we are and who create all sorts of opportunities for our business both in terms of inventory and real estate."

About Liquidation World

Liquidation World plays a fundamental role in providing solutions to the imperfections of the manufacturer-retailer relationship. The Company offers services that include the retail liquidation of consumer merchandise through 105 outlets across North America, as well as auctions and store-closure sales management. Liquidation World solves asset recovery problems in a professional manner for the financial services industry, insurance companies, manufacturers and other organizations. The Company opened its first retail outlet in 1986 and is now the largest liquidator in Canada, with more than 1,800 employees in outlets and offices across Canada and the United States.

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.



LIQUIDATION WORLD INC.
Consolidated Balance Sheets

(In thousands of Canadian dollars)
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April 3 October 3
2005 2004
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(unaudited)
Assets

Current assets
Cash and equivalents $ 202 $ 876
Accounts receivable 313 1,221
Inventory 47,357 55,705
Prepaid expenses 1,803 2,281
Income taxes recoverable 2,901 -
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52,576 60,083

Property and equipment 7,650 5,766

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$ 60,226 $ 65,849
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Liabilities and Shareholders' Equity

Current liabilities
Bank indebtedness $ 1,790 $ -
Accounts payable and accrued liabilities 6,702 7,706
Income taxes payable - 863
Liabilities of discontinued operations - 45
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8,492 8,614

Future income taxes 290 258

Shareholders' equity
Share capital 15,759 15,757
Contributed surplus 410 -
Retained earnings 35,275 41,220
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51,444 56,977

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$ 60,226 $ 65,849
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LIQUIDATION WORLD INC.
Consolidated Statements of Earnings and Retained Earnings
For the periods ended April 3, 2005 and April 4, 2004
(unaudited) (In thousands of Canadian dollars, except per share
amounts)
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13 weeks 13 weeks 26 weeks 26 weeks
ended ended ended ended
April 3, April 4, April 3, April 4,
2005 2004 2005 2004
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Revenue $ 39,367 $ 43,668 $ 91,052 $ 94,230
Cost of sales 31,239 26,437 62,759 57,010

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8,128 17,231 28,293 37,220
Expenses
Selling and store
operations 14,346 14,209 30,520 28,899
General and administrative 2,539 1,771 4,437 3,499
Depreciation and
amortization 451 305 838 613
Stock based compensation 70 - 139 -
Interest 13 - 13 -
Foreign exchange 9 31 14 15
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17,428 16,316 35,961 33,026
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Earnings (loss) from
continuing operations
before income taxes (9,300) 915 (7,668) 4,194

Income taxes
Current (recovery) (2,823) 300 (2,128) 1,540
Future 34 - 32 -
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(2,789) 300 (2,096) 1,540
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Earnings (loss) from
continuing operations (6,511) 615 (5,572) 2,654

Discontinued operations - 45 - (107)

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Net earnings (loss) (6,511) 660 (5,572) 2,547

Retained earnings, beginning
of period 41,785 41,585 41,220 39,700
Excess of repurchase amount
over stated capital of
repurchased shares - - (102) (2)
Adjustment to reflect
change in accounting
policy - - (271) -
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Retained earnings, end of
period $ 35,274 $ 42,245 $ 35,275 $ 42,245
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Earnings (loss) per share
from continuing operations
Basic $ (0.77) $ 0.07 $ (0.66) $ 0.31
Fully diluted $ (0.77) $ 0.07 $ (0.66) $ 0.31
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Earnings (loss) per share
Basic $ (0.77) $ 0.08 $ (0.66) $ 0.30
Fully diluted $ (0.77) $ 0.08 $ (0.66) $ 0.30
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Shares outstanding at
period end 8,381,942 8,553,056 8,381,942 8,553,056
Weighted average shares
outstanding 8,374,166 8,544,986 8,384,294 8,543,865
Diluted shares
outstanding 8,414,542 8,644,083 8,435,699 8,614,052
Options outstanding at
period end 418,500 465,600 418,500 465,600
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Segmented Information

(unaudited) (In thousands of Canadian dollars)

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13 weeks 13 weeks 26 weeks 26 weeks
ended ended ended ended
April 3, April 4, April 3, April 4,
2005 2004 2005 2004
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Revenue
Canada $ 33,492 $ 37,408 $ 77,790 $ 81,113
United States 5,875 6,260 13,262 13,117
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Total $ 39,367 $ 43,668 $ 91,052 $ 94,230
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Property and equipment
Canada $ 7,135 $ 4,521
United States 515 475
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Total $ 7,650 $ 4,996
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LIQUIDATION WORLD INC.
Consolidated Statements of Cash Flows
For the periods ended April 3, 2005 and April 4, 2004
(unaudited) (In thousands of Canadian dollars)
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13 weeks 13 weeks 26 weeks 26 weeks
ended ended ended ended
April 3, April 4, April 3, April 4,
2005 2004 2005 2004
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Cash provided by (used in):

Continuing operations
Earnings (loss) from
continuing operations $ (6,511) $ 615 $ (5,572) $ 2,654
Add (deduct) non-cash items:
Depreciation and
amortization 451 305 838 613
Equity in income of
affiliate - (20) - (56)
Stock based compensation 70 - 139 -
Future income taxes 34 - 32 -
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(5,956) 900 (4,563) 3,211

Changes in non-cash operating
working capital
Accounts receivable 24 117 908 (61)
Inventory 2,581 (5,572) 8,348 (6,525)
Prepaid expenses 98 (347) 478 694
Accounts payable and
accrued liabilities (83) (1,121) (1,004) (2,060)
Income taxes (3,163) 49 (3,764) 1,162
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(6,499) (5,974) 403 (3,579)

Discontinued operations
Funds provided by (used in)
discontinued operations - 45 - (107)
Changes in non-cash operating
working capital balances of
discontinued operations
Assets of discontinued
operations - 50 - 438
Liabilities of discontinued
operations - (69) (45) (78)
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- 26 (45) 253

Investments
Purchase of property and
equipment (1,540) (331) (2,722) (477)

Financing
Increase in bank indebtedness 1,790 - 1,790 -
Proceeds on issuance of
common shares 52 58 56 58
Repurchase of common shares - - (156) (3)
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1,842 58 1,690 55

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Decrease in cash (6,197) (6,221) (674) (3,748)

Cash and cash equivalents,
beginning of period 6,399 6,967 876 4,494

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Cash and cash equivalents,
end of period $ 202 $ 746 $ 202 $ 746
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Supplemental disclosure of
cash paid for:
Income taxes $ 327 $ 281 $ 1,615 561
Interest 13 - 13 -
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$ 340 $ 281 $ 1,628 $ 561
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