Liquidation World Inc.
TSX : LQW

Liquidation World Inc.

May 15, 2009 12:32 ET

Liquidation World Announces Second Quarter Results

BRANTFORD, ONTARIO--(Marketwire - May 15, 2009) - Liquidation World Inc. (TSX:LQW) today announces the results of the second quarter of the 2009 fiscal year, representing the 13-week period ended April 5, 2009.

Revenue in Q2 2009 decreased 9.7% to $38.1 million from $42.2 million in Q2 2008. Same store sales during the quarter decreased 4.3% from Q2 2008. During Q2 2009, the Company recorded a net loss and comprehensive loss of $7.9 million ($0.60 per share) versus a net loss of $5.0 million ($0.60 per share) during Q2 2008.



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Q2 (in millions of Cdn dollars except per
share amounts) 2009 2008 Change
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Revenue $ 38.1 $ 42.2 -$4.1
Net loss from continuing operations ($7.9) ($5.0) -$2.9
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Net loss and comprehensive loss ($7.9) ($5.0) -$2.9
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Basic and diluted loss per share ($0.60) ($0.60) -
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On a fiscal year-to-date basis, revenue declined 10.3% to $85.2 million from $95.0 million during the same period in fiscal 2008 and same store sales declined 3.6%. During the first half of the fiscal year, the Company recorded a net loss and comprehensive loss of $8.7 million versus a net loss and comprehensive loss of $4.8 million during the same period last year.



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YTD (in millions of Cdn dollars except per Change
share amounts) 2009 2008
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Revenue $ 85.2 $ 95.0 -$9.8
Net loss from continuing operations ($8.7) ($3.4) -$5.3
Net loss from discontinued operations nil ($1.4) +$1.4
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Net loss and comprehensive loss ($8.7) ($4.8) -$3.9
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Basic and diluted loss per share $ (0.81) ($0.59) $ (0.22)
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Additional details are provided in the financial statements below.

At April 5, 2009, the Company was in breach of the tangible net worth covenant in the lending facility with its bank. The bank has continued to provide funding under the terms of the lending facility. Discussions between the Company and the bank are ongoing; however, there can be no assurance, at this time, that a satisfactory resolution will be reached.

During the quarter the Company completed private placement and acquisition transactions with Chicago-based Talon Merchant Capital, LLC ("Talon") and its affiliate, TCP Co-Investment Partners, LLC ("TCP"). Collectively Talon and TCP invested CDN $4.75 million in cash in Liquidation World in exchange for 4.75 million common shares of Liquidation World, and Liquidation World acquired Talon's U.S. wholesale business, valued at CDN $2.85 million. The purchase price for the transaction was satisfied by the Company through the issuance of 2.85 million common shares of Liquidation World valued at CDN $1.00 per share.

In conjunction with the Talon transactions, Seth Marks was appointed President and Chief Executive Officer of Liquidation World effective February 4, 2009. Mr. Marks commented:

"I joined the Company in February with the objectives of repositioning Liquidation World for profitability and growth and strengthening its balance sheet. Our action plan calls for initiatives to purge aged and non-performing inventory, re-invigorate the product offering by improving our procurement and sourcing methods, improve the value proposition for our customers and make our stores more inviting and shopable.

In a very short time we have made progress in a number of important areas:

- Hired key executives with significant management depth in liquidation operations to lead our wholesale and merchandising teams and to establish and maintain a strong deal pipeline for our stores

- Thoroughly analyzed our inventory to mark down any item that wasn't the lowest street retail price, going beyond aged inventory to deliver better value in every aisle of our stores; this initiative was presented to our customers as our "Price Drop" campaign

- Successfully acquired three high profile liquidation deals that launched in our stores at the beginning of the third quarter

- Started to phase out the use of 'lots' to track and manage inventory, processing all buys as skus in order to improve our margin tracking capabilities and enable selective markdowns

- Transformed six existing Liquidation World stores into 'lab' stores that reflect higher store standards related to layout and traffic flow, product adjacency, basic fixturing, merchandise presentation, signage, cleanliness and daily recovery; we will propagate these standards throughout the chain in coming months

The re-pricing initiative, efforts to clear aged inventory and valuation charges to remaining lot inventory contributed to the decline in gross margins during the quarter and can be characterized as strong but essential medicine needed to repair our business.

Looking at the remainder of fiscal 2009, we will be focused on re-building our inventory in key categories such as furniture, food and consumables while sustaining our growth in apparel. A new Allocation and Planning function will materially improve our turnover and help us to avoid unnecessary markdowns. In our stores, we will continue to elevate our presentation standards to make the environment more shopable for our customers. We continue to work with our bankers and key shareholders to ensure appropriate funding is in place to execute our plans.

The turnaround at Liquidation World will take time to complete and we are grateful for the support and patience of our shareholders as we work to return the Company to profitability."

About Liquidation World

Liquidation World liquidates consumer merchandise through 97 stores in Canada and the United States. The Company solves asset recovery problems in a professional manner for the financial services industry, insurance companies, manufacturers, wholesalers and other organizations. Liquidation World is based in Brantford, Ontario and maintains a number of regional buying offices in Canada and the United States. The Company opened its first store in Calgary, Alberta in 1986 and today, with more than 1,200 employees, is Canada's largest liquidator.

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.



LIQUIDATION WORLD INC.
Consolidated Balance Sheets
Unaudited
(In thousands of Canadian dollars)
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April 5, October 5,
2009 2008

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Assets

Current assets
Cash $ 156 $ 186
Accounts receivable 1,092 119
Inventory 32,564 44,178
Prepaid expenses 1,843 1,403
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35,655 45,886

Property and equipment 8,965 10,226
Goodwill and intangibles 793 -

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$ 45,413 $ 56,112
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Liabilities and Shareholders' Equity

Current liabilities
Bank indebtedness $ 3,307 $ 11,612
Accounts payable and accrued liabilities 14,037 12,690
Current portion of obligations under capital
leases 1,159 1,588
Current liabilities of discontinued operations 434 434
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18,937 26,324
Obligations under capital leases 287 470

Shareholders' equity
Share capital 22,330 15,518
Contributed surplus 1,497 1,407
Retained earnings 2,362 12,393
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26,189 29,318

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$ 45,413 $ 56,112
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LIQUIDATION WORLD INC.
Consolidated Statements of Loss and Comprehensive Loss and Retained
Earnings - see note 1
For the periods ended April 5, 2009 and April 6, 2008
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 5, April 6, April 5, April 6,
2009 2008 2009 2008
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Revenue $ 38,142 $ 42,222 $ 85,201 $ 95,034
Cost of sales 29,891 28,566 61,125 61,721
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8,251 13,656 24,076 33,313

Expenses
Selling, general and
administrative 15,102 17,222 30,648 34,067
Depreciation and amortization 877 985 1,718 2,012
Stock-based compensation 38 92 90 183
Interest
Short term 138 242 321 441
Long term 21 45 51 86
Foreign exchange 2 31 (16) (55)
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16,178 18,617 32,812 36,734
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Net loss from continuing operations (7,927) (4,961) (8,736) (3,421)
Discontinued operations - - (1,428)
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Net loss and comprehensive loss (7,927) (4,961) (8,736) (4,849)
Retained earnings, beginning
of period 10,289 23,844 11,098 23,732

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Retained earnings, end of period $ 2,362 $ 18,883 $ 2,362 $ 18,883
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Basic and diluted loss per share
From continuing operations $ (0.60) $ (0.60) $ (0.81) $ (0.41)
From discontinued operations $ 0.00 $ 0.00 $ 0.00 $ (0.18)
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$ (0.60) $ (0.60) $ (0.81) $ (0.59)
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LIQUIDATION WORLD INC.
Consolidated Statements of Cash Flows
For the periods ended April 5, 2009 and April 6, 2008
Unaudited
(In thousands of Canadian dollars)
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13 weeks 13 weeks 26 weeks 26 weeks
ended ended ended ended
April 5, April 6, April 5, April 6,
2009 2008 2009 2008

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Operating activities

Net loss from continuing
operations $ (7,927) $ (4,961) $ (8,736) $ (3,806)
Add non-cash items:
Depreciation and amortization 877 985 1,718 2,012
Loss on disposal of capital asset 11 12 25 12
Stock based compensation 38 92 90 183
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(7,001) (3,872) (6,903) (1,599)
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Changes in non-cash working capital
related to operations
Accounts receivable (538) (512) (523) (441)
Inventory 12,485 4,554 13,173 (334)
Prepaid expenses (128) 148 (232) 452
Accounts payable and accrued
liabilities (3,878) (5,699) (108) (2,494)
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7,941 (1,509) 12,310 (2,817)
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940 (5,381) 5,407 (4,416)
Investment activities
Purchase of capital assets (408) (205) (482) (830)
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(408) (205) (482) (830)

Financing activities
Increase in (repayment of) bank
indebtedness (4,243) 5,958 (8,305) 6,474
Repayment of capital lease (288) (375) (612) (777)
Fees for issue of common shares (788) - (788) -
Proceeds on issuance of common
shares for cash 4,750 - 4,750 -
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(569) 5,583 (4,955) 5,697
Cash applied to discontinued
operations - - - (465)

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Decrease in cash (37) (3) (30) (14)

Cash beginning of period 193 205 186 216

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Cash end of period $ 156 $ 202 $ 156 $ 202
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Supplemental disclosure of cash
paid for:
Income taxes $ (2) $ 164 $ 5 $ 191
Interest 159 287 372 527

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$ 157 $ 451 $ 377 $ 718
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