Liquidation World Inc.
TSX : LQW

Liquidation World Inc.

August 16, 2005 08:00 ET

Liquidation World Announces Third Quarter Results and Improving Performance from Q2

CALGARY, ALBERTA--(CCNMatthews - Aug. 16, 2005) -

Company continues to implement new merchandise management system
and organizational structures along with other key initiatives.

Liquidation World Inc. (TSX:LQW) today announced results for the third quarter of fiscal 2005, representing 13 weeks of operations ending July 3, 2005.

The company recorded a total loss of $1,300,000 ($0.16 per share), compared to earnings of $221,000 ($0.03 per share) in the same period last year. On a cumulative basis, the loss for the first three quarters of the 2005 year totals $6.9 million compared to net earnings of $2.8 million in 2004.

Revenue totaled $46.3 million, a 2.9% increase from $45.0 million during the corresponding period in 2004. On a cumulative basis, revenue for the first three quarters of 2005 totaled $137.3 million, a 1.4% decrease from $139.2 million during the 39 weeks ending July 4, 2004. Further detail is provided in the financial statements below.

A conference call is scheduled to begin at 11:00 a.m. Calgary time (1:00 EST), on August 16, 2005. The dial-in numbers are 1-877-888-3855 or 416-695-6622. A replay of the call will be available within 24 hours at www.liquidationworld.com by selecting Company / Investor Info, News Archives and Q3 Conference Call.

"While we have seen a lot of progress in the past quarter, our financials are not consistent with the company's historical performance," said Jonathan Hill, President and CEO. "These results reflect the following:

Gross margins

As we indicated would be the case following our second quarter, we continued to experience pressure on our gross margins. Gross margins for the quarter were 400 basis points less than the same period last year. At 34.7%, these were better than the 28.8% we experienced prior to the inventory write down in Q2 and we also achieved some improvement over the course of the quarter. These results are further evidence of the appropriateness of the company's strategy to develop a more focused and accountable, merchandise procurement team. This will be supported by better current and historical information as well as better forecasting tools with the implementation of our new merchandise management system.

We expect to see more normalized gross margins early in 2006.

Store sales

Sales increased in certain key markets although overall average store sales declined slightly during the period. We are confident that the implementation of a new organizational structure that takes advantage of our history of strong local market leadership will deliver increasing sales in the future. This new structure includes three regional directors, two of whom are new to Liquidation World.

U.S. operations

We are pleased with the recent decision to relocate Darren Gillespie to the U.S. so as to dedicate his full time, talents and attention to the business. Darren has successfully developed and managed various areas of our business over the years including profitable results in the U.S. Although the U.S. business turned in a weak quarter, it continues to play an important role providing access to a wealth of inventory opportunities south of the border.

Expenses

We are reasonably happy with the management of the company's day-to-day expenses. Additionally, the past quarter included a number of special expenses directly related to the long-term growth of the business. In particular, $300,000 was spent during the quarter on the implementation of our new merchandise management system that will support our objectives of improving sales and gross margins and inventory efficiency.

This quarter also saw $500,000 spent on an additional quarterly inventory count and store refurbishments. The refurbishing of our three Calgary stores has gone very well, and we will continue to test a more brand-focused marketing campaign in those locations. We also expect that costs associated with refurbishing other outlets will be lower in the future.

In addition to these items, we are also progressing with our Deal Hunter initiative, whereby customers are rewarded for calling our new 1-866-676-LEAD line with tips on local inventory opportunities that result in successful purchases. Our results in test markets have been very positive, and approximately a third of our stores have recently begun to promote the program.

While we are not satisfied with our financial results for this quarter, we have made very good progress in implementing changes that are necessary and important to the long-term success of the business. I am also very pleased with the progress a great many of our associates have made in these and other initiatives and above all, with how they continue the critical, day-to-day work of serving our customers."

Subsequent to the end of the quarter Mr. Rob Bakshi submitted his resignation from the board of directors in order to focus his time on his personal businesses. Therefore the board is now made up of four independent and two management directors.

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.

About Liquidation World

Liquidation World liquidates consumer merchandise through 105 outlets across North America, and also provides store-closure sales management. The company solves asset recovery problems in a professional manner for the financial services industry, insurance companies, manufacturers and other organizations. Liquidation World 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.



LIQUIDATION WORLD INC.
Consolidated Balance Sheets

(unaudited)(In thousands of Canadian dollars)

------------------------------------------------------------------------
------------------------------------------------------------------------
July 3 October 3
2005 2004
------------------------------------------------------------------------

Assets
Current assets
Cash and equivalents $ 208 $ 876
Accounts receivable 295 1,221
Inventory 49,738 55,705
Prepaid expenses 2,427 2,281
Income taxes recoverable 3,025 -
------------------------------------------------------------------------
55,693 60,083

Property and equipment 8,954 5,766

------------------------------------------------------------------------
$ 64,647 $ 65,849
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities
Bank indebtedness $ 6,752 $ -
Accounts payable and accrued liabilities 7,311 7,706
Income taxes payable - 863
Liabilities of discontinued operations - 45
------------------------------------------------------------------------
14,063 8,614

Future income taxes 370 258

Shareholders' equity
Share capital 15,759 15,757
Contributed surplus 480 -
Retained earnings 33,975 41,220
------------------------------------------------------------------------
50,214 56,977

------------------------------------------------------------------------
$ 64,647 $ 65,849
------------------------------------------------------------------------
------------------------------------------------------------------------



LIQUIDATION WORLD INC.
Consolidated Statements of Earnings and Retained Earnings
For the periods ended July 3, 2005 and July 4, 2004
(unaudited) (In thousands of Canadian dollars, except per share amounts)

------------------------------------------------------------------------
------------------------------------------------------------------------
13 weeks 13 weeks 39 weeks 39 weeks
ended ended ended ended
July 3, July 4, July 3, July 4,
2005 2004 2005 2004
------------------------------------------------------------------------

Revenue $ 46,286 $ 44,989 $ 137,338 $ 139,219
Cost of sales 30,220 27,599 92,979 84,609

------------------------------------------------------------------------
------------------------------------------------------------------------
16,066 17,390 44,359 54,610
Expenses
Selling and store operations 15,089 14,219 45,609 43,118
General and administrative 1,608 1,503 6,045 5,002
Depreciation and amortization 598 327 1,436 940
Stock based compensation 70 - 209 -
Interest 57 - 70 -
Foreign exchange (15) 5 (1) 20
------------------------------------------------------------------------
------------------------------------------------------------------------
17,407 16,054 53,368 49,080
------------------------------------------------------------------------

Earnings (loss) from
continuing operations
before income taxes (1,341) 1,336 (9,009) 5,530

Income taxes
Current (recovery) (121) 514 (2,249) 2,054
Future 80 - 112 -
------------------------------------------------------------------------
(41) 514 (2,137) 2,054
------------------------------------------------------------------------
Earnings (loss) from
continuing operations (1,300) 822 (6,872) 3,476

Discontinued operations - (601) - (707)

------------------------------------------------------------------------
Net earnings (loss) (1,300) 221 (6,872) 2,769

Retained earnings, beginning
of period 35,275 42,246 41,220 39,700
Excess of repurchase amount
over stated capital of
repurchased shares - (677) (102) (679)
Adjustment to reflect change
in accounting policy - - (271) -
------------------------------------------------------------------------
Retained earnings, end
of period $ 33,975 $ 41,790 $ 33,975 $ 41,790
------------------------------------------------------------------------
------------------------------------------------------------------------

Earnings (loss) per share
from continuing operations
Basic $ (0.16) $ 0.10 $ (0.82) $ 0.41
Fully diluted $ (0.16) $ 0.10 $ (0.82) $ 0.40
------------------------------------------------------------------------
Earnings (loss) per share
Basic $ (0.16) $ 0.03 $ (0.82) $ 0.32
Fully diluted $ (0.16) $ 0.03 $ (0.82) $ 0.32
------------------------------------------------------------------------
------------------------------------------------------------------------

Shares outstanding at
period end 8,382,942 8,420,156 8,382,942 8,420,156
Weighted average shares
outstanding 8,382,810 8,533,847 8,383,799 8,540,526
Diluted shares outstanding 8,395,765 8,639,681 8,420,153 8,610,197
Options outstanding at
period end 401,500 415,400 401,500 415,400
------------------------------------------------------------------------
------------------------------------------------------------------------

Segmented Information

(unaudited) (In thousands of Canadian dollars)

------------------------------------------------------------------------
------------------------------------------------------------------------
13 weeks 13 weeks 39 weeks 39 weeks
ended ended ended ended
July 3, July 4, July 3, July 4,
2005 2004 2005 2004
------------------------------------------------------------------------
------------------------------------------------------------------------

Revenue
Canada $ 40,643 $ 38,993 $ 118,433 $ 120,106
United States 5,643 5,996 18,905 19,113
------------------------------------------------------------------------
Total $ 46,286 $ 44,989 $ 137,338 $ 139,219
------------------------------------------------------------------------
------------------------------------------------------------------------
Property and equipment
Canada $ 8,463 $ 4,725
United States 491 495
------------------------------------------------------------------------
Total $ 8,954 $ 5,220
------------------------------------------------------------------------
------------------------------------------------------------------------



LIQUIDATION WORLD INC.
Consolidated Statements of Cash Flows
For the periods ended July 3, 2005 and July 4, 2004
(unaudited) (In thousands of Canadian dollars)
------------------------------------------------------------------------
------------------------------------------------------------------------
13 weeks 13 weeks 39 weeks 39 weeks
ended ended ended ended
July 3, July 4, July 3, July 4,
2005 2004 2005 2004
------------------------------------------------------------------------
------------------------------------------------------------------------

Cash provided by (used in):

Continuing operations
Earnings (loss) from
continuing operations $ (1,300) $ 822 $ (6,872) $ 3,476
Add (deduct) non-cash
items:
Depreciation and
amortization 598 327 1,436 940
Loss on disposal of
capital asset - 278 - 278
Equity in loss (income)
of affiliate - 2 - (54)
Stock based compensation 70 - 209 -
Future income taxes 80 - 112 -
------------------------------------------------------------------------
(552) 1,429 (5,115) 4,640
Changes in non-cash
operating working capital
Accounts receivable 18 113 926 52
Inventory (2,381) (41) 5,967 (6,566)
Prepaid expenses (624) (347) (146) 347
Accounts payable and
accrued liabilities 609 141 (395) (1,920)
Income taxes (124) 1,236 (3,888) 2,398
------------------------------------------------------------------------
(3,054) 2,531 (2,651) (1,049)
Discontinued operations
Funds provided by (used in)
discontinued operations - (601) - (707)
Changes in non-cash operating
working capital balances of
discontinued operations
Assets of discontinued
operations - 218 - 656
Liabilities of discontinued
operations - 143 (45) 65
------------------------------------------------------------------------
- (240) (45) 14
Investments
Purchase of capital assets (1,902) (590) (4,624) (1,067)
Proceeds on disposal of
property and equipment - 35 - 35
------------------------------------------------------------------------
------------------------------------------------------------------------
(1,902) (555) (4,624) (1,032)

Financing
Increase in bank
indebtedness 4,962 - 6,752 -
Proceeds on issuance
of common shares - - 56 58
Repurchase of common shares - (926) (156) (929)
------------------------------------------------------------------------
4,962 (926) 6,652 (871)

------------------------------------------------------------------------
------------------------------------------------------------------------
Increase (decrease) in cash 6 810 (668) (2,938)

Cash and cash equivalents,
beginning of period 202 746 876 4,494

------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 208 $ 1,556 $ 208 $ 1,556
------------------------------------------------------------------------
------------------------------------------------------------------------

Supplemental disclosure
of cash paid for:
Income taxes $ - $ (566) $ 1,615 $ (5)
Interest 57 - 70 -

------------------------------------------------------------------------
$ 57 $ (566) $ 1,685 $ (5)
------------------------------------------------------------------------
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