Liquidation World Inc.
TSX : LQW

Liquidation World Inc.

August 19, 2009 17:17 ET

Liquidation World Announces Third Quarter Results

BRANTFORD, ONTARIO--(Marketwire - Aug. 19, 2009) - Liquidation World Inc. (TSX:LQW) today announces results of the third quarter of fiscal 2009, representing the 13-week period ended July 5, 2009.

Revenue in Q3 2009 decreased 15.4% to $37.0 million from $43.8 million in Q3 2008. Same store sales in the quarter decreased 9.3% from Q3 2008. At the end of Q3 2009, the Company was operating 8 fewer stores than at the end of Q3 2008.

During Q3 2009, the Company recorded a net loss from continuing operations of $5.5 million ($0.34 per share) versus a net loss from continuing operations of $3.8 million ($0.46 per share) during Q3 2008. A significant part of the Q3, 2009 losses relate to the Company's restructuring activities as well as its mandate to reposition stores. Management estimates that one-time or unusual costs incurred in the quarter totaled in excess of $1.7 million and included, among other things, provisions for lot inventory write-downs, re-modeling costs, and severance costs. These actions reflect management's vision to achieve long term profitability, ultimately enhancing shareholder value.

On a fiscal year-to-date basis, revenue declined by 11.9% to $122.2 million from $138.8 million during the same period in fiscal 2008, and same store sales declined 5.2%. During the first three quarters of the fiscal year, the Company recorded a net loss from continuing operations of $14.2 million ($1.14 per share) versus a net loss from continuing operations of $7.2 million ($0.87 per share) during the same period last year.

Additional details are provided in the financial statements below.

At July 5, 2009, the Company was in breach of the tangible net worth covenant in the asset-based lending facility with its bank. Subsequent to the end of the quarter, the Company reached an agreement with its lender, which had the effect of waiving the lender's rights under the breach, and provided certain amendments to the lending facility. Management believes that it will be in compliance with these revised debt covenants and terms of its lending agreement through the balance of fiscal 2009 and fiscal 2010.

Seth Marks, President & CEO commented, "These results reflect actions we are taking to re-position the business for longer-term success. Revenue and margin were impacted in the quarter by markdowns taken to clear remaining lot inventory and aged inventory and were a necessary part of our strategy. In a similar manner, store expenses as a percentage of sales were up over last year as our associates worked to clean up, re-lay and re-merchandise the majority of our outlets to a brighter, cleaner and more shopable standard.

The good news is that the foundation needed to support a profitable business is almost built. The cleanup and re-merchandising initiative will be completed in all stores before the end of August. As we have liquidated aged inventory, we have curtailed markdowns and are seeing margin improvement on our more recent buys. We have started to replenish our inventory with fresh, new merchandise, and are attracting more top tier brands in our stores, particularly in the apparel and consumables categories.

Although average basket is down year over year as a result of lower inventory levels of high-ticket furniture and markdowns taken to clear aged and lot inventory, year-to-date transaction counts are now outpacing last year on a same store basis. As we continue to rebuild our inventory and improve the selection of branded merchandise in our stores, we will ramp up our advertising activities to convey our value message and further build traffic, basket size and overall revenue.

We are instilling a higher level of accountability throughout the organization via our Truck-to-Till philosophy, which emphasizes the responsibility that each individual has to ensure merchandise flows as quickly as possible through our possession. Truck-to-Till increases the speed at which we turn inventory into cash and improves our ability to manage and forecast gross margin. Truck-to-Till means pre-planned markdowns to ensure each deal delivers the required margin and turnover. It means pre-processing goods where appropriate for quick and effective merchandising in the stores. Truck-to-Till calls for established timelines and processes to get goods to the sales floor and increased advertising support to draw in customers and move the goods through our tills. Truck-to-Till is now the mantra that we live by every day.

At the end of the quarter we were operating 8 fewer stores than during the same period last year. In addition, during the quarter, we initiated the closure of 5 underperforming outlets, which closed subsequent to quarter end. We are taking steps to replace revenue lost to store closures while increasing the average performance of the store portfolio. Subsequent to quarter end we signed leases on two new, higher volume locations, including Keswick, Ontario, previously a strong market for Liquidation World, which we exited reluctantly in 2008 after losing our lease. The new stores are scheduled to open in the first quarter of fiscal 2010. Negotiations are underway for at least one additional location that will further raise the average performance of the chain.

We are pleased and appreciative of our lenders for their patience and foresight. We view their support as an endorsement of the strategy we are pursuing to turn the business around.

As we work hard to restore Liquidation World to profitability, we are gaining ground. By this fall, we will be in position with better inventory, better stores, better processes and a reinvigorated team excited by the future of the business.

I would like to extend my sincere thanks to our store associates, vendors and investors who have responded enthusiastically to the changes we are making at Liquidation World. Your continued support is critical to restoring Liquidation World to profitability and is greatly appreciated."

About Liquidation World

Liquidation World liquidates consumer merchandise through 92 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. The Company opened its first store in Calgary, Alberta in 1986 and today, with more than 1,400 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.





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

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July 5, October 5,
2009 2008
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Assets

Current assets
Accounts receivable $ 1,135 $ 119
Inventory 24,372 44,178
Prepaid expenses 1,948 1,718
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27,455 46,015

Property and equipment 8,618 10,459
Goodwill and intangibles 793 -

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$ 36,866 $ 56,474
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Liabilities and Shareholders' Equity

Current liabilities
Bank indebtedness $ 808 $ 11,426
Accounts payable and accrued liabilities 12,109 12,687
Current portion of obligations under capital leases 936 1,588
Current liabilities of discontinued operations 434 434
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14,287 26,135
Obligations under capital leases 216 470
Deferred lease inducements 1,532 551

Shareholders' equity
Share capital 22,330 15,518
Contributed surplus 1,596 1,407
Retained earnings(deficit) (3,095) 12,393
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20,831 29,318

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$ 36,866 $ 56,474
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LIQUIDATION WORLD INC.
Consolidated Statements of Loss and Comprehensive Loss and Retained
Earnings(Deficit)
For the periods ended July 5, 2009 and July 6, 2008
Unaudited
(In thousands of Canadian dollars, except per share amounts)

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13 weeks 13 weeks 39 weeks 39 weeks
ended ended ended ended
July 5, July 6, July 5, July 6,
2009 2008 2009 2008

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Revenue $ 37,044 $ 43,765 $122,245 $138,799
Cost of sales 26,288 29,048 87,413 90,769

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10,756 14,717 34,832 48,030
Expenses
Selling, general and
administrative 15,103 17,179 45,840 51,408
Depreciation and amortization 776 1,008 2,494 3,041
Interest
Short term 84 169 405 610
Long term 11 61 62 147
Foreign exchange loss 239 83 223 28
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16,213 18,500 49,024 55,234
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Net loss from continuing operations (5,457) (3,783) (14,192) (7,204)
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Discontinued operations - - - (1,428)
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Net loss and comprehensive loss (5,457) (3,783) (14,192) (8,632)
Retained earnings, beginning of
period 2,362 18,883 11,097 23,732
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Retained earnings(deficit), end of
period $ (3,095) $ 15,100 $ (3,095) $ 15,100
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Basic and diluted loss per share
From continuing operations $ (0.34) $ (0.46) $ (1.14) $ (0.87)
From discontinued operations $ - $ - $ - $ (0.18)
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$ (0.34) $ (0.46) $ (1.14) $ (1.05)
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LIQUIDATION WORLD INC.
Consolidated Statements of Cash Flows
For the periods ended July 5, 2009 and July 6, 2008
Unaudited
(In thousands of Canadian dollars)

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13 weeks 13 weeks 39 weeks 39 weeks
ended ended ended ended
July 5, July 6, July 5, July 6,
2009 2008 2009 2008

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Cash provided (used) in:
Operating activities
Net loss from continuing operations $ (5,457) $ (3,783) $(14,192) $ (7,204)
Add non-cash items:
Depreciation and amortization 776 1,008 2,494 3,041
Leasehold inducements 49 (13) 49 (34)
Loss (gain) on disposal of capital
assets 63 - 88 (373)
Stock based compensation 99 91 189 274
Changes in non-cash working capital
items 7,950 9,527 20,259 6,710
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3,480 6,830 8,887 2,414

Investment activities
Purchase of capital assets (263) (95) (745) (1,077)
Proceeds on disposal of capital
assets 5 - 5 2
Changes in non-cash working capital
items (835) - (835) -
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(1,093) (95) (1,575) (1,075)

Financing activities
Increase(decrease) in bank
indebtedness (2,343) (6,387) (10,618) 101
Repayment of capital leases (294) (348) (906) (1,125)
Lease inducement 250 - 250 150
Fees for issue of common shares - - (788) -
Proceeds on issuance of common
shares for cash - - 4,750 -
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(2,387) (6,735) (7,312) (874)
Cash applied to discontinued
operations - - - (465)

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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 $ - $ 26 $ 5 $ 221
Interest 91 229 463 769

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$ 91 $ 255 $ 468 $ 990
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