Sterling Shoes Inc.
TSX : SSI

November 09, 2010 20:37 ET

Sterling Announces Third Quarter 2010 Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 9, 2010) - Sterling Shoes Inc. (TSX:SSI) -

HIGHLIGHTS:



-- On July 1, 2010 Sterling Shoes Inc. completed its conversion to a
corporate entity from Sterling Shoes Income Fund;
-- Sales increased 1.7% during the three-month period ended September 30,
2010, compared to the same period in 2009. Same-store sales increased
0.3%;
-- Net bank indebtedness was $5.0 million at September 30, 2010 down from
$11.8 million a year earlier;
-- During the quarter the Company renewed its bank credit facilities for a
3 year term;
-- The Company opened three new stores during the quarter ended September
30, 2010;
-- The Company welcomes Mr. David Alves as President and CEO effective
November 10, 2010. Mr. Alves will be appointed as a director of Sterling
Shoes Inc. on that day.


Sterling Shoes Inc. (the "Company"), formerly Sterling Shoes Income Fund (the "Fund"), today reported its financial results for the quarter ended September 30, 2010.

Financial Results for the three and nine-month periods ended September 30, 2010

During the three and nine-month periods ended September 30, 2010, sales were $32.2 million and $87.7 million respectively, representing an increase of 1.7% and a decrease of 2.6% from $31.7 million and $90.0 million during the respective periods a year earlier.

Cost of sales as a percentage of sales for the three-month and nine-month periods ended September 30, 2010 was 66.8% and 57.1%, compared to 59.3% and 56.8% respectively for the same periods during 2009.

In September 2010 management initiated a program to promote the sale of specific aged inventory to make room for higher margin inventory and improve inventory turnover. This action resulted in an impairment charge of $2 million during the quarter which negatively affected gross margin.

Store and selling expenses for the three and nine-months ended September 30, 2010 were 34.8% and 38.1% of sales, compared to 36.3% and 37.9% for the same periods during 2009, respectively. Store and selling expenses have a fixed underlying core with a large variable component, primarily consisting of expenses relating to occupancy and employee costs. In nominal dollar terms, store and selling expenses decreased by $287 thousand and $704 thousand for the three-month and nine-month periods ending September 30, 2010 as a result of management's actions to reduce costs in managing the business through the current economic volatility. However the overall effect as a percentage of sales was nullified by the decrease in sales in the first nine months of 2010.

General and administrative ("G&A") expenses for the three and nine-months ended September 30, 2010 were 6.2% and 6.8% of sales, compared to 6.0% and 5.8% during the same periods in 2009, respectively.

G&A expenses have increased $108 thousand in the three months ended September 30, 2010 due to non- recurring items such as the costs of conversion to a corporate entity and executive search fees incurred for recruiting a new CEO.

EBITDA for the three and nine-months ended September 30, 2010 was -7.9% and -2.1% of sales, respectively, compared to -1.5% and -0.55% for the same periods during 2009. The variance in EBITDA is largely accounted for by the $2 million inventory impairment charge taken during the three month period ended September 30, 2010.

The Company's net debt improved at September 30, 2010 by $6,792 thousand to net indebtedness of $4,989 thousand from $11,781 at September 30, 2009.

Other corporate developments

The Company welcomes Mr. David Alves as President and Chief Executive Officer effective November 10, 2010. Mr. Alves will also be appointed a Director of the Company at that time. Mr. Alves had extensive experience in the retail sector while engaged in buying, management and executive positions with Zellers, Hudson's Bay Company, Winners, and TJX Europe. His previous position was Group Director, TK Maxx/HomeSense in London, England.

"Dave has over 20 years of international experience across all retail disciplines and we are very pleased to have someone of his calibre joining Sterling," said Rick Mahler, Chair of the Board. "We would also like to take this opportunity to welcome Dave, his wife Carolyn and their two daughters to Vancouver."

"I'm extremely pleased to be assuming the role of President and Chief Executive Officer of Sterling at this time and have the opportunity to lead the Company in the next stage of its growth. Sterling has a great reputation and history as a retailer throughout Canada and has a very exciting future ahead of it," said Mr. Alves.

STERLING SHOES INC.

Consolidated Balance Sheets

(Unaudited - expressed in thousands of dollars, except per share and number of share figures.)



As at As at
September December
30, 2010 31, 2009
-------------------------------------------------------------------------

ASSETS

CURRENT
Cash $ - 4,119
Accounts receivable 1,291 195
Inventory 37,260 36,446
Prepaid expenses and deposits 334 187
-------------------------------------------------------------------------
38,885 40,947
LEASEHOLDS AND EQUIPMENT 18,337 19,595
INTANGIBLE ASSETS 16,623 16,623
-------------------------------------------------------------------------
$ 73,845 $ 77,165
-------------------------------------------------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY

CURRENT
Bank indebtedness $ 239 $ -
Accounts payable and accrued liabilities 18,237 15,006
Term loan 1,000 5,000
-------------------------------------------------------------------------
19,476 20,006

FUTURE INCOME TAXES 2,364 2,364
TERM LOAN 3,750 -
CONVERTIBLE DEBENTURES 23,070 22,520
DEFERRED LEASE INDUCEMENTS 1,739 2,057
SHAREHOLDERS' EQUITY 23,446 30,218
-------------------------------------------------------------------------
$ 73,845 $ 77,165
-------------------------------------------------------------------------


STERLING SHOES INC.

Consolidated Statements of Loss and Comprehensive Loss

(Unaudited - expressed in thousands of dollars, except per share and number of share figures.)



Three-month period Nine-month period
ended ended
---------------------- ---------------------
September September September September
30, 2010 30, 2009 30, 2010 30, 2009
-------------------------------------- --------- --------- ---------


SALES $ 32,218 $ 31,685 $ 87,679 $ 89,975
COST OF SALES 21,537 18,777 50,108 51,117
-------------------------------------- --------- --------- ---------
GROSS MARGIN 10,681 12,908 37,572 38,858
-------------------------------------- --------- --------- ---------

EXPENSES
Store and selling 11,215 11,502 33,418 34,122
General and administrative 1,909 1,892 5,607 5,232
Conversion costs 90 - 398 -
Amortization of leaseholds
and equipment 867 1,002 2,745 2,538
-------------------------------------- --------- --------- ---------
14,082 14,396 42,168 41,892
-------------------------------------- --------- --------- ---------
Income/(Loss) before
interest, amortization and
non-controlling interest (3,401) (1,488) (4,596) (3,034)
Interest and financing
expense 653 672 1,955 1,968
Impairment of goodwill and
intangible assets 0 33,246 0 33,246
Loss (Gain) on disposal of
leaseholds and equipment 2 26 220 260
-------------------------------------- --------- --------- ---------
LOSS BEFORE TAXES (4,056) (35,432) (6,771) (38,508)

Future income taxes
recovery - 4,636 - 4,636
-------------------------------------- --------- --------- ---------
NET LOSS AND COMPREHENSIVE
LOSS (4,056) (30,796) (6,771) (33,872)
-------------------------------------- --------- --------- ---------

Basic and diluted net loss
per share $ (0.61) $ (4.64) $ (1.02) $ (5.10)

Basic weighted average
number of shares
outstanding 6,641,860 6,641,860 6,641,860 6,641,860
Diluted weighted average
number of shares
outstanding 7,823,885 7,823,885 7,823,885 7,823,885


STERLING SHOES INC.

Consolidated Statements of Shareholders' Equity

For the nine month period ended September 30, 2010

(Unaudited - expressed in thousands of dollars, except per share and number of share figures.)



--------------------------------------------------------------------------
Equity
Compo-
nent Accu-
Share- of Accu- mulated Accu- Share-
holders' Deben- mulated Distri- mulated holders
capital tures Earnings butions Deficit Equity
--------------------------------------------------------------------------
BALANCE,
December 31,
2008 $ 59,809 2,657 33,740 (36,800) (3,060) $ 59,406
Net loss for
the period - - (33,872) (33,872) (33,872)
Distributions
declared - - - (1,308) (1,308) (1,308)
--------------------------------------------------------------------------
BALANCE,
September 30,
2009 $ 59,809 2,657 (132) (38,108) (38,240) $ 24,226
Net income for
the period - 6,239 6,239 6,239
Distributions
declared - - - (247) (247) (247)
--------------------------------------------------------------------------
BALANCE,
December 31,
2009 $ 59,809 2,657 6,107 (38,355) (32,248) $ 30,218
Net loss for the
period - - (6,771) (6,771) (6,771)
Distributions
declared - - - 0 0 0
--------------------------------------------------------------------------
BALANCE,
September 30,
2010 $ 59,809 2,657 (664) (38,355) (39,019) $ 23,446
--------------------------------------------------------------------------


STERLING SHOES INC.

Consolidated Statements of Cash Flows

(Unaudited - expressed in thousands of dollars, except per share and number of share figures.)



Three-month period Nine-month period
ended ended
---------------------- ----------------------
September September September September
30, 2010 30, 2009 30, 2010 30, 2009
-------------------------------------- --------- --------- ---------


OPERATING ACTIVITIES
Net Loss $ (4,056) $ (30,796) $ (6,771) $ (33,872)
Items not involving cash
Impairment of goodwill and
intangible assets 0 33,246 0 33,246
Future income taxes
recovery - (4,636) - (4,636)
Amortization of leaseholds
and equipment 867 1,002 2,745 2,538
Loss on disposal of
leaseholds and equipment 2 26 220 260
Amortization of deferred
lease inducements (92) (101) (318) (539)
Accreted interest expense 188 169 552 496
-------------------------------------- --------- --------- ---------
(3,091) (1,090) (3,572) (2,507)

Change in non-cash working
capital balances related to
operations
Accounts receivable (1,171) (336) (1,096) 236
Inventory (354) (3,820) (814) (3,114)
Prepaid expenses and
deposits (78) 36 (147) 84
Accounts payable and
accrued liabilities 5,453 3,353 3,231 3,395
--------------------------------------------------------------------------
3,850 (767) 1,174 601
--------------------------------------------------------------------------
Cash provided by / (used
in) operating activities 759 (1,857) (2,398) (1,906)
--------------------------------------------------------------------------

INVESTING ACTIVITIES
Acquisition of leaseholds
and equipment (950) (1,087) (1,710) (3,279)
Proceeds from disposal of
assets - - - -
Lease inducements received 0 192 0 277
--------------------------------------------------------------------------
Cash used in investing
activities (950) (895) (1,710) (3,002)
--------------------------------------------------------------------------

FINANCING ACTIVITIES
Term loan (250) 3,123 (250) 6,314
Payment of distributions 0 (371) 0 (1,406)
--------------------------------------------------------------------------
Cash provided by / (used
in) financing activities (250) 2,752 (250) 4,908
--------------------------------------------------------------------------

CASH OUTFLOW DURING THE
PERIOD (441) - (4,358) -

CASH, BEGINNING OF PERIOD 202 - 4,119 -
--------------------------------------------------------------------------
CASH, END OF PERIOD $ (239) $ - $ (239) $ -
--------------------------------------------------------------------------

Supplemental cash flow
information
Interest paid $ 74 $ 96 $ 1,013 $ 1,142
--------------------------------------------------------------------------


Conference Call Notification

Please note the Company's conference call will take place at 10:00 am Pacific Daylight Time (1:00 pm EDT) on Wednesday, November 10, 2010. The number to participate in the teleconference is Toll-free: 866-226-1793 or 416-340-2218. To ensure your participation, please call in about five minutes before the start of the call. For those unable to participate, a telephone replay will be available until November 24, 2010 using the passcode 6006551 at 800-408-3053 or 416-695-5800.

Forward-looking statements

Certain statements in this press release may constitute "forward-looking" statements that involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this press release, such statements often use, but are not limited to, such words as "may", "will", "expect", "should", "believe", "intend", "plan", "anticipate", "potential", and other similar terminology. These statements reflect current expectations of management regarding future events and operating performance and speak only as of the date of this press release. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved.
A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the following factors: general economic conditions and markets and, in particular, the potential impact of the current economic downtown, the cost and availability of capital, the possibility of deterioration in the Company's working capital position, the impact on the Company's liquidity if it were to go offside of the covenants in its debt facilities, our ability to maintain profitability and manage growth, risks associated with leasing and expansion, competition, inventory and sourcing risk, ability to identify and respond to changing consumer fashion preferences, risks associated with international purchasing, reliance on key personnel, dependence on consumer spending, unseasonable weather conditions, uncertainties arising from world events, intellectual property risks, foreign exchange fluctuations on imported merchandise, labour relations, seasonality and fluctuations in cash distributions, fluctuations in distributable cash based on our performance, restrictions on potential growth, future issuances of Shares by the Company or future disposition of Shares held by SSI Investments Inc., income tax matters, changes in accounting standards, including the transition to IFRS, and increases in interest rates. The actual timing of and number of additional store openings could differ materially from what is described herein if Sterling is unable to reach timely and satisfactory agreements with the various landlords as to the final lease documentation, to secure adequate labour and materials to construct the stores, to deliver sufficient inventory, to adapt its operational systems, or to hire, train and integrate employees. Although the forward-looking statements contained in this press release are based upon what our management believes to be reasonable assumptions, we cannot assure investors that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this press release and we assume no obligation to update or revise them to reflect new events or circumstances.

About Sterling Shoes Inc.

Sterling is a leading Vancouver-based footwear retailer offering a broad selection of private label and brand name shoes and accessories in five Canadian provinces through its six separate retail banners: Sterling, Joneve, Shoe Warehouse, Freedman Shoes and Gia. Since 1987, Sterling Shoes has grown from five shopping mall locations to 162 stores (as at November 9, 2010) located in high-traffic, high-visibility locations within enclosed shopping malls, on high streets and in strip malls. The Company currently employs over 1,300 employees. The Company's shares are listed on the Toronto Stock Exchange under the symbol SSI. The Company's convertible debentures are listed on the Toronto Stock Exchange under the symbol SSI.DB.

Additional information about Sterling Shoes Inc. can be found in the disclosure documents filed by Sterling Shoes Inc. with the securities regulatory authorities, available at www.sedar.com.





Contact Information

  • Sterling Shoes Inc.
    Daniel S. Gumprich
    Chief Financial Officer
    (604) 270-6114
    (604) 278-7751 (FAX)
    www.SterlingShoesInc.com