XS Cargo Income Fund
TSX : XSC.UN

XS Cargo Income Fund

May 08, 2008 16:50 ET

XS Cargo Income Fund Reports 2008 First Quarter Results

EDMONTON, ALBERTA--(Marketwire - May 8, 2008) - XS Cargo Income Fund (the "Fund") (TSX:XSC.UN) today announced its results for the 2008 first quarter. The Fund's interim financial statements and Management's Discussion and Analysis ("MD&A") can be found on XS Cargo's website at www.xscargo.com and on SEDAR at www.sedar.com.

For the 2008 first quarter, the Fund reported sales of $21.8 million, EBITDA (1) of $0.4 million, and a net loss of $0.6 million, or $0.11 per unit outstanding.

The first quarter saw significant improvement in warehousing and distribution operations resulting from a successful partial re-implementation of the warehousing and distribution module within our new Merchandise Management System. Wages and equipment expenses in our distribution centres have largely normalized, and freight costs as a percent of sales have reduced from 16.0% in the fourth quarter of 2007 to 10.0%.

Sales for the first quarter decreased by 8.0% as compared with the same quarter in 2007, including a decrease of same store sales of 12.2%. This decrease can be traced primarily to a decline in consumer electronics sales, particularly flat panel televisions. However, the decline in sales these lower-margin consumer electronics lead to an increase in gross margin percentage from 30.5% to 40.3%.

Michael McKenna, President and Chief Executive Officer of the Fund commented, "I am pleased with the significant progress that has been made to remediate the supply chain problems encountered in 2007. Although we are disappointed with continued decreases in same store sales, efforts are underway to source additional products to reverse the sales decline."

The Fund is not in compliance with certain of its financial covenants as at March 31, 2008 and continues to work with its lenders to resolve these breaches and negotiate mutually acceptable terms as quickly as possible.

Highlights for the first quarter:

-First quarter gross margin of $8.8 million, an increase of 21.4% from the first quarter of 2007.

-Gross margin percentage of 40.3% compared to 30.5% for the first quarter of 2007.

-First quarter sales of $21.8 million, down 8.0% from the first quarter of 2007.

-Freight costs, which are included in cost of goods sold, were 10.0% of sales compared to 16.0% for the fourth quarter of 2007, and 9.8% for the first quarter of 2007.

-Earnings from operations (1) of $0.4 million, up $1.2 million from the first quarter of 2007.

-Same store sales decrease of 12.2% for the fourth quarter.

-Sales of two-year product replacement extended warranty plans continue to be strong. During the 30 months since implementation, $5.7 million of Product Replacement Plans ("PRPs") were sold, with $3.7 million recognized as revenue since inception, approximately $0.6 million of which was recognized during the first quarter of 2008. Revenue from PRP sales is deferred and recognized on a straight-line basis over the two-year terms of the PRPs.

Business of the Fund

The Fund owns a 51% indirect interest in XS Cargo LP which operates 40 closeout retail stores in Alberta, British Columbia, Manitoba, Saskatchewan, Ontario, Newfoundland, Nova Scotia and New Brunswick.

(1) Non-GAAP Measures

References to "EBITDA" are to earnings before interest, income taxes, depreciation and amortization and references to "distributable cash" are to cash available for distribution to Unitholders in accordance with the distribution policies of the Fund. EBITDA is calculated as Net Earnings (loss) plus non-controlling interest, plus future income tax expense, plus impairment of goodwill, plus impairment of intangible assets, plus interest on term, subordinated and operating loans, plus amortization of intangible assets and amortization of property and equipment. Management believes that, in addition to income or loss, EBITDA is a useful supplemental measure of performance and cash available for distribution before debt service, changes in working capital, capital expenditures and income taxes. Distributable cash of the Fund is a measure generally used by open-ended trusts as an indicator of financial performance. As one of the factors that may be considered relevant by prospective investors is the cash distributed by the Fund relative to the price of the Units, management believes that distributable cash of the Fund is a useful supplemental measure that may assist prospective investors in assessing an investment in the Fund.

Earnings from operations have been derived by adding interest expense, amortization of property and equipment and intangible assets, future income taxes, impairment of goodwill and intangible assets, foreign exchange gain or loss, unit-based compensation and non-controlling interest to net earnings for the period.

EBITDA, distributable cash, earnings from operations and payout ratio are not earnings measures recognized by GAAP and do not have standardized meanings prescribed by GAAP. Investors are cautioned that EBITDA, distributable cash and earnings from operations should not replace net income or loss (as determined in accordance with GAAP) as an indicator of the Fund's performance, of its cash flows from operating, investing and financing activities or as a measure of its liquidity and cash flows. The Fund's methods of calculating EBITDA, distributable cash, earnings from operations and payout may differ from the methods used by other issuers and may not be comparable to similar measures presented by other issuers.

FORWARD LOOKING STATEMENTS

This press release contains forward-looking statements. All statements other than statements of historical fact contained in this press release are forward-looking statements. You can identify many of these statements by looking for words such as "believe", "expects", "will", "intends", "projects", "anticipates", "estimates", "continues" or similar words or the negative thereof. These forward-looking statements include statements with respect to the amount and timing of the payment of distributions of the Fund. There can be no assurance that the plans, intentions or expectations upon which these forward-looking statements are based will occur. Forward-looking statements are subject to risks, uncertainties and assumptions, including, but not limited to, those discussed elsewhere in the press release. There can be no assurance that such expectations will prove to be correct.

Some of the factors that could affect future results and could cause results to differ materially from those expressed in the forward-looking statements contained herein include, but are not limited to, those discussed under "Risk Factors" in the Fund's MD&A and in the Fund's Annual Information Form.

The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this press release are made as of the date of this press release and, except as required by law, the Fund assumes no obligation to update or revise them to reflect new events or circumstances.

Contact Information

  • XS Cargo Income Fund
    Michael McKenna
    President and Chief Executive Officer
    (780) 413-4296
    Website: www.xscargo.com