West 49 Inc. reports fourth quarter and year end results
- Company achieves strong profitability improvements for the fiscal year -
Toronto Stock Exchange Symbol: WXX
BURLINGTON, ON, April 22 /CNW/ - West 49 Inc. (TSX: WXX) (the "Company"), Canada's leading action sport retailer, today reported its financial results for its fourth quarter and fiscal 2010 year ended January 30, 2010. All comparisons are to the corresponding periods in the prior fiscal year.
Fourth quarter highlights:
- EBITDA(1) was $3.0 million, an increase of $12.4 million on a
reported basis, but down $0.3 million when compared to normalized(2)
EBITDA;
- Net income was $0.9 million, or $0.01 per share, compared to a net
loss of $8.5 million, or $0.13 per share, on a reported basis and net
income of $1.1 million, or $0.02 per share, on a normalized basis;
and
- Selling, general and administrative ("SG&A") expenses as a rate to
net sales improved 60 basis points to 19.5%.
Fiscal year highlights:
- EBITDA was $7.0 million, an increase of $16.5 million and
$3.6 million on a reported basis and normalized basis, respectively;
- Net income was $0.2 million, or $0.00 per share, compared to a net
loss of $12.3 million, or $0.19 per share, on a reported basis and a
net loss of $2.6 million, or $0.04 per share, on a normalized basis;
- Gross margin increased $1.7 million to $48.5 million on lower sales.
Gross margin as a rate to net sales increased 140 basis points to
23.6%;
- SG&A expenses as a rate to net sales improved 50 basis points to
20.2%; and
- Opened eight new stores, closed six stores and relocated and expanded
four stores during the year.
"We improved our profitability for the year despite the deepest recession in more than a generation," said Sam Baio, Chief Executive Officer of West 49 Inc. "We achieved a 140 basis point improvement to our gross margin rate, reduced expenses and improved our EBITDA significantly. Our profitability improvements would likely have been even more significant had it not been for a softer fourth quarter, marked by a highly competitive, discount-oriented retail environment."
Financial Results
The Company's financial results for the fourth quarter and fiscal 2010 year were impacted by the challenging economy, which influenced a highly competitive retail environment (particularly during the Company's key Back-to-School and Holiday selling seasons) and resulted in a more price-conscious consumer mindset. Impacting the comparability of the periods reported for fiscal 2010 to those in the preceding year is the inclusion of an extra week in the fourth quarter and year end results for fiscal 2009, due to the Company's floating year end.
(Amounts in thousands of Canadian $ except per share amounts and weighted
averages)
Fiscal 2010 Fiscal 2009
Fourth Fiscal Fourth Fiscal
Quarter Year Quarter Year
Net sales 61,609 205,436 64,759 210,417
Gross margin 14,997 48,476 16,262 46,829
EBITDA 2,963 6,982 (9,409) (9,529)
EBITDA, normalized 2,963 6,982 3,306 3,359
Net income (loss) 873 200 (8,467) (12,341)
Net income (loss),
normalized 873 200 1,127 (2,629)
Basic income (loss) per
share $0.01 $0.00 ($0.13) ($0.19)
Basic income (loss) per
share, normalized $0.01 $0.00 $0.02 ($0.04)
Weighted average common
shares outstanding 63,803,519 63,803,519 63,773,369 63,605,190
Net sales decreased 4.9% for the quarter and 2.4% for the fiscal year compared to the corresponding periods in the preceding year. In addition to the highly competitive retail environment, lower outerwear sales due to unseasonably warm weather in the fourth quarter, and the inclusion of an extra week of sales in fiscal 2009 accounted for most of the difference in reported net sales. Consolidated comparable store sales were down 2.3% for the quarter and 3.3% for the year. Comparable store sales for the Company's core West 49 banner were down 1.1% for the quarter but increased 0.1% for the year.
Gross margin as a rate to net sales decreased by 80 basis points to 24.4% for the quarter, primarily due to lower product margins and partially offset by lower supply chain costs. For the year, gross margin increased $1.7 million and improved 140 basis points to 23.6% of net sales.
The Company continued to improve its SG&A expenses as a rate to net sales, achieving a 60 basis point decrease for the quarter and a 50 basis point decrease for the fiscal year. These improvements were attributable to the Company's continued focus on expense management.
On a reported basis, profitability for the fourth quarter and fiscal year improved significantly from the prior year. Results for the comparable periods in the prior year were impacted by a goodwill and intangible assets impairment of $12.0 million (pre-tax) and store restructuring costs of $0.9 million (pre-tax). Although, when comparing to normalized results, fourth quarter profitability was down, annual EBITDA more than doubled to $7.0 million and annual net income improved to $0.2 million, or $0.00 per share, largely due to the stronger gross margin and lower SG&A achieved.
Notwithstanding the improvement in operating results, the Company's Off The Wall banner continued to perform below expectations throughout fiscal 2010. The Company intends to rollout a turnaround strategy for Off The Wall that leverages the strengths of the core West 49 banner and its unisex offering.
Store Real Estate Activity
In fiscal 2010, the Company opened eight new stores and relocated and expanded four existing stores to more optimum locations. Also, as part of the Company's strategy to optimize its store portfolio, the Company closed six stores during the year, including its previously announced exit from the Duke's Northshore test concept as well as some additional lease expirations.
Subsequent to January 30, 2010, the Company opened a West 49 store at Shoppers' Mall, in Brandon, Manitoba, and two West 49 Outlets: one at Signal Hill Shopping Centre, in Calgary, Alberta and one at Durham Centre in Ajax, Ontario. The Company also relocated and expanded a D-Tox store in Carrefour Angrignon, Montreal, Quebec.
Banking Arrangements
Subsequent to year end, as previously disclosed on February 24, 2010, the Company announced that it had received a new senior secured asset-based credit facility (the "ABL facility") from a major Canadian bank. The three-year, $25 million committed ABL facility is structured for financing general operations and capital spending. The new ABL facility provides additional liquidity and flexibility to support the Company's long-term growth plans. The Company also announced that it had retired all of its previous credit facilities which were with a different major Canadian bank. The amount outstanding prior to repayment was approximately $4.8 million.
Outlook
"We remain focused on being the retail destination of choice for our target customers," said Mr. Baio. "Our core business has strong growth potential over the next several years and remains our strategic focus. However, given the slow economic recovery expected, we will continue to be prudent and definitive in the actions we take to preserve and grow market share and strengthen the Company. This means that maximizing the value from our existing operations and growing our core West 49 banner will continue to take precedence over other elements of our growth strategy over the near term."
Board of Directors Update
The Company also announced that Mr. Roy Cairns, a Director of the Company, has resigned from the Company's Board of Directors for personal reasons. Mr. Cairns' resignation is effective April 1, 2010.
Notice of Conference Call
The Company will host a conference call on Thursday, April 22, 2010 at 9:00 a.m. (ET) to discuss its fiscal 2010 fourth quarter and year end results. To access the conference call by telephone, dial 1-888-231-8191. Please connect approximately 15 minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay until Thursday, April 29, 2010 at midnight. To access the archived conference call, dial 1-800-642-1687 and enter the reservation number 64237658 followed by the number sign.
A live audio webcast of the Company's fourth quarter and year end results conference call will be available at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3002340. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be archived at the above web site for 90 days.
About West 49 Inc.
West 49 Inc. is a leading Canadian specialty retailer of fashion, apparel, footwear, accessories and equipment related to the youth action sports lifestyle. The Company's stores, which are primarily mall-based, carry a variety of high-performance, premium brand name and private label products that fulfill the lifestyle needs of identified target markets, primarily tweens and teens. At January 30, 2010, the Company operated 136 stores in nine provinces, under the banners West 49, Billabong, Off The Wall, Amnesia/Arsenic and D-Tox. The Company's common shares are listed on the Toronto Stock Exchange under the symbol WXX. The Company has approximately 64 million shares outstanding.
Forward-Looking Statements
Information in this news release that is not current or historical factual information may constitute forward-looking information. Implicit in this information, particularly in respect of future operating results and economic performance of the Company are assumptions regarding projected revenue, gross margin and expenses. The assumptions, although considered reasonable by the Company at the time of preparation, may prove to be incorrect. Investors are cautioned that forward-looking information involves known and unknown risks, uncertainties and numerous other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information. When used in this news release, such statements can be identified by such words as "may", "will", "expect", "believe", "plan", "anticipate", "intend", "estimate" and other similar terminology and include, but are not limited in any manner to, those with respect to the Company's objectives and strategies, target markets, product margins, growth and timing of sales, timing of cash flows, capital and operating expenditures, timing of geographic expansion and the Company's competitiveness. The following includes some of the risk factors that could cause actual results, performance or achievements to differ materially from those expressed in or implied by any forward-looking statements made by or on behalf of the Company: competition, changes in demographic trends, changes in consumer preferences and discretionary spending patterns, changes in business and economic conditions, human resource matters, legal proceedings, challenges to intellectual property rights, and changes in laws, regulations, and accounting policies and practices. The foregoing list of risk factors is not exhaustive. In formulating the forward-looking information contained herein, management has assumed that business and economic conditions affecting the Company's operations will continue substantially in the ordinary course, including without limitation with respect to industry conditions, general levels of economic activity, laws, regulations, taxes, foreign exchange rates, minimum wage rates and interest rates, weather, that there will be no outbreaks of disease or public safety issues, and that there will be no unplanned material changes in its facilities, equipment, supplies, with respect to relations with customers, suppliers, landlords and employees, or with respect to credit availability, among other things. These assumptions, although considered reasonable by management at the time of preparation, may prove to be incorrect. Accordingly, investors should not place undue reliance on forward-looking information. The Company includes in publicly available documents filed from time to time with securities commissions and the Toronto Stock Exchange, a thorough discussion of the risk factors that can cause anticipated outcomes to differ from actual outcomes. Forward-looking information is provided as of the date of this news release only, it should not be relied upon as of any other date, and the Company assumes no obligation to update or revise this information to reflect new events or circumstances, except as expressly required by law.
(1) EBITDA, which is defined as earnings (loss) before interest, taxes,
dividends, depreciation and amortization, is not a financial measure
recognized by Canadian generally accepted accounting principles
("GAAP") and does not have a standardized meaning prescribed by GAAP.
The Company believes that this Non-GAAP financial measure provides
meaningful information on the Company's performance and operating
results. Readers are cautioned that EBITDA has no standardized
meaning as prescribed by GAAP and may not be comparable to similar
measures presented by other companies. Further, readers are cautioned
that EBITDA should not replace net income or loss or cash flows from
operating, investing and financing activities (as determined in
accordance with GAAP), as an indicator of the Company's performance.
(2) Normalized results for fiscal 2009 exclude the impact of goodwill and
intangible assets impairment of $12.0 million ($9.1 million after
tax) and store restructuring costs of approximately $0.9 million
($0.6 million after tax).
Financial Information
For convenience, this press release includes excerpts from the Company's Fiscal Year End Unaudited Consolidated Balance Sheets, Statements of Operations and Comprehensive Income and Statements of Cash Flows.
WEST 49 INC.
CONSOLIDATED BALANCE SHEETS
AS AT
(In thousands of dollars) January 30, January 31,
2010 2009
------------ ------------
Assets
Current
Cash and cash equivalents $ 7,797 $ 6,788
Accounts receivable 891 1,226
Income taxes receivable 247 16
Inventories 35,497 28,552
Future income taxes 1,720 1,326
Prepaid expenses 937 741
------------ ------------
47,089 38,649
Capital assets 26,560 27,399
Deferred costs 475 138
Due from related parties 112 10
Future income taxes 1,064 2,142
Goodwill 12,580 12,580
Intangible assets 13,829 13,829
------------ ------------
$ 101,709 $ 94,747
------------ ------------
------------ ------------
Liabilities
Current
Accounts payable and accrued charges $ 36,009 $ 27,792
Term debt 5,522 6,843
Current portion of deferred lease
obligations 934 942
Current preferred shares 18 33
------------ ------------
42,483 35,610
Deferred lease obligations 8,159 8,293
Preferred shares 5,190 5,190
------------ ------------
55,832 49,093
------------ ------------
Shareholders' Equity
Share capital 63,371 63,371
Contributed surplus 2,077 2,054
Deficit (19,571) (19,771)
------------ ------------
45,877 45,654
------------ ------------
$ 101,709 $ 94,747
------------ ------------
------------ ------------
WEST 49 INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE PERIODS ENDED
(In thousands of dollars except per share amounts)
January 30, January 31,
2010 2009
(52 weeks) (53 weeks)
------------ ------------
Net sales $ 205,436 $ 210,417
Cost of sales 156,960 163,588
------------ ------------
Gross margin 48,476 46,829
Selling, general and administrative expenses 41,494 43,470
------------ ------------
Income before other expenses 6,982 3,359
------------ ------------
Other expenses:
Dividends on preferred shares 226 351
Interest expense on term debt 577 602
Amortization 5,533 5,862
Restructuring costs - 888
Goodwill and intangible assets impairment - 12,000
------------ ------------
6,336 19,703
------------ ------------
Income (loss) before income taxes 646 (16,344)
Income tax expense (recovery) 446 (4,003)
------------ ------------
Net income (loss) and comprehensive income
(loss) $ 200 $ (12,341)
------------ ------------
------------ ------------
Basic and diluted income (loss) per share $ 0.00 $ (0.19)
------------ ------------
------------ ------------
WEST 49 INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED
(In thousands of dollars)
January 30, January 31,
2010 2009
(52 weeks) (53 weeks)
------------ ------------
Operating Activities
Net income (loss) $ 200 $ (12,341)
Non-cash items included above:
Amortization of capital assets 5,533 5,622
Amortization of deferred costs 176 292
Amortization of deferred lease inducements (971) (1,073)
Amortization of intangible assets - 240
Future income taxes 684 (5,747)
Impairment or disposition of store assets 241 1,400
Goodwill and intangible assets impairment - 12,000
Straight-line rent expense 119 281
Stock based compensation 23 226
------------ ------------
6,005 900
Changes in non-cash working capital from
operations 904 1,434
------------ ------------
Net cash flows from operating activities 6,909 2,334
------------ ------------
Financing Activities
Due from related parties (102) 128
Increase in deferred costs (513) (183)
Increase in term debt - 2,000
Redemption of preferred shares (15) (30)
Repayment of term debt (1,321) (1,628)
------------ ------------
Net cash flows from financing activities (1,951) 287
------------ ------------
Investing Activities
Additions to capital assets (4,710) (5,370)
Deferred lease inducements received 761 1,168
------------ ------------
Net cash flows from investing activities (3,949) (4,202)
------------ ------------
Net change in cash and cash equivalents 1,009 (1,581)
Cash and cash equivalents, beginning of period 6,788 8,369
------------ ------------
Cash and cash equivalents, end of period $ 7,797 $ 6,788
------------ ------------
------------ ------------
For further information: Rhonda Biddix, Chief Financial Officer and Corporate Secretary, West 49 Inc., (905) 336-5454 ext. 224, E-mail: [email protected]; Trevor Heisler, Investor Relations, The Equicom Group Inc., (416) 815-0700 ext. 270, E-mail: [email protected]; Follow West 49 Inc. on Twitter at http://twitter.com/West49Inc
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