West 49 Inc. reported net income in the third quarter improved 38.1% to Canadian $2.9 million (U.S. $2.8 mm), or CN5 cents per share, compared to CN$2.1 million ($2 mm), or CN3 cents per share, a year ago. Sales for the Canadian action sports chain declined 3.7% to CN$59.4 million ($56.5 mm).
“We improved our margins and profitability despite a highly competitive and increasingly discount-oriented retail landscape,” said Sam Baio, Chief Executive Officer of West 49 Inc. “We strategically stocked our stores in advance of an earlier and longer Back-to-School selling period. We worked closely with our vendors to offer fresh merchandise and offer value for our customers. On the cost side, the continued, solid execution of our business plan translated to improvement in our SG&A expenses as a rate to net sales for the seventh consecutive quarter.”
Financial Results (in Canadian dollars)
Fiscal 2010 Fiscal 2009
Third Year-to- Third Year-to-
Quarter Date Quarter Date
Net sales 59,440 143,827 61,723 145,658
Gross margin 16,580 33,479 16,139 30,567
EBITDA (loss) 5,901 4,019 4,844 (120)
Net income (loss) 2,898 (673) 2,074 (3,874)
Basic income (loss) per
share $0.05 ($0.01) $0.03 ($0.06)
Weighted average common
shares outstanding
(millions) 63.8 63.8 63.5 63.5
Gross margin for the quarter increased 180 basis points to 27.9% of net sales from 26.1% of net sales for the third quarter of last year. In dollars, gross margin increased CN$0.5 million ($4.8 mm) to CN$16.6 million ($15.8 mm) despite net sales declining 3.7% to CN$59.4 million ($56.4 mm). The improved gross margin was largely the result of continued improvements in product margins and the progress made on the supply chain side as the company improved the flow of goods into its stores and reduced its supply chain costs. The lower net sales for the quarter was driven by a 6.0% decrease in consolidated comparable store sales, impacted by continued weakness in consumer confidence and a highly competitive retail environment. The company's core West 49 banner was more resilient, with comparable store sales down 1.2% for the quarter.
Selling, general and administrative (“SG&A”) expenses decreased to 18.0% of net sales, a 30 basis point improvement. The higher gross margin achieved and the company's continued focus on cost reduction and containment resulted in a CN$1.1 million ($1.04 mm) improvement in EBITDA for the quarter. EBITDA was CN$5.9 million ($5.6 mm) compared to CN$4.8 million ($4.6 mm) for the third quarter of last year.
Store Real Estate Activity
During the third quarter, the company opened a West 49 store and an Off The Wall store at CrossIron Mills, in Rocky View, Alberta. The Company also relocated and expanded three West 49 stores in: Pickering Town Centre, in Pickering, Ontario; Lansdowne Place, in Peterborough, Ontario; and St. Vital Shopping Centre, in Winnipeg, Manitoba.
Subsequent to the quarter end, the company opened a new West 49 outlet in Cambridge Smart Centres, in Cambridge, Ontario and an Amnesia store in Carrefour du Nord, in St. Jerome, Quebec. The Company also signed a new lease for a West 49 outlet at Highway 7 and Highway 400, in Toronto, Ontario, which was previously only a temporary location.
Outlook
“We are certainly encouraged by the strength and relevancy of our core business during these challenging times. In fact, we feel it is a testament to the hard work we have done and to our strong growth potential going forward,” said Baio. “We have strengthened our business significantly over the course of the recent recession and are well positioned for growth as the economy starts to recover and consumer confidence rebounds. Notwithstanding our growth prospects for the future, this Holiday season remains highly uncertain, especially as it relates to girls apparel.”
