West 49 Inc. reported net income reached Canadian $9 million (U.S. $9mm), or C1 cent a share, rebounding from a loss of $8.5 million (U.S. $8.5mm), or C13 cents, a year ago. Net sales for Canada’s leading action sport retailer declined 4.2% to C$205.4 million (U.S. $205.4mm).
Fourth quarter highlights (All figures are in Canadian dollars):
- 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 Roy Cairns,
a Director of the company, has resigned from the company’s Board of
Directors for personal reasons. Cairns
resignation is effective April 1, 2010.
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.
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)
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Net sales $ 205,436 $ 210,417
Cost of sales 156,960 163,588
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Gross margin 48,476 46,829
Selling, general and administrative expenses 41,494 43,470
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Income before other expenses 6,982 3,359
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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
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6,336 19,703
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Income (loss) before income taxes 646 (16,344)
Income tax expense (recovery) 446 (4,003)
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Net income (loss) and comprehensive income
(loss) $ 200 $ (12,341)
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Basic and diluted income (loss) per share $ 0.00 $ (0.19)
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