Coast Wholesale Appliances Inc. Reports 2013 Third Quarter Results

T.CWA

Strong builder business drives revenues to new quarterly high, supports continued healthy gross profit and EBITDA growth

Marketwire

Strong builder business drives revenues to new quarterly high, supports continued healthy gross profit and EBITDA growth

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Nov. 7, 2013) - Coast Wholesale Appliances Inc. (TSX:CWA) -

Coast Wholesale Appliances Inc. will host a conference call and webcast to discuss its 2013 third quarter and year-to-date financial results on Friday, November 8, 2013 at 9:00 am Pacific Time (12:00 pm Eastern). The call can be accessed by dialing: toll-free 1- 877-240-9772 or 416-340-8527 (GTA and International).

A replay will be available through 11:00 am Pacific Time on November 22, 2013 at: 1-800-408-3053 or 905-694-9451 - Passcode: 8637856.

The live and archived webcast, as well as an mp3 download, can be accessed at http://www.investorcalendar.com/IC/CEPage.asp?ID=171854 or on Coast's website at www.coastwholesaleappliancesinc.com.

Coast Wholesale Appliances Inc. (Coast or the company), today reported financial results for the three and nine months ended September 30, 2013. The three-month period represents the third quarter of Coast's 2013 fiscal year.

Performance Highlights

(in thousands of dollars except percentages and per-share amounts)  
   
  2013   2012   2011   2013   2012   2011  
  Q3   Q3   Q3   YTD   YTD   YTD  
Sales 43,427   38,898   36,001  
 119,758
  106,663   98,313  
Gross profit 9,605   8,804   8,840  
 26,589
  24,193   23,941  
As a percentage of sales 22.1 % 22.6 % 24.6 % 22.2 % 22.7 % 24.4 %
                         
Profit 1,717   1,374   1,440   3,636   2,494   2,034  
Basic and diluted net income per share 0.171   0.137   0.144   0.362   0.249   0.203  
                         
EBITDA 2,965   2,429   2,573   6,693   5,107   4,604  
EBITDA margin 6.8 % 6.2 % 7.1 % 5.6 % 4.8 % 4.7 %
                         
EBITDA per share 0.295   0.242   0.256   0.667   0.509   0.459  
Dividends per share 0.075   0.105   0.105   0.225   0.315   0.280  

Third Quarter Results

In the three months ended September 30, 2013, Coast's ninth consecutive quarter of year-over-year revenue growth, the company recorded sales of $43.4 million, its highest ever quarterly revenues. This was up by $4.5 million, or 11.6%, over Q3 2012. Sales to builders increased by 17.7%, while retail sales improved by 0.8%. Other revenues, generated by warranty sales, freight and installation, and commission sales were up by 16% over the same period last year.

Revenues improved in all of Coast's geographic markets except Manitoba, where sales decreased slightly from the 2012 level. The company recorded double-digit revenue growth in the Greater Toronto Area (GTA) of Ontario and in Alberta.

With the higher revenues, third quarter gross profit increased to $9.6 million from $8.8 million in Q3 2012, a 9.1% improvement. Due to the shift in Coast's sales mix in favour of contract business, which generates a lower gross margin than its retail sales, the company's gross margin percentage decreased by half a point to 22.1% from 22.6% in Q3 2012. Gross margin was also negatively impacted by ongoing compression of pricing across Coast's business as a result of much more competitive market conditions. In tandem with the growth in sales, selling, general and administrative (SG&A), facility and warehouse expenses for the three months increased modestly in dollar terms but were reduced as a percentage of sales to 15.3% from 16.4% in 2012.

Third quarter EBITDA of $3.0 million was up by $0.6 million from the $2.4 million reported in 2012, while EBITDA margin improved to 6.8% from 6.2% last year. The increase in EBITDA was due mainly to this year's higher revenues and the resulting $0.8 million gross profit gain. The company recorded net income of $1.7 million for the three months, up from $1.4 million in 2012.

"Our revenues in the third quarter continued to exceed our expectations, thanks to the strong flow of contract sales to single and multi-family homebuilders moving through to completion in our western Canadian and GTA markets," said Maurice Paquette, President and CEO of Coast. "At the same time, we were able to maintain a strong backlog of contract orders for future delivery."

"In the retail segment, after a slight year-over-year revenue dip in Q1 and a flat second quarter, we are encouraged by the modest sales lift we recorded in Q3," Mr. Paquette continued. "Our ability to deliver both in-demand brand name products and a value-added service offering to consumers has been key to sustaining our strong retail revenue base in the present extremely difficult sales environment."

Nine-Month Results

For the nine months ended September 30, 2013, revenues of $119.8 million were up by $13.1 million, or 12.3%, from the $106.7 million reported for the same period of 2012. Builder sales increased by 20.1%, retail revenues were level and other revenues improved by 7.7%.

As with the quarterly result, revenues for the nine months improved in all of Coast's geographic markets except Manitoba, with particularly strong sales growth in the GTA and Alberta.

Gross profit for the nine months increased by 9.9% to $26.6 million from $24.2 million in 2012, while gross margin dipped to 22.2% from 22.7% last year. As with the quarterly result, the 0.5% decrease in gross margin percentage was mainly due to sales mix changes and ongoing pricing compression. Similarly, SG&A expenses for the nine months rose in dollar terms with the higher revenues but were reduced as a percentage of sales to 16.6% from 17.9% in 2012.

Nine-month EBITDA improved to $6.7 million, a $1.6 million gain from the $5.1 million reported in Q3 2012. EBITDA margin increased to 5.6% from 4.8% last year. Again, as with the quarterly result, the growth in year-to-date EBITDA was due mainly to this year's higher revenues and the resulting $2.4 million gross profit gain. Net income for the nine months improved to $3.6 million from $2.5 million in 2012.

Operating Highlights

As part of its ongoing strategy to enhance profitability by increasing sales from its existing stores, Coast continued with showroom upgrade work at its Calgary South store in Alberta and its Saskatoon, Saskatchewan location during the third quarter. The Calgary improvements are now expected to be completed by year-end and the Saskatoon improvements by the end of Q1 2014. Since the beginning of 2011, approximately 70% of Coast's stores have been renovated or relocated to updated facilities.

Coast also continued with work on major upgrades to its inventory and pricing management systems that began at the end of Q2. In addition to helping the company better manage gross margins, reduce inventory levels and increase inventory turns, the upgraded systems will enable it to monitor how pricing can be used to create more effective marketing programs, primarily in the retail segment of its business. Phased testing of the new systems is currently underway and Coast anticipates that both systems will be fully operational by mid-2014.

As expected, inventory remained at somewhat higher than normal levels during the third quarter, both to support the increased sales volumes and accommodate recent changes to Coast's product offering. At the end of Q3, inventory stood at $26.9 million, down from $27.3 million at September 30, 2012.

Dividends

During the third quarter, monthly dividends of $0.025 per share were declared for each of July, August and September, payable on or about the fifth day of the month following. This dividend rate equates to $0.30 per share on an annualized basis, representing a yield of approximately 9% per annum at recent Coast share trading prices. Coast's Board of Directors closely monitors the company's dividend level on a continuous basis.

Outlook

The following outlook discussion is qualified in its entirety by the forward-looking statements proviso at the end of this news release.

The outlook for Coast's business in the final quarter of 2013 remains cautious. In the builder segment, the company anticipates that its revenues will continue to grow as projects in its order backlog move into the final stages of development in both the single and multi-family sectors, but at a slower rate than in the first nine months of the year. While Canadian housing starts are expected to remain stable in Q4, Canada Mortgage and Housing Corporation projects that total starts for the year will be down from the 2012 level. Given the lagging impact of housing starts on sales of major home appliances, Coast anticipates that the year-over-year decline in total starts will be reflected in its 2014 revenues. The company also expects that very competitive market conditions will continue to compress unit prices and hence margins on its builder sales for the foreseeable future. On the retail side, it anticipates that market conditions and pricing will remain similarly competitive through 2013 as consumers continue to be extremely cautious about making major purchases.

"We are very pleased with our performance in Q3, but the reality is that economic growth in Canada remains sluggish and an uncertain business environment persists," said Mr. Paquette. "Our business is vulnerable to changes in the level of housing activity and any significant economic setbacks could have a negative impact on our sales to both builder and retail customers. To counteract this impact, we continue to work diligently to enhance our competitive position and grow our share of both markets."

Mr. Paquette added that, based on Coast's current order backlogs, the company anticipates that its revenue growth in the final quarter of 2013 will be concentrated in the GTA, Saskatchewan and Alberta markets, with a continued softening in the BC market.

A more detailed discussion of Coast's financial results can be found in its 2013 Third Quarter Management's Discussion and Analysis, which will be posted with unaudited interim condensed financial statements for the period on Coast's website (www.coastwholesaleappliancesinc.com) and SEDAR (www.sedar.com) on or before November 8, 2013.

Coast Profile

Coast is a leading independent supplier of major household appliances and accessories to builders and developers of multi-family and single-family housing, and to retail customers. Founded in 1978, Coast currently operates 15 stores across the four western provinces and one store in the Greater Toronto Area of Ontario, as well as a network of warehouse distribution centres strategically situated to serve these locations.

Forward-looking Statements

This news release includes forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause 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. These forward-looking statements are identified by the use of terms and phrases such as "anticipate", "believe", "estimate", "expect", "may", "plan", "will", and similar terms and phrases, including references to assumptions. Such statements may involve, but are not limited to, comments with respect to the sustainability of Coast's dividends to shareholders, the performance of the Canadian economy and the company's sales expectations. Forward-looking statements are included in most sections of this news release.

These forward-looking statements reflect current expectations of management regarding future events and operating performance as of the date of this news 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: sensitivity to general economic conditions; changes in consumer confidence in the economy; maintenance of profitability and management of changes to Coast's business; competition; increases to interest rates; reliance on suppliers and their ability to supply product for sale on a timely basis; changes in consumer preferences; changes in Coast's mix of product sales; fluctuations in fuel and commodity pricing; usage of extended warranty programs and the costs to deliver these services; changes to planning and supply chain processes; lack of long-term supplier agreements; reliance on key personnel; and foreign exchange rates as they relate to imported products.

Although the forward-looking statements contained in this news release are based upon what management believes to be reasonable assumptions, Coast cannot assure investors that actual results will be consistent with these forward-looking statements. The forward-looking statements reflect management's current beliefs and are based on information currently available to Coast. They speak only as of the date of this news release, and reflect current assumptions regarding future events and operating performance. These assumptions include, without limitation: slow economic growth through the final quarter of 2013 and 2014 in both Western Canada and the Greater Toronto Area (GTA), Coast's current markets; continued fluctuations in exchange rates with the Canadian dollar trading near par with the US dollar; continued low interest rates; continuing relatively stable credit markets for Coast's major builder customers; and a slight softening of total housing starts in 2013 compared to 2012. These forward-looking statements are made as of the date of this news release and Coast assumes no obligation to update or revise them to reflect new events or circumstances, other than as required by law.

Non-IFRS Financial Measures

EBITDA and EBITDA margin are non-IFRS financial measures that are defined in the Third Quarter Management's Discussion and Analysis to be posted on Coast's website and SEDAR on or before November 8, 2013.

Coast Wholesale Appliances Inc.
Gordon Howie
Chief Financial Officer
(604) 301-3400
invest@coastappliances.com
www.coastwholesaleappliancesinc.com


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