Brick Announces Increased Profitability and Cash Reserves

/NOT FOR DISTRIBUTION THROUGH U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE U.S./

Focused on increased profitability - 21.4% EBITDA growth for Q1 2011
Focused on building cash reserves - $111 million at May 31, 2011

EDMONTON, June 13, 2011 /CNW/ - The Brick Ltd. (TSX: BRK) (the "Brick Group" or the "Brick") today announced its first quarter results for the three months ended March 31, 2011. Financial results are consistent with the Brick Group's preliminary news release dated June 7, 2011. Financial statements and Management's Discussion and Analysis are available on the Brick Group's website at www.thebrick.com and on SEDAR.

Highlights include:

  • Q1 2011 EBITDA of $18.0 million up 21.4%, or $3.2 million, over Q1 2010.

  • $2.4 million pre-tax net income in Q1 2011 or $4.1 million higher than Q1 2010's net loss of $1.7 million, before taxes and charges related to a change in the fair value of warrants as a result of the adoption of IFRS.

  • $111.0 million cash and cash equivalents at May 31, 2011 compared to $45.2 million at May 31, 2010.

  • Sales improvements as the year progresses:
    • For the first 2 months of Q2 2011, combined April and May same store corporate sales growth was 0.6%, over and above the 22.4% growth in the same 2 month period of 2010.

    • For Q1 2011, total sales and operating revenue declined 4.1% (up 12.8% in Q1 2010) while corporate same store sales declined 5.3% (up 8.6% in Q1 2010).
  • Gross margin rate increase of 100 basis points in Q1 2011 to 44.4% as compared to 43.4% in Q1 2010

  • Q1 2011 SG&A decreased $5.1 million from Q1 2010 and, as a percentage of sales and operating revenue, remained flat.

Results Summary:

   
(000's of $ except %, and store amounts) For the three months ended March 31
2011 2010 $ Increase (Decrease) % Increase (Decrease)
             
Retail Segment - Sales  $ 272,452  $ 286,571 (14,119) -4.9%
Financial Services Segment - Sales   21,107   19,677 1,430 7.3%
Consolidated - Sales   293,559   306,248 (12,689) -4.1%
Franchise sales (1)   38,523   38,049 474 1.2%
Consolidated sales and franchise sales (1)  $ 332,082  $ 344,297 (12,215) -3.5%
Same Store Sales Growth (corporate stores)   -5.3%   8.6%    
Same Store Sales Growth (corporate and franchise stores)   -4.8%   8.6%    
             
Retail Segment - EBITDA  $ 12,305  $ 10,379 1,926 18.6%
Financial Services Segment - EBITDA   5,712   4,468 1,244 27.8%
Consolidated - EBITDA  $ 18,017  $ 14,847 3,170 21.4%
             
  EBITDA as a percentage of sales and operating revenue   6.1%   4.8%    
             
Retail Segment - Net income (loss)  (2)  $ (3,405)  $ (117,742) (114,337) -97.1%
Financial Services Segment - Net income   4,541   4,486 55 1.2%
Consolidated - Net income (loss)  (2)  $ 1,136  $ (113,256) (114,392) -101.0%
             
Cash provided by operating activities before changes in non-cash working capital items   18,567   19,874 (1,307) -6.6%
Stores at period end   238   237    
             
(1)  In this release, franchise sales figures refer to sales occurring at franchise stores which are not included in the revenue figures presented in The Brick's consolidated financial statements, or in the corporate same store sales figures presented in this table.
(2)  Net loss for the three months ended March 31, 2010 includes a charge of $112,675 which reflects the change in fair value of The Brick's warrants occurring during this period.  As at March 31, 2010, The Brick's warrants were presented as liabilities on The Brick's consolidated balance sheet.

 

Sales:

For the quarter ended March 31, 2011, consolidated sales of $293.6 million decreased by $12.7 million or 4.1% as compared to the same quarter of 2010.  First quarter same store sales growth was negative 5.3% compared to positive 8.6% in the same quarter of 2010.  By segment, retail sales of $272.5 million decreased by $14.1 million or 4.9%, and financial services sales of $21.1 million increased by $1.4 million or 7.3%. Although sales were down compared to the same period in 2010, the Brick Group's sales results faired better than many of its public reporting competitors. Of particular note, the Brick Group's furniture, mattress and appliance categories experienced combined sales decline of only 2.0% for the quarter. Sales for these categories in April and May 2011 grew by 4.9% over the same period last year. Combined same store sales for all categories, including electronics, strengthened in April and May 2011 with a combined increase of 0.6%, on top of the 22.4% increase experienced in the same 2 month period of 2010. For the second half of 2011, management expects certain economic conditions to be more comparable to those in 2010, namely sales results will no longer be compared against the pre-HST purchases in Ontario and British Columbia and the positive impact of the home renovation tax credit, both experienced in the first half of 2010.  Management remains optimistic about increased same store sales for the second half of the year, with the expectation of a slightly more robust economic environment.

In the financial services segment, essentially all of the revenue growth was attributable to third-party insurance business.  In the warranty business, warranty sales are recorded as deferred revenue and recognized as earned revenue over the warranty coverage period.  The warranty coverage period is generally the four-year period subsequent to expiration of the manufacturer's first-year warranty coverage period.  Consequently, earned warranty revenue recognized in the current period relates to warranties sold in the previous two to five years.  Over this period, annual warranty sales have generally increased.

Franchise Sales:

Compared to the same quarter a year ago, sales at franchise stores increased by 1.2% to $38.5 million.  Same store sales growth for franchise stores was negative 1.9% compared to positive 8.5% for the same quarter of 2010.  We began the quarter with 54 franchise stores and ended with 55, while in 2010, we began and ended the quarter with 52 franchise stores.

Gross Margin:

Compared to the same quarter a year ago, consolidated gross margin percentage improved from 43.4% to 44.4%. Margin rates benefited from disciplined inventory controls and the strength of Canadian dollar.   Consolidated gross margin decreased by $2.9 million in the retail segment, and increased by $0.2 million in the financial services segment.  Fluctuations in our consolidated gross margin are driven primarily by the retail segment.

In the retail segment, the $2.9 million decrease in gross margin was driven primarily by sales that were 4.9% lower than in the same quarter of 2010, offset by improvement in gross margin percentage.  Gross margin percentage was higher due primarily to an increase in the sale mix of furniture, mattress and appliance categories, which generate higher gross margin percentages than the electronics category.  Within categories, higher gross margin percentage in the electronics and appliance categories benefited from increased use of early payment discounts as compared to the same quarter of 2009.  With available cash on hand and improved supplier credit terms, The Brick maximized its use of early payment discount opportunities compared to the same quarter of 2010.  In the first quarter of 2010, although not all credit terms had been restored to pre-recession levels, supplier credit terms were improving along with The Brick's return to profitable operations.  Accordingly, the impact of early payment discounts on quarter over quarter gross margin performance will decrease over future quarters.  Gross margin percentage in the furniture and mattress categories were relatively flat compared to the same quarter of 2010.

In the financial services segment, the $0.2 million gross margin improvement was attributable to revenue growth of 7.3% which more than offset decreased gross margin percentage attributable to the insurance business.  In the insurance business, gross margin percentage has decreased due to a shift in the mix of revenue towards the lower margin third-party business.

Selling, General and Administrative Expenses ("SG&A"):

First quarter consolidated SG&A was lower by $5.1 million or 4.3% and remained flat as a percentage of sales at 38.6% as compared to the same quarter of 2010. Approximately $1.1 million of the $5.1 million reduction relates to lower stock based compensation charges. A great amount of work has been done to reduce fixed costs and to ensure maximum variability of costs with sales. Management expects to continue to demonstrate effective cost control in the second quarter of 2011.

EBITDA:

The Brick's financial results reflect strong EBITDA performance for the quarter ended March 31, 2011.  First quarter consolidated EBITDA was $18.0 compared to $14.8 million for the same quarter of 2010.  By segment and compared to the same quarter of 2010, retail segment EBITDA of $12.3 million was higher by $1.9 million or 18.6%, and financial services segment EBITDA improved by $1.2 million or 27.8% to $5.7 million.  EBITDA improvement in the retail segment resulted from a 1.0% improvement in gross margin percentage combined with SG&A that was held flat as a percentage of sales.  In the financial services segment, improvement in first quarter EBITDA was attributable primarily to improved gross margin percentage in the warranty business.    

Net Income

First quarter consolidated net income of $1.1 million increased by $114.4 million from the loss of $113.3 million in the same quarter of 2010.  The 2010 first quarter loss included a charge of $112.7 million related to the change in fair value of warrants.  Prior to the December 30, 2010 Conversion, The Brick's warrants were classified as liabilities and carried at fair value with changes in fair value recorded in net income.  In conjunction with The Brick's conversion from an income trust to a corporation on December 30, 2010, the warrants were transferred at their fair value to equity, and changes in their fair value no longer impact The Brick's financial statements.  Excluding the impact of this charge, the 2010 first quarter loss before income taxes would have been $1.7 million.  Accordingly, 2011 first quarter income before income taxes of $2.4 million represents an improvement of $4.1 million over the 2010 first quarter loss before income taxes adjusted to exclude the impact of the change in fair value of the warrants.

Cash Position

The Brick's cash and cash equivalents at March 31, 2011 were $57.6 million compared to $69.8 million at December 31, 2010 and $9.6 million at March 31, 2010.  The Brick has not borrowed under the Asset-Based Credit Facility since the second quarter of 2010.  Borrowing capacity under the Asset-Based Credit Facility at March 31, 2011 was $76.2 million. As a result of improved operating performance, no distributions as an income fund since February 2009, controlled capital investment and inventory control improvements, the Brick Group's net cash position has improved dramatically:

  • Negative $35.7 million at March 31, 2009 (including borrowings of $39.0 million)

  • $9.6 million at March 31, 2010

  • $57.6 million at March 31, 2011

  • $111.0 million at May 31, 2011

The strengthening cash position has enabled the Brick Group to begin to reduce the dilutive effect of the May 2009 recapitalization transaction:

  • 174.2 million combined shares (units) and warrants outstanding at May 31, 2009 (post re-financing)

  • 179.5 combined shares (units) and warrants outstanding at August 31, 2009 (post Fairfax LC)

  • 170.8 million combined shares and warrants outstanding at May 31, 2011 (post NCIB)

Bill Gregson, President and CEO of the Brick Group commented "As indicated in our preliminary news release last week, I believe we performed very well in the first quarter, with relative sales results outperforming our competitors and I further believe that we have taken additional market share. At the same time, we have increased margin rates and reduced overall SG&A costs. The result is a $3.2 million or 21.4% increase in EBITDA and a $4.1 million increase in net income before taxes and other non-recurring items. Following the completion of the Brick Group's normal course issuer bid, we have reduced the fully diluted outstanding share and warrant float by 8.7 million or approximately 5%, at a total re-purchase cost of approximately $16.0 million.  We have also announced the offer for a cashless exercise of warrants that could further reduce the Brick Group's fully diluted float by 41.5 million or 24.3%, if 100% exercised. We anticipate approximately $50 to $80 million excess cash by the end of 2011, over and above a $50 million prudent cash reserve but including approximately $24 million capital investment during the year. This cash forecast excludes any other potential uses of cash beyond a renewed NCIB. We further do not anticipate the need for any borrowings under our current facility with GE".  

Changes to Accounting Policies - International Financial Reporting Standards

The Brick has adopted IFRS for its 2011 fiscal year as required by the Accounting Standards Board of the Canadian Institute of Chartered Accountants.  A detailed explanation of the impacts of this transition has been provided in Note 29 of its first quarter 2011 unaudited interim consolidated financial statements.

The table below sets forth a reconciliation of operating results prepared under previous Canadian Generally Accepted Accounting Principles ("GAAP") to operating results prepared under IFRS for the quarter ended March 31, 2010 and the year ended December 31, 2010.

    Mar 31, 2010 Mar 31, 2010 Mar 31, 2010         Dec 31, 2010 Dec 31, 2010 Dec 31, 2010
    (3 months) (3 months) (3 months)         (12 months) (12 months) (12 months)
    Previous Effect of           Previous Effect of  
    Canadian transition           Canadian transition  
  Note GAAP to IFRS IFRS         GAAP to IFRS IFRS
                       
SALES   306,248 - 306,248         1,372,462 - 1,372,462
                       
COST OF SALES   173,331 (2) 173,329         782,737 (3) 782,734
GROSS MARGIN   132,917 2 132,919         589,725 3 589,728
                       
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES  119,190 (907) 118,283         502,792 (10,879) 491,913
    13,727 909 14,636         86,933 10,882 97,815
                       
  Finance income   316 - 316         959 - 959
  Other income (expenses) B (105) - (105)         (712) 16 (696)
                       
EBITDA   13,938 909 14,847         87,180 10,898 98,078
                       
  Finance costs C (5,923) (2,933) (8,856)         (18,260) (11,815) (30,075)
  Depreciation and amortization D (6,111) (1,576) (7,687)         (26,165) (6,250) (32,415)
                       
INCOME BEFORE UNDERNOTED ITEMS   1,904 (3,600) (1,696)         42,755 (7,167) 35,588
                       
  Reversal of intangible asset impairment E - - -         - 68,201 68,201
  Change in fair value of warrants F - (112,675) (112,675)         - (138,049) (138,049)
                       
INCOME (LOSS) BEFORE INCOME TAXES   1,904 (116,275) (114,371)         42,755 (77,015) (34,260)
                       
INCOME TAX (EXPENSE) RECOVERY G 654 461 1,115         (4,037) (14,712) (18,749)
                       
NET INCOME (LOSS)   2,558 (115,814) (113,256)         38,718 (91,727) (53,009)
                       
  Note                    
  Change in lease classifications and length of lease term     (3,408)             (13,449)  
  Change in recognition period for stock-based compensation     2,501             2,570  
  A   (907)             (10,879)  
                       
  Interest on loans and borrowings     (359)             (1,564)  
  Interest on leases classified as finance leases     (2,574)             (10,251)  
  C   (2,933)             (11,815)  
                       
  Onerous contract adjustment B   -             16  
                       
  Depreciation on leases classified as finance leases D   (1,576)             (6,250)  
                       
  Reversal of intangible asset impairment E   -             68,201  
                       
  Remeasure warrants at fair value F   (112,675)             (138,049)  
                       
  Record impact of IFRS changes on current tax     -             (734)  
  Record impact of IFRS changes on deferred tax     461             (13,978)  
  G   461             (14,712)  

 

The Brick Group will hold an investor conference call and webcast on June 14th at 10:00 a.m. Eastern Time (8:00 a.m. Alberta Time). To access the call, dial 647-427-7450 or 1-888-231-8191. Conference call ID: 67497819. For a listen-only webcast, log on to http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3536060.

A telephone replay of the call will be available until June 21, 2011, at 11:59 p.m. Eastern Time. To access it, dial either 416-849-0833 or 1-800-642-1687 and enter passcode 67497819.

Previous financial statements and Management's Discussion and Analysis are available on the investor relations page of Brick Group's website at www.thebrick.com.

About the Brick Group

The Brick Group, together with its subsidiaries, is one of Canada's largest volume retailers of household furniture, mattresses, appliances and home electronics, operating under five banners: The Brick, United Furniture Warehouse, The Brick Superstore, The Brick Mattress Store, and Urban Brick. In addition, through its corporate sales division, the Brick Group services the subdivision, condominium, hospitality and high-rise builder market. The Brick Group's retail operations are located in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Prince Edward Island, Nova Scotia, New Brunswick, the Northwest Territories and Yukon.

Forward-Looking Statements

This news release contains "forward-looking statements" within the meaning of applicable Canadian securities laws, including (but not limited to) statements about the Brick's consolidated sales and operating revenue, consolidated EBITDA, consolidated net loss, sales and operating revenue in the financial services and retail segments, same store sales growth and goodwill and indefinite life intangible asset impairment charges, the financial flexibility and capital resources necessary to manage the business in the current economic environment, and similar statements concerning anticipated future events, results, circumstances, performance or expectations, that reflect management's current expectations and are based on information currently available to management of the Brick and its subsidiaries. The words "may", "will", "should", "believe", "expect", "plan", "anticipate", "intend", "estimate", "predict", "potential", "continue" or the negative of these terms, or other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters, identify forward-looking matters. Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Brick to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements. The Brick undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by applicable law.

www.thebrick.com

 

 

 

SOURCE The Brick Ltd.

For further information:

Bill Gregson       
President and CEO 
The Brick Group      
(780) 930-6300       
investor@thebrick.com     
David Merkley
Chief Financial Officer
The Brick Group
(780) 930-6300
investor@thebrick.com


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