Coast Wholesale Appliances Income Fund Reports 2008 Second Quarter Results



    
    Coast Continues to Deliver Revenue Growth, Benefits from Strong Contract
    Sales

    Coast Wholesale Appliances Income Fund (TSX: CWA.UN) will host a
    conference call and webcast to discuss its second quarter and first half
    financial results on Tuesday, August 12, 2008 at 8:00 a.m. Pacific Time
    (11:00 a.m. Eastern). The call can be accessed by dialing: 1-800-591-7539
    or 416-644-3424.

    A replay will be available through August 27, 2008 at: 1-877-289-8525 or
    416-640-1917, Passcode: 21277694 followed by the pound sign.

    The live and archived webcast can be accessed at
    http://www.investorcalendar.com/IC/CEPage.asp?ID=132314 or on
    the Fund's website at www.coastincomefund.com

    TRADING SYMBOL: Toronto Stock Exchange - CWA.UN
    

    VANCOUVER, Aug. 11 /CNW/ - Coast Wholesale Appliances Income Fund (the
Fund) today reported financial results for the three and six months ended
June 30, 2008. The three-month period represents the second quarter of its
2008 fiscal year.
    The Fund holds a 65% indirect interest in Coast Wholesale Appliances LP
(Coast), a leading independent supplier of major household appliances, and its
results are entirely dependent upon Coast's operating results. The remaining
35% interest is held by the former owner, CWAL Investments Ltd. (CWAL).

    
    Performance highlights

    (in thousands of dollars except percentages
    and per-unit amounts)
                                2008    2007    2006    2008    2007    2006
                                  Q2      Q2      Q2     YTD     YTD     YTD
    -------------------------------------------------------------------------
    Sales                     38,250  36,809  30,802  72,126  67,970  58,519
    Gross margin               9,414   9,228   7,710  17,880  16,960  14,370
    As a percentage of sales   24.6%   25.1%   25.0%   24.8%   25.0%   24.6%

    Net income before
     non-controlling interest  1,783   3,208   2,317   4,682   5,224   4,160
    Basic and diluted net
     income per unit           0.273   0.320   0.231    0.47    0.52    0.42

    EBITDA                     3,542   3,883   3,249   6,391   6,676   5,996
    EBITDA margin               9.3%   10.6%   10.5%    8.9%    9.8%   10.2%

    Maintenance capital
     expenditures                385     104     192     566     109     242
    Adjusted distributable
     cash                      2,906   3,543   2,822   5,321   6,098   5,272
    Adjusted distributable
     cash per unit              0.29    0.35    0.28    0.53    0.61    0.52
    Distribution per unit       0.31    0.30    0.30    0.62    0.60    0.60
    Adjusted distribution
     ratio                    106.2%   85.0%  106.7%  116.0%   98.7%  114.2%
    -------------------------------------------------------------------------
    

    Second Quarter Operating Results

    Coast's revenues for the three months ended June 30, 2008 were
$38.3 million, up by $1.5 million, or 3.9%, from the record $36.8 million
reported in the second quarter of 2007. The company continued to see robust
growth in its contract business with developers and builders, most notably in
Alberta, where Coast again experienced strong contract sales completions. As
in the first quarter, the company's business mix was skewed slightly in favour
of contract sales. Due to more cautious consumer spending, retail sales were
down somewhat from the particularly high levels experienced in the second
quarter of 2007.
    Second quarter cost of sales was $28.8 million, or 75.4% of sales. This
resulted in a gross margin of $9.4 million, or 24.6% of sales. By comparison,
in the second quarter of 2007, cost of sales was $27.6 million, or 74.9% of
sales, resulting in a gross margin of $9.2 million, or 25.1% of sales.
Although Coast achieved a modest year-over-year improvement in its gross
margin percentage on product sales, the gain was more than offset by the
impact of rapidly increasing fuel prices on its inbound and outbound freight
costs. These increased costs eroded second quarter gross margin by 0.5%.
    Coast's second quarter EBITDA of $3.5 million was down from $3.9 million
in 2007, while its EBITDA margin of 9.3% was down from 10.5% in the prior
year. The reduction in EBITDA was due to the small reduction in Coast's gross
margin percentage and generally higher expenses year-over-year. Net income
before non-controlling interest was $2.7 million, or 7.2% of sales, down from
$3.2 million, or 8.7% of sales, in the second quarter of 2007. The net income
decrease was due to Coast's higher expenses and lower gross margin in 2008.

    First-Half Operating Results

    Revenues for the six months ended June 30, 2008 were $72.1 million, up by
$4.1 million, or 6.1%, from $68.0 million in the first half of 2007. At
comparable stores - locations open for more than a year - sales grew by
$3.0 million, or 4.4%, over the first half of 2007.
    Cost of sales for the first half of 2008 was $54.2 million, or 75.2% of
sales. This resulted in a gross margin of $17.9 million, or 24.8% of sales.
For the first half of 2007, cost of sales was $51.0 million, or 75.0% of
sales, providing a gross margin of $17.0 million, or 25.0% of sales. As with
the quarterly result, the slight erosion in six-month gross margin of 0.3% was
mainly due to the higher freight costs.
    First half EBITDA was $6.4 million, down from $6.7 million in the same
period in 2007. EBITDA margin for the six months was 8.9%, down from 9.8% in
2007. The EBITDA margin reduction was mainly due to Coast's increased expenses
and decreased gross margin. The new stores Coast opened in Alberta during 2007
have contributed positively to the company's total EBITDA, but have negatively
impacted its EBITDA margin. As volume grows in these stores, Coast expects the
increase in total gross margin dollars will result in an increase to its
EBITDA margin. Net income before non-controlling interest was $4.7 million, or
6.5% of sales, down from $5.2 million or 7.7% of sales, in the first half of
2007.
    "We are pleased with our continued sales growth in the first half of the
year, particularly given that our second quarter gain was on top of the record
19.5% sales increase we achieved in the second quarter of last year," said
Blain Lawson, President and CEO of Coast. "We remain focussed on enhancing
profitability by streamlining our non-selling functions and working to
increase sales from our existing stores. We have also adjusted our freight
rates to reflect higher fuel costs."
    As part of its strategy to drive up comparable store sales, Coast
relocated its Abbotsford, BC store to a new facility in a higher-traffic area
at the end of the first quarter of 2008. The new location marked its official
grand opening on April 19, 2008. A similar relocation of Coast's store in
Regina, Saskatchewan is scheduled for September 2008, with a grand opening the
following month. In addition, Coast has upgraded its inventory management and
computer systems to support the future growth of its business. The new
inventory management system was rolled-out across Coast's British Columbia
stores and distribution network during the second quarter. The new system will
be implemented across the balance of Coast's locations over the next few
months.

    Cash distributions

    Distributions in the amount of $0.1025 per unit were paid for each of
April, May and June 2008. This represents an annualized distribution rate of
$1.23 per unit. From its inception until the end of the second quarter, the
Fund had paid a total of 36 consecutive monthly cash distributions to its
public unitholders, as well as 11 consecutive quarterly cash distributions and
three monthly cash distributions to the non-controlling interest held by CWAL.
Effective with the April 2008 distribution, all cash distributions to both
public unitholders and the non-controlling interest are now paid monthly.
    During the second quarter, the Fund earned $2.9 million, or $0.29 per
unit, in adjusted distributable cash (before the non-controlling interest).
This was down from $3.5 million, or $0.35 per unit, in the same period of
2007. With the per-unit monthly distribution increase introduced in October
2007, the amount distributed and accrued for payment to unitholders and the
non-controlling interest increased in 2008 to $3.1 million, or $0.31 per unit,
from $3.0 million, or $0.30 per unit, in 2007.
    For the first half, adjusted distributable cash (before the
non-controlling interest) was $5.3 million, or $0.53 per unit, down from
$6.1 million, or $0.61 per unit, in 2007. The amount distributed and accrued
for payment to unitholders and the non-controlling interest increased to
$6.2 million, or $0.62 per unit, from $6.0 million, or $0.60 per unit, in
2007.
    The Fund's adjusted payout ratio for the second quarter was 106.2%, up
from 85% in 2007, but slightly lower than the 106.7% reported in 2006. On a
12-month trailing basis to June 30, 2008, its adjusted payout ratio increased
to 105.3% from 88.5% a year ago and 100.1% two years ago. The higher payout
ratios in 2008 were due to reduced cash flow from operations before changes in
non-cash working capital, increased maintenance capital expenditures and the
higher monthly distribution amount. First-half capital expenditures were
primarily for the Abbotsford, BC store relocation, necessary building
improvements and other planned expenditures required for normal operations as
well as to support the future growth of the business. On a cumulative basis,
from the Fund's inception, its adjusted payout ratio is 96.8%.

    Outlook

    While remaining optimistic about the outlook for Coast's business, Lawson
was somewhat more cautious about the immediate future in light of the impact
of rapidly rising fuel and commodity prices on consumer discretionary
spending. "Although single-family housing starts have slowed in Western
Canada, the multi-family market remains robust and total housing starts in
2008 are still expected to near the record levels of the past two years," he
noted.
    For the balance of 2008, Coast expects ongoing sales growth from its
existing stores. The company is continuing to actively review opportunities
for expansion by increasing its coverage of Western Canada and potentially
entering the eastern Canadian market.
    The Fund also continues to consider the impact of the taxation of
distributions at the trust level set to begin in 2011. "We have been reviewing
the draft legislation released last month regarding the conversion of trusts
to corporations with our legal and tax counsel, and will continue to work with
our advisors to determine the most advantageous course of action for the Fund
and our unitholders," said Lawson.
    A more detailed discussion of the Fund's financial results can be found
in its second quarter 2008 Management's Discussion and Analysis, which will be
posted with unaudited interim consolidated financial statements at the Fund's
website (www.coastincomefund.com) and at SEDAR (www.sedar.com) on or before
August 12, 2008.

    Company profile

    Coast Wholesale Appliances is a leading independent supplier of major
household appliances to developers and builders of multi-family and
single-family housing and to retail customers in Western Canada. Founded in
1978, Coast currently operates 15 locations and four warehouse distribution
centres across the four western provinces.

    Forward-looking statements

    This news release may contain forward-looking statements relating to
expected future events and financial and operating results of Coast that
involve risks and uncertainties. The actual results may differ materially from
management expectations as projected in such forward-looking statements for a
variety of reasons. These include market and general economic conditions, and
the risks and uncertainties detailed from time to time in Coast's continuous
disclosure materials filed with Canadian securities regulatory authorities,
including the second quarter 2008 Management's Discussion and Analysis filed
at SEDAR (www.sedar.com). These forward-looking statements are based on
assumptions that management considered reasonable at the time they were
prepared. Due to the potential impact of these factors, Coast disclaims any
intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise, unless
required by applicable law.

    Non-GAAP Financial Measures

    EBITDA, EBITDA margin, maintenance capital and adjusted distributable
cash are non-GAAP financial measures that are defined in the second quarter
2008 Management's Discussion and Analysis posted on the Fund's website and
SEDAR.





For further information:

For further information: Jack Peck, Chief Financial Officer, Telephone:
(604) 301-3400, Email: invest@coastappliances.com, Website:
www.coastincomefund.com

Organization Profile

COAST WHOLESALE APPLIANCES INCOME FUND

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