West 49 Inc. reports fourth quarter and year end results



    
    Competitive retailing strategies yield continued top line growth

    Toronto Stock Exchange Symbol: WXX
    

    BURLINGTON, ON, April 22 /CNW/ - West 49 Inc. (TSX: WXX) (the "Company"),
Canada's leading action sport retailer, today reported its financial results
for its fourth quarter and fiscal 2009 year ended, January 31, 2009. Financial
results for the fourth quarter and fiscal 2009 year ended January 31, 2009
included 14 weeks and 53 weeks respectively, compared to 13 weeks and 52 weeks
for the corresponding periods in fiscal 2008. All figures are reported in
Canadian dollars.

    
    -------------------------------------------------------------------------
    Fourth quarter highlights:
    -------------------------------------------------------------------------
    -   Net sales increased 3.8% to $64.8 million;
    -   Gross margin of $16.3 million;
    -   Selling, general and administrative ("SG&A") expenses decreased 30
        basis points as a rate to net sales;
    -   Goodwill and other impairment charges of $12.7 million (after tax
        $9.6 million) are non-cash and have been excluded to give
        normalized(1) results;
    -   Normalized net income of $1.1 million, or $0.02 per share; and
    -   Relocated and expanded a West 49 store in Saskatoon, Saskatchewan.

    -------------------------------------------------------------------------
    Fiscal year highlights:
    -------------------------------------------------------------------------
    -   Net sales increased 2.7% to $210.4 million;
    -   Gross margin of $46.8 million;
    -   SG&A expenses decreased 60 basis points as a rate to net sales;
    -   Goodwill and other impairment charges of $12.9 million (after tax
        $9.7 million) are non-cash and have been excluded to give normalized
        results;
    -   Normalized(1) net loss of $2.6 million, or $0.04 per share; and
    -   Opened two new stores, closed two stores and relocated and/or
        expanded five stores during the year.
    

    "Despite the volatile and uncertain economy, we have maintained our
market share, proving that we remain very relevant to our customers," said Sam
Baio, Chief Executive Officer of West 49 Inc. "We continued to grow our top
line, largely the result of our strong performance during the peak
Back-to-School and Holiday seasons. Our merchandising and pricing strategies,
focused on offering exceptional brands at competitive prices, have
reinvigorated our sales over the last few quarters following a very
disappointing first quarter. While we took a hit on margins to preserve market
share in this challenging retail environment, our focus on expense management
continued to yield returns. More importantly, our competitive retailing
strategies and prudent management of operations better position us for longer
term growth."

    Financial Results

    Net sales increased 3.8% to $64.8 million for the quarter and 2.7% to
$210.4 million for the fiscal year, primarily due to the inclusion of an
additional week compared to the corresponding periods in fiscal 2008. For the
quarter, 14-week comparable store sales decreased by 0.5% on a consolidated
basis despite comparable store sales growth of 1.3% during the Holiday selling
period. The 14-week comparable store sales for the West 49 banner were up
0.3%. For the fiscal year, 53-week comparable store sales decreased 0.4% on a
consolidated basis but were up 0.1% for the West 49 banner. For reference
purposes, in the prior year the Company reported a consolidated comparable
store sales decrease of 4.5% for the fourth quarter and 1.3% for the year.
    Gross margin decreased $1.1 million to $16.3 million for the quarter and
$5.6 million to $46.8 million for the fiscal year. As a rate to net sales,
gross margin declined 270 basis points to 25.2% for the quarter and 340 basis
points to 22.2% for the fiscal year. The decline in gross margin was primarily
due to lower product margins and higher supply chain costs.
    The Company's prudent management of expenses yielded further improvement
to its selling, general and administrative (SG&A) expenses as a rate to net
sales. The Company's SG&A expense rate decreased 30 basis points to 20.1% of
net sales for the quarter and 60 basis points to 20.7% of net sales for the
fiscal year. In absolute dollars, SG&A expenses increased $0.3 million for the
quarter, but were down $0.1 million for the year. The increase in the quarter
was largely due to the inclusion of the additional week.
    Normalized EBITDA(2) decreased 29.8% to $3.3 million for the quarter and
61.4% to $3.4 million for the fiscal year. The decreases were primarily due to
the lower gross margins achieved.
    Normalized net income was $1.1 million, or $0.02 per share, for the
quarter compared to $2.2 million, or $0.04 per share, for the fourth quarter
of fiscal 2008. Normalized net income per share for the quarter is based on a
weighted average of 63,773,369 common shares outstanding during the quarter
compared to a weighted average of 63,517,071 common shares outstanding during
the fourth quarter of fiscal 2008.
    The Company incurred a net loss of $2.6 million, or $0.04 per share, on a
normalized basis for the fiscal year compared to net income of $1.5 million,
or $0.02 per share, on a normalized basis for fiscal 2008. Normalized income
per share is based on a weighted average of 63,605,190 common shares
outstanding during fiscal 2009 compared to a weighted average of 63,323,829
common shares outstanding during fiscal 2008.
    The following tables provide a comparison of the Company's financial
results for the fourth quarter and fiscal year end periods to normalized
results for the corresponding periods in the prior year:

    
    -------------------------------------------------------------------------
    (Amounts in thousands of Canadian $ except per share amounts
    and weighted averages)
    -------------------------------------------------------------------------
                              Fiscal 2009                 Fiscal 2008
    -------------------------------------------------------------------------
                     Fourth Quarter  Fiscal Year Fourth Quarter  Fiscal Year
    -------------------------------------------------------------------------
    Net sales               64,759       210,417        62,389       204,894
    Gross margin            16,262        46,829        17,376        52,408
    EBITDA                  (9,409)       (9,529)        1,062         4,418
    EBITDA, normalized       3,306         3,359         4,702         8,803
    Net income (loss)       (8,467)      (12,341)       (1,219)       (2,405)
    Net income (loss),
     normalized              1,127        (2,629)        2,233         1,532
    Basic income (loss)
     per share               (0.13)       ($0.19)       ($0.02)       ($0.04)
    Basic income (loss)
     per share, normalized   $0.02        ($0.04)        $0.04         $0.02
    Weighted average
     common shares
     outstanding        63,773,369    63,605,190    63,517,071    63,323,829



    -------------------------------------------------------------------------
    ------------------------------------------------- -----------------------
                                                                  Net Income
    (In thousands of dollars)                            EBITDA        (Loss)
    ------------------------------------------------- -----------------------

    Actual results                FY2009          Q4      (9,409)     (8,467)
                                                 YTD      (9,529)    (12,341)
                                  FY2008          Q4       1,062      (1,219)
                                                 YTD       4,418      (2,405)
    ------------------------------------------------- -----------------------

    Goodwill and intangible
     assets impairment            FY2009          Q4      12,000       9,108
                                                 YTD      12,000       9,108
                                  FY2008          Q4       3,500       3,361
                                                 YTD       3,500       3,361
    ------------------------------------------------- -----------------------

    Store restructuring costs     FY2009          Q4         715         486
                                                 YTD         888         604
                                  FY2008          Q4           -           -
                                                 YTD           -           -
    ------------------------------------------------- -----------------------

    Corporate restructuring costs FY2009          Q4           -           -
                                                 YTD           -           -
                                  FY2008          Q4         140          91
                                                 YTD         885         576
    ------------------------------------------------- -----------------------

    Normalized results            FY2009          Q4       3,306       1,127
                                                 YTD       3,359      (2,629)
                                  FY2008          Q4       4,702       2,233
                                                 YTD       8,803       1,532
    ------------------------------------------------- -----------------------
    -------------------------------------------------------------------------
    

    Store Real Estate Activity

    During the quarter, the Company relocated and expanded a West 49 store in
the Midtown Plaza in Saskatoon, Saskatchewan. At the end of the quarter the
Company was operating 134 stores, consistent with fiscal 2008.
    Subsequent to January 31, 2009, the Company opened a West 49 store at the
Milton Centre, in Milton, Ontario. In addition, the company closed two stores:
an Off The Wall store at Lougheed Town Centre, in Burnaby, British Columbia,
due to lease expiry; and a Duke's Northshore store at Park Royal Shopping
Centre, in West Vancouver, British Columbia as part of the Company's strategic
decision to close this test concept.

    Store Restructuring Costs

    During fiscal 2009, the Company evaluated the performance of its test
concept, Duke's Northshore ("Duke's"), and decided to take strategic action to
close all four stores. As previously announced, one of the Duke's stores was
closed in the second quarter of fiscal 2009. Today, the Company announced that
it had taken a non-cash provision of $0.7 million in the fourth quarter of
fiscal 2009 on the remaining three Duke's stores, which will either be closed
or rebranded in fiscal 2010. The non-cash provision on these four stores was
$0.9 million, of which $0.5 million was recorded as capital asset impairments
and $0.4 million as a provision for lease penalties and other exit costs.
Given the size of the Duke's strategic restructuring, the Company has
separately disclosed the provision in its statement of earnings and has also
presented normalized results to exclude this non-cash, non-recurring charge.

    Goodwill and Intangible Asset Impairment

    The Company completed its annual goodwill and intangible asset impairment
test during the fourth quarter as required by generally accepted accounting
principles. As a result of the depressed capital markets and the current
macroeconomic environment and resulting impact on the Company's performance,
the Company recognized a non-cash, goodwill and intangible assets impairment
charge of $12.0 million in accordance with the Canadian Institute of Chartered
Accountants Section 3062: "Goodwill and Other Intangible Assets". The
impairment charge does not affect the Company's day-to-day business operations
or cash position. As is typical of many other companies, and given the size of
the impairment, the Company has separately disclosed this non-cash impairment
in its statement of earnings and has also presented normalized results to
exclude this non-cash charge.

    Banking Arrangements

    As at January 31, 2009, the Company was in violation of one of its bank
covenants. Subsequent to January 31, 2009, the Company obtained a waiver for
the default retroactive to January 31, 2009.
    The waiver obtained has the following conditions set forth based on
historical operating needs: the maximum limit on the Company's operating
credit facility was reduced to $6.0 million from $10.0 million; the seasonal
increase available on the operating line from April 1 to September 30 has been
lowered to $12.0 million from $15.0 million; the term loan facility has been
capped at $6.8 million, down from $8.5 million; and the credit facilities have
also been changed to a demand basis from a 364-day committed line.
    With uncertainties in the current economic environment, it is not
uncommon for banks to remove unutilized credit facilities. Throughout the
year, the Company has had varying amounts of unutilized credit facilities. The
bank indebtedness on the credit facility ranged from nil to $9.0 million at
the peak of the seasonal period. Management believes that the Company's
revised credit facilities, along with cash generated from operations, will be
sufficient to fund its operations and anticipated capital expenditures during
fiscal 2010. In addition, subsequent to January 31, 2009, the Company
completed an amalgamation of various corporate entities that will allow it to
realize a significant amount of non-capital tax losses carried forward from
prior years which will reduce the amount of tax instalments by $1.7 million in
fiscal 2010.
    The Company's credit facility renewal date is June 30, 2009. The Company
anticipates that it may be in violation of another covenant at the end of the
first quarter. The Company's bank is aware of this and the Company has already
begun a full renewal process with the bank to negotiate mutually acceptable
terms with the bank and anticipates this to be completed during the second
quarter of fiscal 2010.

    Outlook

    "Although, our inventory was a little higher at year end than it was the
year before, this was the result of a strategic decision to flow goods into
the stores earlier in January," said Mr. Baio. "This has helped our comparable
stores sales in February and March - the first two months of our first quarter
of fiscal 2010. During these two months, our comparable store sales have been
especially strong for our core West 49 banner, comping in the low double
digits. While we are pleased with the strong comparable store sales during the
first two months of our first quarter, we caution investors that we ran a
"No-Tax" discount event in our West 49 stores during the month of April last
year and we would be hard-pressed to comp positively to results for that
month."
    Speaking about the Company's longer-term outlook, Mr. Baio added: "We
remain focused on being the leading Canadian apparel retailer for the youth
action sports lifestyle. We continue to believe in the strong growth potential
of our business, especially our core West 49 banner. However, given the
current environment we have to be prudent and definitive in the actions we
take to preserve and grow our market share and strengthen our business. This
means that maximizing the value from existing operations will continue to take
precedence over other elements of our growth strategy over the near term."

    Notice of Conference Call

    The Company will host a conference call at 9:00 a.m. Eastern Time, on
Wednesday, April 22, 2009, to discuss its fiscal 2009 fourth quarter and year
end results. To access the conference call by telephone, dial 416-644-3420 or
1-800-594-3615. Please connect approximately 15 minutes prior to the beginning
of the call to ensure participation. The conference call will be archived for
replay until Wednesday, April 29, 2009 at midnight. To access the archived
conference call, dial 416-640-1917 or 1-877-289-8525 and enter the reservation
number 21303356 followed by the number sign.
    A live audio webcast of the Company's fourth quarter and year end results
conference call will be available at
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2614260. Please
connect at least 15 minutes prior to the conference call to ensure adequate
time for any software download that maybe required to join the webcast. The
webcast will be archived at the above web site for 90 days.

    Financial Statements

    For convenience, this press release includes excerpts from the Company's
Fiscal Year End Unaudited Consolidated Balance Sheets, Statements of
Operations and Comprehensive Loss and Statements of Cash Flows.


    
    -------------------------------------------------------------------------
    WEST 49 INC.
    CONSOLIDATED BALANCE SHEETS
    AS AT                                            January 31,  January 26,
    (In thousands of dollars)                              2009         2008
                                                    ------------ ------------

    Assets
      Current
        Cash and cash equivalents                   $     6,788  $     8,369
        Accounts receivable                               1,226        1,537
        Income taxes receivable                              16            -
        Inventories                                      28,552       24,998
        Future income taxes                               1,326            -
        Prepaid expenses                                    741          459
                                                    ------------ ------------
                                                         38,649       35,363

    Capital assets                                       26,897       28,205
    Deferred costs                                          640          755
    Due from related parties                                 10          138
    Future income taxes                                   2,142            -
    Goodwill                                             12,580       21,054
    Intangible assets                                    13,829       17,595
                                                    ------------ ------------
                                                    $    94,747  $   103,110
                                                    ------------ ------------
                                                    ------------ ------------
    Liabilities
      Current
        Accounts payable and accrued charges        $    27,792  $    23,203
        Income taxes payable                                  -          614
        Current portion of long-term debt                 6,843        1,023
        Current portion of deferred lease obligations       942          868
        Current preferred shares                             33           63
                                                    ------------ ------------
                                                         35,610       25,771

    Long-term debt                                            -        5,448
    Future income taxes                                       -        1,875
    Deferred lease obligations                            8,293        7,903
    Preferred shares                                      5,190        5,190
                                                    ------------ ------------
                                                         49,093       46,187
                                                    ------------ ------------
                                                    ------------ ------------
    Shareholders' Equity
        Share capital                                    63,371       62,961
        Contributed surplus                               2,054        2,238
        Deficit                                         (19,771)      (8,276)
                                                    ------------ ------------
                                                         45,654       56,923
                                                    ------------ ------------
                                                    ------------ ------------
                                                    $    94,747  $   103,110
                                                    ------------ ------------
                                                    ------------ ------------


    WEST 49 INC.
    CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
    FOR THE PERIODS ENDED
    (In thousands of dollars except
     per share amounts)                              January 31,  January 26,
                                                           2009         2008
                                                      (53 weeks)   (52 weeks)
                                                    ------------ ------------

    Net sales                                       $   210,417  $   204,894

    Cost of sales                                       163,588      152,486
                                                    ------------ ------------
                                                    ------------ ------------

    Gross margin                                         46,829       52,408

    Selling, general and administrative expenses         43,470       43,605
                                                    ------------ ------------

    Income before other expenses                          3,359        8,803
                                                    ------------ ------------

    Other expenses:
      Dividends on preferred shares                         351          424
      Interest expense on long-term debt                    602          621
      Amortization                                        5,862        5,479
      Restructuring costs                                   888          885

      Goodwill and intangible asset impairments          12,000        3,500
                                                    ------------ ------------
                                                         19,703       10,909
                                                    ------------ ------------

    Loss before income taxes                            (16,344)      (2,106)

    (Recovery) provision for income taxes                (4,003)         299
                                                    ------------ ------------

    Net loss and comprehensive loss                 $   (12,341) $    (2,405)
                                                    ------------ ------------
                                                    ------------ ------------


    Basic and diluted loss per share                $     (0.19) $     (0.04)
                                                    ------------ ------------
                                                    ------------ ------------


    WEST 49 INC.
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    FOR THE PERIODS ENDED
    (In thousands of dollars)                        January 31,  January 26,
                                                           2009         2008
                                                      (53 weeks)   (52 weeks)
                                                    ------------ ------------

    Operating Activities

    Net loss                                        $   (12,341) $    (2,405)
      Non-cash items included above:
      Amortization of capital assets                      5,622        5,169
      Amortization of deferred costs                        292          246
      Amortization of deferred lease inducements         (1,073)        (833)
      Amortization of intangible assets                     240          310
      Future income taxes                                (5,747)      (2,283)
      Impairment or disposition of store assets           1,400           61
      Goodwill and intangible assets impairment          12,000        3,500
      Straight-line rent expense                            281          484
      Stock based compensation                              226          554
                                                    ------------ ------------
                                                            900        4,803

    Changes in non-cash working capital
     from operations                                      1,434        2,283
                                                    ------------ ------------

    Net cash flows provided by operating activities       2,334        7,086
                                                    ------------ ------------

    Financing Activities

      Due from related parties                              128         (120)
      Increase in deferred costs                           (183)         (23)
      Increase in long-term debt                          2,000        4,150
      Issuance of common stock                                -           89
      Redemption of preferred shares                        (30)           -
      Repayment of long-term debt                        (1,628)      (1,448)
                                                    ------------ ------------

    Net cash flows provided by financing activities         287        2,648
                                                    ------------ ------------

    Investing Activities

      Additions to capital assets                        (5,370)      (7,693)
      Deferred lease inducements received                 1,168          855
      Proceeds from disposition of capital assets             -           60
                                                    ------------ ------------

    Net cash flows used by investing activities          (4,202)      (6,778)
                                                    ------------ ------------
                                                    ------------ ------------

    Net change in cash and cash equivalents              (1,581)       2,956

    Cash and cash equivalents, beginning of period        8,369        5,413
                                                    ------------ ------------

    Cash and cash equivalents, end of period        $     6,788  $     8,369
                                                    ------------ ------------
                                                    ------------ ------------

    Supplemental Disclosure

      Interest paid                                 $       619  $       567
      Dividends paid on preferred shares                    368          424
      Income taxes paid                                   2,425        3,841
    


    About West 49 Inc.

    West 49 Inc. is a leading Canadian specialty retailer of fashion and
apparel, footwear, accessories and equipment related to the youth action
sports lifestyle. The Company's stores, which are primarily mall-based, carry
a variety of high-performance, premium brand name and private label products
that fulfill the lifestyle needs of identified target markets, primarily
tweens and teens. As at January 31, 2009, the Company operated 134 stores in
nine provinces, under the banners West 49, Billabong, Off The Wall,
Amnesia/Arsenic, D-Tox and Duke's Northshore, as well as two ecommerce sites,
www.shop.west49.com and www.boardzone.com. The Company's common shares are
listed on the Toronto Stock Exchange under the symbol WXX. The Company has
approximately 64 million shares outstanding.

    Forward-Looking Statements

    Information in this news release that is not current or historical
factual information may constitute forward-looking information. Implicit in
this information, particularly in respect of future operating results and
economic performance of the Company are assumptions regarding projected
revenue, gross margin and expenses. The assumptions, although considered
reasonable by the Company at the time of preparation, may prove to be
incorrect. Investors are cautioned that forward-looking information involves
known and unknown risks, uncertainties and numerous other factors that may
cause actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by
the forward-looking information. The following includes some of the factors
that could cause actual results, performance or achievements to differ
materially from those expressed in or implied by any forward-looking
information made by or on behalf of the Company: competition, changes in
demographic trends, changes in consumer preferences and discretionary spending
patterns, changes in business and economic conditions, human resource matters,
legal proceedings, challenges to intellectual property rights, and changes in
laws, regulations, and accounting policies and practices. The foregoing list
of factors is not exhaustive. In formulating the forward-looking information
contained herein, management has assumed that business and economic conditions
affecting the Company's operations will continue substantially in the ordinary
course, including without limitation with respect to industry conditions,
general levels of economic activity, laws, regulations, taxes, foreign
exchange rates, minimum wage rates and interest rates, weather, that there
will be no outbreaks of disease or public safety issues, and that there will
be no unplanned material changes in its facilities, equipment, supplies, with
respect to relations with customers, suppliers, landlords and employees, or
with respect to credit availability, among other things. These assumptions,
although considered reasonable by management at the time of preparation, may
prove to be incorrect. Accordingly, investors should not place undue reliance
on forward-looking information. The Company includes in publicly available
documents filed from time to time with securities commissions and the Toronto
Stock Exchange, a thorough discussion of the risk factors that can cause
anticipated outcomes to differ from actual outcomes. Forward-looking
information is provided as of the date of this news release only, it should
not be relied upon as of any other date, and the Company assumes no obligation
to update or revise this information to reflect new events or circumstances,
except as expressly required by law.

    
    (1) Normalized results exclude transactions that, in management's
        opinion, do not arise as part of the normal day-to-day operations and
        by excluding these items, management believes readers are provided
        with a more meaningful comparison of results for the fiscal years
        2009 and 2008. Normalized results for the fiscal 2009 fourth quarter
        exclude non-cash store restructuring charges, goodwill and intangible
        impairments of $12.7 million (after tax $9.6 million) and corporate
        restructuring charges and goodwill impairment of $3.6 million (after
        tax $3.5 million) in the prior year. Normalized results for the
        fiscal year 2009 exclude non-cash store restructuring charges,
        goodwill and intangible impairments of $12.9 million (after tax $9.7
        million) and corporate restructuring charges and goodwill impairment
        of $4.4 million (after tax $3.9 million) in the prior year.

    (2) EBITDA, which is defined as earnings (loss) before interest, taxes,
        dividends, depreciation and amortization, is not a financial
        measure recognized by Canadian generally accepted accounting
        principles ("GAAP") and does not have a standardized meaning
        prescribed by GAAP. The Company believes that this Non-GAAP financial
        measure provides meaningful information on the Company's performance
        and operating results. Readers are cautioned that EBITDA has no
        standardized meaning as prescribed by GAAP and may not be comparable
        to similar measures presented by other companies. Further, readers
        are cautioned that EBITDA should not replace net income or loss or
        cash flows from operating, investing and financing activities (as
        determined in accordance with GAAP), as an indicator of the Company's
        performance.
    





For further information:

For further information: Rhonda Biddix, Chief Financial Officer and
Corporate Secretary, West 49 Inc., (905) 336-5454 ext. 224, E-mail:
ir@west49.com; Trevor Heisler, Investor Relations, The Equicom Group Inc.,
(416) 815-0700 ext. 270, E-mail: theisler@equicomgroup.com

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