West 49 Inc. reports second quarter results



    - Company achieves positive EBITDA during seasonally weaker period -

    Toronto Stock Exchange Symbol: WXX

    BURLINGTON, ON, Sept. 6 /CNW/ - West 49 Inc. (TSX: WXX) (the "Company"),
Canada's leading action sport retailer, today reported its financial results
for its second quarter of fiscal 2008, ended July 28, 2007. All figures are
reported in Canadian dollars.

    
    Second quarter highlights:

      -   Net sales increased 6.8% to $42.4 million;
      -   Gross margin rate increased 250 basis points to 25.2% of net sales;
      -   Selling, general and administrative expenses ("SG&A") decreased
          80 basis points to 22.9% as a rate to net sales, excluding
          restructuring costs;
      -   Normalized EBITDA(1) of $0.9 million, marked the first time the
          Company achieved positive EBITDA for its seasonally weaker second
          quarter;
      -   Net loss of $0.5 million, or $0.01 per share (excluding the after-
          tax impact of the restructuring costs during the quarter); and
      -   The Company opened three new stores, relocated and expanded three
          stores and closed a store during the quarter.
    

    "Our second quarter results reflect successful execution of our
strategies to maximize returns from existing operations and grow our banners
across Canada," said Sam Baio, Chief Executive Officer of West 49 Inc. "We
improved our gross margin, benefited from our commitment to improving expense
management, and relocated and expanded three stores to more optimum locations
and sizes. We continued our momentum in store openings with three new stores
during the quarter and expanded our total retail square footage to date by
8.1%. Given the seasonality inherent in our business, we are pleased with the
continued improvement in our EBITDA and the reduction of our net loss for the
quarter relative to the second quarter of last year."

    Financial Results for the Quarter

    Net sales for the second quarter of fiscal 2008 increased 6.8% to
$42.4 million from $39.7 million for the second quarter of last year. Most of
the growth was the result of new stores opened by the Company since the second
quarter of last year. Consolidated comparable store sales increased 0.3%, with
the West 49 banner achieving comparable store sales growth of 1.9%.
    Gross margin for the quarter increased 18.9% to $10.7 million from
$9.0 million for the same period in fiscal 2007. Gross margin as a rate to net
sales increased 250 basis points to 25.2% compared with 22.7% for the second
quarter of fiscal 2007. The improved rate was attributable to increased
product margins.
    Normalized EBITDA for the quarter, which excludes restructuring costs of
$0.1 million related to the Company's shared service initiative, was
$0.9 million compared to a loss of $0.4 million for the second quarter of last
year. The improvement in EBITDA was primarily the result of the higher gross
margin achieved during the quarter. An 80 basis point reduction in SG&A,
achieved through more effective expense management, also contributed to the
improved EBITDA during the quarter.
    Net loss for the quarter (excluding the after-tax impact of the
restructuring costs during the quarter) was $0.5 million, or $0.01 per share,
compared to a net loss of $0.8 million, or $0.01 per share, for the same
period last year. The loss per share is based on a weighted average of
63,254,236 common shares during the quarter compared to a weighted average of
62,033,784 common shares during the second quarter of fiscal 2007.

    Financial Results for the Six-Month Period

    Net sales for the six-month period of fiscal 2008 increased 10.9% to
$83.4 million compared to $75.2 million in the corresponding period of fiscal
2007. Comparable store sales increased 1.5% on a consolidated basis, with the
West 49 banner achieving comparable store sales growth of 2.2%.
    Gross margin for the six-month period increased 8.3% to $18.2 million
compared to $16.8 million the year before. As a rate to net sales, gross
margin declined 50 basis points to 21.8% compared to 22.3% the previous year.
    Normalized EBITDA loss for the period was $1.7 million compared to a loss
of $1.6 million for the same period last year. Net loss for the period
(excluding the after-tax impact of $0.5 million for restructuring costs) was
$3.3 million, or $0.05 per common share, compared with a net loss of
$2.6 million, or $0.04 per common share for the same period last year. The
loss per share is based on a weighted average of 63,231,249 common shares
compared to a weighted average of 61,976,915 common shares during the same
period last year.
    The table below is a reconciliation of the Company's normalized EBITDA to
consolidated net loss for the second quarter and six-month period of fiscal
2008:

    
    -------------------------------------------------------------------------
    ---------------------- --------------------------------------------------
                                   Q2           Q2          YTD          YTD
    (In thousands)             FY2008       FY2007       FY2008       FY2007
    ---------------------- --------------------------------------------------
    EBITDA - normalized    $      904   $     (372)  $   (1,653)  $   (1,637)
    Less:
      Restructuring costs          68            -          702            -

                           --------------------------------------------------
    EBITDA                 $      836   $     (372)  $   (2,355)  $   (1,637)
    Less:
      Amortization              1,368        1,065        2,815        2,082
      Interest and
       dividends                  391          286          545          490
      Income taxes               (334)        (901)      (1,938)      (1,627)

                           --------------------------------------------------
    Net loss               $     (589)  $     (822)  $   (3,777)  $   (2,582)
                           --------------------------------------------------
                           --------------------------------------------------

    -------------------------------------------------------------------------
    

    Store Openings, Relocations and Expansions

    During the quarter, the Company continued to execute its strategy to grow
its complementary banners across Canada, opening three new stores: a West 49
store in Timmins, Ontario, a D-Tox store in London, Ontario, and a Duke's
Northshore store in West Vancouver, British Columbia. The Company also closed
an Amnesia store in Laval, Quebec, as previously disclosed. At the end of the
quarter, the Company was operating 130 stores compared to 118 stores at the
end of the second quarter of last year.
    In keeping with the Company's strategy to maximize returns from existing
stores, during the quarter, the Company relocated and expanded two West 49
stores in Mississauga, Ontario and Halifax, Nova Scotia and one Billabong
store in Whistler, British Columbia.
    Subsequent to quarter end, the Company opened two new stores: a Duke's
Northshore store in Toronto, Ontario and a D-Tox store in Halifax, Nova
Scotia. In addition, the Company relocated and expanded a West 49 store in Red
Deer, Alberta.

    Outlook

    "We are well-positioned heading into the back half of the year, which has
traditionally been a very strong period for West 49 Inc. due to the inclusion
of the Back-to-School and Holiday selling seasons," said Mr. Baio. "With nine
new store openings and seven relocations and expansions completed to date, we
are confident that we will achieve our fiscal 2008 targets of opening ten to
twelve new stores and relocating and expanding eight to ten others. In
addition, we remain on track with the accelerated roll-out of our shared
services initiative, which is designed to strengthen our bottom line, better
position the Company for future growth, and enhance our controls."

    Notice of Conference Call

    At 9:00 a.m. Eastern Time, on Thursday, September 6, 2007, the Company's
management team will host a conference call to discuss the financial results
for the quarter. To access the conference call by telephone, dial 416-644-3417
or 1-800-733-7560. Please connect approximately 15 minutes prior to the
beginning of the call to ensure participation. The conference call will be
archived for replay until Thursday, September 13, 2007 at midnight. To access
the archived conference call, dial 416-640-1917 or 1-877-289-8525 and enter
the reservation number 21244756 followed by the number sign.
    A live audio webcast of the second quarter conference call will be
available at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1987480.
Please connect at least 15 minutes prior to the conference call to ensure
adequate time for any software download that may be required. The webcast will
be archived at the above website for 90 days.

    Financial Statements

    For convenience, this press release includes the Company's Fiscal 2008
Second Quarter Unaudited Consolidated Balance Sheets, Statements of Operations
and Comprehensive Income and Statements of Cash Flows.

    
    WEST 49 INC.
    CONSOLIDATED BALANCE SHEETS
    AS AT                                               JULY 28,  JANUARY 27,
    (Unaudited, in thousands of dollars)                   2007         2007
                                                     -----------  -----------
    ASSETS
      Current
        Cash and cash equivalents                    $        -   $    5,413
        Accounts receivable                               2,366        3,007
        Income taxes receivable                             546            -
        Inventory                                        36,725       24,025
        Future income taxes                               1,971            -
        Prepaid expenses                                    549          791
                                                     -----------  -----------
                                                     -----------  -----------
                                                         42,157       33,236

    Capital assets                                       27,074       25,452
    Deferred costs                                          830          901
    Due from related parties                                160           18
    Goodwill                                             24,554       24,554
    Other intangibles                                    17,750       17,905
                                                     -----------  -----------
                                                     -----------  -----------
                                                     $  112,525   $  102,066
                                                     -----------  -----------
    LIABILITIES
      Current
        Bank indebtedness                            $    6,265   $        -
        Accounts payable and accrued charges             30,221       20,589
        Income taxes payable                                  -        1,774
        Current portion of long-term debt                 2,935        3,755
        Current portion of lease inducements                844          783
                                                     -----------  -----------
                                                         40,265       26,901

    Long-term debt                                            1           14
    Future income taxes                                   3,823        4,158
    Preferred shares                                      5,253        5,253
    Deferred rent                                         2,728        2,079
    Deferred lease inducements                            5,105        4,976
                                                     -----------  -----------
                                                         57,175       43,381
                                                     -----------  -----------
    SHAREHOLDERS' EQUITY
        Share capital                                    62,587       62,438
        Contributed surplus                               2,411        2,118
        Deficit                                          (9,648)      (5,871)
                                                     -----------  -----------
                                                     -----------  -----------
                                                         55,350       58,685
                                                     -----------  -----------
                                                     -----------  -----------
                                                     $  112,525   $  102,066
                                                     -----------  -----------
                                                     -----------  -----------


    WEST 49 INC.
    CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
    (Unaudited, in thousands of dollars except per share amounts)

                                 FOR THE 3-MONTH           FOR THE 6-MONTH
                                  PERIOD ENDING             PERIOD ENDING
                              JULY 28,     JULY 29,     JULY 28,     JULY 29,
                                 2007         2006         2007         2006
                           -----------  -----------  -----------  -----------
    Net sales              $   42,426   $   39,677   $   83,423   $   75,171

    Cost of sales              31,760       30,659       65,202       58,369
                           -----------  -----------  -----------  -----------

    Gross margin               10,666        9,018       18,221       16,802

    Selling, general and
     administrative
     expenses                   9,830        9,390       20,576       18,439
                           -----------  -----------  -----------  -----------

    Income (loss) before
     other expenses               836         (372)      (2,355)      (1,637)
                           -----------  -----------  -----------  -----------

    Other expenses:
      Dividends on preferred
       shares                     105          105          210          204
      Interest expense on
       long-term debt             286          181          335          286
      Amortization              1,368        1,065        2,815        2,082
                           -----------  -----------  -----------  -----------

                                1,759        1,351        3,360        2,572
                           -----------  -----------  -----------  -----------

    Loss before income
     taxes                       (923)      (1,723)      (5,715)      (4,209)

    Income taxes                 (334)        (901)      (1,938)      (1,627)
                           -----------  -----------  -----------  -----------

    Net loss and
     comprehensive loss    $     (589)  $     (822)  $   (3,777)  $   (2,582)
                           -----------  -----------  -----------  -----------
                           -----------  -----------  -----------  -----------


    Basic and diluted
     loss per share        $    (0.01)  $    (0.01)  $    (0.06)  $    (0.04)
                           -----------  -----------  -----------  -----------
                           -----------  -----------  -----------  -----------



    WEST 49 INC.
    CONSOLIDATED STATEMENTS OF CASH FLOWS

    (Unaudited, in               FOR THE 3-MONTH           FOR THE 6-MONTH
    thousands of dollars)         PERIOD ENDING             PERIOD ENDING
                              JULY 28,     JULY 29,     JULY 28,     JULY 29,
                                 2007         2006         2007         2006
                           -----------  -----------  -----------  -----------
    OPERATING ACTIVITIES

    Net loss               $     (589)  $     (822)  $   (3,777)  $   (2,582)
      Items not affecting
       cash:
      Amortization of
       capital assets           1,291        1,016        2,660        1,989
      Amortization of
       deferred costs             (39)          88          162          167
      Amortization of
       deferred lease
       inducements               (206)        (168)        (403)        (332)
      Amortization of
       other intangibles           77           47          155           93
      Future income taxes        (703)        (792)      (2,307)      (1,527)
       (Gain) loss from
       disposition of
       capital assets             (11)         (93)         (74)          11
      Straight-line rent
       expense                    102          204          297          355
      Stock based
       compensation               173          305          337          671
                           -----------  -----------  -----------  -----------
                                   95         (215)      (2,950)      (1,155)

    Changes in non-cash
     working capital
     from operations           (2,956)         876       (4,505)      (2,265)
                           -----------  -----------  -----------  -----------
    Net cash flows (used by)
     provided by operating
     activities                (2,861)         661       (7,455)      (3,420)
                           -----------  -----------  -----------  -----------

    FINANCING ACTIVITIES

      Due to/from related
       parties                    (71)         (78)        (141)        (139)
      Decrease (increase)
       in deferred costs          277          (62)         (14)        (237)
      Increase in long-term
       debt                       500            -          500        3,000
      Issuance of common
       stock                       76            4          105           26
      Repayment of long-term
       debt                      (354)        (469)      (1,333)      (1,563)
                           -----------  -----------  -----------  -----------
    Net cash flows provided
     by (used by) financing
     activities                   428         (605)        (883)       1,087
                           -----------  -----------  -----------  -----------

    INVESTING ACTIVITIES

      Additions to capital
       assets                  (1,574)      (3,915)      (4,019)      (6,790)
      Acquisition costs of
       Modes Freedom assets,
       net of cash                  -            -            -           (6)
      Acquisition costs of
       Board Zone Inc., net
       of cash                      -            -            -          (10)
      Deferred lease
       inducements received       507          543          619          617
      Proceeds from
       disposition of capital
       assets                       -            -           60            -
                           -----------  -----------  -----------  -----------
    Net cash flows used by
     investing activities      (1,067)      (3,372)      (3,340)      (6,189)
                           -----------  -----------  -----------  -----------
    Decrease in cash and
     cash equivalents          (3,500)      (3,316)     (11,678)      (8,522)

    Cash and cash
     equivalents, beginning
     of period                 (2,765)      (2,446)       5,413        2,760
                           -----------  -----------  -----------  -----------

    Cash and cash
     equivalents, end of
     period                $   (6,265)  $   (5,762)  $   (6,265)  $   (5,762)
                           -----------  -----------  -----------  -----------
                           -----------  -----------  -----------  -----------

    SUPPLEMENTAL DISCLOSURE

      Interest paid        $      168   $      158   $      192   $      252
      Dividends paid              105            4          210           89
      Income taxes paid         1,363            -        2,829            -
    

    About West 49 Inc.

    West 49 Inc. is a leading Canadian multi-banner specialty retailer of
apparel, footwear, accessories and equipment related to skateboarding,
snowboarding, and surfing, as well as the music industry, and fashion-forward
young women. 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 need of identified target markets, primarily tweens
and teens (ages 10 through 18). As at July 28, 2007, the Company operated
130 stores in nine provinces, under the banners West 49, Billabong, Off The
Wall, Amnesia/Arsenic, D-Tox, and Duke's Northshore, and an online retailer
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 are assumptions that, although considered reasonable by the
Company at the time of preparation, may prove to be incorrect. Readers are
cautioned that forward-looking information involves known and unknown risks,
uncertainties and 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.
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, and the Company assumes no obligation to update or
revise them to reflect new events or circumstances.

    (1) Normalized EBITDA, which is defined as earnings (loss) before
interest, taxes, dividends, depreciation and amortization and which excludes
one-time restructuring charges of $0.1 million in the second quarter and
$0.6 million in the first quarter of fiscal 2008, 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. However, readers are cautioned
that Normalized 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 Normalized 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 Allen, Director, Finance West 49 Inc.,
(905) 336-5454 x 224, E-mail: rallen@west49.com; Trevor Heisler, Investor
Relations, The Equicom Group Inc., (416) 815-0700 ext. 270, E-mail:
theisler@equicomgroup.com

Organization Profile

WEST 49 INC.

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