West 49 Inc. reports stronger third quarter results

- Higher gross margin and bottom line achieved on lower sales -

Toronto Stock Exchange Symbol: WXX

BURLINGTON, ON, Dec. 10 /CNW/ - West 49 Inc. (TSX: WXX) (the "Company"), Canada's leading action sport retailer, today reported its financial results for its third quarter ended October 31, 2009.

Third quarter highlights:

    
    -   EBITDA(1) of $5.9 million, an improvement of $1.1 million from the
        third quarter a year ago;
    -   Net income improved to $2.9 million, or $0.05 per share, compared to
        $2.1 million, or $0.03 per share, a year ago;
    -   Gross margin increased 180 basis points to 27.9% of net sales. Gross
        margin increased $0.5 to $16.6 million despite net sales declining
        3.7% to $59.4 million;
    -   Selling, general and administrative ("SG&A") expense reduction of
        $0.6 million. SG&A expenses as a rate to net sales improved 30 basis
        points to 18.0%.
    

"We improved our margins and profitability despite a highly competitive and increasingly discount-oriented retail landscape," said Sam Baio, Chief Executive Officer of West 49 Inc. "We strategically stocked our stores in advance of an earlier and longer Back-to-School selling period. We worked closely with our vendors to offer fresh merchandise and offer value for our customers. On the cost side, the continued, solid execution of our business plan translated to improvement in our SG&A expenses as a rate to net sales for the seventh consecutive quarter."

Financial Results

    
    (Amounts in thousands of $ except per share amounts and weighted
    averages)

                                      Fiscal 2010             Fiscal 2009
                                   Third    Year-to-       Third    Year-to-
                                 Quarter        Date     Quarter        Date

    Net sales                     59,440     143,827      61,723     145,658
    Gross margin                  16,580      33,479      16,139      30,567
    EBITDA (loss)                  5,901       4,019       4,844        (120)
    Net income (loss)              2,898        (673)      2,074      (3,874)
    Basic income (loss) per
     share                         $0.05      ($0.01)      $0.03      ($0.06)
    Weighted average common
     shares outstanding
     (millions)                     63.8        63.8        63.5        63.5
    

Gross margin for the quarter increased 180 basis points to 27.9% of net sales from 26.1% of net sales for the third quarter of last year. In dollars, gross margin increased $0.5 million to $16.6 million despite net sales declining 3.7% to $59.4 million. The improved gross margin was largely the result of continued improvements in product margins and the progress made on the supply chain side as the Company improved the flow of goods into its stores and reduced its supply chain costs. The lower net sales for the quarter was driven by a 6.0% decrease in consolidated comparable store sales, impacted by continued weakness in consumer confidence and a highly competitive retail environment. The Company's core West 49 banner was more resilient, with comparable store sales down 1.2% for the quarter.

Selling, general and administrative ("SG&A") expenses decreased $0.6 million to $10.7 million, or 18.0% of net sales, a 30 basis point improvement. The higher gross margin achieved and the Company's continued focus on cost reduction and containment resulted in a $1.1 million improvement in EBITDA for the quarter. EBITDA was $5.9 million compared to $4.8 million for the third quarter of last year.

Net income for the quarter improved to $2.9 million, or $0.05 per share, from $2.1 million, or $0.03 per share, for the third quarter of last year.

Store Real Estate Activity

During the third quarter, the Company opened a West 49 store and an Off The Wall store at CrossIron Mills, in Rocky View, Alberta. The Company also relocated and expanded three West 49 stores in: Pickering Town Centre, in Pickering, Ontario; Lansdowne Place, in Peterborough, Ontario; and St. Vital Shopping Centre, in Winnipeg, Manitoba.

Subsequent to the quarter end, the Company opened a new West 49 outlet in Cambridge Smart Centres, in Cambridge, Ontario and an Amnesia store in Carrefour du Nord, in St. Jerome, Quebec. The Company also signed a new lease for a West 49 outlet at Highway 7 and Highway 400, in Toronto, Ontario, which was previously only a temporary location.

Outlook

"We are certainly encouraged by the strength and relevancy of our core business during these challenging times. In fact, we feel it is a testament to the hard work we have done and to our strong growth potential going forward," said Mr. Baio. "We have strengthened our business significantly over the course of the recent recession and are well positioned for growth as the economy starts to recover and consumer confidence rebounds. Notwithstanding our growth prospects for the future, this Holiday season remains highly uncertain, especially as it relates to girls apparel."

Notice of Conference Call

The Company will host a conference call on Thursday, December 10, 2009 at 9:00 a.m. (ET) to discuss its fiscal 2010 third quarter results. The Company will report its third quarter results via news release at approximately 7:00 a.m. the same day. To access the conference call by telephone, dial 416-644-3426 or 1-800-731-5319. 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, December 17, 2009 at midnight. To access the archived conference call, dial 416-640-1917 or 1-877-289-8525 and enter the reservation number 4187649 followed by the number sign.

A live audio webcast of the Company's second quarter results conference call will be available at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2899820. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be archived at the above web site for 90 days.

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. The Company currently operates 133 stores in nine provinces, under the banners West 49, Billabong, Off The Wall, Amnesia/Arsenic and D-Tox. The Company's common shares are listed on the Toronto Stock Exchange under the symbol WXX. The Company has approximately 64 million shares outstanding.

Follow West 49 Inc. on Twitter at http://twitter.com/West49Inc

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) 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.

Financial Information

For convenience, this press release includes the Company's Fiscal 2010 Third Quarter Unaudited Consolidated Balance Sheets, Statements of Operations and Comprehensive Income (Loss) and Statements of Cash Flows.

    
    WEST 49 INC.
    CONSOLIDATED BALANCE SHEETS
    AS AT                                             October 31, January 31,
    (Unaudited, in thousands of dollars)                    2009        2009
                                                      ----------- -----------
    Assets
      Current
        Cash and cash equivalents                      $   1,577   $   6,788
        Accounts receivable                                1,386       1,226
        Income taxes receivable                                -          16
        Inventories                                       45,696      28,552
        Future income taxes                                1,628       1,326
        Prepaid expenses                                     672         741
                                                      ----------- -----------
                                                          50,959      38,649

    Capital assets                                        26,315      27,399
    Deferred costs                                           109         138
    Due from related parties                                  35          10
    Future income taxes                                    2,185       2,142
    Goodwill                                              12,580      12,580
    Intangible assets                                     13,829      13,829
                                                      ----------- -----------
                                                      ----------- -----------
                                                       $ 106,012   $  94,747
                                                      ----------- -----------
                                                      ----------- -----------

    Liabilities
      Current
        Accounts payable and accrued charges           $  40,152   $  27,792
        Current portion of long-term debt                  6,315       6,843
        Current portion of deferred lease obligations        940         942
        Current preferred shares                              18          33
                                                      ----------- -----------
                                                      ----------- -----------
                                                          47,425      35,610

    Deferred lease obligations                             8,398       8,293
    Preferred shares                                       5,190       5,190
                                                      ----------- -----------
                                                          61,013      49,093
                                                      ----------- -----------
                                                      ----------- -----------
    Shareholders' Equity
        Share capital                                     63,371      63,371
        Contributed surplus                                2,072       2,054
        Deficit                                          (20,444)    (19,771)
                                                      ----------- -----------
                                                          44,999      45,654
                                                      ----------- -----------
                                                      ----------- -----------
                                                       $ 106,012   $  94,747
                                                      ----------- -----------
                                                      ----------- -----------



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

                                     For the 13 Week         For the 39 Week
                                      Periods Ending          Periods Ending
                              October 31, October 25, October 31, October 25,
                                    2009        2008        2009        2008
                              ----------- ----------- ----------- -----------

    Net sales                  $  59,440   $  61,723   $ 143,827   $ 145,658

    Cost of sales                 42,860      45,584     110,348     115,091
                              ----------- ----------- ----------- -----------

    Gross margin                  16,580      16,139      33,479      30,567

    Selling, general and
     administrative expenses      10,679      11,295      29,460      30,514
                              ----------- ----------- ----------- -----------

    Income before other expenses   5,901       4,844       4,019          53
                              ----------- ----------- ----------- -----------

    Other expenses:
      Dividends on preferred
       shares                         56          87         171         272
      Interest expense on
       long-term debt                126         148         447         478
      Amortization                 1,431       1,405       4,289       4,447
      Restructuring costs              -           -           -         173
                              ----------- ----------- ----------- -----------
                                   1,613       1,640       4,907       5,370
                              ----------- ----------- ----------- -----------

    Income (loss) before
     income taxes                  4,288       3,204        (888)     (5,317)

    Income tax expense (recovery)  1,390       1,130        (215)     (1,443)
                              ----------- ----------- ----------- -----------
    Net income (loss) and
     comprehensive income
     (loss)                    $   2,898   $   2,074   $    (673)  $  (3,874)
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Basic income (loss) per
     share                     $    0.05   $    0.03   $   (0.01)  $   (0.06)
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Diluted income (loss) per
     share                     $    0.04   $    0.03   $   (0.01)  $   (0.06)
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------



    WEST 49 INC.
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Unaudited, in thousands of dollars)

                                     For the 13 Week         For the 39 Week
                                      Periods Ending          Periods Ending
                              October 31, October 25, October 31, October 25,
                                    2009        2008        2009        2008
                              ----------- ----------- ----------- -----------

    Operating Activities

    Net income (loss)          $   2,898   $   2,074   $    (673)  $  (3,874)
      Non-cash items included
       above:
      Amortization of capital
       assets                      1,431       1,349       4,289       4,250
      Amortization of deferred
       costs                          36          58         141         223
      Amortization of deferred
       lease inducements            (247)       (169)       (733)       (692)
      Amortization of intangible
       assets                          -          56           -         197
      Future income taxes          1,271         468        (345)     (2,203)
      Impairment or disposition
       of store assets                 -         168         123         323
      Straight-line rent expense      12          58         129         236
      Stock based compensation         8          78          18         225
                              ----------- ----------- ----------- -----------
                                   5,409       4,140       2,949      (1,315)

    Changes in non-cash working
     capital from operations       2,159      (1,774)     (5,136)     (7,368)
                              ----------- ----------- ----------- -----------

    Net cash flows from
     operating activities          7,568       2,366      (2,187)     (8,683)
                              ----------- ----------- ----------- -----------

    Financing Activities
      Due from related parties        60          (5)        (25)         27
      Increase in deferred costs     (32)        (94)       (112)       (167)
      Redemption of preferred
       shares                          -           -         (15)        (30)
      Repayment of long-term debt      -        (202)       (528)       (417)
                              ----------- ----------- ----------- -----------

    Net cash flows from financing
     activities                       28        (301)       (680)       (587)
                              ----------- ----------- ----------- -----------

    Investing Activities

      Additions to capital assets   (788)       (655)     (3,105)     (3,793)
      Deferred lease inducements
       received                       82          19         761         959
                              ----------- ----------- ----------- -----------

    Net cash flows from investing
     activities                     (706)       (636)     (2,344)     (2,834)
                              ----------- ----------- ----------- -----------
    Net change in cash and cash
     equivalents                   6,890       1,429      (5,211)    (12,104)

    Cash and cash equivalents,
     beginning of period          (5,313)     (5,164)      6,788       8,369
                              ----------- ----------- ----------- -----------

    Cash and cash equivalents,
     end of period             $   1,577   $  (3,735)  $   1,577   $  (3,735)
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Supplemental Disclosure
      Interest paid            $     163   $     167   $     484   $     552
      Dividends paid on
       preferred shares               55          89         182         285
      Income taxes paid                -         478           -       1,985
    

SOURCE WEST 49 INC.

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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WEST 49 INC.

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