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Focused on increased profitability - positioned for early debt retirement with $141.1 million cash at December 31, 2011 and no borrowings under its credit facility
EDMONTON, March 20, 2012 /CNW/ - The Brick Ltd. (TSX: BRK) (the "Brick Group" or the "Brick") today announced its results for the three months and year ended December 31, 2011. Financial statements and Management's Discussion and Analysis are available on the Brick Group's website at thebrick.com and on SEDAR.
Q4 2011 highlights include:
|-||EBITDA of $33.6 million, up 3.6% or $1.2 million over Q4 2010.|
|-||$16.9 million pre-tax net income, $0.4 million or 2.4% below Q4 2010's comparable result of $17.3 million, before taxes and other items. Q4 2011 net income, after tax, was $13.2 million compared to $14.2 million in 2010.|
|-||$141.1 million cash and cash equivalents at December 31, 2011 compared to $69.8 million at December 31, 2010. The Brick Group has not borrowed under its asset-based credit facility since the second quarter of 2010.|
|-||Gross margin rate increase of 40 basis points to 44.5% as compared to 44.1% in Q4 2010|
|-||Operating expenses were reduced by $2.4 million or 2.1%.|
|-|| Total system sales, including franchise sales at retail, decreased 1.1% compared to Q4 2010, with our retail business being positive and commercial business down from 2010. Same store sales, including franchise and commercial business, decreased 1.0%.
2011 annual highlights include:
|-||EBITDA of $111.5 million, up 13.7% or $13.4 million over 2010.|
|-||$50.3 million pre-tax net income, up $14.7 million or 41.4% over 2010's result of $35.6 million, before taxes and other items; 2011 net income was $35.9 million or $88.9 million higher than the $53.0 million net loss recorded for 2010.|
|-||Diluted earnings per share of $0.27|
|-||Gross margin rate increase of 110 basis points to 44.2% as compared to 43.1% during the same period in 2010.|
|-||Operating expenses decreased $5.5 million or 1.1% from 2010 and as a percentage of sales, remained relatively flat.|
|-||2011 same store sales decreased 1.6% for the year, compared to 2010, driven by a decline in our commercial sales business that offset gains in our retail and franchise sales combined.|
|-|| Total system sales, including franchise sales at retail, decreased 0.4%
Vi Konkle, President and CEO of the Brick Group commented "The Brick Group performed well in an uncertain economic environment, as demonstrated by both our fourth quarter and annual 2011 financial results. While total system sales were down vs. prior year, the declines were driven by our commercial sales channel, with our core retail and franchise business delivering positive results. We believe that we have once again captured a greater share of the market. In addition to sector-leading sales performance, the Brick team delivered record gross margin results, reflecting our disciplined assortment and inventory planning processes, which have allowed us to respond with flexibility and agility, keeping our inventory fresh, and delivering record in-stock levels. Our product mix has also been a significant contributor to our margin performance, shifting towards greater sales within our higher margin mattress category".
"More recently, on March 9, 2012, we entered into a new 5 year, $100 million asset-based credit facility with BMO Bank of Montreal as lead lender, replacing the previous asset-based credit facility from GE Capital. The new BMO asset-based credit facility also includes a $50 million accordion feature that potentially provides total borrowing capacity of up to $150 million. Continuing with our diligent focus on controlling costs, I am proud to announce that the new agreement includes reduced rates and improved credit flexibility. Following efforts already taken to improve our capital structure, such as the normal course issuer bids that commenced in 2010, and the Q2 2011 cashless exercise of warrants, on March 12, 2012 we announced the commencement of a cash tender offer for early retirement of our outstanding 12% senior secured debentures. The latest date to tender debentures, pursuant to the offer, is April 9, 2012. Commensurate with the number of Debentures redeemed on April 9, 2012, Debenture interest expense recognized in our financial statements including cash payments of Debenture interest made in periods subsequent to April 9, 2012 will reduce from the $18.9 million included in our financial statements for the year ended December 31, 2011. We believe the combination of the debenture offering and our new credit facility speaks highly to the progress made over the past few years to strengthen Brick's financial position and to increase shareholder value", added Ms. Konkle.
Consolidated Results Summary:
|For the three months ended December 31||For the year ended December 31|
|2011||2010||$ Increase||% Increase||2011||2010||$ Increase||% Increase|
|(000's of $ except % and per share amounts)||(Decrease)||(Decrease)||(Decrease)||(Decrease)|
|Cost of sales||(201,001)||(208,158)||(7,157)||-3.4%||(753,977)||(782,734)||(28,757)||-3.7%|
|Gross margin as a percentage of sales||44.5%||44.1%||0.4%||44.2%||43.1%||1.1%|
|Finance income and other income||1,199||177||1,022||577.4%||3,362||247||3,115||1261.1%|
|EBITDA as a percentage of sales||9.3%||8.7%||8.2%||7.1%|
|Depreciation and amortization||(7,198)||(7,989)||(791)||-9.9%||(30,206)||(32,415)||(2,209)||-6.8%|
|Income before fair value change, impairment reversal and income taxes||16,915||17,327||(412)||-2.4%||50,316||35,589||14,727||41.4%|
|Change in fair value of warrants||-||(17,302)||17,302||100.0%||-||(138,049)||138,049||100.0%|
|Reversal of intangible asset impairment||-||15,192||(15,192)||-100.0%||-||68,201||(68,201)||-100.0%|
|Income (loss) before income taxes||16,915||15,217||1,698||11.2%||50,316||(34,259)||84,575||246.9%|
|Income tax expense||(3,697)||(1,017)||2,680||263.5%||(14,443)||(18,749)||(4,306)||-23.0%|
|Net Income (loss)||$||13,218||$||14,200||(982)||-6.9%||$ 35,873||$||(53,008)||88,881||167.7%|
|Basic weighted average number of common shares||121,581,813||56,390,933||89,099,816||56,263,920|
|Basic earnings (loss) per share||$||0.11||$||0.25||(0.14)||-56.8%||$||0.40||$||(0.94)||1.34||142.7%|
|Diluted weighted average number of common shares||132,209,244||128,344,389||132,894,810||56,263,920|
|Diluted earnings (loss) per share||$||0.10||$||0.24||(0.14)||-58.0%||$||0.27||$||(0.94)||1.21||128.9%|
|Total corporate and franchise stores at period end||232||237||232||237|
With respect to the calculation of diluted net loss per share for the year ended December 31, 2010, the diluted weighted average number of common shares outstanding is not adjusted as the impact would be anti-dilutive.
Segmented Results Summary:
|(000's of $ except %, and store amounts)||For the three months ended December 31||For the year ended December 31|
|2011||2010|| $ Increase
| % Increase
|2011||2010|| $ Increase
| % Increase
|Retail Segment - Sales||$||342,506||$||350,693||(8,187)||-2.3%||$||1,268,856||$||1,291,464||(22,608)||-1.8%|
|Financial Services Segment - Sales||19,858||21,492||(1,634)||-7.6%||82,792||84,155||(1,363)||-1.6%|
|Consolidated - Sales||362,364||372,185||(9,821)||-2.6%||1,351,648||1,375,619||(23,971)||-1.7%|
|Total system sales||$||416,686||$||421,408||(4,722)||-1.1%||$||1,535,373||$||1,541,251||(5,878)||-0.4%|
|Same Store Sales Growth (corporate stores)||-1.8%||2.0%||-1.6%||10.4%|
|Same Store Sales Growth (corporate and franchise stores)||-1.0%||2.5%||-0.9%||10.5%|
|Retail Segment - EBITDA||$||27,910||$||26,701||1,209||4.5%||$||89,732||$||78,426||11,306||14.4%|
|Financial Services Segment - EBITDA||5,667||5,709||(42)||-0.7%||21,769||19,653||2,116||10.8%|
|Consolidated - EBITDA||$||33,577||$||32,410||1,167||3.6%||$||111,501||$||98,079||13,422||13.7%|
|EBITDA as a percentage of consolidated sales||9.3%||8.7%||8.2%||7.1%|
|Retail Segment - Net income (loss)||$||9,123||$||10,533||(1,410)||-13.4%||$||20,142||$||(70,669)||90,811||128.5%|
|Financial Services Segment - Net income||4,095||3,667||428||11.7%||15,731||17,661||(1,930)||-10.9%|
|Consolidated - Net income (loss)||$||13,218||$||14,200||(982)||-6.9%||$||35,873||$||(53,008)||88,881||167.7%|
For the Quarter:
For the quarter ended December 31, 2011, consolidated sales of $362.4 million decreased by $9.8 million or 2.6% as compared to the same quarter of 2010. By segment, retail sales of $342.5 million decreased by $8.2 million or 2.3%, and financial services sales of $19.9 million decreased by $1.6 million or 7.6%. Fourth quarter same store sales, which include commercial sales, decreased by 1.8% while in the same quarter of 2010 same store sales increased by 2.0%. In the financial services segment, the decrease in sales was attributable to that segment's third-party insurance business.
Compared to the same quarter a year ago, sales at franchise stores increased by 10.4% to $54.3 million. Same store sales growth for franchise stores was 4.4% compared to 5.7% for the same quarter of 2010. We began and ended the quarter with 60 franchise stores, while in 2010, we began the quarter with 52 franchise stores and ended with 54.
Compared to the same quarter a year ago, consolidated gross margin percentage improved by 40 basis points from 44.1% to 44.5%. This improvement in gross margin percentage was offset by a 2.6% decrease in consolidated sales resulting in a decrease in gross margin earned of $2.7 million. In the retail segment, improvement in gross margin percentage reflected a sales mix with an increased blend of high margin mattress as compared to the same quarter of 2010. In the financial services segment, improvement in gross margin percentage reflected a reduced mix of lower margin third-party insurance business and reduced claims. Fluctuations in our consolidated gross margin are driven primarily by the retail segment.
Fourth quarter consolidated operating expenses of $129.0 million were lower by $2.8 million or 2.1% and as a percentage of sales were 35.6% compared to 35.4% in the same quarter of 2010. Fourth quarter operating expenses included approximately $3.0 million of expenses not expected to recur, and were reduced by receipt of a $3.9 million claim settlement, related to a 2006 property expropriation, in the City of Calgary. Excluding these items, fourth-quarter operating expenses as a percentage of sales would have been 35.8% compared to 35.4% in the same quarter of 2010. Essentially all of The Brick's operating expenses are incurred in the retail segment.
Finance Income and Other Income
Fourth quarter consolidated finance income and other income was higher by $1.0 million compared to the same quarter of 2010. The majority of this change was driven by $0.9 million of interest income related to an amount on deposit with the Alberta tax authorities. Interest income has also increased in conjunction with increases in The Brick's cash and cash equivalents.
The Brick's financial results reflect strong EBITDA performance for the quarter ended December 31, 2011. Fourth-quarter consolidated EBITDA of $33.6 million improved by $1.2 million or 3.6% compared to the same quarter of 2010. By segment and compared to the same quarter of 2010, retail segment EBITDA of $27.9 million was higher by $1.2 million or 4.5%, and financial services segment EBITDA was flat at $5.7 million. EBITDA improvement in the retail segment benefited from improved gross margin percentage which helped to offset the 1.8% decrease in same store sales, and also from operating expenses remaining relatively stable as a percentage of sales at 35.6% compared to 35.4% for the same quarter a year ago. As mentioned above, fourth-quarter operating expenses included approximately $3.0 million of expenses not expected to recur, and were reduced by receipt of a $3.9 million property expropriation claim settlement.
In the financial services segment, fourth-quarter EBITDA included $0.9 million of interest received in conjunction with the release of a deposit held on account with the Alberta tax authorities and included in finance income and other income as discussed above.
Fourth-quarter finance costs of $9.5 million increased by $2.4 million, or 33.4%, as compared to the same quarter of 2010. Of this increase, $2.3 million reflects expenses attributable to an early redemption of Debentures with a principle value of $9.9 million. Expenses related to the early redemption included a premium of $1.5 million reflecting the redemption amount paid in excess of the principle value of the Debentures redeemed, and $0.8 million of accelerated accretion together with de-recognition of deferred financing fees. Fourth-quarter finance costs included approximately $1.1 million of non-cash interest expense. Substantially all of The Brick's finance costs relate to the Debentures and finance lease obligations.
Income Tax Expense
For the quarter ended December 31, 2011, The Brick was subject to an effective corporate tax rate of 25.85%. The income tax expense of $3.7 million is calculated based on income before tax of $16.9 million adjusted for certain items that are exempt from or not deductible for tax purposes and for the impact of changes in tax rates on the deferred tax balances.
Fourth quarter income before income taxes of $16.9 million represents a decrease of $0.4 million or 2.4% over the 2010 fourth quarter income before income taxes, changes in warrant fair value and impairment charge reversal. 2010 fourth quarter net income included a charge of $17.3 million related to the change in fair value of warrants, and income of $15.2 million related to a partial reversal of intangible asset impairment charges recorded in fiscal 2008 and 2009, as a result of the adoption of IFRS. Including the impacts from changes in warrant fair value and impairment charge reversal for 2010, 2011 fourth quarter consolidated net income of $13.2 million was lower by $1.0 million or 6.9% when compared to the same quarter of 2010.
For the Year
For the year ended December 31, 2011, consolidated sales of $1,351.6 million decreased by $24.0 million or 1.7% as compared to 2010. By segment, retail sales of $1,268.9 million decreased by $22.6 million or 1.8%, and financial services sales of $82.8 million decreased by $1.4 million or 1.6%. Same store sales growth was negative 1.6% compared to positive 10.4% in 2010.
Compared to 2010, 2011 sales at franchise stores increased by 10.9% to $183.7 million. Same store sales growth for franchise stores was 4.4% compared to 11.1% in 2010. We began the 2011 year with 54 franchise stores and ended with 60, while in 2010, we began the year with 52 franchise stores and ended with 54.
Compared to 2010, consolidated gross margin percentage improved by 110 basis points from 43.1% to 44.2%. Consolidated gross margin earned increased by $4.8 million with $4.5 million of the increase attributable to the retail segment, and by $0.3 million attributable to the financial services segment. Fluctuations in our consolidated gross margin are driven primarily by the retail segment.
In the retail segment, the $4.5 million increase in gross margin was the result of improvement in gross margin percentage which more than offset a sales decrease of 1.8%. Improvement in gross margin percentage reflected a sales mix with a reduced blend of low margin electronics sales and an increased blend of high margin mattress sales as compared to 2010.
In the financial services segment, the $0.3 million gross margin improvement was partially attributable to reduced claims expenses in the warranty business. As well, in the insurance business, gross margin percentage has benefited from an increased mix of Brick Card business and a reduced mix of lower margin third-party business.
For the year ended December 31, 2011, consolidated operating expenses were lower by $5.5 million or 1.1% and were relatively flat as a percentage of sales at 36.2% as compared to 36.0% for 2010. 2011 operating expenses included approximately $8.8 million of expenses not expected to recur, were reduced by receipt of a $3.9 million property expropriation claim settlement as discussed above for the quarter, and were further reduced by approximately $1.1 million of other recoveries not expected to recur. Excluding these items, 2011 operating expenses as a percentage of sales would have been 35.9% compared to 36.0% in 2010. Essentially all of The Brick's operating expenses are incurred in the retail segment.
Finance Income and Other Income
For the 2011 year, consolidated finance income and other income was $3.4 million compared to $0.2 million for 2010. Approximately half of this increase is attributable to increased interest income, and approximately half is the result of the reversal of prior year provisions. 2010 included provisions for potential commodity tax liabilities accrued in conjunction with changes to commodity tax regulations. These provisions were reversed in the first quarter of 2011 upon receipt of a favourable decision from the relevant tax authority. The increase in interest income includes $0.9 million of interest received in conjunction with the release of a deposit held on account with the Alberta tax authorities as discussed above for the fourth quarter, $0.6 million of increased interest income related to higher amounts of cash and cash equivalents and increased investment income of $0.2 million.
The Brick's financial results reflect strong EBITDA performance for the year ended December 31, 2011. 2011 consolidated EBITDA was $111.5 million compared to $98.1 million for 2010. By segment and compared to 2010, retail segment EBITDA of $89.7 million was higher by $11.3 million or 14.4%, and financial services segment EBITDA improved by $2.1 million or 10.8% to $21.8 million. Despite a 1.6% decrease in same store sales, improvement in retail segment EBITDA was driven by a 1.1% improvement in gross margin percentage combined with operating expenses that were relatively flat as a percentage of sales. In the financial services segment, improvement in EBITDA was attributable to improved gross margin percentage in the warranty and insurance business and increased investment income.
For the year ended December 31, 2011, finance costs of $31.0 million, which included approximately $6.2 million of non-cash interest expense, were higher by $0.9 million as compared to 2010. Approximately $0.7 million of this year-over-year increase comprises $2.3 million in finance costs recognized in 2011 offset by a $1.6 million write off of deferred financing fees recognized in 2010 which did not recur in 2011. The $2.3 million of finance costs recognized in 2011 were in conjunction with an early redemption of Debentures with a principle value of $9.9 million. The $1.6 million write off of deferred financing fees in 2010 related to the Fairfax letter of credit facility that was present in 2010. The Fairfax letter of credit expired and the related financing costs became fully amortized in the first quarter of 2010. The remaining portion of the year-over-year increase in finance costs of approximately $0.2 million reflects non-cash Debenture interest comprising accretion and amortization of deferred financing cost which increase as the Debentures approach maturity and their carrying value increases.
Depreciation and Amortization
Depreciation and amortization expense decreased by $2.2 million or 6.8% to $30.2 million. During 2010, The Brick amended its Asset-Based Credit Facility and the remaining unamortized portion of transaction costs relating to the prior credit commitment of $1.3 million was written off and included in amortization expense. The charge was recognized in the retail segment. The remainder of the decrease reflects the decreasing carrying values of The Brick's property, plant and equipment, investment property, and intangible assets and deferred charges subject to amortization.
Income Tax Expense
For the year ended December 31, 2011 The Brick was structured as a corporation with an effective tax rate of 25.85%. The income tax expense of $14.4 million is calculated based on income before tax of $50.3 million adjusted for certain items that are exempt from or not deductible for tax purposes and for the impact of changes in tax rates on the deferred tax balances.
As discussed above for the quarter, 2010 full-year operating results include charges related to changes in the fair value of warrants and a partial reversal of previously recognized intangible asset impairment charges. Excluding the impact of these items, the 2011 full-year income before income taxes of $50.3 million represents an improvement of $14.7 million, or 41.4%, over 2010. This $14.7 million improvement primarily results from improved gross margin and reduced operating expenses which provided a combined improvement of $10.3 million. The remaining balance of the improvement of $4.4 million primarily reflects increased finance income and other income and reduced depreciation and amortization as discussed in the relevant sections above. Including the impacts from changes in warrant fair value and an impairment charge reversal for 2010, 2011 consolidated net income of $35.9 million increased by $88.9 million from the loss of $53.0 million in 2010.
The Brick's cash and cash equivalents at December 31, 2011 were $141.1 million compared to $69.8 million at December 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 December 31, 2011 was $81.4 million.
| The Brick Group will hold an investor conference event on Wednesday March 21, 2012 at 10:00 a.m. Eastern Time (8:00 a.m. Alberta Time), hosted by Vi Konkle, President & CEO and Ken Grondin, CFO & President, Financial Operations, to discuss Q4 and 2011 annual financial results.
To access the call, dial 647-427-7450 or 1-888-231-8191. Conference call ID: 53743857.
For a listen-only webcast, log on to http://www.newswire.ca/en/webcast/detail/921863/984529 prior to the scheduled meeting time.
A telephone replay of the call will be available until March 28, 2012, at 11:59 p.m. Eastern Time. To access it, dial either 416-849-0833 or 1-855-859-2056 and enter passcode 53743857, followed by the number sign.
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 and franchise operations are located in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Prince Edward Island, Nova Scotia, New Brunswick, the Northwest Territories and Yukon.
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.
For further information:
President and CEO
The Brick Group
CFO and President, Financial Operations
The Brick Group