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Continued Focus on Sales, Margin and Net Income Growth combined with Debt Retirement
EDMONTON, May 7, 2012 /CNW/ - The Brick Ltd. (TSX: BRK) (the "Brick Group" or the "Brick") today announced its results for the three months ended March 31, 2012. Financial statements and Management's Discussion and Analysis are available on the Brick Group's website at thebrick.com and on SEDAR.
Q1 2012 highlights include:
- Net income, after tax, was $4.7 million compared to $1.1 million in 2011, an increase of $3.6 million or 318.0%. Fully diluted earnings per share increased to $0.04 from $0.01.
- EBITDA of $20.5 million, up 13.9% or $2.5 million over Q1 2011.
- Total system sales, including franchise sales at retail, increased 1.8% compared to Q1 2011, with retail and franchise businesses outperforming commercial sales. Same store sales, including franchise and commercial business, increased 2.2% for the quarter.
- Gross margin rate increase of 80 basis points to 45.2% as compared to 44.4% in Q1 2011.
- $138.9 million cash and cash equivalents at March 31, 2012 compared to $141.1 million at December 31, 2011. The Brick Group has not borrowed under its asset-based credit facility since the second quarter of 2010.
- Entered into a new 5 year, $100 million asset-based credit facility with a $50 million accordion feature which could increase borrowing capacity to $150 million. The new credit facility offers reduced rates and improved credit flexibility resulting from reduced covenants and fewer events of default.
- Completed a $77.3 million principal value debenture re-purchase in April 2012, fully funded from available cash. Based on the remaining $32.8 million principal amount of debentures outstanding, combined cash and non-cash debenture interest expense is expected to be reduced to $6.1 million in 2013 and $2.6 million in 2014.
- Removed, as part of the April 2012 debenture re-purchase, certain negative covenants restricting the Brick's ability to make dividend payments, complete business acquisitions and acquire real property.
Vi Konkle, President and CEO of the Brick Group commented "We are pleased with our first quarter financial results. In addition to solid sales performance, the Brick team delivered strong gross margin results resulting in an increase of $3.4 million or 2.6% over 2011. Similar to 2011 results, our product mix has been a significant contributor to our margin performance, shifting sales towards our higher margin mattress and furniture categories".
Ms. Konkle continued "In addition to our drive for sales and margin, our team continued to focus on value-added initiatives to ensure our bottom-line continued to strengthen, as demonstrated by both our 318.0% improvement in net income and 13.9% EBITDA growth, and to further provide an opportunity for greater efficiencies as we move through 2012 and beyond".
"We believe the combination of the $77.3 million debenture repurchase completed in April 2012 and our new 5 year credit facility speaks highly to the strength of the Brick and our ability to increase shareholder value", added Ms. Konkle.
Consolidated Results Summary:
|For the three months ended March 31|
|2012||2011||$ Increase||% Increase|
|(000's of $ except % and per share amounts)||(Decrease)||(Decrease)|
|Cost of sales||(162,198)||(163,311)||(1,113)||-0.7%|
|Gross margin as a percentage of sales||45.2%||44.4%||0.8%|
|Finance income and other income||1,009||951||58||6.1%|
|EBITDA as a percentage of sales||6.9%||6.1%|
|Depreciation and amortization||(7,000)||(8,419)||(1,419)||-16.9%|
|Income before income taxes||6,585||2,428||4,157||171.2%|
|Income tax expense||(1,837)||(1,292)||545||42.2%|
|Basic weighted average number of common shares||120,548,929||55,879,775|
|Basic earnings per share||$||0.04||$||0.02||0.02||100.0%|
|Diluted weighted average number of common shares||130,063,133||137,331,594|
|Diluted earnings per share||$||0.04||$||0.01||0.03||300.0%|
|Total corporate and franchise stores at period end||230||238|
Segmented Results Summary:
|(000's of $ except %, and store amounts)||For the three months ended March 31|
|2012||2011||$ Increase||% Increase|
|Retail Segment - Sales||$||276,141||$||272,452||3,689||1.4%|
|Financial Services Segment - Sales||19,687||21,107||(1,420)||-6.7%|
|Consolidated - Sales||295,828||293,559||2,269||0.8%|
|Total system sales||$||337,907||$||332,082||5,825||1.8%|
|Same Store Sales Growth (corporate stores)||1.9%||-5.3%|
|Same Store Sales Growth (corporate and franchise stores)||2.2%||-4.8%|
|Retail Segment - EBITDA||$||15,316||$||12,305||3,011||24.5%|
|Financial Services Segment - EBITDA||5,207||5,712||(505)||-8.8%|
|Consolidated - EBITDA||$||20,523||$||18,017||2,506||13.9%|
|EBITDA as a percentage of consolidated sales||6.9%||6.1%|
|Retail Segment - Net income (loss)||$||777||$||(3,405)||4,182||122.8%|
|Financial Services Segment - Net income||3,971||4,541||(570)||-12.6%|
|Consolidated - Net income||$||4,748||$||1,136||3,612||318.0%|
For the quarter ended March 31, 2012, consolidated sales of $295.8 million increased by $2.3 million or 0.8% as compared to the same quarter of 2011. By segment, retail sales of $276.1 million increased by $3.7 million or 1.4%, and financial services sales of $19.7 million decreased by $1.4 million or 6.7%. First-quarter same store sales increased by 1.9% while in the same quarter of 2011 same store sales decreased by 5.3%. In the financial services segment, decreases in third-party insurance business exceeded growth in the insurance companies' Brick Card business, resulting in a net decrease in sales.
Compared to the same quarter a year ago, sales at franchise stores increased by 9.2% to $42.1 million. Same store sales for franchise stores increased by 3.8% while in the same quarter of 2011 same store sales decreased by 1.9%. We began the quarter with 60 franchise stores and ended with 62, while in 2011 we began the quarter with 54 franchise stores and ended with 55. During the first quarter of 2012, we opened new franchise locations in each of Camrose, Alberta and Terrace, British Columbia following conversions from previous Brick corporate stores.
Compared to the same quarter a year ago, consolidated gross margin percentage improved from 44.4% to 45.2%. This improvement in gross margin percentage combined with a 0.8% increase in consolidated sales resulted in an increase in gross margin earned of $3.4 million. In the retail segment, improvement in gross margin percentage reflected a sales mix with an increased blend of high margin mattress and furniture categories as compared to the same quarter of 2011, and also benefited from improved margins in the appliance and electronics categories. In the financial services segment, improvement in gross margin percentage was the result of reduced claims expense in both the warranty and insurance businesses. As well, decreases in low-margin third-party insurance sales and increases in higher-margin Brick Card insurance sales have resulted in higher gross margin percentage in this segment. Fluctuations in our consolidated gross margin are driven primarily by the retail segment.
First-quarter consolidated operating expenses of $114.1 million were higher by $0.9 million or 0.8%, and as a percentage of sales remained flat at 38.6% as compared to the same quarter of 2011. Compared to the same quarter of 2011, stronger sales and gross margin performance has resulted in approximately $1.0 million more accrued bonus compensation in the 2012 first quarter than in the first quarter of 2011. The majority of The Brick's bonus compensation is paid out annually based on annual financial performance. Essentially all of The Brick's operating expenses are incurred in the retail segment.
Finance Income and Other Income
First-quarter consolidated finance income and other income was $1.0 million compared to $1.0 million in the same quarter of 2011.
The Brick's financial results reflect strong EBITDA performance for the quarter ended March 31, 2012. First-quarter consolidated EBITDA of $20.5 million improved by $2.5 million or 13.9% compared to the same quarter of 2011. By segment and compared to the same quarter of 2011, retail segment EBITDA of $15.3 million was higher by $3.0 million or 24.5%, and financial services segment EBITDA of $5.2 million decreased by $0.5 million or 8.8%. EBITDA improvement in the retail segment resulted from improved gross margin percentage combined with a 1.4% increase in sales, and also from controlled operating expenses which were 38.5% of sales compared to 38.6% of sales for the same quarter a year ago. In the financial services segment, comparability of quarter-over-quarter EBITDA performance was impacted by the reversal of a $0.6 million commodity tax provision recorded in the first quarter of 2011. This provision related to potential commodity tax liabilities accrued in 2010 in conjunction with changes to commodity tax regulations. It was reversed in the first quarter of 2011 upon receipt of a favourable decision from the relevant tax authority. Excluding the impact of this item, first-quarter 2012 EBITDA in the financial services segment would have been approximately $0.1 million higher than the same quarter of 2011.
First-quarter finance costs of $6.9 million decreased by $0.2 million, or 3.2%, as compared to the same quarter of 2011. This decrease is partly attributable to the redemption in the fourth quarter of 2011 of Debentures with a principal value of $9.9 million, and partly attributable to reduced interest expenses related to finance leases. Substantially all of The Brick's finance costs relate to the Debentures and finance lease obligations.
Depreciation and Amortization
Compared to the same quarter of 2011, first-quarter depreciation and amortization expense of $7.0 million was lower by $1.4 million. This decrease is commensurate with decreases in the amounts of property, plant and equipment subject to amortization. As well, approximately $9.6 million of assets under development are not yet available for use and, therefore, are not yet being depreciated. The majority of assets not yet available for use relate to information systems.
Income Tax Expense
For the quarter ended March 31, 2012, income tax expense of $1.8 million was calculated on income before tax of $6.6 million together with $0.5 million for 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. For the quarter ended March 31, 2012, The Brick was subject to a statutory corporate tax rate of 25.85%.
For the quarter ended March 31, 2011, income tax expense of $1.3 million was calculated on income before tax of $2.4 million together with $2.6 million for 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. For the quarter ended March 31, 2011, The Brick was subject to a statutory corporate tax rate of 25.83%.
First-quarter net income $4.7 million represents an increase of $3.6 million or 318.0% over the same quarter of 2011. The improvement in net income was driven primarily by improved gross margin and also benefited from reduced depreciation and amortization and reduced finance costs.
The Brick's cash and cash equivalents at March 31, 2012 were $138.9 million compared to $141.1 million at December 31, 2011 and $57.6 million at March 31, 2011. The Brick has not borrowed under the Asset-Based Credit Facility since the second quarter of 2010. Borrowing capacity under The Brick's $100.0 million Asset-Based Credit Facility at March 31, 2012 was $100.0 million.
The Brick Group will hold an investor conference event on Tuesday May 8, 2012 at 10:00 a.m. Eastern Time
To access the call, dial 647-427-7450 or 1-888-231-8191. Conference call ID: 72341612.
For a listen-only webcast, log on to http://www.newswire.ca/en/webcast/detail/954627/1022333 prior to the scheduled meeting time.
A telephone replay of the call will be available until May 15, 2012, at 11:59 p.m. Eastern Time. To access it, dial either 416-849-0833 or 1-855-859-2056 and enter passcode 72341612, followed by the number sign.
The Brick Ltd.'s Annual General Meeting of Shareholders will be held on May 24, 2012 at 11:00 a.m. at the Courtyard by Mariott, located at 10011 - 184 Street, Edmonton, Alberta.
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 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