WXX.to 1.60- Q3 EPS = .06 !! West 49 Inc. reports strong third quarter results
Thursday December 8, 6:44 pm ET
Toronto Stock Exchange Symbol: WXX
BURLINGTON, ON, Dec. 8 /CNW/ - West 49 Inc. (TSX:WXX - News; "West 49"), Canada's leading action sport retailer, today reported strong financial results for their third quarter of fiscal 2006, ended October 29, 2005. As a result of the sale of the operating assets of the former Jumbo Video and subsequent acquisition of West 49, all comparative numbers in our financial statements reflect discontinued operations. To provide a more useful comparison of West 49's results, all comparatives in this press release are to West 49 Inc., when it was a private company. All figures are reported in Canadian dollars.
Financial and operational highlights for the third quarter include:
- Growth in sales of 47.1% to a record level of $39 million;
- Gross margins increased 64% to $12.7 million
- Growth in operating income of 115% to a record level of $5.6 million;
- Opening of first Off the Wall location outside of British Columbia in
West Edmonton Mall;
- Acquisitions of on-line retailer Board Zone Inc, and Quebec-based
specialty retail stores operating as Amnesia, Arsenic and D-Tox;
- Efficiency improvements made to Burlington distribution centre.
"Our results for the quarter reflect the successful execution of our growth strategy to expand the West 49 concept and grow our other banners across Canada, as well as specific changes we made to our markdown strategy," said Sam Baio, Chief Executive Officer of West 49 Inc. "In the second quarter, we made the strategic decision to clear merchandise earlier in the year. This freed up floor space for the important Back to School season, and it allowed us to change our markdown strategy for the third quarter. The earlier clearing of summer merchandise, combined with improved efficiencies in our distribution centre, resulted in the Company being able to effectively stock stores, despite supply chain disruptions caused by a dock strike in Vancouver, which lasted more than a month. Therefore, we had a better merchandise mix and correct inventory levels for the Back-to-School season. The end result was that we were able to achieve record sales at higher than historical margins. Our strong performance was also the result of our strategic acquisition of Off the Wall earlier in the year, which accounted for 52.5% of the growth in net sales for the quarter."
Financial Results for the Quarter
Net sales for the 13-week period ending October 29, 2005 grew 47.1% to $39.0 million, compared with $26.5 million for the same period last year. The increase in net sales for the quarter was largely attributable to the Company's acquisition of the Off The Wall chain earlier in the year, which accounted for $6.6 million or 52.5% of total growth. Changes to the Company's markdown strategy resulted in sales of merchandise at higher than historical prices for the Back to School season, contributing to the strong growth in net sales for the quarter. Comparable store sales for the quarter grew by 5.4% compared to the same period of last year, with West 49 stores experiencing growth of 6.3% in comparable store sales.
For the 13-week period, the Company's gross margins increased to $12.7 million, compared with $7.7 million the year before. As a percentage of net sales, gross margin increased to 32.5% during the period, compared to 29.1% for the 13 weeks ended October 30, 2004. Improved gross margins were the result of the change in markdown strategy, efficiencies from the Company's distribution centre, and leveraging of buying and occupancy costs.
Operating income for the 13-week period grew 115% to $5.6 million, compared to $2.6 million for the same period last year. Net income for the quarter was $2.9 million, or $0.06 basic earnings per share.
Financial Results for the Year-to-Date
On a year to date basis, net sales grew by 47.6% to $84.4 million, compared to $57.2 million last year. Comparable store sales increased 8.3%, with West 49 stores achieving comparable store growth of 9.5%.
Year-to-date, the Company's gross margins increased to $21.0 million, compared with $15.3 million the year before. As a percentage of net sales, gross margin decreased to 24.9% during the period, compared to 26.7% the year before.
Year-to-date, operating income grew 5% to $2.8 million, compared to $2.7 million for the same period last year. Net loss for the year-to-date was less than $0.01 million, or $0.00 per share. The net loss was the result of the tax effect of consolidating the recently acquired banners. Pre-tax net income for the year to date was $0.5 million.
Other Developments for the Quarter
- During the quarter, the Company opened a new West 49 store at Regent
Mall in Fredericton, New Brunswick, and a new Off the Wall store
location at West Edmonton Mall in Edmonton, Alberta. The West Edmonton
Mall store was the first Off the Wall store to open outside of its
traditional British Columbia market. By the end of the quarter the
Company was operating 77 stores under 3 banners, compared to 56 under
2 banners a year earlier.
- In September the Company completed a private placement of 7.9 million
common shares at a price of $1.90 per common share. As partial
compensation for the placement, the agents were issued warrants to
purchase an aggregate of 474,000 common shares at a price of
$2.00 per share, exercisable for a period of 2 years. Approximately
$3 million of the net proceeds were applied to reduce the Company's
outstanding credit facility, with the remainder of the proceeds to be
used for potential acquisitions, and/or to fund new store growth,
working capital, and general corporate purposes.
Developments Subsequent to Quarter End
- West 49 Inc. completed strategic acquisitions of 24 Quebec-based
specialty stores operating under the banners Arsenic, Amnesia, and
D-Tox from Modes Freedom Inc., and of Board Zone Inc., an on-line
action sports retailer operating under the domain name Boardzone.com.
West 49 Inc. acquired the Quebec-based specialty stores on November 4,
2005, and followed with the acquisition of Board Zone on November 16,
2005. The acquisitions contribute to the expansion of the Company's
national and on-line presence. A portion of the proceeds of the
private placement completed in September were used to fund the cash
components of these acquisitions.
- Continuing with the Company's strategy to grow their banners across
Canada, in November the Company opened an Off the Wall store in
Chinook Centre in Calgary, outside of the banner's traditional British
Columbia market. Similarly, and also in November, the Company opened a
new D-Tox store at Mapleview Centre in Burlington, Ontario. The
Mapleview Centre location is the first D-Tox store to be opened
outside of the province of Quebec.
- In November, the Company opened two West 49 big-box stores: a 16,000
square foot store in West Edmonton Mall and a 7,000 square foot store
at White Oaks Mall in London, Ontario.
Outlook
"After coming off a solid third quarter, we fully expect to continue our momentum throughout the fourth quarter, which is traditionally a strong quarter for us," said Mr. Baio. "We are excited about the team of passionate, proven entrepreneurs and strong retail banners that we have assembled. We remain focused on continuing to grow our national presence through expansion of the West 49 concept and to strategically grow our other banners across Canada. Due in part to our changes in markdown strategy, going forward, we expect to sustain our improved margins over historical levels. We will also pursue other opportunities to improve margins, by realizing synergies between West 49 and our other banners. Currently we are looking at a shared services model to capitalize on efficiencies without impacting day-to-day operations of each of the banners."
Notice of Conference Call
West 49 Inc. will host a conference call on Friday, December 9, 2005 at 9:30 a.m. ET to discuss its third quarter fiscal 2006 results. To access the conference call by telephone, dial 416-644-3414 or 1-800-814-4941. Please connect approximately fifteen minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay until Friday, December 16, 2005 at midnight. To access the archived conference call, dial 416-640-1917 or 1-877-289-8525 and enter the reservation number 21166511 followed by the number sign.
A live audio webcast of the call will be available at newswire.ca sign)1323300 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 30 days.
Financial Statements
For convenience, this press release includes the Company's Fiscal Third Quarter Balance Sheets, Statements of Income and Statements of Cash Flows.
As a result of the sale of the operating assets of the former Jumbo Video and subsequent acquisition of West 49, all comparative numbers in the financial statements reflect discontinued operations. Prior to the acquisition, the former West 49 Inc., operated as a private company during the 39 weeks ended October 29, 2004.
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WEST 49 INC.
CONSOLIDATED BALANCE SHEET OCTOBER 29, JANUARY 29,
AS AT 2005 2005
(unaudited) ------------- -------------
ASSETS
Current
Cash and short-term investments $ 7,397,740 $ 4,735,304
Accounts and current notes receivable 2,583,811 1,319,381
Inventory 23,461,804 10,665,026
Future income tax - current 1,806,000 1,806,000
Prepaid expenses 490,353 343,743
------------- -------------
35,739,708 18,869,454
Capital assets 16,507,306 8,933,221
Deferred costs 1,047,680 710,239
Goodwill 27,593,319 18,063,853
Future income taxes 1,891,000 1,891,000
------------- -------------
$ 82,779,013 $ 48,467,767
------------- -------------
------------- -------------
LIABILITIES
Current
Accounts payable and accrued charges 18,170,675 7,275,333
Current portion of long-term debt 6,431,370 5,011,734
------------- -------------
24,602,045 12,287,067
Long-term debt 278,100 495,963
Preferred shares 5,411,414 5,411,414
Deferred lease inducements 4,554,201 2,100,381
------------- -------------
34,845,760 20,294,825
------------- -------------
SHAREHOLDERS' EQUITY
Share capital 59,247,050 40,541,693
Contributed surplus 1,425,979 362,000
Deficit (12,739,776) (12,730,751)
------------- -------------
47,933,253 28,172,942
------------- -------------
$ 82,779,013 $ 48,467,767
------------- -------------
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WEST 49 INC.
CONSOLIDATED STATEMENT OF OPERATIONS
3 Months Ended 9 Months Ended
OCT 29 NOV 30 OCT 29 NOV 30
(unaudited) 2005 2004 2005 2004
------------- ------------- ------------- -------------
Sales $ 38,978,032 $ 10,161 $ 84,414,316 $ 17,263
Cost of sales;
includes buying,
distribution and
occupancy costs 26,293,255 145,724 63,372,757 320,889
------------- ------------- ------------- -------------
Gross margin 12,684,777 (135,563) 21,041,559 (303,626)
Selling, general
and administrative
expenses 7,101,054 - 18,192,084 -
------------- ------------- ------------- -------------
Income (loss)
before other
expenses 5,583,723 (135,563) 2,849,475 (303,626)
------------- ------------- ------------- -------------
Other Expenses
Dividends on
special and
preferred shares 91,781 - 260,887 27,480
Interest
expense on long
term debt 101,426 - 365,172 32,888
Loss on sale of
capital assets 27,592 - 151,287 -
Amortization 655,364 291 1,613,154 291
------------- ------------- ------------- -------------
876,163 291 2,390,500 60,659
------------- ------------- ------------- -------------
Income (loss)
from ongoing
operations
before income
taxes 4,707,560 (135,854) 458,975 (364,285)
Income tax 1,772,500 - 468,000 -
------------- ------------- ------------- -------------
Income (loss)
from ongoing
operations 2,935,060 (135,854) (9,025) (364,285)
Net income
(loss) from
discontinued
operations - (50,040) - 485,628
------------- ------------- ------------- -------------
Net income (loss) $ 2,935,060 $ (185,894) $ (9,025) $ 121,343
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Basic income
(loss) per
share from
ongoing
operations $ 0.06 $ (0.02) $ 0.00 $ (0.05)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Diluted income
(loss) per share
from ongoing
operations(xx) $ 0.05 $ (0.02) $ 0.00 $ (0.05)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Basic and diluted
income (loss)
per share from
discontinued
operations $ - $ (0.01) $ - $ 0.07
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Basic income
(loss) per
share $ 0.06 $ (0.03) $ 0.00 $ 0.02
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Diluted income
(loss) per
share(xx) $ 0.05 $ (0.03) $ 0.00 $ 0.02
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
(x) prior year numbers have been adjusted to reflect the 10:1 stock
consolidation.
(xx)Diluted earnings reflects the conversion (at $1.00 per share) to
common shares of the preferred shares.
At October 29, 2005 no preferred shares were converted
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WEST 49 INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
3 Months Ended 9 Months Ended
OCT 29 NOV 30 OCT 29 NOV 30
(unaudited) 2005 2004 2005 2004
------------- ------------- ------------- -------------
OPERATING ACTIVITIES
Income (loss) from
ongoing
operations $ 2,935,060 $ (135,854) $ (9,025) $ (364,285)
Add: Items not
affecting cash
Amortization
of assets 655,364 291 1,613,154 291
Amortization
of deferred
costs 35,373 82,498
Amortization of
deferred lease
inducements (111,099) (281,581)
Future taxes 1,342,000 -
Straight line
rent expense 175,450 429,424
Stock based
compensation 124,103 642,119
Loss from sale
of capital
assets 27,586 151,281
------------- ------------- ------------- -------------
5,183,837 (135,563) 2,627,870 (363,994)
Changes in non-cash
working capital
from ongoing
operations (1,403,218) (28,978) (2,228,299) (351,360)
------------- ------------- ------------- -------------
Cash flows from
(used by) operating
activities from
ongoing operations 3,780,619 (164,541) 399,571 (715,354)
------------- ------------- ------------- -------------
Cash flows (used)
provided by
discontinued
operating
activities - (551,715) - (653,469)
------------- ------------- ------------- -------------
FINANCING ACTIVITIES
Issuance of
common stock 13,886,051 13,909,826
Repayment of long
term debt (3,734,474) (4,910,196) (1,485,081)
Repayment of
special shares - - (1,174,958)
Increase in long
term debt - 5,485,951
------------- ------------- ------------- -------------
Cash flows from
(used by)
financing
activities 10,151,577 - 14,485,581 (2,660,039)
------------- ------------- ------------- -------------
INVESTING ACTIVITIES
Additions to
capital assets (2,567,256) (510) (6,891,052) (73,226)
Acquisition of Off
The Wall, net of
cash acquired - (7,063,535)
Increase in
deferred costs (174,678) (368,239)
Deferred lease
inducements
received 640,861 2,100,110
Proceeds from
sale of business
assets - - 5,967,016
Acquisition costs - (83,851) - (83,851)
------------- ------------- ------------- -------------
Cash flows from
(used by)
investing
activities (2,101,073) (84,361) (12,222,716) 5,809,939
------------- ------------- ------------- -------------
Increase (decrease)
in cash and short
term investments 11,831,123 (800,617) 2,662,436 1,781,077
Cash and short
term investments
(Bank Indebt-
edness) Cash,
Beginning of
period (4,433,383) 2,923,908 4,735,304 342,214
------------- ------------- ------------- -------------
Cash,
End of period $ 7,397,740 $ 2,123,291 $ 7,397,740 $ 2,123,291
------------- ------------- ------------- -------------
About West 49 Inc.
West 49 Inc. is a multi-banner specialty retailer of apparel, footwear
and accessories related to skateboarding, snowboarding, and surfing, as well
as the music industry, and fashion-forward young women. The Company targets
"Generation Y" customers (ages 10 through 18). West 49 Inc. operates over 100
stores in eight provinces, under the banners West 49, Billabong, Off The Wall,
Arsenic, Amnesia, and D-Tox, as well as online under the domain name
Boardzone.com. West 49's common shares are listed on the Toronto Stock
Exchange under the symbol WXX. The Company has approximately 64 million shares
outstanding. |
