West 49 Inc. reported net sales growth of 4.4% to $61.7 million (U.S. $45.7 million) in the third quarter ended Oct. 25. Comparable store sales increased 2.1% on a consolidated basis, including growth of 0.7% for the West 49 banner. Net income for Canada’s leading action sport retailer was $2.1 million (U.S. $1.5 million), or 3 cents per share, compared to normalized net income of $2.6 million (U.S. $1.9 million) , or 4 cents per share, for the third quarter of last year.
"Focused execution of our strategy yielded top line growth for the quarter, despite the challenging economic landscape," said Sam Baio, chief executive officer of West 49 Inc. "Of particular note, our exceptional branded merchandise and competitive prices, as well as the success of our store associate sales incentive program, resulted in higher units per transaction and growth in comparable store sales. However, our gross margin rate was down primarily due to higher freight costs and pricing strategies to drive our top line during what was one of the most challenging Back-to-School retail environments in the history of our Company. Additionally, this marked the third consecutive quarter that we have reduced our selling, general and administrative expenses as a rate to net sales compared to the same periods last year."
The company said competitive pricing of branded merchandise and the company’s store associate sales incentive program drove year-over-year growth in units per transaction, helping mitigate the effects of falling consumer confidence.
As a rate to net sales, gross margin decreased 230 basis points to 26.1% due primarily to higher freight costs and lower product margins as merchandise was strategically priced in order to compete in the current economic environment.
EBITDA for the quarter was $4.8 million compared to $5.8 million, normalized, for the same quarter last year. The decrease was primarily attributable to the lower gross margin for the quarter.
In line with the company’s stated objective of maximizing returns from existing stores, it expanded an Amnesia store in the Carrefour Laval Mall in Laval, Quebec and relocated a D-Tox store in the Mapleview Mall in Burlington, Ontario during the quarter. At the end of the quarter the company was operating 134 stores compared to 133 stores at the end of the third quarter of fiscal 2008.
"We are much more competitive than we were last year at this time," added Baio. "The economic slowdown notwithstanding, we remain steadfast on driving continued growth in comparable store sales. Our focus on offering our loyal customers the best brands on earth at the lowest prices ever, better positions us for what is expected to be a very challenging holiday season for retailers. Moreover, we will continue to drive units per transaction by motivating our passionate store associates through our Platinum Club sales incentive program. While there is always much uncertainty during volatile times, we have every confidence that we will successfully weather the storm."
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 9-MONTH
PERIOD ENDING PERIOD ENDING
October 25, October 27, October 25, October 27,
2008 2007 2008 2007
------------ ------------ ------------ ------------
Net sales $ 61,723 $ 59,082 $ 145,658 $ 142,505
Cost of sales 45,584 42,271 115,091 107,473
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Gross margin 16,139 16,811 30,567 35,032
Selling, general
and administrative
expenses 11,295 11,100 30,687 31,676
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Income (loss) before
other expenses 4,844 5,711 (120) 3,356
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Other expenses:
Dividends on
preferred shares 87 108 272 318
Interest expense
on long-term debt 148 116 478 451
Amortization 1,405 1,302 4,447 4,117
------------ ------------ ------------ ------------
1,640 1,526 5,197 4,886
------------ ------------ ------------ ------------
Income (loss) before
income taxes 3,204 4,185 (5,317) (1,530)
Income taxes 1,130 1,594 (1,443) (344)
------------ ------------ ------------ ------------
Net income (loss)
and comprehensive
income (loss) $ 2,074 $ 2,591 $ (3,874) $ (1,186)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic and diluted
income (loss)
per share $ 0.03 $ 0.04 $ (0.06) $ (0.02)
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