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Coast Q1 sales up 6.9% PDF Print E-mail
Written by HGO Staff   

VANCOUVER (21 May 2012) - Double-digit improvements in its builder business gave Coast Wholesale Appliances a 6.9% overall uptick in sales for the first quarter of the year, although it fell just short of breaking even during the period.

For the three months ending March 31, 2012, Coast recorded sales of $30.0 million, up 6.9%, from $28.1 million in for the same period of 2011. Meanwhile the net loss totalled $4,000 or zero cents per share an improvement from the net loss of $487,000 or 4.9 cents per share declared for the first quarter of last year.

The company noted it enjoyed a 10.9% increase in sales to builders, which was tempered somewhat by a more modest 2.5% retail sales gain while other revenues - generated by warranty sales, freight and installation, sales of glass products and commission sales - increased 5.7%.

This meant Coast's business mix for the first quarter to shift in favour of builder sales.

Regionally, sales in British Columbia, Saskatchewan and Manitoba benefited from upticks in home construction, particularly in the multi-unit sector although single family home building was up in the latter two provinces.

Meanwhile, overall sales were down slightly in Alberta as growth in retail was offset by reduced demand from builders.

However, revenues from Coast's single store in the Greater Toronto Area (GTA) were again up significantly from the prior year, with strong sales growth in both the retail and builder segments. Builder business in this market continued to benefit from the completion of sales logged in 2010 and 2011 in both the single-family and multi-family sectors.

Canada's only publicly-held white goods retail specialist noted that while gross profit improved slightly from $6.8 million in Q1 2011 to $6.9 million this year, gross margin decreased from 24.0% to 22.9%.

Coast attributed the decline in gross margin percentage in large part to the competitive retail environment that persisted in all of its markets across the country. Gross margin was also negatively impacted by reduced prices on floor models in order to accommodate the introduction of the KitchenAid line at 12 of its stores in B.C. and Alberta in January. Margins were also negatively impacted by discounted pricing on certain items to reduce inventory levels and the increase in Coast's builder business, which generates a lower margin than its retail sales, had an impact.

During the first quarter, as part of its ongoing strategy to enhance profitability by increasing sales from its existing stores, Coast proceeded with upgrade work at its stores in Coquitlam and Victoria, B.C. Both are scheduled for completion by the end of the second quarter.

To support its growth in the GTA, Coast moved forward with plans for the relocation of its existing store to a new facility. The new location will feature a state-of-the-art showroom with working designer kitchens and an adjoining warehouse that is of sufficient size to accommodate the future addition of new stores in the GTA. This move will also be completed by the end of the second quarter.

"While we are disappointed by our Q1 gross margin, we are pleased with our sales performance, particularly in the GTA," Coast president and chief executive officer Maurice Paquette said in a statement. "At the same time, we continued to strengthen our backlog of contract orders for future delivery, thanks to a steady flow of development activity in both the multi-family and single-family builder sectors."

Paquette also noted inventory levels were down $600,000 from December 31 and he anticipates further reductions by the end of the second quarter. This, he said, will lead to improved inventory turns in the second half of 2012.

"Finally, we are happy to report that our sales of KitchenAid major appliances in B.C. and Alberta during the first three months of the year exceeded our expectations," Paquetter said. "The brand has been a strong performer for Coast in Saskatchewan, Manitoba, and Ontario, and we expect that extending it nationally will contribute significant incremental revenue through the balance of the year and over the longer term."

In conjunction with the release of its first quarter results, Coast announced that the company's long-time chief financial officer, Jack Peck, intends to retire in the fall of 2012. A search for his successor has begun and Peck will remain with Coast until a new CFO is appointed and will work closely with his successor to ensure a smooth and orderly transition.

Paquette said Coast remains cautious about its outlook for the rest of year, not only for its own business but for the major appliance category in general.

While its builder business has grown in recent months, Coast expects the pace of growth will slow through the rest of the year - mainly because of a softening in single-family home construction in much of the country.

"Overall, Coast does not anticipate that total housing starts for this year will be significantly different from 2011 levels," Paquette said. "On the retail side, while first quarter sales improved year-over-year, the company expects that consumers will remain careful about making major purchases and that retail pricing will remain extremely competitive through the balance 2012, putting downward pressure on sales and margins.

"We expect that our revenues and profitability will continue to be impacted by slow economic growth and fragile consumer confidence in our western Canadian and GTA markets through 2012 and into 2013," he continued, adding, "However, we remain confident in our ability to grow our business over the longer-term as economic conditions improve, and particularly in the GTA market. In the meantime, keeping our stores current and attractive is vital to maintaining our market advantage."

During the second quarter, in addition to completing upgrade work at its Coquitlam and Victoria stores, and relocating its GTA store, Coast plans to add space to its Saskatoon, Saskatchewan warehouse. The expansion will enable the company to reconfigure the adjoining store's showroom in a major upgrade planned for the second half of the year.

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