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Michael Knell

Brick Group income rises 4.5% in fourth quarter

Canadian retailer's revenue, earnings bounced back in 2010

EDMONTON, Alberta — Sales for The Brick Group Income Fund saw double digit growth last year as Canada's largest full-line furniture and appliance retailer clawed its way into the black after two years of losses.

"Our quarterly results remained strong throughout the year, ending with record setting EBITDA of C$87.2 million, the highest in the Brick Group's history, and C$69.8 million cash in the bank," Brick Group president and CEO Bill Gregson said in a statement.

Fourth-quarter revenue of C$421.4 million was up 3.6% over the same period in 2009. Net income was C$13.1 million or 23 cents per trust unit, a 4.5% increase from C$12.2 million 22 cents per trust unit in the same period a year earlier.

Sales at corporately owned stores were C$372.2 million, up 3% year-over-year as same store sales grew 2%.

The group's star performers were its 54 franchise stores, which generated sales of C$49.2 million in the fourth quarter, a gain of 8.8% with same store sale rising 5.7%.

Consolidated same store sales growth was 2.5%, rebounding from a negative 7.9% in 2009.

The Brick said its gross margin improved from 42.5% to 44.1% as EBITDA (earnings before interest, taxes, depreciation and amortization) jumped 44.9% to C$5.8 million.

Management attributed the margin improvement to a shift in its product mix towards the high margin furniture and mattress category. Increasing early payments to vendors, flooring less clearance inventory and improving vendor rebates also contributed to the higher margin rate.

Sales by the company's retail segment - essentially product on the floor - were up 2.4% in the fourth quarter to C$350.7 million. The financial services segment, including extended warranties, fabric protection and other added-value products, saw gains of 14.1% to C$21.5 million.

For the full year, sales of C$1.54 billion were up 12.7% year-over-year with same-store sales climbing 10.5% - a turnaround from the negative 19.9% in 2009.

Franchise division sales grew 17% to C$165.6 million, while corporate store sales advanced 2.2% to C$1.37 billion.

Although pleased with 2010 results, Gregson played down the prospects for 2011.

"Management is anticipating an increasingly competitive market in 2011, and one that will continue to be largely unpredictable," he said in a conference call with analysts. "The economic outlook has been forecasted to remain in stable-recovery mode, with GDP growth of 2.9% and historically low interest rates."

Although Canadian consumer spending is forecast to rise 2.7% this year - with durables expected to grow 5% -higher unemployment, stricter mortgage and financing rules, and an anticipated decreases in housing starts and home resales will probably dampen the recovery, he said.

Gregson noted that same-store sales for several competing retailers fell in both the third and fourth quarters. Sales in the first half of 2010 were driven by the now-ended Home Renovation Tax Credit and by consumers hurrying to buy in advance of sales tax changes in Ontario and British Columbia that kicked in on July 1, he said.

"Given these considerations, we acknowledge that sales in first half of 2011 may not match the robust levels experienced in the first half of 2010, and further believe that sales growth is more likely to reflect historically normal levels in the second half of 2011," Gregson said.

He said Brick management is focusing this year on improving same-store sales and enhancing customer service and training, while investing in information systems and improved cost control.

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