Brick earnings tumble 25.7% in 3Q

But retailer's revenue rises 2.6%

Michael Knell -- Furniture Today, November 10, 2008

EDMONTON, Alberta — In what may be a sign of things to come for the Canadian furniture retailing sector, The Brick Group Income Fund reported a dramatic decrease in third-quarter earnings despite a modest uptick in revenue.

The fund reported consolidated revenue of C$416.8 million, up 2.6% from the same quarter in 2007. But net income of C$12.4 million or 23 cents per trust unit was down 27.5% from a year ago.

Earnings before interest, taxes, depreciation and amortization (EBITDA), seen as a key performance measure for most Canadian income trusts, plummeted 32.8%. Same-store sales were essentially flat - falling 0.3% - after gaining 7.7% during the third quarter of 2007.

Two bright spots for The Brick were the fund's financial services segment and franchise network. Financial services, including credit, extended warranties and other add-on services, saw its sales climb 25.9% in the period to C$15.7 million. Franchise sales rose 16.4% to C$36 million.

Net income from the company's retail segment - sales from the store floors - was C$4.8 million, less than half the C$10 million posted in the third quarter of 2007. Net income from financial services climbed 7.3% to C$7.7 million.

For the nine months ended Sept. 30, revenue of C$1.16 billion was up 3.4% from the same period a year earlier. Net income was C$22.9 million or 42 cents per unit, compared with a net loss of C$17.7 million or 33 cent per unit for the same period last year.

A year ago, The Brick set aside about $C$44 million as a one-time writedown in preparation for tax changes that will take effect in 2011.

Thanks to fairly strong performances through the first half, EBITDA was down just 6% for the year to date, while same-store sales declined 0.3%.

The company's 38 franchises continued their strong year-to-date performance as sales climbed 17.9% to C$96.8 million. Financial services turned in nine-month sales of C$45.1 million, up 26.6% from a year earlier.

At the end of September the group operated 215 stores, including 38 franchises, up from 206 stores, including 31 franchise operations, a year ago. The fund's retail banners include The Brick, The Brick Superstore, The Brick Mattress Store, Brick Clearance Centres and United Furniture Warehouse.