The Brick posts profit for 2011 despite flat sales

Michael J. Knell -- Furniture Today, March 27, 2012

EDMONTON, Alberta — Canada's largest full-line furniture and appliance retailer ended 2011 in the black and with some C$141.1 million cash in the bank, despite sales that were down slightly in the fourth quarter and flat for the year.

Not surprisingly, the Brick's 60-unit franchise division was its star performer.

Fourth-quarter consolidated revenue was C$416.7 million, off 1.1% from the same period a year earlier. Corporate store sales were C$362.4 million, down 2.6%, while same-store sales fell 1.8%.

However, franchise store sales gained 10.4%, coming in at C$54.3 million, as same-stores grew up 4.4%.

Net income for the quarter was C$13.2 million or 11 cents per share, down from C$14.2 million or 25 cents per share a year ago. The steep decline in EPS occurred because The Brick had about 121.6 million common shares outstanding at the end of 2011, compared with 56.4 million a year earlier.

For the 2011 year, consolidated revenue was C$1.54 billion and essentially unchanged from 2010.

However, corporate store sales of C$1.35 billion were down 1.7%, with a same-store decline of 1.6%.

Franchise sales were C$183.7 million, up 10.9%, as same store sales were up 4.4%. The Brick started 2011 with 54 franchise locations and ended the year with 60.

Net income for the year was C$35.9 million, reversing the 2010 loss of C$53 million, which was the result of a C$138 million impairment charge related to the change in the fair value of the warrants issued to bondholders.

The Brick said its EBITDA (earnings before interest, taxes, depreciation and amortization) for the full year was C$111.5 million, compared with C$98.1 million for 2010, while gross margin improved by 110 basis points from 43.1% to 44.2%.

Vi Konkle, who took over as president and CEO on Jan. 1, said in a statement that the company performed well in an uncertain economic environment.

"While total system sales were down vs. prior year, the declines were driven by our commercial sales channel, with our core retail and franchise business delivering positive results," she said, adding, "We believe that we have once again captured a greater share of the market. In addition to sector-leading sales performance, the Brick team delivered record gross margin results, reflecting our disciplined assortment and inventory planning processes, which have allowed us to respond with flexibility and agility, keeping our inventory fresh, and delivering record in-stock levels.

"Our product mix has also been a significant contributor to our margin performance, shifting towards greater sales within our higher margin mattress category," she added.

Konkle said that in 2012, The Brick will remain focused on improving profitability and reducing costs.

It will also change its mix of store types, closing at least 11 corporate stores this year - five under the Brick banner, one Brick Mattress store and another five United Furniture Warehouse stores. In their stead, it plans to add 11 new Brick franchise stores.

The United Furniture network will shrink to 24 locations as the corporate store count narrows to 106. The company will also operate two Urban Brick stores, 23 Brick Mattress stores and six Brick Clearance Centres.

"The planned store closures are part of our strategic plan and effort to maximize the benefit from our current store portfolio, while expanding our rural presence through franchising," the company said. "We are projecting no change to the total store count change in 2012, beginning and ending with 232 locations."