Drawing down debt incurs 2Q loss at The Brick

Michael J. Knell -- Furniture Today, October 13, 2012

EDMONTON, Alberta - Incurring a one-time charge of C$17.1 million to help redeem its outstanding debentures pushed The Brick into the red for the second quarter.
     Excluding that charge, the company said it would have turned a profit even though sales of C$364.2 million were down 0.9% from the same period last year.
     Corporate store sales fell 1% to C$321.6 million over the second quarter of 2011. Sales by The Brick's retail segment - which sells product on the floor - were down 0.7% to C$301.7 million. Same-store sales were up 0.4%, but the full-line retailer's corporate store count fell by seven units to 164.
     Meanwhile, the company's financial services segment - which sells extended warranties and other financial instruments - had sales of C$19.9 million, down 1.5% from a year ago, which The Brick attributed to decreased third-party insurance business.

"Our 2012 priorities remain the same, and we are staying the course with focus on growing total system sales...." Vi Konkle, The Brick, Edmonton, Alberta

     Sales by franchise stores fell 0.4% in the second quarter to C$42.6 million. The company noted that sales in 2011's second quarter were increased by sales to replace the furnishings in homes damaged by forest fires in and around Slave Lake, Alberta. Excluding the impact of those sales, network sales increased 2.1%.
     During the period, The Brick converted two corporate stores into franchise units, bringing the network up to 64 locations - an increase of six from a year ago.
     The net loss for the period was C$3.1 million or three cents a share, reversing the net earnings of C$6.4 million or 12 cents per share for the second quarter of 2011.
     For the first half, consolidated sales of C$617.4 million were down 0.2% year-over year. Retail segment sales were up 0.3% to C$577.9 million and same-store sales rose 1.1%, while the store count fell from 172 to 164.
     Sales by the financial services segment were down 5.9% to C$39.6 million.
     Franchise store sales were up 4.1% to C$84.7 million, driven primarily by a higher store count.
     Year-to-date same store sales for franchise stores decreased by 1.4%.
     Net earnings were C$1.7 million or one cent per share, down 77.9% from earnings of C$7.5 million or 13 cents per share for the first half of 2011.
     The company said that while the one-time debenture buy-back expense led to a loss, The Brick made gains in gross margin while reducing operating costs. "These improvements have helped The Brick team weather the headwinds that are facing the home furnishings sector in Canada," officials said in a note to shareholders.
     In remarks to a conference call, Vi Konkle, who was named president and CEO at the beginning of the year, said the company's focus remains unchanged.
     "Our 2012 priorities remain the same, and we are staying the course with focus on growing total system sales - including corporate and franchise stores - optimizing our product offerings, improving our capital structure, maintaining a prudent level of cash on hand, and leveraging our investment in information technologies to improve customer service, productivity and execution," she said. "We continue to make strides toward benchmark quality and value through our work with our offshore manufacturers, ensuring that our product lineup delivers against the expectations of increasingly cautious Canadian consumers."
     During the second half, The Brick plans to open another seven franchise stores, bringing the network to 71. At the end of the year it will have 235 stores in total, three more than at the end of 2011.