Birks and Mayors Inc Mid-Year Earnings Conference Call
Nov 16, 2011 AM EST
Thomson Reuters StreetEvents Event Transcript
E D I T E D V E R S I O N
BGI - Birks Group Inc
Birks and Mayors Inc Mid-Year Earnings Conference Call
Nov 16, 2011 / 09:45PM GMT
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Corporate Participants
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* Martha Rodriguez
Birks & Mayors Inc. - VP IR
* Tom Andruskevich
Birks & Mayors Inc. - President, CEO, Vice Chairman
* Mike Rabinovitch
Birks & Mayors Inc. - CFO, SVP
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Presentation
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Operator [1]
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Good day everyone and welcome to the Birks & Mayors Incorporated midyear fiscal 2012 financial results conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Martha Rodriguez of Birks & Mayors. Please go ahead.
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Martha Rodriguez, Birks & Mayors Inc. - VP IR [2]
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Thank you. I hope each of you has received a copy of our earnings release. If for any reason you did not, you may download it from our website at www.BirksandMayors.com by clicking on Investor Relations on the home page index and then on Financial News Releases.
Before we get started, I'd like to remind you of the Company's Safe Harbor language. The statements contained in this conference call which are not historical fact may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those suggested in such statements due to a number of risks and uncertainties, all of which are described in the Company's annual report filed on the Form 20-F and other SEC filings.
Now I'd like to turn the call over to Birks & Mayors' President and CEO, Tom Andruskevich.
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Tom Andruskevich, Birks & Mayors Inc. - President, CEO, Vice Chairman [3]
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Good afternoon everyone. Thank you for joining us to discuss our Company's midyear results for fiscal 2012.
On the call with me today is Mike Rabinovitch, our Chief Financial Officer. For today's call, I'll begin with a brief summary of our results for the first half of our fiscal year, as well as update you on our current business strategies. Then Mike will provide you with a more detailed review of our performance, followed by some closing remarks. Then I'll turn the call over to the operator to begin the question-and-answer portion of the call.
During the first half of the fiscal year, we continued to deliver improvements in our performance despite the continuing uncertain economic environment. We achieved an increase in the Company's average sale as well as an increase in the number of sales transactions in the United States. These factors, coupled with the contribution of several new business initiatives and higher translation of our Canadian sales results, generated a sales increase of 16.8% or $18.7 million for the first six months of fiscal 2012.
The driving force behind our sales increase was a comparable store sales increase of 6%. Split by region, US comp store sales increased 9% and Canadian comparable store sales increased 4% from the prior-year period.
We're also pleased with the performance of several of our new key business initiatives this year, which include our Rolex store in Orlando and our gold refining business.
From a gross margin perspective, retail price increases and a reduction in promotional pricing activities contributed to a 160 basis point increase in gross profit margin from the prior year.
Selling, General and Administrative expenses increased $6.6 million from the prior year, primarily due to the $4.7 million of higher operating expenses primarily due to increased compensation expenses, rent and credit card fees related to higher sales, gross margin, and operating profits. $1.9 million of higher expenses related to translating our Canadian results into US dollars as well as increased spending on marketing and expenses related expanding the distribution of the Birks product brand through international channels. As a result, the net loss for the period decreased by $3.9 million, or $0.35 per share, to $5.6 million, for a net loss of $0.49 per diluted share, compared to a net loss of $9.5 million or $0.84 per diluted share in the first half of last year.
We are very encouraged by the progress we have achieved in executing our merchandising and marketing strategies resulting in improved sales, gross margin, and operating performance so far this year. We'll continue to focus on generating increases in sales and gross profits throughout the all-important holiday season, as well as our fourth fiscal quarter, in order to return the Company to profitability. Given that economic environment remains quite uncertain, we'll continue to control expenses, manage the level and productivity of our inventory, and carefully manage capital expenditures.
Now I'd like to turn the call over to Mike to review our financial results in slightly more detail.
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Mike Rabinovitch, Birks & Mayors Inc. - CFO, SVP [4]
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Thank you Tom. Good afternoon everyone.
Before I begin my financial review, I want to first remind listeners that our results are reported in US dollars and are prepared in accordance with US GAAP.
Beginning with the review of the income statement, net sales increased 16.8%, or $18.7 million, through the first six months of this year. This increase was primarily driven by comparable store sales growth of 6%, $4.9 million of higher sales generated from a new store opening, net of $1.5 million of lower sales associated with the closure of four stores, $4.3 million of higher sales associated with foreign currency translation of the Company's Canadian operations into US dollars due to the stronger Canadian dollar, and $4.1 million of higher revenues related to the Company's refining operations.
Both of the first two quarters had double-digit sales increases despite comp store sales growth slowing somewhat in the second quarter. The comparable store sales increase of 6% during the current fiscal period compares to an increase of 5% in the prior year's first six-month period. As Tom mentioned earlier, the comparable store sales increase was driven by a 9% increase in comparable store sales in the US while Canadian comparable store sales increased by 4% in comparison to the prior fiscal period.
Gross profit increased $10.1 million to $57.6 million, or 44.3% of net sales, as compared to 42.7% of net sales in the prior-year period. The 160 basis point increase in gross profit margin was primarily attributable to retail price increases combined with the reduction in promotional pricing activities. Also contributing to the higher gross profit was the Company's refining operations.
SG&A expenses for the period increased $6.6 million to $55.2 million, or 42.5% of net sales, compared to 43.7% of net sales in the last year period. The $6.6 million increase in SG&A was primarily attributable to $1.9 million of higher expenses related to foreign currency translation resulting from the translation of Canadian expenses into US dollars. The remaining $4.7 million of higher operating expenses is primarily related to higher compensation expenses related to higher sales, gross margins, and operating profits, and the decision by the Company to end its salary reduction program which was initiated in March 2009. Increased spending on marketing, as well as expenses related to expanding the distribution of the Birks product brand through international channels, contributed to the increase in expenses this year.
As a result of the increased sales and higher margins partially offset by higher expenses, our net loss was reduced to $5.6 million, or $0.49 per diluted share, an improvement of $3.9 million or $0.35 per diluted share as compared to a net loss in the first half of last year of $9.5 million or $0.84 per diluted share.
Turning to the balance sheet, inventory at September 24, 2011 was $5.2 million higher than September of last year. The increase in the Company's inventory level is due primarily to increased costs of precious metals, diamonds, and Swiss timepieces, as well as a higher level of inventory associated with the opening of the Company's new Rolex store in Orlando, partially offset by the impact of the Company's closure of four store locations since September 25, 2010.
Bank debt, which refers to our senior secured revolving line of credit, decreased $386,000 to $73.8 million from $74.2 million at the end of September 2010.
In conclusion, we are encouraged by the continued improvement in sales and gross margin during the first half of the fiscal year. The credit facilities we closed in July of this year allow us to continue to have more efficient and flexible sources of borrowing than during the last two years with mechanisms in place to allow for future borrowing cost improvements as our excess availability and our operating performance continue to improve.
Now I would like to turn the call back to Tom for closing remarks.
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Tom Andruskevich, Birks & Mayors Inc. - President, CEO, Vice Chairman [5]
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Thanks Mike.
In summary, during the first half of the current fiscal year, we continued to generate strong improvements in our performance, even during the continuing uncertain economic environment. I am happy to report that this momentum as carried into October where we generated a sales increase of 10% over the prior year.
As we are now entering the very important holiday season, we will continue to focus on generating increases in sales and gross profits while continuing to execute fiscal discipline over expenses, inventory productivity, and capital expenditures.
In addition, we will continue to evaluate the performance of our stores and where we deem necessary close those few remaining stores that do not meet our performance criteria.
At the same time, we continue to identify new business opportunities that may arise and, where we deem appropriate, take advantage of the opportunity. As always, providing superior customer service and maintaining strong client relationship remains our continued focus.
In addition, we remain committed to developing and building the Birks product brand within our existing North American markets, as well as internationally, including exploring opportunities to launch the Birks brand in China in the years to come.
As many of you may be aware from the Company's press release issued at the end of September, I plan to resign my position as President and CEO this coming spring. I've been asked to continue with the Company in my current capacity as Vice Chairman of the Board, which I have agreed to do. The search for a new president and CEO is nearing completion and in line with our goal of having an orderly plan of succession which will include a two to three-month transition period, during which I will work with my successor. Since this may be my last opportunity to address you in my current capacity as CEO, I would like to especially thank all our shareholders for their loyalty and support as well as the analysts and interested parties that have followed our Company.
With that, I'd like to now turn the call over to the operator to conduct the question-and-answer portion of the call.
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Questions and Answers
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Operator [1]
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(Operator Instructions). It appears there are no questions at this time. However, I would like to give one final opportunity. (Operator Instructions). It appears there are no questions at this time, so I will turn the conference back over to management for any additional or closing remarks.
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Tom Andruskevich, Birks & Mayors Inc. - President, CEO, Vice Chairman [2]
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Thank you all for joining us today. We look forward to speaking with you when we report our full-year results next summer. Good afternoon.
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Operator [3]
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This concludes today's presentation. Thank you for your participation.
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