Q4 2012 BIRKS & MAYORS INC Earnings Conference Call
Jun 28, 2012 AM EDT
Thomson Reuters StreetEvents Event Transcript
E D I T E D V E R S I O N
BGI - Birks Group Inc
Q4 2012 BIRKS & MAYORS INC Earnings Conference Call
Jun 28, 2012 / 08:45PM GMT
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Corporate Participants
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* Mike Rabinovitch
Birks & Mayors Inc. - SVP & CFO
* Jean-Christophe Bedos
Birks & Mayors Inc. - President & CEO
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Conference Call Participants
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* Bob Gibson
Octagon Capital - Analyst
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Presentation
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Operator [1]
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Good day and welcome to the Birks & Mayors Inc. operated fiscal 2012 results conference call. Today's presentation is being recorded. I would now like to turn the conference ever to Mike Rabinovitch of Birks & Mayors.
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Mike Rabinovitch, Birks & Mayors Inc. - SVP & CFO [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 would like to remind you of the Company's Safe Harbor language. The statements contained in this conference call which are not historical facts 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 Form 20-F and other SEC filings.
And now I would like to turn the call over to Birks & Mayors' President and CEO, Jean-Christophe Bedos.
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Jean-Christophe Bedos, Birks & Mayors Inc. - President & CEO [3]
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Thank you and good afternoon, everyone. Thank you for joining us to discuss our company's fiscal 2012 results. Before I proceed I would like to also thank Mike Rabinovitch, our CFO, who is joining me today on this call.
Let me begin by saying how delighted I am to have the opportunity to speak with you for the first time as president and CEO of Birks & Mayors. While my nomination only took effect April 1, I have had the opportunity since April -- since early January to get to know the Company and I am very proud to be part of an organization with such rich heritage.
While the company has faced some challenges in the past few years as a result of the downturn in the economy, I am very optimistic about the prospects for our brands going forward. I believe we are well-positioned to significantly grow the Birks brand as well as leverage the Mayors retail brand as we continue to grow the profitability of our company.
By way of introduction, fiscal 2012 marked a very important step for the Company as we were able to produce a bottom-line profit for the first time in several years. The slowly improving economic situation in our US markets, combined with a relatively stable Canadian economy, were an important factor in our improved in performance in fiscal 2012. But it was our ability to leverage these environments with the success of our marketing and merchandising initiatives that helped drive the improvement in financial results in fiscal 2012 compared to the prior year.
These improvements included increasing our net sales by 11.6% to $302.3 million, which includes the comparable store sales increase of 5%. At the same time our gross profit margin grew by 114 basis points. These successes, along with reducing our expenses as a percentage of sales, resulted in the company improving its profitability over the prior year by $8 million and ending the year with $219,000 of net income or $0.02 per share.
And now I would like to turn the call over to our CFO, Mike Rabinovitch, to review our financial results in more detail.
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Mike Rabinovitch, Birks & Mayors Inc. - SVP & CFO [4]
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Thank you, Jean-Christophe, and good afternoon, everyone. Before I begin my financial review, I first want to remind listeners that our results are reported in US dollars and are prepared in accordance with US GAAP. I also want to remind everyone that as a result of our fiscal year ending on the last Saturday of each March, our fiscal year ended March 31, 2012, consisted of 53 weeks while the prior fiscal year included 52 weeks. As I review our results with you, I will provide information on the impact of that additional week.
I would like to begin with a review of the income statement. As Jean-Christophe already mentioned, revenues grew by 11.6% over the prior year, or $31.4 million, primarily driven by a 5% increase in comparable store sales; $7.6 million of higher sales from one new store; $8.1 million of increased revenues from -- related to our refining operations, partially offset by $4.6 million of lower sales related to the closure of six underperforming stores during the year.
The impact of the additional week resulted in approximately $4.4 million of higher sales and we recognized approximately $3.1 million of higher sales related to foreign currency translation due to the strength of the Canadian dollar relative to the prior period.
The 5% increase in comparable store sales was driven by a 4% increase in comparable store sales in Canada, while US comparable store sales increased by 6% in comparison to the prior fiscal year. The increase in comparable stores sales in both countries reflected an increase in our average sale transaction.
Gross profit increased $16.9 million to $133.2 million, or 44.1% of net sales, as compared to 42.9% of net sales in the prior-year period. The 114 basis points increase in gross profit margin was primarily attributable to retail price increases and a reduction in promotional pricing. The increase in gross profit also included $1.5 million of higher gross profit related to translating the gross profit of our Canadian operations into US dollars with a relatively higher, stronger Canadian dollar and $1.9 million of higher gross profit related to the extra week in fiscal 2012.
SG&A expenses in fiscal 2012 increased by $10.6 million to $118.1 million, or 39.1% of net sales, from 39.7% of net sales last year. The increase was primarily driven by $4.5 million of higher compensation expenses related to the higher sales, margin, and operating performance, and $1.9 million of higher compensation costs as a result of our decision to terminate the salary reduction program we initiated back in March 2009 related to the significant downturn in the economy at that time.
Also contributing to the increase was higher marketing expenditures of $1.8 million and $1.4 million of higher expenses related to foreign currency translation. The extra week in the fiscal year resulted in approximately $1 million of additional expenses compared to the prior year.
Lastly, the Company recorded a $2.1 million accrual related to post-employment benefits due to the departure of our former Chief Executive Officer, Tom Andruskevich, payable over the coming fiscal year. As a result of the increased sales and higher margins offset by the increase in expenses, we improved our bottom-line results by approximately $8 million and recorded a profit of $219,000 for the year compared to a net loss in the prior year of $7.7 million, or $0.68 per diluted share.
If you exclude the $2.1 million charge for the post-employment benefits the Company recorded during the year, we would have generated a profit of $2.3 million, or $0.21 per diluted share.
I would like to now turn to the balance sheet. Inventory at March 31, 2012, was $1.6 million higher than the prior fiscal year-end, or $3.3 million excluding the impact of $1.7 million of lower inventory related to foreign currency translation. The increase in inventory was driven by a comparable store inventory increase of 6%, or approximately $7.7 million, partially offset by $5 million of lower inventory due to the closure of six retail locations. This increase in inventory reflected higher levels of inventory in our more popular products and product brands as overall demand has increased from the prior year.
Interest-bearing debt, which includes our senior secured revolving line of credit, increased by $300,000 to $112.5 million. Excluding $1.1 million of lower debt related to foreign currency translation, interest-bearing debt increased by $1.4 million compared to the prior year-end. The increase is primarily the result of the increase in inventory from the prior year's levels.
Even though interest-bearing debt rose from the year before, we were still able to reduce our interest expense by $1.1 million, primarily related to lower rates associates with the amendment of our senior secured revolving line of credit and our senior secured term loan in June of 2011. This amendment not only extended the term of both facilities by four years, but reduced the borrowing rate under both facilities.
Our senior secured term loans interest rate was reduced from the greater of 16% per year or one month's LIBOR plus 12% to the greater of 11% per year or one month LIBOR plus 8%, and the borrowing amount was increased from $12.5 million to $18 million.
While our $132 million senior secured revolving credit facility was reduced to $115 million as part of the amendment, the amended structure resulted in increased borrowing availability and more favorable interest rate terms. As of March 31, 2012, our excess borrowing capacity under our revolving credit facility was $3.2 million higher than the previous year-end.
In conclusion, fiscal 2012 represented a significant milestone for the Company as we were able to generate a profit after several years of losses. We are encouraged by the improvement in sales and gross margin during fiscal 2012 and as such we are planning to build our business -- we are planning our business to build on these successes as we look to improve our profitability further.
And now I would like to turn the call back to Jean-Christophe.
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Jean-Christophe Bedos, Birks & Mayors Inc. - President & CEO [5]
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Thank you, Mike. As Mike Rabinovitch reviewed with you in more detail, fiscal 2012 represented a significant turning point for the Company in sales growth, margin improvement, and bottom-line profit. While the year represented significant improvement, we still have a lot of progress to make to raise our profitability to the levels expected by our shareholders and by our management team.
In this respect, in the new fiscal year we will be concentrating our efforts on several areas. One of those areas will be developing methods aimed at enhancing our customers' in-store experience. We will also concentrate on reaching a younger consumer.
On the merchandising side we will also be concentrating on developing and enhancing our Birks brand as we develop new product offerings. In addition to our own brand, we will also be focusing our efforts to better partner with third-party luxury brands and develop those brands that are not only profitable, but also highly desirable to our clients.
Finally, we have begun reviewing our operations to identify opportunities to further optimize our cost structure and improve our organizational efficiency. Over the next few months our senior management team will be focusing and finalizing in-depth reviews of our various operations and processes, including back-office support functions. They will be developing recommendations and action plans to better leverage our expenses while increasing our focus and resources on brand valuation proposition to our customers.
I would like now to turn the call over to the operator to conduct the question-and-answer portion of this call.
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Questions and Answers
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Operator [1]
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(Operator Instructions) Bob Gibson, Octagon capital.
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Bob Gibson, Octagon Capital - Analyst [2]
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Good afternoon, thanks for taking my call. Can you just talk about the store opening/store closing over the past year and what your thoughts are for this year?
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Mike Rabinovitch, Birks & Mayors Inc. - SVP & CFO [3]
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Okay, so over the prior three years we have been executing a store productivity exercise where we started very early in the process by closing the most unprofitable stores and then as the years progressed, completing last year and we will also continue a little bit this year, exiting those stores that are either marginal or not strategic moving forward.
At the same time, we remain opportunistic to take advantage of future opportunities that are strategic or offer us a significant profit opportunity. So we did open a store a little over a year ago, it was the Rolex store operated by Mayors in Mall of Millennia in Orlando.
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Bob Gibson, Octagon Capital - Analyst [4]
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Okay. And sorry if this question is silly, but refining operations, I haven't heard that before. What is that?
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Mike Rabinovitch, Birks & Mayors Inc. - SVP & CFO [5]
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Refining operations is really a catch-all term for when we sell precious metals to refiners, and we sell them at whatever the spot rate minus the refining charges would be. And as you know, with the price of precious metals over the last couple of years increasing that offered us an opportunity not only to melt inventory that was no longer appropriate for sale in our stores, but also to offer service to our retail clients where they could bring in unwanted precious metals and we would take care of that refining for them. And that is what that refers to.
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Bob Gibson, Octagon Capital - Analyst [6]
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Okay, great. Just comparing your first half versus your second half, it looks like same-store sales weren't as robust in the States. Can you give me some color?
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Mike Rabinovitch, Birks & Mayors Inc. - SVP & CFO [7]
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Yes, you can see that, but it also has to do with the performance of the prior-year six-month period that we were going against. But we were still very pleased with the full-year results.
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Bob Gibson, Octagon Capital - Analyst [8]
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Okay. And you didn't give me a cash flow statement, but it looks like you generated about $7 million-odd in cash. Can you give me some ideas where that was spent?
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Mike Rabinovitch, Birks & Mayors Inc. - SVP & CFO [9]
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Well, we have capital expenditures for the year and we had a moderate payment on some long-term debt.
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Bob Gibson, Octagon Capital - Analyst [10]
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Okay, great. Thanks very much.
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Operator [11]
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(Operator Instructions) And we have no more questions in queue.
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Mike Rabinovitch, Birks & Mayors Inc. - SVP & CFO [12]
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Thank you for joining us today. We look forward to speaking with you when we report our midyear results this fall, if not sooner. Thank you.
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Operator [13]
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This concludes today's call. We thank you for your participation.
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