Liquor Stores N.A. Ltd (the "Company") (TSX:LIQ), North America's
largest publicly traded liquor retailer today reported its results
for the third quarter ended September 30, 2012.
HIGHLIGHTS
Three months ended September 30, 2012
-- Opened two large-format, service-oriented liquor stores in Alberta (each
in excess of 17,000 square feet), branded as "Wine & Beyond";
-- Consolidated sales increased 4.7% to $164.5 million (2011 - $157.1
million);
-- Same-store sales increased by 2.5% in Canada and decreased by 0.4% ($0.1
million) in the US;
-- Gross margin increased to 25.5% (2011 - 24.8%);
-- Operating margin before non-recurring items increased by 7.0% to $14.6
million (2011 - $13.6 million); and
-- Net earnings were $6.5 million (2011: $11.0 million). The decrease
relates primarily to last year's $4.9 million one-time recovery from a
lawsuit.
Nine months ended September 30, 2012
-- Consolidated sales increased 6.5% to $450.7 million (2011 - $423.3
million);
-- Same-store sales increased by 4.1% in Canada and 2.1% in the US;
-- Gross margin increased to 25.3% (2011 - 24.7%);
-- Operating margin before non-recurring items increased by 11.9% to $34.9
million (2011 - $31.2 million); and
-- Net earnings were $13.7 million (2011: $16.9 million). The decrease
relates primarily to last year's $4.9 million one-time recovery from a
lawsuit.
"Our results reflect a continuation of the strong performance
we've been driving across all regions. We've achieved significant
margin improvements in both our Canadian and US segments." said Jim
Dinning, Chair of the Board of Directors and Interim Chief
Executive Officer. "Along with our continued strong financial
results, our team 'raised the bar' when we opened two new
large-format stores in Alberta in September. The initial customer
response has been overwhelmingly positive."
Our financial performance in the third quarter was highlighted
by strong increases in gross margin and operating margin
percentages. Consolidated gross margin increased from 24.8% to
25.5%, which represents the fourth consecutive quarter that the
gross margin has increased over the comparative quarter. Operating
margin before non-recurring items increased by 7.0% to $14.6
million, which represents the seventh consecutive quarter that
operating margin percentage before non-recurring items has
increased over the comparative quarter. The third quarter
same-store sales increase in Canada was the eighth consecutive
quarterly increase recorded by the Company. US same-store sales
experienced a $0.1 million 'quarter over quarter' decline, however,
both gross margin and operating margin in the US increased from the
comparative period.
Management attributes these positive results primarily to our
focus on improved merchandising, category management and purchasing
strategies along with our expanded store hours program (with
selected stores open until 2 am), and a strong emphasis on cost
control.
During the last week of September 2012, the Company opened two
(2) large-format Alberta liquor stores (each in excess of 17,000
square feet), branded as "Wine & Beyond", with a strong focus
on wine and customer service. Management believes that these
upscale Wine & Beyond stores carry the largest selection of
wines, spirits and beers in Western Canada. Fashioned similar to
our large-format stores located in the US, these destination stores
will complement the Company's convenience-focused Liquor
Depot/Liquor Barn stores in Alberta.
Third Quarter 2012 Operating Results Compared to Third Quarter
2011 Operating Results
Sales
Total sales increased by $7.4 million or 4.7% to $164.5 million
in the third quarter of 2012 (2011 - $157.1 million). The increase
is primarily the result of new store expansion, same-store sales
growth in Canada, and a $0.5 million increase in the Canadian
currency equivalent for US sales as a result of foreign exchange
rate differences.
Same-Store Sales
-- Canadian same-store sales increased by $2.9 million or 2.5%.
-- The increase in Canadian same-store sales represents the eighth
consecutive quarter over quarter increase.
-- The positive results in Canada are attributable, in part, to the
continued success of the Company's expanded store hours program
(with stores in selected markets open until 2 am) and continued
management focus on the execution of operational initiatives related
to merchandising techniques, category management and purchasing
strategies.
-- US same store sales decreased by $0.1 million or 0.4%, which was more
than offset by an increase in operating margin.
-- Management believes the decrease in US same store sales is
attributable primarily to unfavourable weather conditions in
Kentucky during the month of September 2012 and downward pressure on
sales due to certain counties in Kentucky (in proximity to certain
of the Company's stores) going from 'dry' to 'wet' throughout 2012
(i.e. certain counties that did not previously permit retail package
liquor sales are now permitting these sales).
Other Sales
-- Other Canadian stores include two large format stores ('Wine & Beyond')
opened during the last week of September 2012, one store that was
acquired in the second quarter of 2012, four stores that were opened in
the fourth quarter of 2011 and one store that closed subsequent to June
30, 2011; other US stores include one store that was acquired in the
first quarter of 2012 and one store that was opened in the fourth
quarter of 2011. Sales for all of the new stores have exceeded
projections and management is encouraged that this will continue
throughout the remainder of 2012.
MARGINS
For the three months ended September 30, 2012, gross margin was
$41.9 million, up 8.2% from $38.8 million for the same period last
year. Gross margin as a percentage of sales increased to 25.5% from
24.7% in 2011. The quarter over quarter increase in gross margin
percentage represents the fourth consecutive quarterly increase.
Gross margin as a percentage of sales has increased primarily as a
result of continued focus on merchandising techniques, category
management and purchasing strategies, including expanding our
selection and marketing of control brands/private label and
exclusive products.
Operating margin before non-recurring items was $14.6 million
for the three months ended September 30, 2012, up 7.0% from $13.6
million in 2011. As a percentage of total sales, operating margin
before non-recurring items was 8.9%, up from 8.7% a year earlier
primarily due to an improvement in gross margin percentage.
Operating margin decreased 4.9% from $13.3 million in the prior
year, primarily as a result of non-recurring administrative
expenses, which were offset by increases in sales and gross margin
percentage.
Canadian operating margin before the $2.0 million in
non-recurring expenses primarily related to payments made to the
Company's former President and Chief Executive Officer upon his
departure effective August 31, 2012, was $12.2 million or 9.5% as a
percentage of Canadian sales. Operating margin for Canadian stores
for the third quarter of 2012 was $10.2 million or 8.0% as a
percentage of Canadian sales compared with $11.8 million and 9.6%
as a percentage of Canadian sales for 2011.
The US operating margin for the third quarter of 2012 was $2.4
million or 6.6% as a percentage of US sales compared with $1.5
million and 4.3% as a percentage of US sales for 2011.
CASH FLOW AND DIVIDENDS
For the three months ended September 30, 2012, cash provided by
operating activities before changes in non-cash working capital and
non-recurring items was $13.0 million ($0.57 per share), an
increase of $0.9 million compared to $12.1 million ($0.54 per
share) for the same quarter in 2011. The increase results primarily
from an increase in operating margin before non-recurring items for
the three months ended September 30, 2012. Before adjusting for
non-recurring items, cash provided by operating activities before
changes in non-cash working capital for the three months ended
September 30, 2012 is $0.48 per share compared to $0.70 per share
in the same period last year.
During the three and nine months ended September 30, 2012, the
Company declared dividends of $0.27 and $0.81 per share,
respectively. The Company's current annual dividend is $1.08. The
Company has declared a monthly dividend consecutively since going
public in 2004.
The Company has a dividend reinvestment plan (the "DRIP") to
provide eligible shareholders with a convenient means of
reinvesting monthly dividends into additional common shares. For
further information about the DRIP and DRIP enrolment please visit
the Company's website located at www.liquorstoresna.com.
EARNINGS AND EARNINGS PER SHARE
Net earnings for the three months ended September 30, 2012 were
$6.5 million compared to $11.0 million for the same period in 2011.
The decrease in net earnings is primarily the result of
non-recurring recoveries in 2011, which included proceeds from a
litigation settlement of $4.9 million, and non-recurring expenses
in 2012 of $1.9 million related to the departure of the Company's
former President and Chief Executive Officer, which were offset by
increases in gross margin and a decrease in income taxes.
Basic and diluted earnings per share for the three and nine
months ended September 30, 2012 were $0.28 and $0.59 per share
respectively (2011: $0.48 and $0.74).
Liquor Stores Summary Financial Results, three and nine months
ended September 30, 2012 with comparisons to 2011
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Three months ended Nine months ended
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(expressed in thousands of
Canadian dollars) except per September September September September
share amounts) 30, 2012 30, 2011 30, 2012 30, 2011
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Sales $ 164,490 $ 157,080 $ 450,747 $ 423,258
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Operating margin before non-
recurring items $ 14,588 $ 13,648 $ 34,852 $ 31,230
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Operating margin $ 12,635 $ 13,298 $ 31,656 $ 30,201
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Net earnings (note 1) $ 6,481 $ 10,970 $ 13,653 $ 16,898
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Diluted earnings per share
(note 1) $ 0.28 $ 0.48 $ 0.59 $ 0.74
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Cash dividends per share $ 0.27 $ 0.27 $ 0.81 $ 0.81
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Weighted average number of shares
outstanding - diluted (000's) 22,949 22,613 22,836 22,602
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Stores in operation as at
September 30 244 236 244 236
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Note 1 - Note that the decrease in net earnings and diluted
earnings per share from 2011 to 2012 relates primarily to a $4.9
million one-time recovery from a lawsuit recorded in 2011.
The Management's Discussion and Analysis (MD&A) as well as
the interim consolidated financial statements and notes for the
three and nine months ended September 30, 2012 are available on the
Company's website at this link: www.liquorstoresna.com and on the
SEDAR website at www.sedar.com.
Conference Call
As previously announced, Liquor Stores N.A Ltd. will conduct an
investor conference call on Wednesday November 7, 2012 to discuss
results for the three and nine months ended September 30, 2012. The
conference call will take place at 9:00 a.m. MST. Participants in
the call include Jim Dinning, Chair of the Board of Directors and
Interim Chief Executive Officer, Pat de Grace, Senior Vice
President and Chief Financial Officer, Scott Morrow, Chief
Operating Officer, and Craig Corbett, Vice President Legal, General
Counsel & Corporate Secretary.
To take part in the call, please dial toll-free 1-877-240-9772.
An archived recording of the conference call will be available
approximately one hour after the completion of the call until
November 15, 2012, by dialling 1-905-694-9451 or toll-free
1-800-408-3053. The required pass code is 6431970.
About Liquor Stores N.A. Ltd.
The Company currently operates 246 retail liquor stores in
Alberta, British Columbia, Alaska and Kentucky. The Company's
common shares and convertible subordinated debentures trade on the
Toronto Stock Exchange under the symbols "LIQ" and "LIQ.DB.A".
Additional information about Liquor Stores N.A. Ltd. is
available at www.sedar.com and the Company's website at
www.liquorstoresna.com.
NON-IFRS FINANCIAL MEASURES
Operating margin, operating margin as a percentage of sales,
operating margin before non-recurring items, EBITDA, cash provided
by operating activities before changes in working capital and
non-recurring items, cash provided by operating activities before
changes in working capital and non-recurring items on a per share
basis, and same store sales are not measures recognized by IFRS and
do not have a standardized meaning prescribed by IFRS. Investors
are cautioned that operating margin, operating margin as a
percentage of sales, EBITDA, cash provided by operating activities
before changes in working capital and non-recurring items, cash
provided by operating activities before changes in working capital
and non-recurring items on a per share basis, and same store sales
should not replace net earnings or loss (as determined in
accordance with IFRS) as an indicator of the Company's performance,
of its cash flows from operating, investing and financing
activities or as a measure of its liquidity and cash flows. The
Company's method of calculating operating margin, operating margin
as a percentage of sales, EBITDA, cash provided by operating
activities before changes in working capital and non-recurring
items, cash provided by operating activities before changes in
working capital and non-recurring items on a per share basis, and
same store sales may differ from the methods used by other issuers.
Therefore, the Company's operating margin, operating margin as a
percentage of sales, EBITDA, cash provided by operating activities
before changes in working capital and non-recurring items, cash
provided by operating activities before changes in working capital
and non-recurring items on a per share basis, and same store sales
may not be comparable to similar measures presented by other
issuers.
EBITDA, which is used only with reference to the calculation of
covenants under the Company's credit facility, is defined under the
amended and restated credit facility as the net income of the
Company plus the following: interest expense, provision for income
taxes, any portion of expense in respect of non-cash items
including any long-term incentive plan amounts not to be settled in
cash, depreciation, amortization, deferred taxes, and non-recurring
losses to a maximum of $3.5 million in any fiscal year, write down
of goodwill and other restructuring charges for store closures, and
amortization of inventory fair value adjustments. EBITDA is also
less any non-recurring extraordinary or one-time gains from any
capital asset sales or certain foreign currency transactions.
Cash provided by operating activities before changes in working
capital and non-recurring items is a non-IFRS financial measure
that does not have a standardized meaning prescribed by IFRS and
therefore is unlikely to be comparable to similar measures
presented by other issuers. Investors are cautioned that this
should not be construed as an alternative measure of
profitability.
Operating margin for purposes of disclosure under "Operating
Results" has been derived by subtracting Operating and
Administrative expenses from Gross Margin. Operating margin as a
percentage of sales is calculated by dividing operating margin by
sales. Operating margin before non-recurring items has been derived
by adding non-recurring items to operating margin as described
above.
Non-recurring items include costs incurred and recoveries
received by the Company that are not part of on-going operations
and that are not expected to recur. Among others, these
non-recurring items include costs associated with a store
investment that was not completed, and professional fees paid in
respect of lawsuits that originated following and arising from the
Company's acquisition of Liquor Barn Income Fund in 2007 and the
proceeds received on settlement of these matters.
Contacts: Liquor Stores N.A. Ltd. Patrick de Grace, CA Senior
Vice President and Chief Financial Officer (780) 917-4179