2009-10-27 20:24:03 -
TORONTO, ONTARIO -- (Marketwire) -- 10/27/09 -- Danier Leather Inc. (TSX: DL) today announced its unaudited interim consolidated financial results for the 13 week period ended September 26, 2009.
FINANCIAL HIGHLIGHTS ($000s, except earnings per share, square footage and
number of stores):
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For the 13 Weeks Ended
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Sept. 26, Sept. 27,
2009 2008
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Sales $19,951 $22,575
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EBITDA(1) (4,279) (4,779)
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Net Loss (3,442) (3,706)
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EPS - Basic ($0.58) ($0.59)
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EPS - Diluted ($0.58) ($0.59)
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Number of Stores 90 91
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Retail Square Footage 324,644 348,504
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Net loss during the first quarter of fiscal 2010 decreased by 7% or $0.3 million to $3.4 million ($0.58 loss per diluted share) compared with $3.7 million ($0.59 loss per diluted share) during the first quarter last year. The improvement was due to lower expenses and an increase in gross profit margin.
During the first quarter of fiscal 2010, gross profit as a percentage of revenue increased by 5.5% or 550 basis points to 48.4% compared with 42.9% during the first quarter last year. With 23% less inventory and reduced clearance activity than the same time last year, sales decreased by 12% during the first quarter of fiscal 2010 while gross profit dollars only decreased 1%. Comparable store sales decreased by 9%. Sales were $20.0 million compared with $22.6 million during the first quarter of fiscal 2009.
Selling, general and administrative expenses ("SG&A") during the first quarter of fiscal 2010 decreased by 4% or $0.7 million to $15.1 million compared with $15.8 million during the first quarter last year. The decrease was mainly due to cost reduction initiatives implemented during the last half of fiscal 2009. SG&A during the first quarter of fiscal 2010 included $0.4 million of stock-based compensation expense compared with a recovery of $0.1 million during the first quarter last year. Excluding the effect of stock-based compensation, SG&A during the first quarter of fiscal 2010 was approximately $1.2 million lower than the same period last year.
Danier continues to maintain a strong balance sheet with cash of $8.4 million compared with $0.8 million last year, working capital of $33.8 million, no long-term debt and a book value of $9.03 per outstanding share.
Danier is holding its Annual General Meeting of Shareholders today, Tuesday, October 27, 2009 at 4:00 p.m. Eastern Time at Danier's corporate headquarters in Toronto. Shareholders are encouraged to attend. The meeting will also be webcast live at www.danier.com :
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(1) EBITDA is defined as net loss before net interest expense, income taxes, amortization and restructuring costs. EBITDA is a financial metric used by management and some investors to compare companies on the basis of ongoing operating results before taxes, net interest expense, amortization and restructuring costs and its ability to incur and service debt. EBITDA is not a recognized measure for financial presentation under Canadian generally accepted accounting principles ("GAAP"). Non-GAAP earnings measures such as EBITDA do not have any standardized meaning prescribed by Canadian GAAP and, therefore may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to other financial measures determined in accordance with GAAP. EBITDA is calculated as outlined in the following table:
For the 13 Weeks Ended
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Sept 26, 2009 Sept 27, 2008
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($000) ($000)
Net loss ($3,442) ($3,706)
Add (deduct) impact of the following:
Income tax (1,921) (2,373)
Interest expense - net 61 20
Amortization 1,123 1,280
Restructuring costs (100) -
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EBITDA ($4,279) ($4,779)
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Note: This press release contains forward-looking information and forward-looking statements which reflect the current view of Danier with respect to the Company's objectives, plans, goals, strategies, future growth, results of operations, financial and operating performance and business prospects and opportunities. Wherever used, the words "may", "will", "anticipate", "intend", "expect", "estimate", "plan", "believe" and similar expressions identify forward-looking statements and forward-looking information. Forward-looking statements and forward-looking information should not be read as guarantees of future events, performance or results, and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved. All of the statements in this press release containing forward-looking statements or forward-looking information are qualified by these cautionary statements.
Forward-looking statements and forward-looking information are based on information available at the time they are made, underlying estimates and assumptions made by management and management's good faith belief with respect to future events, performance and results, and are subject to inherent risks and uncertainties surrounding future expectations generally. Such risks and uncertainties include, but are not limited to, fashion and apparel and leather industry risks that can affect demand for the Company's products and inventory markdowns, a real or perceived slowdown in the general economy which can result in a reduction in consumer spending and can affect demand for the Company's products, changes in consumer shopping patterns, unseasonably hot weather or severe or unusual weather, seasonality, heightened competition including new competitors and expansion of current competitors, foreign currency and interest rate fluctuations which result in increased costs, leather availability and prices, consumer demand, disruptions in the credit markets, risks associated with foreign sourcing and manufacturing, potential legal proceedings, ability to successfully implement the Company's business strategy, ability to realize anticipated cost savings, inability to renew or access or obtain replacement credit facilities, war and acts of terrorism, higher utility and fuel prices which can result in increased costs, the ability of the Company to attract and retain key executives and key employees, the ability of vendors to maintain, support and upgrade management information systems, catastrophic or other events that impact the use of the Company's head office and distribution centre, increased inflation and interest rates, changes or disruptions in the securities markets, the ability of the Company to obtain new locations or renew or relocate existing locations at existing or favourable lease terms, changes to the regulatory and economic environment in which the Company operates now and in the future, including changes in accounting policies or pronouncements introduced by regulatory authorities, changes in the Company's tax liabilities, either through changes in tax laws or future assessments, performance of third party service providers, and decreases in sales from existing stores and any material disruption to the Company's operations, among other things.
Danier cautions readers that this list of factors is not exhaustive and that should certain risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual events, performance and results may vary significantly from those expected. There can be no assurance that the actual results, performance, events or activities anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. Potential investors and other readers are urged to consider these factors carefully in evaluating forward-looking information and forward-looking statements and are cautioned not to place undue reliance on any forward-looking information or forward-looking statements.
For additional information with respect to certain of these and other risks or uncertainties, reference should be made to Danier's continuous disclosure materials filed from time to time with the Canadian Securities Regulatory Authorities, including the Company's annual information form, quarterly and annual reports and financial statements, and supplementary information, which are available on SEDAR at www.sedar.com :
and in the Investor Relations section of the Company's website at www.danier.com :
. Additional risks and uncertainties not presently known to the Company or that Danier currently believes to be less significant may also adversely affect the Company. Danier disclaims any intention or obligation to update or revise any forward-looking information or forward-looking statements, whether as a result of new information, future events or otherwise.
About Danier
Danier Leather Inc. is a leading integrated designer, manufacturer and retailer of high-quality leather and suede clothing and accessories. The Company's merchandise is marketed exclusively under the well-known Danier brand name and is available at its 90 shopping mall, street-front and power centre stores in Canada and at the Dubai Mall and the Festival City Mall in Dubai. Corporations and other organizations can obtain Danier products for use as incentives and premiums for employees, suppliers, and customers through Canada Sportswear. For more information about the Company and our products, see www.danier.com :
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###PRECONTENT2### 1. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of Presentation:
These unaudited interim consolidated financial statements (the "financial statements") have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") for interim financial information and include all normal and recurring entries that are necessary for a fair presentation of the financial statements. Accordingly, they do not include all of the information and footnotes required by Canadian GAAP for annual financial statements. These financial statements should be read in conjunction with the most recently prepared annual audited consolidated financial statements of Danier Leather Inc. (the "Company" or "Danier") for the 52 week period ended June 27, 2009 and the accompanying notes contained in the Company's 2009 Annual Report.
The financial statements follow the same accounting policies and methods of application as the most recent annual audited consolidated financial statements as at June 27, 2009, except as described below and in Note 1(b).
Effective as of the fiscal year beginning June 28, 2009, the Company centralized a significant portion of its alterations operation and now has alterations work performed by the Company's own employees rather than third party suppliers. As a result, the Company began to report alterations revenue as part of revenue and alterations expense as cost of sales. Warranty related repairs continue to be included in selling, general and administrative expenses ("SG&A") in accordance with EIC 123 - Reporting Revenue Gross as a Principle versus Net as an Agent. In prior years, a significant portion of alterations work was performed by third party suppliers and as a result, alterations revenue and expense was previously reported on a net basis and was included in SG&A.
The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities in the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on management's historical experience, best knowledge of current events and actions that the Company may undertake in the future. Significant areas requiring the use of management estimates relate to the determination of inventory valuation, realizable value of property and equipment, stock based compensation, future tax assets and liabilities, goods and services tax, provincial sales tax, breakage of gift cards and income tax provisions. By their nature, these estimates are subject to measurement uncertainty and the impact on the consolidated financial statements of future periods from changes in estimates could differ materially from those estimated.
(b) Implementation of New Accounting Standard:
Effective June 28, 2009, the Company adopted the following new accounting standard issued by the Canadian Institute of Chartered Accountants ("CICA"):
CICA Section 3064 - Goodwill and Intangible Assets
This CICA Handbook section replaces Section 3062 - Goodwill and Other Intangible Assets and Section 3450 - Research and Development Costs. The new section establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets and is applicable to fiscal years beginning on or after October 1, 2008. Under the new standard, computer software, which was previously included in property and equipment, is now required to be reported as an intangible asset. As computer software has a limited useful life, it continues to be amortized at an annual rate of 30% declining balance.
This standard was adopted retrospectively and there was no impact on net loss or on cash flows of the Company. The cumulative impact on the balance sheet of the Company on the date of adoption was a $1,728 decrease in property and equipment and a corresponding $1,728 increase in the intangible asset and as at September 27, 2008 there was a $1,653 decrease in property and equipment and a corresponding $1,653 increase in the intangible asset.
(c) Recent Accounting Pronouncements:
The Company monitors new accounting standards to assess the impact, if any, on its consolidated financial statements. The CICA has issued the following accounting standard that will be applicable to the Company.
CICA Section 3862 - Financial Instruments - Disclosures
In June 2009, the CICA amended Section 3862 - Financial Instruments - Disclosures to adopt the amendments recently issued by the IASB to International Financial Reporting Standard 7 - Financial Instruments - Disclosures ("IFRS 7"), in March 2009. These amendments are applicable to publicly accountable enterprises or those private enterprises, co-operative business enterprises, rate-regulated enterprises and not-for-profit organizations that choose to apply Section 3862. The amendments were made to enhance disclosures about fair value measurements, including the relative reliability of the inputs used in those measurements, and about the liquidity risk of financial instruments.
The amendments are effective for annual financial statements for fiscal years ending after September 30, 2009, with early adoption permitted. To provide relief for financial statement preparers, and consistent with IFRS 7, the CICA decided that an entity need not provide comparative information for the disclosures required by the amendments in the first year of application. The Company is assessing the potential impact of the amendments to this standard and, at this time, the impact on the Company's consolidated financial statements and disclosure, if any, is not reasonably determinable or estimable.
2. SEASONALITY OF RETAIL OPERATIONS:
Due to the seasonal nature of the retail business and the Company's product lines, the results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the fiscal year. Generally, a significant portion of the Company's sales and earnings are typically generated during the second fiscal quarter, which includes the holiday selling season. Sales are usually lowest and losses are typically experienced during the period from April to September.
3. INVENTORIES:
###PRECONTENT3### The cost of inventory recognized as an expense is $10,137 (September 27, 2008 - $12,883). The Company recorded write-downs of inventory as a result of net realizable value being lower than cost of $112 (September 27, 2008 - $150) and write-downs recognized in previous years that were reversed was $25 (September 27, 2008 - $222).
4. PROPERTY AND EQUIPMENT:
###PRECONTENT4### 5. INTANGIBLE ASSET:
Intangible asset consists of computer software which was previously reported as property and equipment (see Note 1(b)).
###PRECONTENT5### 6. SHARE CAPITAL:
(a) Authorized ###PRECONTENT6### (b) Issued ###PRECONTENT7### (c) Earnings per share
Basic and diluted per share amounts are based on the following weighted average number of shares outstanding:
###PRECONTENT8### The computation of dilutive options outstanding only includes those options having exercise prices below the average market price of Subordinate Voting Shares during the period. The number of options excluded was 235,000 as at September 26, 2009 and 247,000 as at September 27, 2008.
(d) Normal Course Issuer Bid
During the past several years, the Company has received approval from the Toronto Stock Exchange ("the TSX") to commence various normal course issuer bids ("NCIBs"). On May 5, 2009, the Company received approval from the TSX to commence its third normal course issuer bid (the "2009 NCIB"). The Company had a previous normal course issuer bid that expired on May 5, 2009 (the "2008 NCIB"). The 2009 NCIB permits the Company to acquire up to 267,183 Subordinate Voting Shares, representing approximately 10% of the "public float" of the Subordinate Voting Shares, during the period from May 7, 2009 to May 6, 2010, or such earlier date as the Company may complete its purchases under the 2009 NCIB. During the fourth quarter of fiscal 2009, the Company repurchased 267,160 Subordinate Voting Shares for cancellation at a weighted average price of $4.24 leaving only 23 Subordinate Voting Shares remaining to be purchased under the 2009 NCIB.
The following Subordinate Voting Shares were repurchased for cancellation under NCIBs then in effect during the 13 week periods ended September 26, 2009 ("Q1 2010") and September 27, 2008 ("Q1 2009") and the year ended June 27, 2009 ("Y/E 2009"):
###PRECONTENT9### (e) Stock Option Plan
The Company maintains a Stock Option Plan, as amended, for the benefit of directors, officers, employees and service providers. As at September 26, 2009, the Company has reserved 835,500 Subordinate Voting Shares for issuance under its Stock Option Plan and there were 565,000 options outstanding with exercise prices ranging from $3.15 to $15.85 per option.
The following transactions occurred during the 13 week periods ended September 26, 2009 and September 27, 2008 with respect to the Stock Option Plan:
###PRECONTENT10### Further details of the Stock Option Plan are contained in Note 8(e) of the annual consolidated financial statements contained in the Company's 2009 Annual Report.
(f) Deferred Share Unit Plan
The Deferred Share Unit ("DSU") Plan, as amended, was established for non-management directors. Under the DSU Plan, non-management directors of the Company receive an annual grant of DSUs and can also elect to receive their annual retainers and meeting fees in DSUs. A DSU is a unit equivalent in value to one Subordinate Voting Share of the Company based on the five-day average trading price of the Company's Subordinate Voting Shares on the TSX immediately prior to the date on which the value of the DSU is determined.
After retirement from the Board of Directors, a participant in the DSU Plan receives a cash payment equal to the market value of the accumulated DSUs in their account. The value of the DSU liability is adjusted to reflect changes in the market value of the Company's Subordinate Voting Shares.
The following transactions occurred during each of the 13 week periods ended September 26, 2009 and September 27, 2008 with respect to the DSU Plan:
###PRECONTENT11### (g) Restricted Share Unit Plan
The Company has established a Restricted Share Unit ("RSU") Plan, as amended, as part of its overall executive compensation plan. The RSU Plan is administered by the Board of Directors, with the advice of the Governance, Compensation, Human Resources and Nominating Committee (the "Committee"). Under this Plan, certain employees of the Company are eligible to receive a grant of RSUs that generally vest over periods not exceeding three years as determined by the Committee. An RSU is a unit equivalent in value to one Subordinate Voting Share of the Company. Upon the exercise of the vested RSUs, a cash payment equal to the market value of the exercised vested RSUs will be paid to the employee. The value of the vested RSU liability is adjusted to reflect changes in the market value of the Company's Subordinate Voting Shares.
The following transactions occurred during each of the 13 week periods ended September 26, 2009 and September 27, 2008 with respect to the RSU Plan:
###PRECONTENT12### 7. AMORTIZATION:
Amortization included in cost of sales and SG&A is summarized as follows:
###PRECONTENT13### 8. RESTRUCTURING COSTS:
Restructuring costs of approximately $1.5 million were originally recorded during the last half of fiscal 2009 and represent severance costs in connection with the Toronto manufacturing facility and head office workforce reductions. Approximately $1.2 million of the restructuring costs were paid during the last half of fiscal 2009 and first quarter of fiscal 2010. As at September 26, 2009 approximately $0.2 million remains to be paid over the next 6 months and has been recorded in accounts payable and accrued liabilities and $0.1 million of restructuring costs were reversed as these costs are not expected to be incurred.
9. CHANGES IN NON-CASH OPERATING WORKING CAPITAL ITEMS:
###PRECONTENT14### 10. COMMITMENTS:
(a) Operating leases
Minimum rentals for the next five 12 month periods and thereafter, excluding rentals based upon revenue, are as follows:
###PRECONTENT15### (b) Letters of credit
The Company had outstanding letters of credit in the amount of $18,764 (September 27, 2008 - $17,160) for imports of finished goods inventories to be received.
11. FINANCIAL INSTRUMENTS:
(a) Fair value disclosure
Fair value estimates are made at a specific point in time, using available information about the financial instrument and may not reflect fair value in the future. These estimates are subjective in nature and often involve uncertainties and the exercise of significant judgment. The estimated fair value amounts can be materially affected by the use of different assumptions or methodologies.
The methods and assumptions used in estimating the fair value of the Company's financial instruments are as follows:
- The fair value of short-term financial instruments such as cash, accounts receivable and accounts payable and accrued liabilities, approximate their carrying values due to the immediate short-term period to maturity.
- The derivative financial instruments, which consist of foreign exchange collar contracts with a net gain of $4 have been marked to market using values prepared by the financial institution which is the counterparty to these contracts. Factors included in the determination of fair value included the spot rate, forward rate, estimates of volatility, present value factor, strikes price and credit risk of the Company and counterparty.
(b) Risk management
Exposure to foreign currency risk, interest rate risk, equity price risk, liquidity risk and credit risk arise in the normal course of the Company's business and disclosures were provided in the annual consolidated financial statements for the fiscal year ended June 27, 2009. There have been no significant changes in liquidity risk or in the way the Company manages the risks described above for the 13 week period ended September 26, 2009. Risk exposures as at September 26, 2009 are discussed further below:
###PRECONTENT16### 12. SEGMENTED INFORMATION:
Management has determined that the Company operates in one dominant industry which involves the design, manufacture and retail of fashion leather and suede apparel.
Contacts:
Investor Relations Contact
Danier Leather Inc.
Jeffrey Wortsman, President and Chief Executive Officer
(416) 762-8175 ext. 302
(416) 762-7408 (FAX)
leather@danier.com :
Danier Leather Inc.
Bryan Tatoff
Senior Vice-President and Chief Financial Officer
(416) 762-8175 ext. 328
(416) 762-7408 (FAX)
bryan@danier.com :
