easyhome Ltd.: Reports Second Quarter 2009 Results
MISSISSAUGA, ONTARIO--(Marketwire - Aug. 11, 2009) - easyhome Ltd. (TSX:EH), Canada's leading merchandise leasing company, today announced its results for the second quarter ended June 30, 2009.
Revenue for the quarter increased 9.3% to $43.5 million compared with $39.8 million in the second quarter of 2008. Same store revenue growth was 1.0% in the quarter. Operating income was $3.4 million, compared with $3.9 million for the second quarter of 2008. Net income for the second quarter of the year was $1.9 million compared with $2.2 million for the same period last year. Diluted earnings per share were $0.18 compared with $0.21 in 2008.
Commenting on the results, David Ingram, President and CEO, stated, "The ongoing weakness in the North American economy has severely curtailed consumer spending, which is negatively impacting all discretionary retailers. Our marketing spend was increased to attract new customers by building awareness for an alternative to debt financed purchasing and to promote value added merchandise offers for current customers. These efforts combined to achieve a gain of 1% in deliveries, however, this was more than offset by an increase of returned agreements and charge-offs as some customers have been unable to meet lease payment requirements. The lower than planned revenue growth combined with increased charge-offs and marketing spend, were the principal contributors to the year over year decline in diluted EPS for our second quarter."
Mr. Ingram added, "Our planned diversification strategy to create two additional strategic business units, with easyfinancial and easyhome franchising, has successfully managed to provide incremental operating income on a year-over-year basis in the second quarter. To this end, we will accelerate the expansion of easyfinancial with the addition of 12 kiosks rather than the planned 6-8 by the end of 2009. The Company's franchise operation, easygates, continues to make solid progress. Deliveries in the stores opened in 2008 were 17% higher as compared to our Canadian stores and are out-performing the new store revenue model. By quarter end, easygates operated 7 stores and has entered into franchise agreements to develop a further 34 stores across five states.
Mr. Ingram concluded, "Notwithstanding the recessionary impact on our revenues and costs, we have achieved solid cash management performance. As planned, we reduced our corporate store openings, lowered capital spend, improved our lease asset utilization, and repaid $4.2 million of debt. We have assumed revenue growth of approximately 10% for the balance of the year and are reducing costs, as we focus on cash management in the months ahead."
Factors Affecting Performance
The reduction in earnings, compared with the second quarter of 2008, was driven by several factors: weaker than planned revenue performance, additional advertising costs, higher salaries, general and administrative costs and higher charge-offs.
The recession has had a dramatic impact on almost all retailers of discretionary goods, and although easyhome has fared better than many retailers, our top line has been impacted as well.
We grew revenues in the second quarter over the comparable period last year in all the major product categories we operate in (furniture, electronics, computing and appliances) versus estimated Canadian retail declines in the low double digit range. We expect the Canadian consumer to remain cautious through 2009 and that will reduce the average transaction value as they remain judicious in all areas of discretionary spending. We have, therefore, planned our cost savings initiatives to align with this anticipated reality.
While we invested additional marketing expense, which impacted diluted EPS by approximately $0.04 in the second quarter, our plan for the seasonally slower third quarter is to reduce our costs by approximately $0.03 per diluted share, which is consistent with our historic spend level.
In addition, diluted earnings per share were reduced by $0.02 due to higher charge-offs in the quarter. The higher charge-offs were a result of a higher portion of past due accounts, which in turn is related to the general economic climate. Collections of past due accounts improved early in the third quarter to lower levels than experienced in recent years. Historically, this is an indicator of lower future charge-offs.
All of the foregoing items were offset in part by earnings from the acquisition of Insta-rent Inc., which added $0.06 per diluted share in the quarter. We successfully balanced our staffing needs and costs with our revenue experience, and improved our staff retention. In addition, this period of high unemployment is being used to upgrade our staffing through new training initiatives and enhanced career opportunities to strengthen our commitment to being an employer of choice. This will also enable improved operational performance, which has been below our historical levels in recent quarters.
Six Month Results
For the first six months of the year, easyhome increased revenues 9.7% to $87.3 million compared with $79.6 million in the first half of 2008. Operating income for the first half of 2009 was $7.8 million, versus $9.7 million for the comparable period in 2008. Net income for the six months ended June 2009 was $4.3 million compared with $5.7 million for the same period last year. Net income was adversely affected by a non-cash future income tax charge of $0.3 million as a result of tax rate changes which impacted the expected utilization of future tax assets. Net income adjusted for this charge was $4.6 million. Adjusted earnings per share were $0.44 compared with $0.54 in the first half of 2008.
Donald K. Johnson, Chairman of the Board, commented, " Although the economic downturn has challenged all businesses and temporarily slowed easyhome's growth trajectory, management is confident that the Company has the necessary resources and strategies to continue to grow the business and create long-term value for shareholders as the economy starts to recover."
The Board of Directors has approved a dividend payment of $0.085 per share payable on October 6th, 2009 to the holders of common shares of record as at the close of business on September 22nd, 2009.
About easyhome
As at June 30, 2009, easyhome had 235 stores, including 209 Canadian corporate stores, thirteen U.S. corporate stores, seven U.S. franchised stores, five Canadian franchised stores and one licensed Canadian store. easyhome is Canada's largest merchandise leasing company and the third largest in North America, offering top quality, brand-name household furnishings, appliances and home electronic products to consumers under weekly or monthly leasing agreements. easyhome is listed on the TSX under the symbol 'EH'.
The above analysis refers to certain financial measures that are not determined in accordance with generally accepted accounting principles ("GAAP") in Canada. These measures do not have standardized meanings and may not be comparable to similar measures presented by other companies. Although measures such as operating income and same store revenue growth do not have standardized meanings prescribed by GAAP, these measures are defined herein or can be determined by reference to our financial statements. We discuss these measures because we believe that they facilitate the understanding of the results of our operations and financial position.
Forward-Looking Statements
This news release includes forward-looking information about easyhome including its business operations, strategy. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as 'expects', anticipates', 'intends', 'plans', 'believes' or negative versions thereof and similar expressions. In addition, any statements that may be made concerning future financial performance (including revenues, earnings or growth rates), ongoing business strategies or prospects about future events is also a forward-looking statement. Forward-looking statements are based on certain factors and assumptions, including expected growth, results of operations and business prospects and are inherently subject to among other things, risks, uncertainties and assumptions about our operations economic factors and the industry generally. They are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied by forward-looking statements, due to various factors. The reader is cautioned to consider these and other factors carefully and not place undue reliance on easyhome's forward-looking statements. Management of easyhome is under no obligation (and expressly disclaim any such obligation) to update or alter the forward-looking statements whether as a result of new information, future events or otherwise, unless otherwise required by law.
Notice Of No Auditor Review Of Interim Financial Statements
Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.
The accompanying unaudited interim consolidated financial statements of the Company have been prepared by and are the responsibility of the Company's management.
The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity's auditor.
CONSOLIDATED BALANCE SHEETS
(unaudited)
As at:
June 30, December 31,
(in 000's) 2009 2008
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$ $
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ASSETS
Amounts receivable 5,234 5,169
Income taxes recoverable 1,343 1,117
Consumer loans receivable 5,760 4,064
Prepaid expenses 3,340 2,790
Lease assets 79,001 82,443
Property and equipment 16,536 16,846
Future tax assets 5,658 6,609
Intangible assets 1,823 1,823
Goodwill 17,325 17,325
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136,020 138,186
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Bank revolving credit facility 23,801 26,139
Trade accounts payable 6,263 6,248
Accrued liabilities 1,687 2,759
Accrued employee costs 2,506 2,478
Dividends payable 893 893
Deferred lease inducements 2,447 2,540
Unearned revenue 832 734
Term loan 7,925 9,750
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46,354 51,541
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Shareholders' equity
Common shares 49,286 49,285
Contributed surplus 3,153 2,665
Retained earnings 37,227 34,695
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89,666 86,645
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136,020 138,186
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CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
Three months ended Six months ended
June 30, June 30,
(in 000's, except earnings per share) 2009 2008 2009 2008
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$ $ $ $
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REVENUE
Lease 33,972 31,449 68,874 64,150
Other 9,483 8,324 18,455 15,429
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43,455 39,773 87,329 79,579
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EXPENSES
Salaries and benefits 12,527 11,700 25,286 23,050
Selling, general and administrative 5,443 4,091 10,166 7,414
Occupancy 6,012 5,489 12,091 10,875
Automotive and travel 1,638 1,786 3,404 3,395
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25,620 23,066 50,947 44,734
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Amortization
Amortization of lease assets 13,331 11,905 26,402 23,529
Amortization of property and equipment
and intangible assets 1,121 876 2,229 1,640
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14,452 12,781 28,631 25,169
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Total operating expenses and
amortization 40,072 35,847 79,578 69,903
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Operating income 3,383 3,926 7,751 9,676
Interest expense 191 234 458 466
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Income before income taxes 3,192 3,692 7,293 9,210
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Income taxes
Current 1,106 1,325 2,024 3,082
Future 171 132 951 426
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1,277 1,457 2,975 3,508
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Net income and comprehensive income
for the period 1,915 2,235 4,318 5,702
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Earnings per share
Basic 0.18 0.21 0.41 0.54
Diluted 0.18 0.21 0.41 0.54
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CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(unaudited)
Three months ended Six months ended
June 30, June 30,
(in 000's) 2009 2008 2009 2008
----------------------------------------------------------------------------
$ $ $ $
----------------------------------------------------------------------------
Retained earnings, beginning of period 36,205 31,860 34,695 29,441
Transitional adjustment on the
adoption of new accounting policies - - (146)
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Retained earnings, beginning of period
as restated 36,205 31,860 34,695 29,295
Net income for the period as restated 1,915 2,235 4,318 5,702
Common share dividends (893) (893) (1,786) (1,795)
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Retained earnings, end of period 37,227 33,202 37,227 33,202
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended Six months ended
June 30, June 30,
(in 000's) 2009 2008 2009 2008
----------------------------------------------------------------------------
$ $ $ $
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CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net income for the period 1,915 2,235 4,318 5,702
Add (deduct) items not affecting
cash:
Recognition of stock based
compensation 177 234 489 445
Amortization of lease assets 13,331 11,905 26,402 23,529
Amortization of property and
equipment and intangible assets 1,121 876 2,229 1,640
Future income taxes 171 132 951 426
Net change in non-cash operating
items -
Lease assets (11,471) (12,436) (22,960) (22,907)
Other (2,339) 1,430 (3,561) (9,594)
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2,905 4,376 7,868 (759)
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INVESTING ACTIVITIES
Purchase of property and equipment (1,335) (2,750) (2,036) (4,427)
Purchase of intangible assets and
deferred costs (41) (41)
Proceeds on disposition of property
and equipment 37 (2) 117 4
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(1,298) (2,793) (1,919) (4,464)
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FINANCING ACTIVITIES
Advances (repayment) of bank
revolving credit facility 189 (624) (2,338) 6,458
Repayment of term loan (903) - (1,825) -
Issuance of common shares on exercise
of options 3 453
Shares purchased for cancellation (69) (69)
Common share dividend payments (893) (893) (1,786) (1,619)
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(1,607) (1,583) (5,949) 5,223
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Net change in cash for the period - - - -
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