Business Context and Reporting Period
Company: Birks & Mayors Inc.
Filing Type: Form 6-K (Press Release dated July 6, 2009)
Reporting Period: Fiscal Year and Fourth Quarter ended March 28, 2009.
Operations: The Company operates 69 luxury jewelry stores across Canada, Florida, and Georgia under the Birks, Mayors, and Brinkhaus brands.
Key Financial Metrics
| Metric | Fiscal 2009 | Fiscal 2008 | Q4 2009 | Q4 2008 |
|---|---|---|---|---|
| Net Sales | $270.9 million | $314.7 million | $49.2 million | $64.2 million |
| Gross Profit | $115.6 million | $146.5 million | $17.8 million | $26.5 million |
| Gross Margin | 42.7% | 46.5% | 36.1% | 41.3% |
| Net Income (Loss) | ($61.0) million | $10.4 million | ($14.4) million | $3.2 million |
| Diluted EPS | ($5.38) | $0.89 | ($1.26) | $0.28 |
| Inventory | $155.6 million | $181.9 million | N/A | N/A |
| Bank Indebtedness | $85.8 million | $120.1 million | N/A | N/A |
| Cash and Equivalents | $2.0 million | $3.2 million | N/A | N/A |
Material Changes vs. Prior Period
- Revenue Decline: Fiscal 2009 net sales decreased 13.9% ($43.8 million). Comparable store sales dropped 14% due to reduced store traffic and lower average transaction values in both U.S. and Canadian markets. Foreign currency translation reduced reported sales by $11.7 million.
- Margin Compression: Gross margin declined 380 basis points to 42.7%, driven by price reductions in Canada to align with U.S. pricing and promotional initiatives.
- Expense Reduction: SG&A expenses decreased $14.3 million (11.1%) to $114.0 million, aided by lower marketing spend, reduced commissions, and strategic downsizing initiated in January 2009.
- Impairment Charges: The Company recorded $11.2 million in goodwill impairment and $2.3 million in long-lived asset impairments due to declining stock price, market capitalization, and the decision to discontinue production at its Rhode Island facility.
- Tax Impact: A $32.9 million income tax expense was recorded due to a full valuation allowance against net deferred tax assets, reversing the $9.8 million tax benefit recognized in the prior year.
- Debt Reduction: Bank indebtedness decreased $34.4 million, reflecting the replacement of line-of-credit borrowings with long-term notes and a cash advance from the controlling shareholder.
Guidance, Outlook, and Risks
Management Commentary: CEO Tom Andruskevich attributed the severe performance impact to the global economic downturn, banking crisis, and a significant drop in consumer confidence. The Company is focusing on optimizing cash flow, managing inventory productivity, reducing operating costs, and limiting capital expenditures.
Non-GAAP Measures: Excluding non-cash charges (goodwill impairment, asset impairment, and tax valuation allowance), the adjusted net loss for the fiscal year was $14.6 million ($1.28 per share), compared to adjusted net income of $0.6 million in the prior year.
Risks and Contingencies:
- Continued adverse economic and political conditions affecting consumer spending and store traffic.
- Fluctuations in foreign exchange rates and commodity prices.
- Liquidity constraints and the ability to maintain sufficient funding for operations.
- Real estate market volatility, particularly in Florida.
Investor Verification Checklist
- Liquidity Position: Verify the adequacy of the $2.0 million cash balance against current liabilities of $124.1 million and the terms of the new long-term debt instruments.
- Deferred Tax Assets: Confirm the criteria used to establish the full valuation allowance and the likelihood of future reversals.
- Inventory Levels: Assess the $155.6 million inventory balance relative to the 14% decline in sales to ensure no further write-downs are necessary.
- Store Performance: Monitor comparable store sales trends to determine if the 14% decline stabilizes or worsens in the current economic environment.
- Debt Structure: Review the covenants and maturity dates of the new term loans ($13.0 million secured term loan, $10.0 million Canadian term loan) and the subordinated cash advance.