Business Context and Reporting Period
Company: Birks & Mayors Inc. (Birks Group Inc.)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Unaudited results for the 13 weeks and 26 weeks ended September 29, 2007 (Fiscal 2008).
Business Overview: A leading designer and retailer of luxury jewelry, timepieces, and giftware operating 38 stores in Canada (Birks brand) and 30 stores in the Southeastern U.S. (Mayors brand). The company operates two segments: Retail and Other (corporate sales and manufacturing).
Key Financial Metrics
| Metric | 13 Weeks Ended Sept 29, 2007 |
13 Weeks Ended Sept 30, 2006 |
26 Weeks Ended Sept 29, 2007 |
27 Weeks Ended Sept 30, 2006 |
|---|---|---|---|---|
| Net Sales ($000s) | $59,846 | $54,810 | $127,897 | $123,621 |
| Gross Profit ($000s) | $28,880 | $26,394 | $60,511 | $59,218 |
| Gross Margin (%) | 48.3% | 48.2% | 47.3% | 47.9% |
| Operating Income/Loss ($000s) | $(1,409) | $(1,073) | $(1,457) | $463 |
| Net Loss ($000s) | $(3,488) | $(3,597) | $(5,507) | $(4,510) |
| EPS (Basic & Diluted) | $(0.31) | $(0.32) | $(0.49) | $(0.40) |
| Cash & Equivalents ($000s) | $2,686 | $2,976 | $2,686 | $2,496 |
| Bank Indebtedness ($000s) | $134,126 | $109,187 | $134,126 | $109,187 |
| Excess Borrowing Capacity ($000s) | $10,900 | N/A | $10,900 | N/A |
Liquidity: Net cash used in operating activities was $8.95 million for the 26-week period, an improvement from $22.13 million in the prior year. Net cash provided by financing activities was $13.71 million.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 9.2% in the 13-week period and 3.5% in the 26-week period. Growth was driven by 5% and 4% comparable store sales growth, respectively, and favorable foreign currency translation (stronger Canadian dollar).
- Profitability: The company reported an operating loss for both the 13-week and 26-week periods in 2007, compared to an operating loss in the 13-week prior period and a profit in the 27-week prior period. SG&A expenses increased as a percentage of sales (47.7% vs 46.7% for 13 weeks) due to higher marketing spend and new store costs.
- Inventory: Inventories increased to $190.999 million from $158.784 million year-over-year, reflecting strategic stocking for the holiday season.
- Debt: Bank indebtedness increased to $134.1 million from $109.2 million, primarily due to working capital needs and currency translation effects.
Guidance, Outlook, and Risks
- Acquisition: On November 8, 2007, the company announced the acquisition of Brinkhaus (two Western Canada stores) for approximately $12.75 million. The credit facility was amended to increase the limit to $160 million to fund this purchase.
- Capital Expenditures: Management expects capital expenditures for fiscal 2008 to be between $11 million and $12 million, including costs for two new store openings.
- Liquidity Outlook: Management believes current borrowing capacity and cash flows are sufficient to support operations and debt service for the next 12 months.
- Risks:
- Currency Risk: Significant exposure to fluctuations between the Canadian and U.S. dollar, impacting reported earnings.
- Interest Rate Risk: Approximately $135.7 million of debt is floating-rate; a 1% rate change would impact annual interest expense by ~$1.4 million.
- Commodity Risk: Exposure to gold price fluctuations, though no hedging agreements were active as of September 29, 2007.
Investor Verification Checklist
- Verify the closing of the Brinkhaus acquisition and the allocation of the $12.75 million purchase price.
- Monitor the impact of the stronger Canadian dollar on future U.S. dollar reported earnings and debt service costs.
- Assess the effectiveness of the increased marketing spend (up 60 basis points of sales) in sustaining comparable store sales growth.
- Review the company's ability to maintain excess borrowing capacity above covenant thresholds ($8.75 million average) given the increased debt load.
- Confirm the timeline and financial impact of the two planned new store openings included in the $11-$12 million CapEx guidance.