The Coast Distribution System Inc. today (March 31) reported financial results for the full year and fourth quarter ended Dec. 31, 2010, highlighted by a modest improvement in net earnings on a 5.2% increase in net sales for the year.
Following is the company’s news release.
Year Ended December 31, 2010 vs. 2009
Net income increased to $152,000, or 3 cents per share, in 2010 from $99,000, or 2 cents per share, in 2009. This increase was primarily attributable to a rise in net sales of $5.4 million, or 5.2%, to $108.6 million in 2010, from $103.2 million in 2009; a nearly $200,000 increase in gross profits; and a reduction in selling, general and administrative (SG&A) expenses of $200,000, or 1.2%, to $18.3 million in 2010. The reduction in SG&A expenses followed a reduction of $8 million, or 30.1%, in 2009.
The increase in net sales was primarily due to the replenishment of inventories by Coast’s customers in the first half of 2010 in preparation for the summer selling season and an increase in sales of air conditioners in the second half of the year, as a result of a change in supplier relationships within the RV market.
The increase in gross profits was attributable to the increase in sales. Gross margin declined to 18.1% in 2010 from 18.8% in 2009, due primarily to a change in the sales mix, increased freight-in costs and selected price reductions in response to increased price competition. The reduction in SG&A expenses in 2010 was attributable to continued cost savings measures begun in 2008 and 2009, which was offset in part by a partial reversal, effective July 1, 2010, in the companywide 10% pay reduction implemented in 2009.
Interest expense decreased primarily as a result of a reduction in the average amount of outstanding bank borrowings and lower interest rates in 2010 as compared to 2009.
Higher net sales and the reductions in SG&A and interest expense combined to increase pre-tax earnings by $400,000, or 179%, in 2010 from $200,000 in 2009. This increase was partially offset by a $300,000 increase in the provision for income taxes, to $400,000 in 2010, from $100,000 in 2009, which accounted for the more modest increase in net earnings in 2010.
Fourth Quarter 2010 vs. 2009
Despite a 2% increase in sales, Coast incurred a net loss of $1.7 million, or 38 cents per share, on net sales of $17.6 million in the fourth quarter of 2010, compared to a net loss of $1.1 million, or 24 cents per share, on net sales of $17.3 million in the same quarter of 2009. The higher loss was the result of a lower gross margin combined with an increase in operating expenses and a higher tax rate.
Gross margin decreased to 11.9% in the 2010 fourth quarter from 13.7% in the same quarter of 2009, primarily as a result of increases in sales of lower-margin air conditioners, higher freight-in costs and selected price reductions. SG&A expenses increased by $300,000, or 7.2%, in the 2010 fourth quarter, due primarily to increased stock-based compensation expense and the reversal of the companywide pay reduction.
“As expected, our financial results for the fourth quarter reflected the ongoing recessionary forces impacting our industry, including high levels of unemployment, reduced availability of consumer credit and lower consumer confidence,” said Coast CEO Jim Musbach. “While these conditions persisted through the quarter, we were able to generate modest sales growth, though at the expense of gross margins as a result of increased sales of lower-margin products and our deliberate decision to take targeted price reductions to remain competitive in our markets.
“As we work through the continuing economic conditions that have been adversely affecting consumers’ purchases and use of RVs and boats, we continue to maintain tight control over our expenses. As I mentioned last quarter, we continue to look for areas of potential savings, including financing and rent costs. This effort has resulted in the recent reduction in our corporate space, which we expect will offer significant reductions in rent expense in the future.”