Coast Reports Lower 1Q Profits on Flat Sales
Morgan Hill, Calif.-based Coast Distribution System Inc., one of North America’s largest aftermarket suppliers of replacement parts, accessories and supplies for the recreational vehicle, boating and outdoor recreation industries, today reported financial results for the first quarter ended March 31.
Despite a 2.5% increase in sales, Coast incurred a net loss of $1.0 million, or $0.23 per diluted share, on net sales of $24.7 million in the first quarter of 2011, compared to net sales of $24.1 million in the same quarter of 2010. The increase in net sales during the quarter was a result of an increase in sales of air conditioners that are installed in RVs. This increase in air conditioner sales was attributable to the withdrawal of a supplier of aftermarket air conditioners that had previously supplied air conditioners to competing distributors.
The first quarter 2011 loss was primarily attributable to a decrease in gross profits and, to a lesser extent, an increase in selling, general and administrative (“SG&A”) expenses. Gross profits declined by $1.0 million, resulting in a decrease in gross margin to 15.8% in the 2011 first quarter from 20.4% in the same quarter of 2010. That decrease was primarily due to a change in the mix of products sold to include a greater proportion of air conditioners, which tend to generate lower gross margins, and to selected price reductions on certain products, which were implemented in response to an increase in price competition in the market. In addition, shipping costs increased as a result of increased fuel prices. The increase in SG&A expenses was due largely to the restoration, in July 2010, of one-half of the companywide reductions in salaries that were implemented in 2009.
“The first quarter marked a significant turn in the industries we serve, most notably the RV industry. Poor weather in the first quarter, combined with higher gas prices and continued uncertainty surrounding the economy, have created a potent combination of factors to dampen the sales and use of RVs,” said Coast’s CEO Jim Musbach. “The current state of the RV industry is rather weak, particularly in terms of retail sales of motorized RVs. In the United States, motorized RV retail registrations fell 15.2% in February, while sales in Canada fared even worse, with motorized retail registrations down 42.4% in February.
“The dramatic decrease in RV retail sales translates to lower RV usage, resulting in softer demand for Coast’s products. While it appears consumer demand may remain soft over the near term, we are taking added steps to increase sales, while managing our overall cost structure. As the current softness in our markets runs its course, we anticipate continued pressure on our sales and margins over the near term.”