IDEX Online Research: Birks & Mayors Posts Improved Financials

While sales gains were modest and its seasonal loss slightly larger, the underlying financial fundamentals continue to improve at Birks & Mayors, the Canadian-based jewelry chain with 39 stores in Canada and 29 stores in the U.S. in Florida and Georgia. 

If unusual expenses are removed from operating costs, the company would have generated a smaller operating loss in this year’s September quarter. After struggling for several years, it appears that the U.S.-based Mayors division, under the tutelage of Birks management is finally on the road to recovery.

 
The following table summarizes reported results for Birks & Mayors’ second fiscal quarter ended September 2006. 

The following are highlights from the company’s September quarter.

• Total sales were $54.5 million, up 4.8 percent. Same-store sales were up 2 percent, with a 3 percent gain in Canada and a 1 percent gain in the U.S. Total and same-store sales were under pressure in both Canada and the U.S., due to a number of unusual factors, including the following:
• Sales comparisons were difficult last year due to a same-store sales comparison of +14 percent.
• The company converted to a new point-of-sale system in its Canadian stores in the summer which had a negative impact on sales productivity as the company worked through start-up challenges. 
• Both reduced tourism and a soft real estate market in Florida had a major negative impact on customer traffic and spending in Mayors stores.

• New merchandising initiatives are underway, especially in the U.S. Mayors stores. The company has increased the mix of proprietary jewelry and timepieces utilizing the Birks brand. This will help boost the company’s gross margin, since proprietary jewelry typically carries an inherently higher profit margin.
  
  Further, proprietary products help the company to reinforce its image of selling “exclusive luxury products” that cannot be purchased elsewhere. 

• The company added one new store in Florida, and added two Van Cleef & Arpel boutiques in stores in Toronto and Vancouver during the quarter. It also expanded and remodeled one store in Fort Lauderdale FL, and it reduced the size of another store – which has been unprofitable – in the Florida market. 

• The company’s gross margin rose to 48.4 percent from last year’s 45.9 percent due to three factors:
• Merchandising and marketing programs which promoted higher-margin goods.
• A greater sales mix of higher margin proprietary merchandise.
• More sales at full retail prices.

• The company’s operating cost ratio rose in the quarter to 50.4 percent from about 47.6 percent due mostly to unusual items including a large swing in non-cash stock-based compensation, accelerated depreciation related to the old IT system in Canada, the write-off of assets in a downsized Florida store, and unusual expenses related to the new POS system. If these costs, estimated to be about $1.8 million, had been eliminated, Birks & Mayors operating cost ratio would have declined in the quarter. 

• The outlook for Birks & Mayors remains positive.
• For the holiday selling season, the company has experienced strong demand for branded watches and diamond jewelry. Further, since December is the largest month of the year for engagements in the U.S., Birks & Mayors is expecting that diamond engagement ring demand will be very strong. 
• Traffic in Mayors U.S. stores remains sluggish, but management believes that its profit in the December quarter will be above last year’s levels, even if same-store sales remain bogged in low single-digit levels.
• One Mayors store is slated to open in Florida in the spring of 2007, while one unprofitable Birks store will be closed after the holidays.
• Birks is considering acquisitions, especially outside of its current Florida/Georgia markets in the U.S. 
• Going forward, the company will focus on the Birks brand, utilizing this name for new stores and new proprietary merchandise.
• Birks & Mayors plans to step up its marketing spend, as a percentage of sales, in the coming year.