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Danier Leather Q2 sales drop

22
Jan '09

Sales for the second quarter of fiscal 2009 decreased by 3% to $69.1 million from $71.5 million in the second quarter last year. Comparable store sales decreased by 4%. Year-to-date sales decreased by 2% to $91.7 million and comparable store sales decreased 3%. Financial market concerns, expectations of higher unemployment rates and increased fear of recession contributed to weakened consumer confidence and a highly promotional retail environment which in turn caused customers to delay purchases and wait for additional discounts.

Net earnings during the second quarter of fiscal 2009 were $6.5 million ($1.05 per diluted share) compared with net earnings of $6.0 million ($0.94 per diluted share) during the second quarter last year. Year-to-date net earnings were $2.8 million ($0.44 per diluted share) compared with net earnings of $15.8 million ($2.47 per diluted share) during the first half of last year. Adjusted net earnings(2) for the prior year, which excludes the reversal of the litigation provision of $18.0 million, initial recovery of legal fees of $0.1 million and related income taxes of $4.7 million, were $2.3 million ($0.37 per diluted share).

The first half of last year included the reversal of the litigation provision as a result of the Supreme Court of Canada decision to uphold the unanimous Ontario Court of Appeal ruling that dismissed the class action against the Company and two of its Senior Officers.

Gross profit as a percentage of revenue during the second quarter of fiscal 2009 was 48.0% compared with 50.6% during the second quarter last year. Year-to-date gross profit as a percentage of revenue was 46.7% compared with 50.2% during the corresponding period last year.

The decrease in gross profit margin was mainly due to the decline in the Canadian dollar relative to the U.S. dollar which resulted in higher merchandise costs to the Company since a significant portion of the Company's leather and finished goods inventory is purchased from foreign vendors with payment terms in U.S. dollars. In addition, the decrease in gross profit was also due to a highly promotional retail environment which required higher than planned markdowns in order to generate customer purchases.

Selling, general and administrative expenses ("SG&A") were $23.2 million during the second quarter of fiscal 2009 compared with $26.5 million during the second quarter last year. Year-to-date SG&A was $39.0 million compared with $42.9 million last year.

Danier maintained a strong financial position at the end of the second quarter of fiscal 2009 with approximately $11.2 million in cash, no long-term debt and working capital of $42.3 million. Cash decreased by $4.9 million relative to the end of the second quarter last year due to the timing of settlement of credit card sales for Christmas Eve and Boxing Day, which this year were settled on the Monday after the end of the second quarter of fiscal 2009, whereas last year they were settled prior to the corresponding quarter-end.

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