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Uni-Select Reports Q2 2020 Financial Results

Sales of $302.5 million were down 33.7% reflecting a lower demand, a direct effect of the COVID-19 pandemic, company says.

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Uni-Select Inc. has reported its financial results for the second quarter ended June 30, 2020.

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“We are pleased with our second quarter results as they were better than we expected given the difficult operating environment caused by the pandemic. The temporary measures we put in place for business continuity, in response to COVID-19, better aligned our cost structure with the current state of the market while allowing us to continue to serve our customers with the highest standards. Furthermore, the execution of our cash preservation plan allowed us to successfully maximize our liquidity and financial flexibility,” said Brent Windom, president and CEO of Uni-Select Inc.

“In the quarter, we implemented our Continuous Improvement Plan to ensure that we are strategically positioned for recovery and growth post-COVID-19. Through this plan, we expect to generate annualized cost savings of about $28 million by the end of 2020, of which $14 million has been realized in the second quarter, mostly through headcount reduction. It’s important to note that these savings are measured against the first quarter of 2020. In addition, we renegotiated our debt, providing access to additional liquidity on more flexible financial terms and conditions, optimized our inventory levels and reduced our debt on a sequential basis.

We are confident in the sustainability of our business and our ability to maintain our market position in this challenging period. At this stage, we anticipate a faster recovery from the auto parts aftermarket and a slower recovery in the refinish market. While we are encouraged by month-over-month improvements, market conditions remain volatile. We have the financial flexibility to execute our business plan and will prioritize debt reduction in our capital allocation strategy,” concluded Mr. Windom.   

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SECOND QUARTER RESULTS

Consolidated sales of $302.5 million for the second quarter decreased by 33.7%, when compared to the same quarter in 2019, reflecting negative organic growth of 31.9%, unfavorable fluctuations of the Canadian and British currencies, as well as the expected erosion from the integration of company‑owned stores over the last twelve months. The global spread of COVID-19 affected all segments. However, the Corporation’s sales performance was better than expected with sales steadily increasing month after month during the quarter, with June sales closing at over 85% compared to the same month last year. As a result, sales for the second quarter of 2020 exceeded the internal forecast set in late March in response to the uncertainty surrounding the pandemic.

The corporation generated an EBITDA of $(2.7) million and an EBT of $(31.0) million for the quarter, which were impacted by special items for restructuring and other charges related to the CIP of $16.9 million, as well as charges for the review of strategic alternatives of $0.6 million. Once adjusted, the EBITDA and the EBITDA margin were $14.8 million and 4.9%, respectively, compared to $35.8 million and 7.8% in 2019 whereas, the EBT and the EBT margin were $(12.4) million and (4.1)%, respectively, compared to $13.9 million and 3.0% in 2019. These adjusted margins were mainly impacted by the lower volume of sales attributable to COVID-19, resulting in lower gross margins, reduced fixed costs absorption and additional reserves totaling $6.3 million for obsolescence and bad debt. In addition, lower vendor incentives resulting from the optimization of inventory in all three segments, mainly in the FinishMaster U.S. segment contributed to the decline of the adjusted margins. These elements were partially compensated by furloughs, reduction of working hours, cost control measures, as well as overall savings realized from the Performance Improvement Plan (“PIP”). In addition, the adjusted EBT margin was affected by a loss of $3.6 million on debt extinguishment.

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The net loss and adjusted loss for the current quarter were respectively $24.2 million and $9.7 million, compared to net earnings and adjusted earnings of $6.3 million and $10.4 million in 2019. Adjusted earnings (loss) decreased by $20.1 million compared to the same quarter last year, due to lower adjusted EBT, as explained above, and a different income tax rate.

Segmented Second Quarter Results

The FinishMaster U.S. segment reported sales of $133.4 million for the quarter, a decrease of 37.2% compared to 2019, mainly affected by COVID‑19, as well as by the expected erosion from the integration of company‑owned stores within the last twelve months. Sales are now showing encouraging signs, with steady growth month over month, following a sharp decrease in April. This segment reported an EBITDA of $(1.5) million and an EBT of $(8.7) million. Once adjusted for expenses related to the CIP, EBITDA was $4.5 million or 3.3% of sales, compared to $19.0 million or 8.9% of sales in 2019. On the other hand, adjusted EBT was $(2.7) million or (2.0)% of sales, compared to $11.6 million or 5.5% of sales in 2019. Adjusted margins decreased respectively by 560 basis points and 750 basis points, in large part due to COVID‑19, resulting in a lower volume of sales and gross profits, a reduced absorption of fixed costs, as well as additional inventory obsolescence and bad debt expenses. Furthermore, the segment earned lower rebates in relation to the optimization of inventory. These elements were partially compensated by furloughs, as well as by the reduction of working hours and discretionary expenses, to align with the current state of operations. The quarter also benefitted from savings realized in relation to the improvement plan. This segment further aligned its workforce at the end of the quarter, resulting in annualized savings of approximately $5.8 million.

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Sales for the Canadian Automotive Group segment were $114.3 million, compared to $143.4 million in 2019, a decrease of 20.3%, reflecting a lower demand, a direct effect of COVID‑19, as well as the depreciation of the Canadian currency. Sales are now showing encouraging signs, with steady growth month over month, following the sharp decrease recorded in April. This segment reported an EBITDA of $7.3 million and an EBT of $2.2 million. Once adjusted for expenses related to the CIP, EBITDA was $12.9 million or 11.3% of sales, compared to $16.6 million or 11.6% of sales in 2019. On the other hand, adjusted EBT was $7.8 million or 6.8% of sales, compared to $11.2 million or 7.8% of sales in 2019. Adjusted margins decreased respectively by 30 basis points and 100 basis points, in large part due to lower volume rebates, as well as to a lesser absorption of fixed costs resulting from a reduced level of sales in relation to COVID‑19. Furthermore, the adjusted margins were penalized by additional bad debt expense, while the second quarter of 2019 benefitted from additional volume rebates and incentives. These elements were partially compensated by measures put in place to mitigate the effects of COVID‑19, such as furloughs, reduced working hours and discretionary expenses. As well, the quarter benefitted from savings related to the improvement plan. This segment further aligned its workforce at the end of the quarter, resulting in annualized savings of approximately $8.2 million.

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The Parts Alliance U.K. segment recorded sales of $54.9 million, a decrease of 45.4% compared to the same quarter last year. This variance is attributable to COVID‑19, the depreciation of the British pound, and the expected erosion resulting from the integration of company-owned stores within the last twelve months. On a positive note, following the sharp decrease recorded in April, sales are now showing encouraging signs, with steady growth month over month. This segment reported an EBITDA of $(4.9) million and an EBT of $(9.6) million. Once adjusted for expenses related to the CIP, EBITDA was $0.3 million or 0.6% of sales, compared to $3.1 million or 3.0% of sales in 2019. On the other hand, adjusted EBT was $(4.4) million or (7.9)% of sales, compared to $(1.4) million or (1.4)% of sales in 2019. Adjusted margins decreased respectively by 240 basis points and 650 basis points, in large part due to COVID-19, resulting in lower volume of sales and gross profits, a reduced absorption of fixed costs, additional bad debt expense, as well as in a lower level of rebates. These elements were partially compensated by furloughs, reduced working hours and discretionary expenses, aligning the cost structure with the level of activity. Additionally, this segment benefitted from savings resulting from the improvement plan and from COVID‑19‑specific governmental subsidies of about $0.7 million in relation to occupancy costs. 

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SIX-MONTH PERIOD RESULTS

Consolidated sales of $710.2 million for the period decreased by 18.9%, when compared to the same period in 2019, mainly affected by negative organic growth of 18.3%, unfavorable fluctuations of the Canadian and British currencies, as well as by the expected erosion from the integration of company‑owned stores over the last twelve months. These items were partially compensated by one additional billing day and business acquisitions. The performance of the second quarter, affected by COVID-19, weighted on the six-month period. However, sales gradually recovered starting in May, permitting the Corporation to reopen certain company-owned stores, with more than 80% in operation as at June 30, 2020. 

The corporation generated an EBITDA of $12.4 million and an EBT of $(39.6) million for the period. These were impacted by special items for restructuring and other charges related to the improvement plan of $18.1 million, as well as charges for the review of strategic alternatives of $1.1 million. Once adjusted, the EBITDA and the EBITDA margin were $31.6 million and 4.5%, respectively, compared to $64.3 million and 7.3% in 2019. The adjusted EBT and the adjusted EBT margin were $(18.3) million and (2.6)%, respectively, compared to $21.0 million and 2.4% in 2019. As was the case for the quarter, the six‑month period reflects the effect of COVID‑19 and lower vendor incentives resulting from the optimization of inventory. Additionally, the recognition of foreign exchange losses due to the depreciation of the Canadian and the British currencies, as well as a one‑time charge, both recognized during the first quarter of 2020, contributed to the decline of the adjusted EBITDA and EBT margins. These elements, combined with additional reserves for obsolescence and bad debt, recorded during the second quarter of 2020, represent $11.2 million or approximately 130 basis points. In addition, the adjusted EBT margin was affected by a loss on debt extinguishment recorded during the second quarter.

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The net loss and adjusted loss for the period were respectively $30.9 million and $14.0 million, compared to net earnings and adjusted earnings of $5.0 million and $15.5 million in 2019. Adjusted earnings (loss) decreased by $29.4 million compared to the same period last year, due to lower adjusted EBT, as explained above, and a different income tax rate.

Segmented Six-Month Period Results

The FinishMaster U.S. segment reported sales of $335.6 million for the period, a decrease of 19.5% compared to 2019. Sales were mainly affected by COVID-19, as well as by the expected erosion of sales resulting from the integration of company‑owned stores, which were partially compensated by one additional billing day. This segment reported an EBITDA of $9.8 million and an EBT of $(4.7) million. Once adjusted for special items, EBITDA was $16.6 million or 4.9% of sales, compared to $35.4 million or 8.5% of sales in 2019. The adjusted EBT was $2.0 million or 0.6% of sales, compared to $20.6 million or 4.9% of sales in 2019. Adjusted margins decreased respectively by 360 basis points and 430 basis points, in part due to COVID-19 and lower vendor incentives resulting from the optimization of inventory, as well as to a one-time charge recorded during the first quarter. These elements were partially compensated by cost control measures, as well as by benefits from the improvement plan. The initiatives, in relation to the improvement plan, allow this segment to adjust its cost base to the level of sales, as well as to face difficult market conditions in the U.S. due to COVID‑19 and competition. 

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Sales for the Canadian Automotive Group segment were $223.2 million, compared to $256.6 million in 2019, a decrease of 13.0%, reflecting the effect of COVID‑19, as well as the depreciation of the Canadian currency. These elements were partially compensated by the contribution of one additional billing day and business acquisitions. This segment reported an EBITDA of $9.6 million and an EBT of $(0.9) million. Once adjusted for special items, EBITDA was $15.6 million or 7.0% of sales, compared to $25.3 million or 9.9% of sales in 2019. The adjusted EBT was $5.2 million or 2.3% of sales, compared to $14.8 million or 5.8% of sales in 2019. Adjusted margins decreased respectively by 290 basis points and 350 basis points, due to, as for the quarter, the impact of COVID‑19, while the corresponding period of 2019 benefitted from additional volume rebates and incentives, as well as from the ProColor program, which was sold during the third quarter of 2019. Furthermore, both margins were penalized by foreign exchange losses due to the depreciation of the Canadian dollar, mostly arising during the first quarter of 2020. These elements were partially compensated by cost control measures, as well as by benefits from the improvement plan. 

The Parts Alliance U.K. segment recorded sales of $151.4 million, a decrease of 25.4% compared to the same period last year. This variance is attributable to COVID‑19, the depreciation of the British pound and the expected erosion resulting from the integration of company-owned stores within the last twelve months. These elements were partially compensated by one additional billing day. This segment reported an EBITDA of $(0.2) million and an EBT of $(9.9) million. Once adjusted for special items, EBITDA was $5.0 million or 3.3% of sales compared to $10.2 million or 5.1% of sales for the same period last year. The adjusted EBT was $(4.7) million or (3.1)% of sales compared to $0.9 million or 0.5% of sales in 2019. Adjusted margins decreased respectively by 180 basis points and 360 basis points affected by the COVID‑19, as well as by a lower level of rebates, as a result of reduced purchases. These elements were partially compensated by cost control measures and savings in relation to improvement plans. Since the beginning of 2020, this segment implemented certain initiatives, aligning its organizational structure and integrating company-owned stores. 

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