Birks Group reports Mid-Year Fiscal 2023 Results

In the twenty-six-week period that ended September 24, 2022, the Company delivered year-over-year comparable store sales growth of 8.2%, and an increase in gross margin percentage of 110 basis points. Across the retail network, no shopping days were lost due to temporary store lockdowns during the twenty-six week period ended September 24, 2022, as compared to 17% of shopping days lost during the twenty-six week period ended September 25, 2021 due to COVID-19 related restrictions.

In the twenty-six-week period ended September 24, 2022, the Company achieved net sales of $80.0 million, a decrease of $4.6 million, or 5.4%, from the comparable period in fiscal 2022. The Company achieved gross profit of $33.9 million for the twenty-six week period ended September 24, 2022, a decrease of $1.0 million, or 2.9%, compared to the same period in fiscal 2022. The decrease in sales and gross profit is driven in part by the Company’s investment in a joint venture with FWI LLC to form RMBG Retail Vancouver ULC (“RMBG” or “RMBG Joint Venture”). RMBG operates a boutique in Vancouver, retailing 3rd party branded watches, sales of which were historically recognized at the Company’s Vancouver Flagship location and are now recognized through the joint venture (see “Investment in RMBG Joint Venture” below for further details). The decrease in net sales was partially offset by an 8.2% increase in comparable store sales. Gross profit as a percentage of sales was 42.3%, an increase of 110 basis points from the gross profit as a percentage of sales of 41.2% in the twenty-six-week period that ended September 25, 2021.

Mr. Jean-Christophe Bédos, President and Chief Executive Officer of Birks Group, commented: “We are pleased with our performance in the first half of fiscal 2023 when we consider comparable store sales growth of 8.2% and a continued improvement in our gross margins, which speaks to the strength of our product offerings, both in terms of our Birks products and in terms of our third-party branded watches and jewellery, as well as to the loyalty of our customer base.”

Mr. Bédos commented, “These results were achieved despite uncertain macroeconomic conditions. It is thanks to our team’s continuous dedication to our customers that we were able to achieve these results. I believe that our Company is in a strong position to achieve its long-term strategic objectives as we continue to run our business in an agile manner in the near term, with a clear view and focus on long-term growth.”

Financial overview for the twenty-six-week period ended September 24, 2022:

• Total net sales for the twenty-six week period ended September 24, 2022 were $80.0 million compared to $84.6 million in the twenty-six week period ended September 25, 2021, which is a decrease of $4.6 million, or 5.4%. Net retail sales were $3.9 million lower than the comparable prior year period, attributable primarily to the exclusion of the sales of RMBG , partially offset by an 8.2% increase in comparable store sales;
• Comparable store sales increased by 8.2% compared to the twenty-six week period ended September 25, 2021. The increase in comparable store sales is in part due to the reduced impact of COVID-19 (including government-mandated temporary store closures, traffic declines and capacity limitations) experienced by the Company during the period as compared to during the twenty-six week period ended September 25, 2021. No shopping days were lost due to temporary store closures during the twenty-six week period ended September 24, 2022, as compared to approximately 17% during the twenty-six week period ended September 25, 2021. This increase was experienced across all product categories, with branded jewelry and branded timepiece products benefitting from the Company’s continuously improving third party brand portfolio and client offering. The increase in comparable store sales was also derived from the performance of the Birks fine jewelry and bridal collections driven by the impact of pointed digital marketing campaigns, increases in average sales transaction value, and increased in-store foot traffic. For the twenty-six week period ended September 24, 2022, the Company’s Vancouver Flagship store is excluded from the calculation of comparable store sales as a result of the RMBG Joint Venture;
• Total gross profit was $33.9 million, or 42.3% of net sales, for the twenty-six week period ended September 24, 2022 compared to $34.9 million or 41.2% of net sales for the twenty-six week period ended September 25, 2021. This decrease in gross profit is partially attributable to the exclusion of the gross profit of RMBG, partially offset by the 8.2% increase in comparable store sales experienced during the period, as well as by an improvement in gross margin of 110 basis points. The increase of 110 basis points in gross margin percentage was mainly attributable to the Company’s adjusted pricing strategy on the Birks branded products, as well as its strategic focus to reduce sales promotions and discounting, partially offset by foreign currency losses experienced in the period;
• SG&A expenses in the twenty-six week period ended September 24, 2022 were $31.9 million, or 39.9% of net sales, compared to $28.9 million, or 34.1% of net sales in the twenty-six week period ended September 25, 2021, an increase of $3.0 million. This increase is primarily related to the reduced impact of COVID-19 (including government-mandated temporary store lockdowns, traffic declines and capacity limitations) experienced by the Company during the period as compared to the twenty-six week period ended September 25, 2021, and therefore there were less opportunities for cost containment initiatives available to management in response to the pandemic. The drivers of the increase in SG&A expenses in the period include greater occupancy costs ($0.6 million) as a result of the re-opening of stores and expiring non-recurring rent abatements in the twenty-six week period ended September 25, 2021, greater compensation costs ($0.4 million), higher general operating costs and variable costs ($0.7 million), lower wage subsidies ($0.6 million) and rent subsidies ($0.4 million), as well as greater stock-based compensation ($1.1 million) driven by gains recorded on the revaluation of cash-settled DSU and RSU instruments in the twenty-six week period ended September 25, 2021 which did not reoccur in the twenty-six week period ended September 24, 2022, partially offset by lower marketing costs ($0.8 million). As a percentage of sales, SG&A expenses in the twenty-six week period ended September 24, 2022 have increased by 580 basis points as compared to the twenty-six week period ended September 25, 2021;
• The Company’s EBITDA (1) for twenty-six week period ended September 24, 2022 was $2.9 million, a decrease of $3.1 million, compared to EBITDA(1) of $6.0 million for the twenty-six week period ended September 25 2021;
• The Company reported an operating loss for the twenty-six week period ended September 24, 2022 of $0.7 million, a decrease of $3.3 million, compared to a reported operating income of $2.7 million in the twenty-six week period ended September 25, 2021; and
• The Company recognized a net loss for the twenty-six week period ended September 24, 2022 of $2.0 million, or ($0.11) per share, compared to net income for the twenty-six week period ended September 25, 2021 of $1.0 million, or $0.05 per share.

Investment in RMBG Joint Venture

In April of 2021, the Company entered into a joint venture with FWI LLC (FWI) to form RMBG Retail Vancouver ULC (“RMBG”). During the twenty-six week period ended September 24, 2022, the joint venture became operational. RMBG operates a boutique in Vancouver, retailing 3rd party branded watches, sales of which were historically recognized at the Company’s Vancouver Flagship location and are now recognized through the joint venture. The Company and FWI both contributed certain assets for a 49% and 51% equity interest, respectively in RMBG, the legal entity comprising the joint venture. FWI has controlled the joint venture since its inception. The Company has determined that it has significant influence but not control over RMBG and therefore has applied the equity method of accounting to account for its investment in RMBG. Such accounting treatment impacts period-to-period comparisons of sales, gross profit, operating expenses, and operating income, as the Company’s share of RMBG’s profits is now recorded within Equity in earnings of joint venture, net of taxes on the Company’s condensed consolidated statements of operations.