Sales increase for Coast Distribution System

MORGAN HILL, Calif. – Marine and RV industry supplier Coast Distribution System (Amex: CRV) saw its profits shrink for the year ended December 31. However, its sales were up during that period.

Coast, a supplier of aftermarket replacement parts, accessories and supplies, reported a net loss of $1.9 million, or $0.42 per diluted share, on net sales of $26.5 million for the fourth quarter of 2006, compared with a net loss of $1.0 million, or $0.24 per diluted share, on net sales of $29.3 million for the same period of 2005.

The company said its loss was expected due to the traditional, seasonal slowdown in the fourth quarter, as its customers typically wait until the first quarter to place their orders for the upcoming buying season. The 2006 fourth quarter results also included an expected year-over-year decrease in sales related to Katrina and other hurricane-related recovery demand.

For the year ended December 31, Coast reported net earnings of $3.0 million, or $0.64 per diluted share, on net sales of $179.1 million, compared with net earnings of $3.8 million, or $0.79 per diluted share, on net sales of $176.3 million for 2005. The increased sales for 2006 was primarily attributable to increased sales of Kipor standby and portable generators, the company said.

“The first two quarters of 2006 were among the best in company history,” said Coast Chairman and CEO Thomas R. McGuire. “As expected, the second half of 2006 was more of a challenge. The RV and marine industries, our primary markets, continue to have difficulties stemming from the geopolitical instabilities in the summer of 2006. We also did not receive any business from Katrina and other hurricane-related recovery as we did in the second half of 2005.

“We also had issues in rolling out the Kipor products in the 2006 fourth quarter. These issues have been largely resolved at this time, and we have put the people and resources in place to maximize the substantial market potential for Kipor’s generators. Despite the challenges faced in the second half of 2006, we continued to add to our management team and build a foundation for growth. Based on what the industry is reporting, we are optimistic the RV market will begin its eventual recovery by the second half of 2007.”

Coast reported gross margin of 10.9 percent in the fourth quarter of 2006, compared with 14.6 percent for the same period in 2005. The decrease in gross margin in the fourth quarter of 2006 was due to lower sales of the higher- margin Kipor products, increased freight and warranty costs associated with sourced products, increased shipping costs as a result of higher fuel prices and lower sales on flat warehouse costs, according to the company.

Coast reported a gross margin of 18.8 percent for 2006, compared to 18.5 percent for 2005. The improvement in 2006 gross margin was due primarily to increased sales of Kipor generators and the company’s proprietary products, both of which are high-margin categories for Coast, it said.

Selling, general & administrative (SG&A) expenses increased by 6.0 percent in the fourth quarter of 2006 and 8.9 percent for the year ended 2006 as compared to 2005. The increases in SG&A expenses were primarily due to increased labor costs from staff increases, increased insurance costs associated with shipping overseas products and an increase of write-off of bad debt compared to the prior year.

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