Coast Distribution System reports net loss

MORGAN HILL, Calif. – Coast Distribution System, Inc. (AMEX: CRV), a supplier of aftermarket replacement parts, accessories and supplies for the recreational vehicle (RV), marine and outdoor recreation industries, reported a net loss of $290,000 on net sales of $34.7 million for the third quarter ended Sept. 30.

For the same period of 2007, Coast reported net earnings of $834,000 on net sales of $43.2 million, according to a statement released today by the distributor.

In the nine months ended Sept. 30, Coast generated net earnings of $421,000 on net sales of $115.4 million, as compared to net earnings of $1,707,000 on net sales of $137.6 million in the same nine months of 2007.

Coast attributed the year-over-year declines in sales of 19.7 percent and 16.2 percent in the quarter and nine-month period, respectively, to decreased demand in the boating and RV industries. The Recreational Vehicle Industry Association (RVIA) reported a 24.6-percent year-over-year decline in RV shipments for the first nine months of 2008, compared to the company’s 16.2 percent year-over-year decline. Boat retailers have also reported similar double-digit declines year-to-date.

The decreased demand was due to worsening economic conditions, record high gasoline prices, and a tightening in the availability of consumer credit that RV and boating customers need to purchase RVs and boats, according to the company.

“We anticipated that the second half of 2008 would be a difficult period based on the extremely difficult market conditions facing the RV and recreational boating markets, and consumer products in general, as a result of the turmoil in both the U.S. credit markets and the economy in general and relatively high fuel prices,” said Coast Chief Executive Officer Jim Musbach. “In response to conditions in our primary markets, we are taking steps to control costs and keep them in line with sales. Since November 2007, we have reduced our staffing levels by 15 percent. We have also replaced our annual Las Vegas trade show with a new, much more efficient online program that directly rewards customers with better pricing and other incentives for selling Coast products.”

More challenges ahead

As in past years, the company said it expects a loss in the fourth quarter of 2008 due to the traditional, seasonal slowdown in the quarter, as customers typically wait until the first quarter to begin placing their orders for the upcoming buying season, which commences in the spring, as well as the economic and market conditions that affected our operating results in this year’s third quarter.

“Looking ahead, we are expecting a challenging fourth quarter based on sales figures from October,” said Musbach. “Our focus will be on navigating these difficult waters while keeping our heading on our long-term strategy. Ultimately, we believe improved efficiency of our operations, our improved product development capabilities and expanded market share of Coast developed products will place us in a good position when the RV and marine industries eventually recover.”

Coast reported gross margin of 17.9 percent in the third quarter of 2008, compared with 19.5 percent for the same period in 2007. The decrease in gross margin was due to lower sales across flat warehouse costs and increased shipping costs due to higher fuel prices, according to the company. On the other hand, the gross margin for the first nine months of 2008 increased to 19.9 percent from 19.1 percent in the same nine months of 2007, due to price increases on selected products, the strengthening of the Canadian dollar, and a change in product mix to include a greater proportion of higher-margin products sourced from Asia, the company explained.

Selling, general & administrative (SG&A) expenses increased in dollars by $226,000 or 3.4 percent in the 2008 third quarter. SG&A as a percentage of net sales increased to 19.6 percent in the three months ended Sept. 30, compared to 15.2 percent in the same three months of 2007. For the nine month period, SG&A decreased by $504,000, or 2.3 percent, in absolute dollars. As a percentage of net sales, these expenses increased to 18.5 percent as compared to 15.8 percent in the same nine months of 2007, according to the company.

“We recently have taken steps to reduce debt,” said Musbach. “At September 30, 2008, our bank borrowings totaled $20.3 million, down from $24.4 million at December 31, 2007. During October 2008, we further reduced our bank borrowings and as a result, our outstanding bank borrowings totaled $18.6 million as of November 5, 2008. Our strong balance sheet and line of credit gives us a strong financial foundation to operate in these challenging and uncertain times and places us in a good position when the RV and marine industries eventually recover.”

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