Aftermarket parts and supplies distribution network Uni-Select Inc. generated modest organic growth in sales in the second quarter, but that uptick could not outrun the declines in the first quarter, leading to an overall drop in results for the first six month of the year.
The company generated sales of $476.2 million in the second quarter of 2013, similar to the comparable period of 2012, an overall organic growth of 1.2%.
Sales of the U.S. operations totaled $339.5 million in the second quarter, with an organic sales growth of 2.7%. The positive organic growth is the result of sales’ programs and overall better execution combined with improved service level in the operations permitted by a more stable ERP system. As a result of store closures, sales decreased by 1.6%. Store closures are related to the internal strategic and operational plan (the “Action Plan”) announced on July 11, 2013.
Sales from the Canadian operations totaled $136.6 million compared to $139.4 million in the second quarter of 2012, including a negative organic growth of 2.5%.
The adjusted EBITDA margin stood at 6.2% for the second quarter of 2013 compared to 6.5% for the same quarter of 2012. The decline is mainly attributable to lower gross profit reflecting competitive pricing, negative distribution channel mix and unexpected costs to stabilize the ERP system. The Action Plan announced July 11th partly offset the decline in gross margins recorded in the quarter. Savings were mostly derived from closure of locations that were not profitable, as well as reductions in headcount and operational expenses.
The corporation, as part of the Action Plan, recognized restructuring charges, write-off and others of $35.2 million in the second quarter. These charges are related to liquidation of redundant inventory, site closures, consolidation costs, employee termination benefits, recognition of future lease obligations, write-down of certain property and equipment to their net realizable value and write-off in the value of certain software which will no longer be used.
“We are pleased that sales organically grew in the U.S. We are confident that our recent performance in the U.S., together with our new Action Plan will lead to improved results over the next quarters,” says Richard G. Roy, president and CEO of Uni-Select.
“We are progressing in a solid industry that offers growth opportunities. We believe in our ability to meet expectations and generate beneficial value to all stakeholders. We remain committed to achieving previously stated goals such as the reduction of indebtedness and carrying out our sales strategy to diversify our market, increase market share and pursue our development” added Roy.
During the quarter, the corporation announced the completion of its formal strategic review process and the optimization of its distribution network in the U.S. The Action Plan derived from this in-depth analysis is in progress, and completion is expected in late 2014. As of June 30, 2013, 11 stores and 1 warehouse were closed. The relocation of the U.S. national distribution centre is completed and 156 positions were eliminated. These initiatives reduced expenses by approximately $10 million, on an annual basis, of which $5 million will positively affect 2013 results.
For the six-month period ended June 30, 2013, sales totaled $898.0 million, a 2.6% decrease compared to the same period of 2012. The decline is explained by store closures related to the Action Plan, less billing days as well as the decline in the overall organic growth of 0.2%. Sales at the beginning of the year were affected by softer demand on seasonal repairs reflecting challenging economic conditions as well as extended winter weather conditions compared to last year.
The corporation also experienced business disruptions due to the deployment of its enterprise resource planning system. These issues were resolved at the end of January 2013.
Despite a positive organic growth of 0.2%, sales of the U.S. operations for the six-month period totaled $655.1 million, 2.6% lower than for the same period in 2012. Sales of the Canadian operations for the period under review in 2013 amounted to $242.9 million, lower than the previous year, with an organic sales decline of 1.3%.
For the six-month period ended June 30, 2013, the adjusted EBITDA margin stood at 5.2% compared to 6.3% for the same period last year. In addition to the factors mentioned in the quarter’s results, the adjusted EBITDA margin was also impacted by a sales decrease not entirely offset by the decrease in expenses and lower price protection that we benefited during the first quarter of last year.
Since the beginning of fiscal 2013, the Corporation reduced its debt by $24.9 million and generated cash from operating activities of $50.0 million compared to $35.0 million for the same period last year.
The corporation also announced the appointment of Brent Windom to the position of president and chief operating officer for its U.S. automotive business. Windom has been with Uni-Select for 9 years. He was senior vice president, sales and marketing, U.S. Automotive.
Prior to August 2012, he was responsible of sales and marketing across North America. With nearly 30 years in the automotive aftermarket, Windom has served as vice president of marketing and merchandising for MAWDI from 1994 to 2004, when it was sold to Uni-Select. The corporation is confident that Windom’s experience and abilities will bring added value to the U.S. automotive parts distribution activities. His appointment was effective July 31, 2013.
The Board of Directors is also pleased to announce the appointment of a new director to the Board, effective as of July 31, 2013. Dennis Welvaert was appointed in replacement of Joseph P. Felicelli who resigned in the second quarter. Welvaert who was acting president and chief operating officer for the U.S. Automotive business up to July 31, 2013, will also act as chairman of Uni-Select USA, Inc. Welvaert’s main responsibility will be to monitor and insure the execution of the Action Plan. He retired as president of Dayco North American Aftermarket Division in 2011. He is chairman of the Global Automotive Aftermarket Symposium and is former chairman of the Automotive Aftermarket Suppliers Association (AASA). With Dayco, Welvaert held senior executive-level positions in the OEM, industrial and aftermarket divisions. He has more than 40 years of experience in the automotive industry.
Finally, the Board of Directors of Uni-Select declared a dividend of CAD$0.13 per share payable on October 22, 2013 to shareholders of record on September 30, 2013. This dividend is an eligible dividend for tax purposes.
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