Birks Group Inc.

Second-quarter net sales increased 2.25% year over year to $61.2 million from $59.8 million. Comparable store sales declined 6% overall, including a 5% decline in Canada and a 6% decline in the U.S. Gross profit was $27.4 million, or 44.8% of sales, versus $28.9 million, or 48.3%, a year ago. SG&A was $27.3 million, or 44.6% of sales, down from $28.5 million, or 47.7%. Net loss was $2.1 million, or $0.18 per share, versus a loss of $3.5 million, or $0.31 per share, last year. For the first six months, net sales were $133.6 million, up 4.4%, comparable store sales were down 5%, gross margin was 45.1%, and net loss was $4 million, or $0.35 per share. Management said it expects net sales and gross margin rates to decrease for the rest of fiscal 2009 and for the full year, and did not provide quarter-specific dollar guidance. Capital expenditures are projected at approximately $4 million for the full fiscal 2009 year.

Tom Andruskevich emphasized that the quarter was hurt by a sharp deterioration in consumer confidence and spending late in the period, especially in Canada and the U.S. He said the company is focusing on higher-end items over $20,000, targeted client events, expense reduction, inventory discipline, and selective store rationalization. His tone was cautious but determined, with repeated references to protecting liquidity and positioning the business for market share gains when the economy improves.

Mike Rabinovitch provided the key financial detail: sales of $61.2 million, gross profit of $27.4 million at 44.8% margin, SG&A of $27.3 million at 44.6% of sales, and a net loss of $2.1 million or $0.18 per share. He noted tax benefits of $2 million this quarter and $2.8 million year-to-date, inventory of $187.9 million, and bank debt of $127 million, down $7.2 million year over year. On capital allocation and liquidity, he said the company is negotiating an extension of its secured line of credit, additional financing sources, and expects the new facilities to be higher cost and more restrictive, while limiting capex to about $4 million for the year.

Analysts focused on category trends, competitive performance, diamond pricing, October/November sales trends, margins, financing, and store closures. Management said bridal held up relatively well, high-end statement jewelry was better than lower-price points, but fine jewelry and lower price points were weak. They also said October comp sales were down 15%, U.S. was worse than Canada, November was tracking worse than October, and financing discussions are part of a package deal aimed at replacing liquidity lost from an availability block in the new ABL structure.