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The Brick's Heartland location in Mississauga, December 2, 2010.

J.P. MOCZULSKI/j.p. moczulski The Globe and Mail

Around this time three years ago, furniture and appliance retailer The Brick posted a $29-million first quarter loss. With the global economy in disarray and a whack of internal problems unravelling, management reached out for $120-million emergency funding. The outlook was bleak.

Fast forward to 2012 and the future looks vastly different. The Brick recently paid back $77-million of its $120-million debt burden, along with its jaw-dropping 12 per cent interest rate, and on Tuesday The Brick reported solid first quarter earnings of $4.7-million.

$4.7-million may not seem like much, but it's a lot to a company that was knocking on death's door not too long ago. It also helps to instill confidence in a management team that has had to practically turn the company inside out.

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With The Brick back on solid footing, it's safe to say the turnaround has been a success story – something you don't hear very often.

The list of The Brick's accomplishments include: not needing to borrow against its asset-backed credit facility since 2010; paying back its emergency debt burden with cash on hand; and boosting earnings before interest, taxes, depreciation and amortization from what was a record first quarter high of $13.9-million in 2010, the first year of the retailer's turnaround, to $20.5-million today.

When we talked to management after the company announced its debt payback, the execs couldn't say much because they were on the verge of releasing their year-end earnings. A few months later, and with more freedom to chat, they were much more relaxed on a conference call with analysts Tuesday. Certainly, there was some confidence in their voices now that the pressure is subsiding and things are panning out properly.

Interestingly, The Brick's overall sales haven't taken off. Retail segment sales in the first quarter of 2010 – the record quarter for EBITDA – were $286-million. This year they were $276-million. What's mattered is that The Brick has boosted its gross margin to 45.2 per cent by focusing on higher margin items like mattresses and furniture.

No doubt, there's still a long way to go before The Brick fully rebounds. Before the recession, the stock was worth over $8. Now it's only $3.40. It may never get back to its previous levels. But the important thing is that it's stabilized.

That doesn't mean the company isn't trying to grow. Management has already announced a $25-million investment to upgrade its technology, as well as to optimize its supply chain management and do things like consolidate call centres.

The one thing investors really want to know, though, is whether the stock's dividend will ever come back. That's of particular interest because The Brick is now free from the debt covenants that prevented it from distributing money to shareholders.

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Chief executive officer Vi Konkle didn't say much on the subject Tuesday, but her tone was positive. "As you know, the covenants preventing [the dividends]are now gone, so we will be reviewing the policy in the coming months."

**An earlier version of this story said The Brick had repaid the full $120-million in 12 per cent debt outstanding. It has repurchased $77-million of this total.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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