The Coast Distribution System Inc., an aftermarket suppliers of replacement parts, accessories and supplies for the recreational vehicle and outdoor recreation industries, reported a drop in earnings for its second quarter and six months ended June 30, impacted by lower margins.

Morgan Hills, Calif.-based Coast reported net income of $0.5 million, or $0.11 per diluted share, for the second quarter, compared to net income of $1.0 million, or $0.21 per diluted share, in the same quarter of 2011. For the six months, Coast recorded a net loss of $800,000, or ($0.18) per diluted share, compared with a net loss of $59,000, or ($0.01) per diluted share, for the year prior.

The company said the decline in net income in this year’s second quarter and the increase in the net loss for the first six months were primarily attributable to declines in gross profits, which more than offset modest increases in net sales, in each of those periods.

Net sales for the second quarter increased by 2.7% to $34.1 million compared to net sales of $33.2 million in the second quarter of 2011. In the six months, net sales increased by 0.8% to $58.4 million from $57.9 million in the same six-month period of 2011.

Those increases were primarily the result of increased sales of the company’s Powerhouse generators to large retailers outside the RV and boating channels, which more than offset the effects on sales of RV and boating products of continued consumer uncertainty regarding the economic recovery.

Gross profits fell by $0.7 million to $5.6 million, resulting in a decrease in gross margin to 16.4% in the second quarter compared with 19% in the same quarter of 2011. In the six months ended, gross profits fell by $1.2 million, to $9.0 million, resulting in a decline in gross margin to 15.5% from 17.6% in the same six months of 2011.

These decreases were the result of price reductions on selected products that Coast implemented in response to aggressive price competition in the market, as well as a weakening of the Canadian dollar, as compared to the U.S. dollar, which increased costs for the company’s Canadian subsidiary of purchasing products from U.S. suppliers. Coast expects that the price increases it began implementing in July 2012 will contribute to improvement in gross margins in the second half of 2012.

“Although we posted modest top-line growth for the second quarter, ongoing consumer uncertainty about economic recovery and high unemployment continued to unfavorably affect our results,” said Coast’s CEO Jim Musbach. “Despite these challenges, we see reasons for optimism as we pursue our long-term strategic plan. We have made solid progress in 2012 in our sales of generators to large mass merchandisers, a new distribution channel for us. In addition, our sales to our traditional RV customers are slowly showing signs of recovery, which resulted in solid sales gains in July. As we enter the second half of the year, we continue to be optimistic about sales growth, given positive order momentum in our proprietary products where we plan to tap into existing distribution channels in addition to exploring new opportunities.”

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