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Press release from CNW Group

Reitmans (Canada) Limited announces its results for the nine months ended October 27, 2012

Wednesday, November 28, 2012

Reitmans (Canada) Limited announces its results for the nine months ended October 27, 201217:20 EST Wednesday, November 28, 2012MONTREAL, Nov. 28, 2012 /CNW Telbec/ - Results for the third quarter and nine months ended October 27, 2012 were adversely impacted by a previously announced disruption in the flow of inventory to stores.  In June 2012 the Company installed a new warehouse management system.  As announced on August 16, 2012, issues associated with the system resulted in a disruption in the flow of inventory to stores in the third quarter ending October 27, 2012.  This resulted in an estimated loss of sales between $7,000,000 and $15,000,000 and a corresponding decline in gross margin and adjusted EBITDA1 for both the three and nine months ended October 27, 2012.Sales for the nine months ended October 27, 2012 decreased 3.5% to $732,854,000 as compared with $759,443,000 for the nine months ended October 29, 2011. Same store sales1 decreased 2.2%.  The decrease in sales was due to a reduced number of stores, continued lower store traffic in a challenging retail environment and a disruption in the planned flow of inventory to stores.  The Company's gross margin decreased to 64.1% from 65.7%.  Net earnings decreased 35.4% to $27,699,000 or $0.42 diluted earnings per share as compared with $42,865,000 or $0.65 diluted earnings per share.  Adjusted EBITDA1 decreased 25.7% to $77,811,000 as compared with $104,767,000.  The disruption in the flow of inventory to stores contributed to the significant drop in earnings for the year to date fiscal 2013.Sales for the third quarter ended October 27, 2012 decreased 7.0% to $236,247,000 as compared with $254,072,000 for the third quarter ended October 29, 2011.  Same store sales1 decreased 4.0%.  The Company's gross margin decreased to 63.0% from 65.8%.  The Company recorded net earnings of $38,000 ($0.00 diluted earnings per share) as compared with $10,561,000 ($0.16 diluted earnings per share).  Adjusted EBITDA1 decreased by 55.8% to $14,091,000 as compared with $31,845,000.During the third quarter, the Company opened 18 new stores, comprised of 5 Reitmans, 4 RW & CO., 2 Thyme Maternity, 4 Penningtons and 3 Addition Elle.  Thirteen stores were closed, comprised of 4 Reitmans, 2 Smart Set, 2 Thyme Maternity, 3 Penningtons and 2 Addition Elle.  At October 27, 2012, there were 923 stores in operation, consisting of 361 Reitmans, 150 Smart Set, 72 RW & CO., 74 Thyme Maternity, 155 Penningtons and 111 Addition Elle, as compared with a total of 975 stores as at October 29, 2011.  In addition, there were 18 Thyme Maternity boutiques ("shop-in-shop") in select Babies"R"Us locations in Canada.In June 2012, the Company announced a partnership with Babies"R"Us to sell Thyme Maternity apparel and accessories in the U.S. As of this date, Thyme Maternity products are available in the U.S. in 135 Babies"R"Us stores with additional locations to launch in the coming months.Sales for the month of November (the four weeks ended November 24, 2012) decreased 4.4% with same store sales1 decreasing 1.2%.The Company continues to address the issues related to the warehouse management system in order to improve the flow of goods to the stores and optimize system performance. The Company believes that all system implementation issues have been identified and are being addressed.  Although progress has been made in addressing the issues that occurred as a result of the implementation of the new warehouse management system, the Company anticipates that an impact on sales may continue in the fourth quarter ending February 2, 2013.At the Board of Directors meeting held on November 28, 2012, a quarterly cash dividend (constituting eligible dividends) of $0.20 per share on all outstanding Class A non-voting and Common shares of the Company was declared, payable January 31, 2013 to shareholders of record on January 17, 2013.As reported in the November 26, 2012 press release, the Company received approval from the Toronto Stock Exchange to proceed with a normal course issuer bid, under which the Company may purchase up to 2,557,275 Class A non-voting shares, representing 5% of the issued and outstanding Class A non-voting shares as at November 15, 2012. The bid commenced on November 28, 2012 and may continue to November 27, 2013.1Non-GAAP Financial MeasuresIn addition to discussing earnings in accordance with IFRS, this press release provides adjusted EBITDA as a supplementary earnings measure, which is defined as earnings (loss) before income taxes, dividend income, interest income, realized gains or losses on disposal of available-for-sale financial assets, impairment losses on available-for-sale financial assets, interest expense, depreciation, amortization and net impairment losses related to property and equipment. The Company also discloses same store sales, which are defined as sales generated by stores that have been open for at least one year.  The Company believes these measures provide meaningful information on the Company's performance and operating results. However, readers should know that these non-GAAP financial measures have no standardized meaning as prescribed by IFRS and may not be comparable to similar measures presented by other companies.  Accordingly, they should not be considered in isolation.The following table reconciles adjusted EBITDA to earnings (loss) before income taxes for the three and nine months ended October 27, 2012 and October 29, 2011:          For the three months endedFor the nine months ended October 27, 2012October 29, 2011October 27, 2012October 29, 2011Earnings (loss) before income taxes$(103,000)$14,456,000$36,585,000$59,172,000Dividend income (874,000) (850,000) (2,615,000) (2,598,000)Interest income (198,000) (336,000) (859,000) (948,000)Impairment losses on available-for-sale financial assets - 73,000 106,000 73,000Interest expense 145,000 168,000 453,000 520,000Depreciation, amortization and net impairment losses 15,121,000 18,334,000 44,141,000 48,548,000ADJUSTED EBITDA$14,091,000$31,845,000$77,811,000$104,767,000Forward-Looking StatementsAll of the statements contained herein, other than statements of fact that are independently verifiable at the date hereof, are forward-looking statements. Such statements, based as they are on the current expectations of management, inherently involve numerous risks and uncertainties, known and unknown, many of which are beyond the Company's control. Such risks include but are not limited to: the impact of general economic conditions, general conditions in the retail industry, seasonality, weather and other risks included in public filings of the Company. Consequently, actual future results may differ materially from the anticipated results expressed in forward-looking statements. The reader should not place undue reliance on the forward-looking statements included herein. These statements speak only as of the date made and the Company is under no obligation and disavows any intention to update or revise such statements as a result of any event, circumstances or otherwise, except to the extent required under applicable securities law.The Company's unaudited interim condensed consolidated financial statements including notes and Management's Discussion and Analysis for the third quarter ended October 27, 2012 are available online at www.sedar.com.Montreal, November 28, 2012Jeremy H. ReitmanChairman and Chief Executive OfficerTelephone: (514) 385-2630Corporate Website: www.reitmans.caREITMANS (CANADA) LIMITEDCONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)(in thousands of Canadian dollars except per share amounts)   For the nine months endedFor the three months ended October 27, 2012October 29, 2011October 27, 2012October 29, 2011         Sales$732,854$759,443$236,247$254,072Cost of goods sold 262,803 260,374 87,417 86,982Gross profit 470,051 499,069 148,830 167,090Selling and distribution expenses 402,769 408,947 138,276 144,125Administrative expenses 33,819 33,527 11,447 12,356Results from operating activities 33,463 56,595 (893) 10,609         Finance income 4,332 3,546 1,464 4,088Finance costs 1,210 969 674 241Earnings (loss) before income taxes 36,585 59,172 (103) 14,456         Income tax expense (recovery) 8,886 16,307 (141) 3,895         Net earnings$27,699$42,865$38$10,561         Earnings per share:         Basic$0.42$0.65$0.00$0.16 Diluted 0.42 0.65 0.00 0.16REITMANS (CANADA) LIMITEDCONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)(in thousands of Canadian dollars)   For the nine months endedFor the three months ended October 27, 2012October 29, 2011October 27, 2012October 29, 2011         Net earnings$27,699$42,865$38$10,561Other comprehensive income:         Net change in fair value of available-for-sale financial assets arisingduring the period (net of tax of $100 for the nine months and $29 forthe three months ended October 27, 2012; $121 for the nine monthsand $246 for the three months ended October 29, 2011) (704) (808) 184 (1,647) Reclassification of impairment loss on available-for-sale financialassets (net of tax of $14 for the nine months ended October 27, 2012;$9 for the nine and three months ended October 29, 2011) 92 64 - 64         Total comprehensive income$27,087$42,121$222$8,978REITMANS (CANADA) LIMITEDCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(in thousands of Canadian dollars)  October 27, 2012October 29, 2011January 28, 2012ASSETS      CURRENT ASSETS       Cash and cash equivalents$108,935$159,309$196,835 Marketable securities 70,954 69,799 71,442 Trade and other receivables 4,004 3,516 3,033 Derivative financial asset 527 - 751 Income taxes recoverable 8,283 7,396 4,735 Inventories 106,757 107,591 78,285 Prepaid expenses 11,789 13,964 11,902  Total Current Assets 311,249 361,575 366,983       NON-CURRENT ASSETS       Property and equipment 203,401 184,666 184,221 Intangible assets 18,652 15,962 17,057 Goodwill 42,426 42,426 42,426 Deferred income taxes 26,129 22,492 23,174  Total Non-Current Assets 290,608 265,546 266,878       TOTAL ASSETS$601,857$627,121$633,861       LIABILITIES AND SHAREHOLDERS' EQUITY      CURRENT LIABILITIES       Trade and other payables$70,480$65,830$63,875 Derivative financial liability 423 - 1,505 Deferred revenue 8,153 9,279 22,278 Current portion of long-term debt 1,545 1,451 1,474  Total Current Liabilities 80,601 76,560 89,132       NON-CURRENT LIABILITIES       Other payables 11,541 11,022 11,110 Deferred revenue - 2,323 - Deferred lease credits 17,719 18,513 17,317 Long-term debt 7,406 8,951 8,573 Pension liability 15,596 13,948 14,877  Total Non-Current Liabilities 52,262 54,757 51,877       SHAREHOLDERS' EQUITY       Share capital 39,227 31,512 39,890 Contributed surplus 5,979 6,462 5,158 Retained earnings 415,663 450,431 439,067 Accumulated other comprehensive income 8,125 7,399 8,737  Total Shareholders' Equity 468,994 495,804 492,852       TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$601,857$627,121$633,861REITMANS (CANADA) LIMITEDCONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)(in thousands of Canadian dollars) Share CapitalContributed SurplusRetained EarningsAccumulated Other Comprehensive IncomeTotal Shareholders' Equity           Balance as at January 29, 2012$39,890$5,158$439,067$8,737$492,852           Cancellation of shares pursuant to share repurchase program (663) - - - (663)Share-based compensation costs - 821 - - 821Net earnings - - 27,699 - 27,699Dividends - - (39,151) - (39,151)Premium on repurchases of Class A non-voting shares - - (11,952) - (11,952)Net change in fair value of available-for-sale financial assets (net of tax of $100) - - - (704) (704)Reclassification of impairment loss on available-for-sale financial assets to net earnings (net of tax of $14) - - - 92 92           Balance as at October 27, 2012$39,227$5,979$415,663$8,125$468,994           Balance as at July 29, 2012$39,890$5,694$440,494$7,941$494,019           Cancellation of shares pursuant to share repurchase program (663) - - - (663)Share-based compensation costs - 285 - - 285Net earnings - - 38 - 38Dividends - - (12,917) - (12,917)Premium on repurchases of Class A non-voting shares - - (11,952) - (11,952)Net change in fair value of available-for-sale financial assets (net of tax of $29) - - - 184 184           Balance as at October 27, 2012$39,227$5,979$415,663$8,125$468,994           Balance as at January 30, 2011$29,614$6,266$468,777$8,143$512,800           Cash consideration on exercise of share options 2,133 - - - 2,133Ascribed value credited to share capital from exercise of share options 545 (545) - - -Cancellation of shares pursuant to share repurchase program (780) - - - (780)Share-based compensation costs - 741 - - 741Net earnings - - 42,865 - 42,865Dividends - - (39,581) - (39,581)Premium on repurchases of Class A non-voting shares - - (21,630) - (21,630)Net change in fair value of available-for-sale financial assets (net of tax of $121) - - - (808) (808)Reclassification of impairment loss on available-for-sale financial assets to net earnings (net of tax of $9) - - - 64 64           Balance as at October 29, 2011$31,512$6,462$450,431$7,399$495,804           Balance as at July 31, 2011$31,518$6,772$474,507$8,982$521,779           Cash consideration on exercise of share options 617 - - - 617Ascribed value credited to share capital from exercise of share options 157 (157) - - -Cancellation of shares pursuant to share repurchase program (780) - - - (780)Share-based compensation costs - (153) - - (153)Net earnings - - 10,561 - 10,561Dividends - - (13,007) - (13,007)Premium on repurchases of Class A non-voting shares - - (21,630) - (21,630)Net change in fair value of available-for-sale financial assets (net of tax of $246) - - - (1,647) (1,647)Reclassification of impairment loss on available-for-sale financial assets to net earnings (net of tax of $9) - - - 64 64           Balance as at October 29, 2011$31,512$6,462$450,431$7,399$495,804REITMANS (CANADA) LIMITEDCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(in thousands of Canadian dollars)   For the nine months endedFor the three months ended October 27, 2012October 29, 2011October 27, 2012October 29, 2011CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES         Net earnings$27,699$42,865$38$10,561 Adjustments for:          Depreciation, amortization and impairment losses 44,141 48,548 15,121 18,334  Share-based compensation costs 821 741 285 (153)  Amortization of deferred lease credits (3,381) (3,468) (1,123) (1,148)  Deferred lease credits 3,783 2,970 2,243 2,146  Pension contribution (271) (816) (32) (459)  Pension expense 990 1,138 330 380  Impairment loss on available-for-sale financial assets 106 73 - 73  Net change in fair value of derivatives (858) - (392) -  Foreign exchange loss (gain) 203 2,793 (651) 342  Interest and dividend income, net (3,021) (3,024) (927) (1,016)  Interest paid (453) (522) (145) (170)  Interest received 977 969 250 336  Dividends received 2,610 2,592 872 866  Income tax expense (recovery) 8,886 16,307 (141) 3,895   82,232 111,166 15,728 33,987 Changes in:          Trade and other receivables (1,085) (665) (1,127) (809)  Inventories (28,472) (34,390) (26,386) (26,114)  Prepaid expenses 113 (1,473) 3,483 300  Trade and other payables 7,862 3,531 10,843 7,265  Deferred revenue (14,125) (10,616) (1,806) (5,066) Cash from operating activities 46,525 67,553 735 9,563 Income taxes received 4,497 - 22 - Income taxes paid (19,800) (31,060) (2,354) (3,546) Net cash flows from (used in) operating activities 31,222 36,493 (1,597) 6,017         CASH FLOWS USED IN INVESTING ACTIVITIES         Purchases of marketable securities (315) (315) (105) (105) Additions to property and equipment and intangible assets (65,742) (43,223) (24,243) (18,604) Cash flows used in investing activities (66,057) (43,538) (24,348) (18,709)         CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES         Dividends paid (39,151) (39,581) (12,917) (13,007) Purchase of Class A non-voting shares for cancellation (12,615) (22,410) (12,615) (22,410) Repayment of long-term debt (1,096) (1,029) (371) (349) Proceeds from exercise of share options - 2,133 - 617 Cash flows used in financing activities (52,862) (60,887) (25,903) (35,149)         FOREIGN EXCHANGE (LOSS) GAIN ON CASH HELD IN FOREIGN CURRENCY (203) (2,793) 651 (342)NET DECREASE IN CASH AND CASH EQUIVALENTS (87,900) (70,725) (51,197) (48,183)CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 196,835 230,034 160,132 207,492         CASH AND CASH EQUIVALENTS, END OF THE PERIOD$108,935$159,309$108,935$159,309 SOURCE: Reitmans (Canada) LimitedFor further information: Jeremy H. Reitman Chairman and Chief Executive Officer Telephone:  (514) 385-2630 Corporate Website: www.reitmans.ca