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Richelieu increases sales in first quarter of 2019 and makes three new acquisitions in Canada

CNW Group - Thu Apr 4, 8:50AM CDT
--  Total sales for the first quarter of 2019 ending on February
        28, 2019, grew 2.0%, to $226.2 million. In the manufacturers
        market, sales were up 5.3% to $192.3 million, while sales to
        hardware retailers including renovation superstores dropped
        13.5% to $33.9 million.
    --  Diluted net earnings per share stood at $0.18, compared with
        $0.21 for the first quarter of 2018.
    --  Healthy and solid financial position and working capital
        totalling $333.5 million (ratio of 4.2:1).
    --  Three acquisitions in Canada (Western Canada and Ontario) for
        additional annual sales of approximately $12 million.

"Richelieu (TSX:RCH.TO), began fiscal year 2019 with the acquisition of Lion Industries, Blackstone Building Products, and Truform Building Products, three specialty hardware distributors serving window and door manufacturers in Western Canada and Ontario. These acquisitions will reinforce our presence in these markets, increase our business in the window and door manufacturers segment, and add some $12 million in annual sales. In the first quarter, generally the weakest of the year, our results were affected by lower sales in the hardware retailers and renovation superstores market. This is due to the fact that in the first quarter of 2018, in Canada, our sales were exceptionally high for a first quarter, whereas in the first quarter of 2019 they were impacted by inventory realignment by our retailer customers which have not shown sales growth. In addition, one of our major Canadian customers closed several stores. It should be noted that Richelieu did not lose any market share among retailers. In the United States, the decline in the hardware retailers market sales compared to the same period in 2018 was due to the temporary impact of higher cyclical sales to a major customer in the first quarter of 2018. Otherwise sales in this market would have been up 50% due to the addition of new products and new customers. We believe we will recoup these sales in the coming quarters given their cyclical nature. Our financial position is impeccable, almost debt free, allowing us to pursue our growth strategy. We are on the lookout for new acquisitions and confident to post positive results in subsequent periods." commented Richelieu president and CEO, Richard Lord.

ANALYSIS OF OPERATING RESULTS FOR THE FIRST QUARTER ENDED FEBRUARY 28, 2019, COMPARED WITH THE FIRST QUARTER ENDED FEBRUARY 28, 2018

For the quarter ended February 28, 2019, consolidated sales reached $226.2 million, compared with $221.9 million for the corresponding quarter of 2018, up 2.0%, resulting from a growth by acquisitions of 2.8% and an internal decrease of 0.8%. At comparable exchange rates to the first quarter of 2018, consolidated sales would have been stable with the corresponding quarter of 2018.

Richelieu achieved sales of $192.3 million in the manufacturers market, compared with $182.7 million for the first quarter of 2018, an increase of $9.6 million. All market segments contributed to this increase of 5.3%, of which 1.9% resulted from internal growth and 3.4% from acquisitions. Sales to hardware retailers and renovation superstores stood at $33.9 million, down by $5.3 million or 13.5% over the first quarter of 2018.

In Canada, Richelieu recorded sales of $143.7 million, a decrease of $0.4 million or 0.2% over the first quarter of 2018, of which 0.6% originated from acquisitions. Sales to manufacturers amounted to $117.7 million compared with $113.2 million, an increase of 4.0% of which 3.3% was generated by from internal growth and 0.7% by acquisitions. Sales to hardware retailers and renovation superstores stood at $26.0 million, down $4.9 million or 15.9% over the corresponding quarter of 2018. It should be noted that the first quarter of 2018 was marked by sales that were exceptionally high for a first quarter whereas in the first quarter of 2019, our sales were impacted by inventory realignment of our retailer customers. In addition, one of our major Canadian customers closed several stores. It should be noted that Richelieu did not lose any market share among its hardware retail customers.

In the United States, sales totalled US$62.0 million, in slight increase compared with the first quarter of 2018. Sales to manufacturers amounted to US$56.1 million compared with US$55.4 million over the first quarter of 2018, an increase of 1.3%, of which 7.4% from acquisitions and an internal decrease of 6.1% following the end of a supply agreement with a major customer, as reported in previous quarters. Note that at comparable sales, internal growth in the US manufacturers market would have been 3%. Sales to hardware retailers and renovation superstores were down by 9.2% from the corresponding quarter of 2018. This decrease is due to the temporary effect of significant cyclical sales to a major customer in the first quarter of 2018. But for this factor, the hardware retailers sales growth in the United States would have been 50% due to the addition of new products and new customers. These sales should be recouped in the coming quarters given their cyclical nature. Considering applicable exchange rates, total U.S. sales expressed in Canadian dollars stood at $82.5 million, compared with $77.8 million for the first quarter of 2018, an increase of 6.0%. They accounted for 36.5% of consolidated sales for the first quarter of 2019, whereas they represented 35.1% of the period's consolidated sales in the first quarter of 2018.

First-quarter earnings before income taxes, interest and amortization (EBITDA) amounted to $17.4 million, down $2.4 million or 12.0% over the first quarter of 2018. Gross margin remained stable compared with the first quarter of 2018. The EBITDA margin stood at 7.7%, compared to 8.9% for the corresponding quarter of 2018. It was affected by the slowdown in sales to the hardware retailers market during the quarter, the market development costs to increase our offering and our presence in the retailers market in the United States, including the costs incurred as a result of the temporary increase in inventories, and the effect of our recent acquisitions.

Amortization expenses for the first quarter of 2019 amounted to $3.6 million compared with $3.2 million for the corresponding quarter of 2018, up $0.4 million, resulting mainly from the investments in capital made in fiscal 2018.

First-quarter net earnings were down 20.3%. Considering non-controlling interests, net earnings attributable to shareholders of the Corporation amounted to $10.1 million, down by 20.6% over the first quarter of 2018. Net earnings per share rose to $0.18 basic and diluted, compared with $0.22 basic and diluted for the first quarter of 2018, a decrease of 18.2%.

Comprehensive income amounted to $8.7 million, considering a negative adjustment of $1.4 million on translation of the financial statements of the United States subsidiary, compared with $12.1 million for the first quarter of 2018, considering a negative adjustment of $0.5 million on translation of the financial statements of the United States subsidiary.

Quarterly variations in earnings - The first quarter closed at the end of February is generally the year's weakest for Richelieu in light of the smaller number of business days due to the end-of-year holiday period and a wintertime slowdown in renovation and construction work. The third quarter ending August 31 also includes a smaller number of business days due to the summer holidays, which can be reflected in the period's financial results. The second and fourth quarters respectively ending May 31 and November 30 generally represent the year's most active periods.

FINANCIAL POSITION

Cash flows from operating activities (before net change in working capital balances) amounted to $13.9 million or $0.24 diluted per share, compared with $16.0 million or $0.27 diluted per share for the first quarter of 2018, a decrease of 13.1% stemming primarily from the variation in net earnings. Net change in non-cash working capital balances used cash flows of $27.5 million, reflecting the change in inventories, accounts payable and other items ($31.5 million), whereas the change in accounts receivable represented a cash inflow of $4.0 million. Consequently, operating activities used cash flows of $13.6 million, whereas they had used cash flows of $11.4 million in the first quarter of 2018.

Financing activities used cash flows of $3.5 million, compared with $9.9 million for the first quarter of 2018. This change mainly results from the repurchase of common shares amounting to $4.5 million plus the long-term debt repayment in the first quarter of 2018.

Investing activities represented a cash outflow of $6.6 million, of which $4.8 million for the three business acquisitions mentioned previously and $1.8 million primarily for the purchase of equipment to maintain and improve operational efficiency and for IT equipment.

Sources of financing

As at February 28, 2019, bank draft amounted to $16.4 million, compared with cash of $7.4 million as at November 30, 2018. This change mainly arise from the increase in inventories resulting from the following main factors: the slowdown in sales to hardware retailers during the quarter, a normal increase for next periods that are historically the most active, and, pursuing our continuous innovation strategy, adding new products to develop new business opportunities. The Corporation posted working capital of $333.5 million for a current ratio of 4.2:1, compared with $329.3 million (4.6:1 ratio) as at November 30, 2018.

Richelieu believes it has the capital resources to fulfill its ongoing commitments and obligations and to assume the funding requirements needed for its growth and financing and investing activities between now and the end of 2019. The Corporation benefits from an authorized line of credit of $50 million as well as a line of credit of US$6 million renewable annually and bearing interest respectively at prime and base rates. In addition, Richelieu considers it could obtain access to other outside financing if necessary.

Summary financial position




              (in thousands of $, except exchange rates)



       As at                                             February 28
     November 30


                                                                 2019           2018




              $
            $

                                                                                ---

        Current assets                                        436,405        419,844


        Non-current
         assets                                               151,144        149,275

    ---


       Total                                                 587,549        569,119

    ---

        Current
         liabilities                                          102,925         90,501


        Non-current
         liabilities                                            5,708          5,132


        Equity
         attributable
         to
         shareholders
         of the
         Corporation                                          475,893        470,278


        Non-
         controlling
         interests                                              3,023          3,208

    ---


       Total                                                 587,549        569,119

    ---

                   Exchange rates
                    on translation
                    of a
                    subsidiary in
                    the United
                    States                                     1.3169         1.3300

    ---

Assets

Total assets amounted to $587.5 million as at February 28, 2019, compared with $569.1 million as at November 30, 2018. Current assets increased from November 30, 2018, mainly due to the inventory increase during the period as mentioned in the previous section.

Cash position




                (in thousands of $)



       As at                                February 28
      November 30


                                                    2019            2018




               $
              $

                                                                    ---

        Current portion of
         long-term debt                            2,507           2,023


        Long-term debt                                 -

    ---                                                             ---

                     Total debt                    2,507           2,023

    ---

                     Cash and cash
                      equivalents (bank
                      draft)                    (16,443)          7,408

    ---

The Corporation continues to benefit from a healthy and solid financial position. As at February 28, 2019, total debt, entirely short-term, was $2.5 million representing balances payable on acquisitions.

Equity attributable to shareholders of the Corporation totalled $475.9 million as at February 28, 2019, compared with $470.3 million as at November 30, 2018, an increase of $5.6 million stemming primarily from growth of $6.5 million in retained earnings which amounted to $411.9 million, and of $0.6 million in share capital and contributed surplus, whereas accumulated other comprehensive income was down by $1.4 million. As at February 28, 2019, book value per share was $8.33, up by 1.2% over November 30, 2018.

As at February 28, 2019, at market close, the Corporation's share capital consisted of 57,155,234 common shares (57,114,234 shares as at November 30, 2018). During the first quarter ended February 28, 2019, the Corporation issued 41,000 common shares at an average price of $7.27 (284,774 in 2018 at an average price of $8.11) upon the exercise of options under its stock option plan. As at February 28, 2019, 1,850,725 stock options were outstanding (1,669,475 as at November 30, 2018).

Dividends

On April 4, 2019, the Board of Directors approved the payment of a quarterly dividend of 6.33¢ per share to shareholders of record as at April 18, 2019, payable on May 2, 2019. The declared dividend is designated as an eligible dividend within the meaning of the Income Tax Act (Canada).

PROFILE AS AT FEBRUARY 28, 2019

Richelieu is a leading North American distributor, importer and manufacturer of specialty hardware and complementary products. Its products are targeted to an extensive customer base of kitchen and bathroom cabinet, storage and closet, home furnishing and office furniture manufacturers, residential and commercial woodworkers, and hardware retailers including renovation superstores. Richelieu offers customers a broad mix of high-end products sourced from manufacturers worldwide. Its product selection consists of over 110,000 different items targeted to a base of more than 80,000 customers who are served by 75 centers in North America - 37 distribution centers in Canada, 36 in the United States and two manufacturing plants in Canada, specifically Cedan Industries Inc. which specializes in the manufacturing of a wide variety of veneer sheets and edgebanding products and Menuiserie des Pins Ltée which manufactures components for the window and door industry and a broad selection of decorative mouldings.

Notes to readers -- Richelieu uses earnings before interest, income taxes and amortization ("EBITDA") because this measure enables management to assess the Corporation's operational performance. This measure is a financial indicator of a corporation's ability to service its debt. However, EBITDA should not be considered by an investor as an alternative to operating income, net earnings, cash flows or as a measure of liquidity. Because EBITDA is a non-IFRS financial measure and does not have a standardized meaning as prescribed by IFRS, it may not be comparable to the EBITDA of other companies. Richelieu also uses adjusted cash flows from operating activities, which are based on net earnings plus amortization of property, plant and equipment and intangible assets, deferred tax expense (or recovery) and share-based compensation expense. These additional measures do not account for net change in non-cash working capital items to exclude seasonality effects and are used by management in its assessments of cash flows from long-term operations. Therefore, adjusted cash flows from operating activities may not be comparable to those of other companies. Certain statements set forth in this report (generally identified by terms such as "may", "could", "might", "intend", "expect", "believe", "estimate" or comparable variants) constitute forward-looking statements which, by their very nature, remain subject to other risks and uncertainties as set forth in the Corporation's annual and quarterly reports. Although management considers these assumptions and expectations reasonable based on the information available at the time they are provided, such assumptions and expectations could prove inaccurate and actual results could differ materially. Richelieu is under no obligation to update or revise any forward-looking statements made herein to account for future events or circumstances, except as required by applicable legislation.

April 4, 2019, CONFERENCE CALL AT 2:30
                             P.M. (EASTERN TIME)

    ---

Financial analysts and investors interested in participating in the conference call on Richelieu's results to be held at 2:30 p.m. on April 4, 2019, may dial 1-888-390-0546 a few minutes before the start of the call. For those unable to participate, a taped rebroadcast will be available as of 5:15 p.m. on April 4, 2019, until midnight on April 11, 2019, by dialling 1-888-259-6562, access code: 670615. Members of the media are invited to listen in.

Photos are available at www.richelieu.com

    ---
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION



     [In thousands of dollars] [Unaudited]




                                                            As at
            As at
                                                     February 28,   November 30,
                                                             2019            2018




                $
              $

                                                                             ---



                ASSETS




                Current assets


      Cash and cash
       equivalents                                              -          7,408


      Accounts receivable                                 135,896         138,767


      Income taxes
       receivable                                           4,311               -


      Inventories                                         289,618         270,275


      Prepaid expenses                                      6,580           3,394



                                                          436,405         419,844





                Non-current assets


      Property, plant and
       equipment                                           40,878          41,725


      Intangible assets                                    30,580          29,340



     Goodwill                                             73,506          71,984


      Deferred taxes                                        6,180           6,226



                                                          587,549         569,119





                LIABILITIES AND EQUITY




                Current liabilities


      Bank draft                                           16,443               -


      Accounts payable and
       accrued liabilities                                 83,975          88,359


      Income taxes payable                                      -            119


      Current portion of
       long-term debt                                       2,507           2,023



                                                          102,925          90,501





                Non-current liabilities


      Deferred taxes                                        3,882           3,289


      Other liabilities                                     1,826           1,843



                                                          108,633          95,633





                Equity


      Share capital                                        41,762          41,398


      Contributed surplus                                   4,322           4,122


      Retained earnings                                   411,911         405,445


      Accumulated other
       comprehensive
       income                                              17,898          19,313



      Equity attributable
       to shareholders of
       the Corporation                                    475,893         470,278


      Non-controlling
       interests                                            3,023           3,208



                                                          478,916         473,486



                                                          587,549         569,119
CONSOLIDATED STATEMENTS OF EARNINGS


     [In thousands of dollars, except earnings per share]
      [Unaudited]




                                                            For the three-
                                                             month periods
                                                             ended February 28,


                                                         2019            2018




                $
              $

                                                                         ---

                  Sales                               226,236         221,893


     Operating
      expenses
      excluding
      amortization                                    208,802         202,090

                                                                         ---

                  Earnings
                   before
                   amortization,
                   financial
                   costs
                   and
                   income
                   taxes                               17,434          19,803

                                                                         ---

      Amortization
      of
      property,
      plant
      and
      equipment                                         2,477           2,227


      Amortization
      of
      intangible
      assets                                            1,086           1,018


     Financial
      costs,
      net                                                  74            (36)

                                                                         ---

                                                        3,637           3,209

                                                                         ---

                  Earnings
                   before
                   income
                   taxes                               13,797          16,594


     Income
      taxes                                             3,723           3,962

                                                                         ---

                  Net
                   earnings                            10,074          12,632

                                                                         ===

                  Net earnings attributable to:


      Shareholders
      of the
      Corporation                                      10,083          12,704


     Non-
      controlling
      interests                                           (9)           (72)

                                                                         ---

                                                       10,074          12,632

                                                                         ===

                  Net earnings per share
                   attributable to shareholders of
                   the Corporation


     Basic                                               0.18            0.22


     Diluted                                             0.18            0.22
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



     [In thousands of dollars] [Unaudited]




                                                                   For the three-
                                                                    month periods
                                                                    ended February
                                                                              28,


                                                                2019            2018




                $
              $

                                                                                ---

                   Net earnings                               10,074          12,632


                   Other comprehensive income that will be
                    reclassified to net earnings


      Exchange differences on
       translation of foreign
       operations                                            (1,415)          (545)

                                                                                ---

                   Comprehensive income                        8,659          12,087

                                                                                ===

                   Comprehensive income attributable to:


      Shareholders of the
       Corporation                                             8,668          12,159


      Non-controlling
       interests                                                 (9)           (72)

                                                                                ---

                                                               8,659          12,087

                                                                                ===
CONSOLIDATED STATEMENTS OF CASH FLOWS



     [In thousands of dollars] [Unaudited]




                                                               For the three-month periods
                                                                            ended
                                                                     February 28,


                                                            2019                2018




                $
              $

                                                                                ---



                OPERATING ACTIVITIES


      Net earnings                                        10,074              12,632



     Items not affecting cash


      Amortization of
       property, plant
       and equipment                                       2,477               2,227


      Amortization of
       intangible
       assets                                              1,086               1,018


      Deferred taxes                                           -              (315)


      Share-based
       compensation
       expense                                               266                 431

                                                                                ---

                                                          13,903              15,993


      Net change in
       non-cash
       working capital
       balances                                         (27,507)           (27,432)

                                                                                ---

                                                        (13,604)           (11,439)

                                                                                ---



                FINANCING ACTIVITIES


      Repayment of
       long-term debt                                          -            (2,048)


      Dividends paid
       to shareholders
       of the
       Corporation                                       (3,617)            (3,464)


      Other dividends
       paid                                                (193)              (311)


      Common shares
       issued                                                298                 437


      Common shares
       repurchased for
       cancellation                                            -            (4,534)

                                                                                ---

                                                         (3,512)            (9,920)

                                                                                ---





                INVESTING ACTIVITIES


      Business
       acquisitions                                      (4,803)            (2,041)


      Additions to
       property, plant
       and equipment
       and intangible
       assets                                            (1,837)            (2,669)

                                                                                ---

                                                         (6,640)            (4,710)

                                                                                ---

      Effect of
       exchange rate
       changes on cash
       and cash
       equivalents                                          (95)                 73




                   Net change in
                    cash and cash
                    equivalents and
                    bank draft                          (23,851)           (25,996)


      Cash and cash
       equivalents,
       beginning of
       period                                              7,408              29,162

                                                                                ---

                   Cash and cash
                    equivalents
                    (bank draft),
                    end of period                       (16,443)              3,166

                                                                                ===

SOURCE Richelieu Hardware Ltd.

View original content: http://www.newswire.ca/en/releases/archive/April2019/04/c4638.html

SOURCE: Richelieu Hardware Ltd.

Richard Lord, President and Chief Executive Officer; Antoine Auclair, Vice-President
and Chief Financial Officer, Tel: (514) 336-4144 www.richelieu.com

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