Reitmans (Canada) Limited announces its results for the 13 and 52 weeks ended January 30, 2021

MONTREAL, April 19, 2021 /CNW Telbec/ - The Company's results for the 13 weeks ended January 30, 2021 ("fourth quarter of 2021") and the results for the 52 weeks ended January 30, 2021 ("fiscal 2021") and the respective comparative periods of the 13 weeks ended February 1, 2020 ("fourth quarter of 2020") and the 52 weeks ended February 1, 2020 ("fiscal 2020") separately present continuing and discontinuing operations as described below under "Discontinued Operations".

52 weeks ended January 30, 2021

Sales for fiscal 2021 decreased by $172.1 million, or 24.4%, to $533.4 million as compared with $705.5 million for fiscal 2020, primarily due to the impact from temporary store closures, store traffic trends that were below pre-pandemic levels during the second to the fourth quarter of 2021 (see section entitled "Key Business Developments and Subsequent Events") and an overall net reduction of 36 stores, partially offset by an increase in e-commerce sales.

Gross profit for fiscal 2021 decreased $117.6 million, or 32.3%, to $246.3 million as compared with $363.9 million for fiscal 2020. Gross profit as a percentage of sales for fiscal 2021 decreased to 46.2% from 51.6% for fiscal 2020. The decrease both in gross profit and as a percentage of sales is primarily attributable to the Company's merchandise selling at larger discounts than usual as customer preferences and habits changed upon the transition to working from home during the pandemic, lower turnover of merchandise as a result of the temporary store closures during a portion of fiscal 2021 as well as store traffic trends that were below pre-pandemic levels, combined  with a negative foreign exchange impact in U.S. dollar denominated purchases included in cost of goods sold.

Results from operating activities from continuing operations for fiscal 2021 were a loss of $108.0 million as compared with a loss of $37.8 million for fiscal 2020. The increased loss of $70.2 million is primarily attributable to the decrease in gross profit from lower sales and extensive promotional activity, a $15.3 million increase in overall freight costs incurred due to the growth of e-commerce sales, an increase of $13.9 million of impairment charges and $26.5 million in restructuring costs, partially offset by a decrease in overall operating costs from having fewer stores, temporary store closures and cost-cutting measures undertaken as part of the Company's restructuring plan, decrease in depreciation and amortization charges of $33.4 million and financial support from the Canada Emergency Wage Subsidy ("CEWS") and the Canada Emergency Rent Subsidy ("CERS") programs totalling $35.3 million for fiscal 2021. 

Net loss from continuing operations for fiscal 2021 was $100.0 million ($2.05 basic and diluted loss per share) as compared with a $73.2 million net loss ($1.31 basic and diluted loss per share) for fiscal 2020. The increase in net loss from continued operations of $26.8 million is primarily attributable to the decrease in gross profit and an increase in restructuring costs, partially offset by an increase in net finance income, a decrease in income tax expense and a decrease in overall operating costs, as noted above.

Adjusted EBITDA¹ from continuing operations for fiscal 2021 was $1.0 million as compared to $50.3 million for fiscal 2020. The decrease of $49.3 million is primarily attributable to the decrease of $117.6 million in gross profit, partially offset by a reduction in operating costs (excluding restructuring costs, depreciation, amortization and impairment of non-financial assets) of $54.4 million and an increase of $13.9 million in foreign exchange gain, as noted above.

As described below under "Discontinued Operations", the Company, as part of its restructuring plan, closed the Thyme Maternity and Addition Elle banners. Net loss from discontinued operations for fiscal 2021 was $72.2 million as compared to $14.3 million for fiscal 2020. The increase in net loss of $57.9 million is primarily attributable to $51.7 million in restructuring costs, an increase of $20.7 million in impairment of non-financial assets as a result of the Company's decision to close the brands, and a decrease in gross margin from the liquidation of merchandise as the banners' stores closed, partially offset by reduced operating costs due to temporary store closures and the measures taken by the Company to reduce costs. In addition, there was no goodwill impairment charge in fiscal 2021 compared to the impairment of goodwill of $11.8 million for the Addition Elle banner incurred in fiscal 2020.

13 weeks ended January 30, 2021

Sales for the fourth quarter of 2021 decreased by $39.7 million, or 21.5%, to $144.7 million as compared with $184.4 million for the fourth quarter of 2020, primarily attributable to temporary store closures (see section entitled "Key Business Developments and Subsequent Events") and a net reduction of 36 stores in the fourth quarter of 2021, partially offset by an increase in e-commerce sales.

Gross profit for the fourth quarter of 2021 decreased $23.1 million, or 26.3%, to $64.9 million as compared with $88.0 million for the fourth quarter of 2020, primarily attributable to lower sales and a net reduction of 36 stores. Gross profit as a percentage of sales for the fourth quarter of 2021 decreased to 44.9% from 47.7% for the fourth quarter of 2020. The decrease  is primarily attributable to higher promotional activity during the fourth quarter of 2021, particularly with respect to men's and women's work wear apparel, as customer preferences and habits quickly changed upon the transition to working from home during the pandemic, combined  with a negative foreign exchange impact in U.S. dollar denominated purchases included in cost of goods sold.

Results from operating activities from continuing operations for the fourth quarter of 2021 were a loss of $11.8 million as compared with $15.3 million for the fourth quarter of 2020. The decreased loss of $3.5 million is primarily attributable to a decrease in overall operating costs from cost-cutting measures undertaken as part of the Company's restructuring plan, temporary store closures and fewer stores,  decrease in depreciation and amortization charges of $10.2 million and financial support from the CEWS and CERS programs totalling $9.1 million, partially offset by the decrease in gross profit from lower sales and extensive promotional activity, an increase in overall freight costs of $3.9 million incurred due to the growth in e-commerce sales and an increase of $3.6 million of impairment charges in the fourth quarter of 2021.

Net loss from continuing operations for the fourth quarter of 2021 was $10.9 million ($0.22 basic and diluted loss per share) as compared with a $47.2 million net loss ($0.97 basic and diluted loss per share) for the fourth quarter of 2020. The decrease in net loss of $36.3 million is primarily attributable to the decrease in income tax expense, a decrease in overall operating costs and a decrease in net finance costs, partially offset by a decrease in gross profit, as noted above.

Adjusted EBITDA¹ from continuing operations for the fourth quarter of 2021 was $6.6 million as compared with $8.8 million for the fourth quarter of 2020. The decrease of $2.2 million is primarily attributable to the decrease of $23.1 million in gross profit, partially offset by a reduction in operating costs (excluding restructuring costs recovery, depreciation, amortization and impairment of non-financial assets) of $19.2 million and an increase of $1.7 million in foreign exchange gain on U.S. denominated monetary assets and liabilities.

As the discontinued banners were no longer in operation during the fourth quarter of 2021, there were no earnings to report. Net loss from discontinued operations for the fourth quarter of 2020 was $4.5 million. The financial information presented within discontinued operations is directly attributable to both banners. All administrative expenses and various selling and distribution expenses from shared, centralized and common functions of the Company are excluded from the determination of net earnings (loss) from discontinued operations.

Key Business Developments and Subsequent Events

Since the coronavirus disease (COVID-19) was declared a pandemic on March 11, 2020 by the World Health Organization, there have been significant impacts for the Company.  The measures adopted by the Federal and provincial governments in order to mitigate the spread of the pandemic required the Company to temporarily close all of its retail locations across the country effective March 17, 2020.  During the period of closure, the Company's only sales were derived from its e-commerce channel; its distribution and fulfillment center remained open while the Company leveraged its ship-from-store capabilities. In late May 2020, and in accordance with the laws and regulations of each applicable region and province, the Company began to reopen its retail locations. By the end of June 2020, all of the Company's stores were open for business. Shopping behaviour however has not returned to pre-pandemic levels as consumers shifted their spending habits from non-essential items (including apparel goods) to essential items and other product categories that help consumers work, learn and entertain from the comfort of their home. Since September 2020, with the number of daily cases continuing to increase, provincial governments enacted a variety of measures, ranging from limiting the number of people allowed in retail stores at the same time to temporarily closing stores. During the fourth quarter of 2021, as restrictions continued to increase across Canada, temporary store closures grew to approximately 62% (at its highest point) of the Company's total retail store network.  As at January 30, 2021, the Company had 240 out of its 415 stores (58%) closed as a consequence of governmental lockdown directives.

Subsequent to fiscal 2021, the Company has further experienced some temporary retail location closures. While stores remained closed in certain markets, the Company continued to fulfill e-commerce orders though sales were not sufficient to offset the lost sales due to the closures. The extent to which COVID-19 will continue to impact the Company's business, including its supply chain, consumer shopping behavior and consumer demand, including online shopping, will depend on future developments, which are highly uncertain and cannot be predicted at this time. As the Company navigates through the challenges caused by COVID-19, its focus will be to adapt to customers' changing product preferences, closely monitor its cash position and control its spending, while managing its inventory levels in line with the unprecedented change in demand behavior since COVID-19 started. Current financial information may not necessarily be indicative of future operating results. The Company had taken many measures to protect its financial position during this challenging situation. Such measures included:

• Furloughing a substantial number of store and head office employees;
• All other employees collectively contributing to on-going cost-cutting initiatives through temporary salary reductions;
• Cancelling or delaying significant investments in capital expenditures for fiscal 2021;
• Adjusting inventory levels by cancelling or delaying many orders;
• Reducing all non-payroll discretionary expenses, including marketing and travel; and
• Extending payment terms and asking for temporary price concessions for both merchandise and non-merchandise vendor invoices.

Such measures partially mitigated the impact of COVID-19 on the Company's business. However, with the deterioration in the Company's financial performance and its financial position since the end of the fiscal 2020, the continued uncertainty surrounding the pandemic, and after evaluating all its strategic options, on May 19, 2020 the Company obtained an initial order (the "Order") from the Superior Court of Québec (the "Court") to seek protection from creditors under the Companies' Creditors Arrangement Act (the "CCAA") and Ernst & Young Inc. was appointed as the Monitor. Since its initial filing on May 19, 2020 the Company obtained extensions of the Order, with the most recent extension obtained until May 28, 2021. The CCAA process allows the Company to implement an operational and commercial restructuring plan to re-position the Company for long-term success (the "restructuring plan"). On June 1, 2020, the Company announced that, as part of its restructuring plan and as approved by the Monitor, it was closing the Thyme Maternity and Addition Elle banners. The restructuring plan led to the closure of all retail stores and e-commerce websites for both banners and to the termination of approximately 1,600 employees in its retail locations and head office. See section entitled "Discontinued Operations".

In September 2020, the Monitor commenced the claims process for the identification, resolution and barring of amounts owing to creditors as at May 19, 2020. Creditors had to file their proof of claim and former employees had to file the appropriate notice of dispute document with the Monitor on or before October 21, 2020. The Monitor is currently working on reviewing the claims filed and has been contacting claimants where discrepant claims exist between the Company's records and amounts claimed. Once all claims filed have been reconciled, settlement thereof will then be addressed in a Plan of Arrangement to be filed and communicated at a later date.

For fiscal 2021, the Company incurred a net loss of $172.2 million. As at January 30, 2021, the Company's current liabilities of $284.5 million exceed current assets of $216.8 million.  On August 5, 2020, the Company secured interim financing ("DIP Loan") up to a maximum amount of $60.0 million, including facilities available for securing letters of credit of up to $5.0 million, with a Canadian financial institution. As of January 30, 2021, the Company has not drawn funds from the DIP Loan facility, other than for the issuance of letters of credit totalling $0.4 million. With the uncertainties surrounding the impact of COVID-19 going forward, the Company cannot guarantee that such DIP Loan will not be utilized in the future.

These factors and conditions, combined with the unpredictability of the outcome of the matters arising from the CCAA proceedings, indicate that a material uncertainty exists that may cast significant doubt about the Company's ability to continue as a going concern and, therefore, realize its assets and discharge its liabilities in the normal course of business.

The audited consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue its operations for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. In assessing whether the going concern assumption is appropriate and whether there are material uncertainties that may cast significant doubt about the Company's ability to continue as a going concern, management must take into account all available information about the future, including estimated future cash flows, for a period of at least twelve months following the end of the reporting period. The audited consolidated financial statements as at and for the year ended January 30, 2021 do not include any adjustments to the carrying amounts and classification of assets, liabilities and reported expenses that may otherwise be required if the going concern basis was not appropriate. Such adjustments could be material. It is not possible to reliably estimate the length and severity of COVID-19 and the impact on the financial results and financial condition of the Company in future periods. The Company will take into consideration the most recent developments and impacts of the pandemic, including updated assessments of future cash flows and any additional impacts resulting from COVID-19 will be reflected in the financial results of the current fiscal year, if applicable.

Discontinued Operations

As part of its restructuring plan, the Company closed the Thyme Maternity and Addition Elle banners and, as a result, their results and cash flows have been classified as discontinued operations. IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, requires that the comparative statements of earnings and comprehensive income (loss) be presented as if the operations were discontinued from the start of the comparative year. As a result, discontinued operations are excluded from the loss from continuing operations and are presented as earnings (loss) from discontinued operations, net of tax, as a separate line item in the consolidated statements of earnings (loss).

Dividends

At the Board of Directors meeting held on April 19, 2021, to conserve cash to finance its ongoing operations, the Board has suspended the quarterly cash dividend. The Company will continue to assess potential future dividend levels on a quarterly basis.

About Reitmans (Canada) Limited

The Company is a leading women's specialty apparel retailer with retail outlets throughout Canada.  As at January 30, 2021, the Company operated 415 stores consisting of 245 Reitmans, 92 Penningtons and 78 RW&CO.  As noted above, all Addition Elle and Thyme Maternity stores have been closed in connection with the restructuring plan.

¹Non-GAAP Financial Measures

The Company has identified several key operating performance measures and non-GAAP financial measures which management believes are useful in assessing the performance of the Company; however, readers are cautioned that some of these measures may not have standardized meanings under IFRS and, therefore, may not be comparable to similar terms used by other companies.

In addition to discussing earnings in accordance with IFRS, this press announcement provides adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") as a non-GAAP financial measure. Adjusted EBITDA is defined as net earnings before income tax expense/recovery, dividend income, interest income, net change in fair value and loss on disposal of marketable securities, interest expense, depreciation, amortization, impairment of non-financial assets and restructuring costs. The Company updated its definition of Adjusted EBITDA to exclude the restructuring costs which have been incurred as a result of the restructuring plan. With the classification of the Addition Elle and Thyme Maternity businesses as discontinued operations, Adjusted EBITDA has also been modified to exclude discontinued operations.

The following table reconciles the most comparable GAAP measure, net earnings or loss from continuing operations, to Adjusted EBITDA.  Management believes that Adjusted EBITDA is an important indicator of the Company's ability to generate liquidity through operating cash flow to fund working capital needs and fund capital expenditures and uses the metric for this purpose. The exclusion of dividend income, interest income and expense and the net change in fair value and loss on disposal of marketable securities eliminates the impact on earnings derived from non-operational activities. The exclusion of depreciation, amortization and impairment charges eliminates the non-cash impact and the exclusion of restructuring costs and discontinued operations presents the results of the on-going businesses. The intent of Adjusted EBITDA is to provide additional useful information to investors and analysts. The measure does not have any standardized meaning under IFRS. Although depreciation, amortization and impairment charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, as such, Adjusted EBITDA does not reflect any cash requirements for these replacements. Adjusted EBITDA should not be considered either as discretionary cash available to invest in the growth of the business or as a measure of cash that will be available to meet the Company's obligations.  Other companies may calculate Adjusted EBITDA differently. From time to time, the Company may exclude additional items if it believes doing so would result in a more effective analysis of underlying operating performance. The exclusion of certain items does not imply that they are non-recurring.  Adjusted EBITDA should not be used in substitute for measures of performance prepared in accordance with IFRS or as an alternative to net earnings, net cash provided by operating, investing or financing activities or any other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with IFRS. Although Adjusted EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, it has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of the Company's results as reported under IFRS.

The Company uses a key performance indicator ("KPI"), comparable sales, to assess store performance and sales growth.  The Company engages in an omnichannel approach in connecting with its customers by appealing to their shopping habits through either online or store channels.  This approach allows customers to shop online for home delivery, purchase in any of our store locations or ship to home from another store when the products are unavailable in a particular store.  Due to customer cross-channel behavior, the Company reports a single comparable sales metric, inclusive of store and e-commerce channels. Comparable sales are defined as sales generated by stores that have been continuously open during both of the periods being compared and include e-commerce sales. The comparable sales metric compares the same calendar days for each period.  Although this KPI is expressed as a ratio, it is a non-GAAP financial measure that does not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures used by other companies. Management uses comparable sales in evaluating the performance of stores and online sales and considers it useful in helping to determine what portion of new sales has come from sales growth and what portion can be attributed to the opening of new stores. Comparable sales is a measure widely used amongst retailers and is considered useful information for both investors and analysts. Comparable sales should not be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS.

As highlighted in the section entitled "Key Business Developments and Subsequent Events", at various times throughout fiscal 2021, the Company was required to temporary close its retail stores. As at the end of fiscal 2021, 240 out of the Company's 415-store network temporarily closed due to government mandated restrictions.  Due to the unprecedented nature of COVID-19 and its significant impact on consumers and our ability to service our customers, management believes that comparable sales are not currently representative of the underlying trends of our business and consequently would not provide a meaningful metric in comparisons of year-over-year sales results.  Accordingly, this press announcement does not include a discussion of the Company's comparable sales in respect of the fourth quarter of and fiscal 2021. Management will continue to monitor and evaluate the effects of COVID-19 and will resume the evaluation of comparable sales when year-over-year results are more representative.

The following table reconciles net loss from continuing operations to Adjusted EBITDA from continuing operations:

Forward-Looking Statements

All 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, including statements regarding the impact of COVID-19 on the Company's business, financial position and operations, and are based on several assumptions which give rise to the possibility that actual results could differ materially from the Company's expectations expressed in or implied by such forward-looking statements and that the objectives, plans, strategic priorities and business outlook may not be achieved.  Consequently, the Company cannot guarantee that any forward-looking statement will materialize, or if any of them do, what benefits the Company will derive from them. Forward-looking statements are provided in this press announcement for the purpose of giving information about management's current expectations and plans as of the date of this press announcement, and allowing investors and others to get a better understanding of the Company's operating environment. However, readers are cautioned that it may not be appropriate to use such forward-looking statements for any other purpose. Forward-looking statements are based upon the Company's current estimates, beliefs and assumptions, which are based on management's perception of historical trends, current conditions and currently expected future developments, as well as other factors it believes, are appropriate in the circumstances.

This press announcement contains forward-looking statements about the Company's objectives, plans, goals, expectations, aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects, opportunities and legal and regulatory matters. Specific forward-looking statements in this press announcement include, but are not limited to, statements with respect to the Company's belief in its strategies and its brands and their capacity to generate long-term profitable growth, future liquidity, planned capital expenditures, amount of pension plan contributions, status and impact of systems implementation, the ability of the Company to successfully implement its strategic initiatives and cost reduction and productivity improvement initiatives as well as the impact of such initiatives.  These specific forward-looking statements are contained throughout the Company's Management Discussion & Analysis ("MD&A") including those listed in the "Operating Risk Management" and "Financial Risk Management" sections of the MD&A. Forward-looking statements are typically identified by words such as "expect", "anticipate", "believe", "foresee", "could", "estimate", "goal", "intend", "plan", "seek", "strive", "will", "may" and "should" and similar expressions, as they relate to the Company and its management.

Numerous risks and uncertainties could cause the Company's actual results to differ materially from those expressed, implied or projected in the forward-looking statements. Please refer to the "Forward-Looking Statements" section of the Company's MD&A for fiscal 2021.

This is not an exhaustive list of the factors that may affect the Company's forward-looking statements. Other risks and uncertainties not presently known to the Company or that the Company presently believes are not material could also cause actual results or events to differ materially from those expressed in its forward-looking statements. Additional risks and uncertainties are discussed in the Company's materials filed with the Canadian securities regulatory authorities from time to time. The reader should not place undue reliance on any 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 complete financial statements including notes and Management's Discussion and Analysis for fiscal 2021 are available online at www.sedar.com.

Montreal, April 19, 2021

Stephen F. Reitman
President and Chief Executive Officer
Telephone:                  (514) 384-1140
Corporate Website:     www.reitmanscanadalimited.com

 

 

 

 

 

SOURCE Reitmans (Canada) Limited