MONTREAL, Sept. 5 /CNW Telbec/ - Sales for the six months ended August 4,
2007 increased 4.2% to $522,637,000 as compared with $501,797,000 for the six
months ended July 29, 2006. The increase in sales is attributed to the net
addition of 45 stores year over year. Same store sales for the comparable 26
weeks decreased 1.2%. Operating earnings before depreciation and amortization
(EBITDA(1)) decreased 5.9% to $94,691,000 as compared with $100,672,000 last
year. Net earnings and diluted EPS increased to $50,461,000 or $0.70 per share
as compared with $36,122,000 or $0.50 per share last year. Excluding the
impact of the retroactive Québec income tax assessments and interest of
$917,000 for the current year and $19,145,000 for last year, net earnings and
diluted EPS for the six months ended August 4, 2007 would have amounted to
$51,378,000 or $0.71 per share as compared to $55,267,000 or $0.78 per share
last year. The Company had 935 stores in operation at the end of this period
compared to 890 stores at the same time last year.
Sales for the second quarter ended August 4, 2007 increased 4.7% to
$291,942,000 as compared with $278,828,000 for the second quarter ended
July 29, 2006. Same store sales for the comparable 13 weeks increased 3.4%.
Operating earnings before depreciation and amortization (EBITDA(1)) for the
period decreased 3.2% to $59,941,000 as compared with $61,901,000 last year.
Net earnings and diluted EPS increased to $32,077,000 or $0.44 per share as
compared to $14,448,000 or $0.20 per share for the period last year. Excluding
the impact of the retroactive Québec income tax assessments and interest of
$463,000 for the current year and $19,145,000 for last year, net earnings and
diluted EPS for the three months ended August 4, 2007 would have amounted to
$32,540,000 or $0.45 per share as compared to $33,593,000 or $0.48 per share
last year.
During the second quarter, the Company opened 16 new stores and closed 10
stores. Accordingly, at August 4, 2007, there were 935 stores in operation,
consisting of 362 Reitmans, 159 Smart Set, 48 RW & CO., 72 Thyme Maternity, 12
Cassis, 159 Penningtons and 123 Addition Elle. An additional 36 stores are
scheduled to open this year and 12 stores will be closed.
Sales for the month of August (4 weeks ended September 1, 2007) decreased
1.7%, same store sales for the comparable period decreased 7.2%.
Sales in the Cassis stores were below expectations and as a result, the
Company is currently re-positioning its merchandise offerings to better
address the targeted market. All Cassis stores were temporarily closed for a
two week period in August to allow for slight modifications in the store
design and to re-merchandise the stores with new and better focused goods. As
a result of these initiatives management expects the performance of this
banner to improve significantly.
The Company continues to be in a strong financial position with cash,
cash equivalents and marketable securities of $214,592,000 reported at fair
value (cost of $214,956,000). The Company's short-term cash is conservatively
invested in bank bearer deposit notes and bank term deposits with major
Canadian chartered banks. The Company does not hold any asset backed
commercial paper.
At the Board of Directors meeting held on September 5, 2007, a quarterly
cash dividend (designated eligible dividends) of $0.16 per share was declared
on all Class A non-voting and Common shares outstanding, payable October 25,
2007 to shareholders of record on October 11, 2007.
Financial statements are attached.
Montreal, September 5, 2007
Jeremy H. Reitman, President,
Telephone: (514) 385-2630
Corporate Website: www.reitmans.ca
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. 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.
(1) This release includes reference to certain Non-GAAP Financial
Measures such as operating earnings before depreciation and amortization
and EBITDA, which are defined as earnings before interest, taxes,
depreciation and amortization and investment income. The Company believes
such measures provide meaningful information on the Company's performance
and operating results. However, readers should know that such Non-GAAP
Financial Measures have no standardized meaning as prescribed by GAAP and
may not be comparable to similar measures presented by other companies.
Accordingly, they should not be considered in isolation.
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
For the For the
six months ended three months ended
(in thousands except August 4, July 29, August 4, July 29,
per share amounts) 2007 2006 2007 2006
Sales $ 522,637 $ 501,797 $ 291,942 $ 278,828
Cost of goods sold and
selling, general and
administrative expenses 427,946 401,125 232,001 216,927
---------- ---------- ---------- ----------
94,691 100,672 59,941 61,901
Depreciation and
amortization 23,838 22,060 12,140 10,853
---------- ---------- ---------- ----------
Operating earnings before
the undernoted 70,853 78,612 47,801 51,048
Investment income (note 8) 7,049 6,899 2,729 2,719
Interest on long-term debt 504 536 250 266
---------- ---------- ---------- ----------
Earnings before income
taxes 77,398 84,975 50,280 53,501
Income taxes:
Current 29,837 31,018 20,190 21,343
Future (3,817) (1,310) (2,450) (1,435)
---------- ---------- ---------- ----------
26,020 29,708 17,740 19,908
Québec tax assessments
- current (note 7) 917 19,145 463 19,145
---------- ---------- ---------- ----------
26,937 48,853 18,203 39,053
---------- ---------- ---------- ----------
Net earnings $ 50,461 $ 36,122 $ 32,077 $ 14,448
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per share:
Basic $ 0.71 $ 0.51 $ 0.45 $ 0.21
Diluted 0.70 0.50 0.44 0.20
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the For the
six months ended three months ended
August 4, July 29, August 4, July 29,
(in thousands) 2007 2006 2007 2006
CASH FLOWS (USED IN) FROM
OPERATING ACTIVITIES
Net earnings $ 50,461 $ 36,122 $ 32,077 $ 14,448
Adjustments for:
Depreciation and
amortization 23,838 22,060 12,140 10,853
Future income taxes (3,817) (1,310) (2,450) (1,435)
Stock-based compensation 524 676 268 399
Amortization of deferred
lease credits (2,230) (1,934) (1,146) (976)
Deferred lease credits 3,090 2,130 1,738 960
Pension expense 800 672 400 336
Gain on sale of
marketable securities (2,006) (2,283) (10) (276)
Changes in non-cash
working capital items
relating to operations (37,693) 1,751 17,975 26,140
---------- ---------- ---------- ----------
32,967 57,884 60,992 50,449
CASH FLOWS (USED IN) FROM
INVESTING ACTIVITIES
Purchases of marketable
securities - (3,982) - (2,788)
Proceeds on sale of
marketable securities 11,596 12,959 534 8,009
Additions to capital
assets (39,143) (23,912) (20,919) (11,947)
---------- ---------- ---------- ----------
(27,547) (14,935) (20,385) (6,726)
CASH FLOWS (USED IN) FROM
FINANCING ACTIVITIES
Dividends paid (22,832) (19,698) (11,420) (9,851)
Repayment of long-term
debt (530) (497) (267) (250)
Proceeds from issue of
share capital 1,322 791 72 171
---------- ---------- ---------- ----------
(22,040) (19,404) (11,615) (9,930)
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (16,620) 23,545 28,992 33,793
CASH AND CASH EQUIVALENTS,
BEGINNING OF THE PERIOD 188,491 135,399 142,879 125,151
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS,
END OF THE PERIOD $ 171,871 $ 158,944 $ 171,871 $ 158,944
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Supplemental disclosure of cash flow information (note 8)
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED BALANCE SHEETS (Unaudited)
Audited
August 4, July 29, February 3,
(in thousands) 2007 2006 2007
ASSETS
CURRENT ASSETS
Cash and cash equivalents
(note 8) $ 171,871 $ 158,944 $ 188,491
Marketable securities (note 8) 42,721 53,438 52,675
Accounts receivable 3,337 3,540 3,439
Merchandise inventories 72,911 72,360 61,834
Prepaid expenses 24,775 10,504 21,405
Future income taxes 3,666 - -
---------- ---------- -----------
Total Current Assets 319,281 298,786 327,844
CAPITAL ASSETS 239,955 208,355 226,734
GOODWILL 42,426 42,426 42,426
FUTURE INCOME TAXES 5,058 2,664 3,407
---------- ---------- -----------
$ 606,720 $ 552,231 $ 600,411
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
items $ 72,864 $ 73,715 $ 85,317
Income taxes payable 27,309 34,137 40,289
Future income taxes 1,802 - 248
Current portion of long-term debt
(note 5) 1,110 1,042 1,076
---------- ---------- -----------
Total Current Liabilities 103,085 108,894 126,930
DEFERRED LEASE CREDITS 21,718 19,221 20,858
LONG-TERM DEBT (note 5) 14,533 15,644 15,097
FUTURE INCOME TAXES - 157 112
ACCRUED PENSION LIABILITY 2,095 167 1,295
SHAREHOLDERS' EQUITY
Share capital 22,981 18,165 21,323
Contributed surplus 3,771 3,199 3,583
Retained earnings 438,842 386,784 411,213
Accumulated other comprehensive
loss (305) - -
---------- ---------- -----------
438,537 386,784 411,213
---------- ---------- -----------
Total Shareholders' Equity 465,289 408,148 436,119
---------- ---------- -----------
$ 606,720 $ 552,231 $ 600,411
---------- ---------- -----------
---------- ---------- -----------
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
For the For the
six months ended three months ended
August 4, July 29, August 4, July 29,
(in thousands) 2007 2006 2007 2006
SHARE CAPITAL
Balance, beginning of
period $ 21,323 $ 17,374 $ 22,866 $ 17,994
Cash consideration on
exercise of stock
options 1,322 791 72 171
Ascribed value credited
to share capital from
exercise of stock
options 336 - 43 -
---------- ---------- ---------- ----------
Balance, end of period 22,981 18,165 22,981 18,165
CONTRIBUTED SURPLUS
Balance, beginning of
period 3,583 2,523 3,546 2,800
Stock option
compensation costs 524 676 268 399
Ascribed value credited
to share capital from
exercise of stock
options (336) - (43) -
---------- ---------- ---------- ----------
Balance, end of period 3,771 3,199 3,771 3,199
RETAINED EARNINGS
Balance, beginning of
period 411,213 370,360 418,185 382,187
Net earnings 50,461 36,122 32,077 14,448
Dividends (22,832) (19,698) (11,420) (9,851)
---------- ---------- ---------- ----------
Balance, end of period $ 438,842 $ 386,784 $ 438,842 $ 386,784
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
ACCUMULATED OTHER
COMPREHENSIVE
INCOME (LOSS)
Balance, beginning of
period $ - $ - $ (81) $ -
Adjustment to opening
balance due to the
new accounting policies
adopted regarding
financial instruments
(net of tax of $523) 2,883 - - -
Net unrealized loss on
available-for-sale
financial assets
arising during the
period, net of tax (1,451) - (206) -
Reclassification
adjustment for net
gains included in net
earnings, net of tax (1,737) - (18) -
---------- ---------- ---------- ----------
Balance, end of period(1) (305) - (305) -
---------- ---------- ---------- ----------
Total Shareholders'
Equity $ 465,289 $ 408,148 $ 465,289 $ 408,148
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
(1) Available-for-sale financial investments constitute the sole item in
accumulated other comprehensive income (loss).
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
For the For the
six months ended three months ended
August 4, July 29, August 4, July 29,
(in thousands) 2007 2006 2007 2006
Net earnings $ 50,461 $ 36,122 $ 32,077 $ 14,448
Other comprehensive income
(loss):
Net unrealized loss on
available-for-sale
financial assets arising
during the period, net
of tax of $250 ($11 for
the three months ended
August 4, 2007) (1,451) - (206) -
Reclassification
adjustment for net gains
included in net earnings,
net of tax of $331 ($19
for the three months
ended August 4, 2007) (1,737) - (18) -
---------- ---------- ---------- ----------
Other comprehensive
income (loss) (3,188) - (224) -
---------- ---------- ---------- ----------
Comprehensive Income $ 47,273 $ 36,122 $ 31,853 $ 14,448
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The accompanying notes are an integral part of these consolidated
financial statements.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(all amounts in thousands except per share amounts)
1. BASIS OF PRESENTATION
These unaudited interim consolidated financial statements (the "financial
statements") have been prepared in accordance with Canadian generally accepted
accounting principles for interim financial information and include all normal
and recurring entries that are necessary for a fair presentation of the
statements. Accordingly, they do not include all of the information and
footnotes required by Canadian generally accepted accounting principles for
annual financial statements. These financial statements should be read in
conjunction with the most recently prepared annual financial statements for
the 53 week period ended February 3, 2007. The Company applied the same
accounting policies in the preparation of the financial statements as
disclosed in note 1 of its annual consolidated financial statements in the
Company's fiscal 2007 Annual Report except as described below in note 2 -
changes in accounting policies.
The Company's business is seasonal and due to the geographical spread of
the Company's stores and range of products it offers, the Company has
experienced quarterly fluctuations in operating results. The business
seasonality results in performance for the 13 weeks ended August 4, 2007,
which is not necessarily indicative of performance for the balance of the
year.
All amounts in the attached footnotes are unaudited unless specifically
identified.
2. CHANGES IN ACCOUNTING POLICIES
On February 4, 2007, the Company adopted the following new accounting
standards issued by the Canadian Institute of Chartered Accountants ("CICA").
As provided under the standards, the adoption of these recommendations was
done without restatement of prior period consolidated financial statements.
The transitional adjustments resulting from these standards are recognized in
the opening balance of accumulated other comprehensive income.
CICA Section 1530 - Comprehensive Income
This CICA Handbook section introduced a statement of comprehensive income
which is included in the full set of interim and annual financial statements.
Comprehensive income represents the change in equity during a period from
transactions and other events and circumstances from non-owner sources and
will include all changes in equity other than those resulting from investments
by owners and distributions to owners.
CICA Section 3251 - Equity
This CICA Handbook section, which replaced Section 3250 - Surplus,
establishes standards for the presentation of equity and changes in equity
during the reporting period and requires the Company to present separately
equity components and changes in equity arising from (i) net earnings;
(ii) other comprehensive income; (iii) other changes in retained earnings;
(iv) changes in contributed surplus; (v) changes in share capital; and
(vi) changes in reserves. New consolidated statements of changes in
shareholders' equity are included in these financial statements.
CICA Section 3855 - Financial Instruments - Recognition and Measurement
This CICA Handbook section establishes standards for recognition and
measurement of financial assets, financial liabilities and non-financial
derivatives. All financial instruments must be classified into a defined
category, namely, held-to-maturity investments, held-for-trading financial
assets and financial liabilities, available-for-sale financial assets, loans
and receivables or other financial liabilities. The standard requires that
financial instruments within scope, including derivatives, be included on the
Company's balance sheet and measured at fair value, except for loans and
receivables, held-to-maturity investments and other financial liabilities
which are measured at cost or amortized cost. Gains and losses on
held-for-trading financial assets and financial liabilities are recognized in
net earnings in the period in which they arise. Unrealized gains and losses,
including changes in foreign exchange rates on available-for-sale financial
assets are recognized in other comprehensive income until the financial assets
are derecognized or impaired, at which time any unrealized gains or losses are
recorded in net earnings. Transaction costs are added to the financial asset
on initial recognition and are recognized in net earnings when the asset is
derecognized or impaired.
Fair values of available-for-sale financial assets are based on published
market prices at month end.
CICA Section 3861 - Financial Instruments - Disclosure and Presentation
This CICA Handbook section, which replaces Section 3860 of the same name,
establishes standards for presentation of financial instruments and
non-financial derivatives, and identifies the information that should be
disclosed about them.
The adoption of these new standards resulted in the following changes in
the classification and measurement of the Company's financial instruments,
previously recorded at cost:
Cash and cash equivalents are classified as "financial assets
held-for-trading" and are measured at fair value. These financial assets are
marked-to-market through net earnings and recorded as investment income at
each period end. This change had no impact on the Company's consolidated
financial statements.
Accounts receivable are classified as "loans and receivables" and are
recorded at cost which at initial measurement corresponds to fair value.
After their initial fair value measurement, they are measured at amortized
cost using the effective interest rate method. This change had no impact on
the Company's consolidated financial statements.
Marketable securities, which consist primarily of preferred shares of
Canadian public companies, are classified as "available-for-sale securities".
These financial assets are marked-to-market through other comprehensive income
at each period end. The initial impact of measuring the available-for-sale
securities at fair value was a net unrealized gain of $2,883, net of tax of
$523, which was recorded in opening accumulated other comprehensive income.
Accounts payable and accrued items and long-term debt are classified as
"other financial liabilities". They are initially measured at fair value and
subsequent revaluations are recorded at amortized cost using the effective
interest rate method. This change had no impact on the Company's consolidated
financial statements.
The Company uses a variety of strategies, such as foreign exchange option
contracts, with maturities not exceeding three months, to manage its exposure
to fluctuations in the US dollar. These derivative financial instruments are
not used for speculative purposes. These financial assets are marked-to-market
through net earnings at each period end. This change had no impact on the
Company's consolidated financial statements.
Embedded derivatives (elements of contracts whose cash flows move
independently from the host contract) are required to be separated and
measured at fair values if certain criteria are met. Under an election
permitted by the new standard, management reviewed contracts entered into or
modified subsequent to February 2, 2003 and determined that the Company does
not currently have any significant embedded derivatives in these contracts
that require separate accounting and disclosure.
3. SHARE CAPITAL
The Company has authorized an unlimited number of Class A non-voting
shares.
The following table summarizes Class A non-voting shares issued for each
of the quarters listed:
For the For the
six months ended three months ended
August 4, July 29, August 4, July 29,
2007 2006 2007 2006
Balance at beginning
of period 57,817 56,747 57,925 56,895
Shares issued pursuant
to exercise of stock
options 118 181 10 33
---------- ---------- ---------- ----------
Balance at end of period 57,935 56,928 57,935 56,928
The Company has authorized an unlimited number of Common shares. At August
4, 2007, there were 13,440 common shares issued (July 29, 2006 - 13,440;
February 3, 2007 - 13,440) with a value of $482 (July 29, 2006 - $482;
February 3, 2007 - $482).
4. STOCK-BASED COMPENSATION
The Company has a share option plan as described in note 7 c) to the
consolidated financial statements contained in the 2007 Annual Report. During
the three and six month periods ended August 4, 2007, no options were granted,
while eight thousand stock options were cancelled.
5. LONG-TERM DEBT
Audited
August 4, July 29, February 3,
2007 2006 2007
Mortgage bearing interest at 6.40%,
payable in monthly instalments of
principal and interest of $172,
due November 2017 and secured by
the Company's distribution centre $ 15,643 $ 16,686 $ 16,173
Less current portion 1,110 1,042 1,076
---------- ---------- ----------
$ 14,533 $ 15,644 $ 15,097
---------- ---------- ----------
---------- ---------- ----------
6. EARNINGS PER SHARE
For the For the
six months ended three months ended
August 4, July 29, August 4, July 29,
2007 2006 2007 2006
Weighted average number
of shares per basic
earnings per share
calculations 71,327 70,291 71,370 70,345
Effect of dilutive
options outstanding 769 1,474 781 1,451
---------- ---------- ---------- ----------
Weighted average number
of shares per diluted
earnings per share
calculations 72,096 71,765 72,151 71,796
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
7. INCOME TAXES
During the second quarter of the fiscal year ended February 3, 2007, the
Québec National Assembly enacted legislation (Bill 15) that retroactively
changed certain tax laws that subject the Company to additional taxes and
interest for the 2003, 2004 and 2005 years. In accordance with Canadian
generally accepted accounting principles, as a result of Québec income tax
assessments received, an amount of $20,054 for retroactive taxes and interest
was expensed in the fiscal year ended February 3, 2007 ($19,145 for the three
and six months period ended July 29, 2006). An additional amount of $463 and
$917 were expensed in the three and six months ended August 4, 2007,
respectively, representing additional accrued interest.
The Company has filed formal objection notices for these unpaid
assessments and is pursuing all avenues to mitigate the tax liability.
However, the Company is unable to judge the likelihood of success.
8. SUPPLEMENTARY INFORMATION
Audited
August 4, July 29, February 3,
2007 2006 2007
Balance with banks (overdraft) $ 3,447 $ (3,682) $ 6,239
Short-term deposits, bearing
interest at 4.5%
(July 29, 2006 - 4.3%;
February 3, 2007 - 4.3%) 168,424 162,626 182,252
--------- ---------- ----------
$ 171,871 $ 158,944 $ 188,491
---------- ---------- ----------
---------- ---------- ----------
Non-cash transactions:
Capital asset additions included
in accounts payable $ 1,320 $ 1,379 $ 3,404
For the For the
six months ended three months ended
August 4, July 29, August 4, July 29,
2007 2006 2007 2006
Cash paid during the
period for:
Income taxes $ 46,279 $ 30,671 $ 14,166 $ 8,964
Interest 552 608 252 298
Investment income:
Available-for-sale
financial assets:
Interest income $ 40 $ 39 $ 21 $ 20
Dividends 1,247 1,729 562 764
Realized gain on
disposal 2,006 2,283 10 276
Held-for-trading
financial assets:
Interest income 3,756 2,848 2,136 1,659
---------- ---------- ---------- ----------
$ 7,049 $ 6,899 $ 2,729 $ 2,719
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
At August 4, 2007, marketable securities amounted to $42,721 reported at
fair value (cost of $43,085) as compared with $53,438 last year reported at
cost (with a market value of $56,363). At February 3, 2007, marketable
securities amounted to $52,675 (with a market value of $56,081). Due to new
accounting standards with respect to financial instruments that were adopted
by the Company in the first quarter of fiscal 2008, marketable securities have
been measured and reported at their fair value at August 4, 2007 while the
comparative year is reported at cost.
9. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the
presentation adopted in the current year. In particular, investment income,
which had been previously classified as part of cash flows from investing
activities, is now included in cash flows from operating activities and
marketable securities have been reclassified as current assets based on the
liquidity of the investments.
%SEDAR: 00002316EF
For further information: Jeremy H. Reitman, President, (514) 385-2630;
www.reitmans.ca