Reitmans (Canada) Limited announces its results for the three months ended May 5, 2007Jun 6, 2007
MONTREAL, June 6 /CNW Telbec/ - Sales for the first quarter ended May 5,
2007 increased 3.5% to $230,695,000 as compared with $222,969,000 for the
first quarter ended April 29, 2006. The increase in sales is attributable to
the net addition of 42 stores year over year. Comparable store sales, compared
to the 13 weeks ended May 6, 2006, decreased 6.5% due to unseasonable weather
conditions that were prevalent throughout the first quarter ended May 5, 2007
in virtually all significant markets, resulting in reduced customer traffic
which impacted the demand for apparel.
Operating earnings before depreciation and amortization (EBITDA(1)) for
the period decreased 10.4% to $34,750,000 as compared with $38,771,000 last
year. Net earnings and diluted EPS, after recording an additional interest
charge for retroactive Québec income tax assessments of $454,000 or $0.01 per
share, decreased to $18,384,000 or $0.26 per share as compared to $21,674,000
or $0.30 per share for the period last year. Excluding the effect of the
retroactive Québec income tax assessments, net earnings and diluted EPS for
the period would have decreased 13.1% to $18,838,000 or $0.27 per share.
Sales for the month of May (4 weeks ended June 2, 2007) increased 9.4%
with comparable store sales increasing 4.7%.
During the first quarter, the Company opened 15 new stores comprised of
3 Reitmans, 1 Smart Set, 1 RW & CO., 3 Thyme Maternity, 2 Cassis,
2 Penningtons and 3 Addition Elle; 6 stores were closed. Accordingly, at
May 5, 2007, there were 929 stores in operation, consisting of 357 Reitmans,
158 Smart Set, 46 RW & CO., 72 Thyme Maternity, 12 Cassis, 158 Penningtons and
126 Addition Elle, as compared with a total of 887 stores last year. An
additional 60 stores are scheduled to open this year, 38 stores will be
remodeled and 25 stores will be closed.
At the Board of Directors meeting held on June 6, 2007, quarterly cash
dividends (designated eligible dividends) of $0.16 per share on all
outstanding Class A non-voting and Common shares of the Company was declared,
payable July 26, 2007 to shareholders of record on July 12, 2007.
Financial statements are attached.
Montreal, June 6, 2007
Jeremy H. Reitman, President
Tel: (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 three months ended
May 5, April 29,
(in thousands except per share amounts) 2007 2006
Sales $ 230,695 $ 222,969
Cost of goods sold and selling, general
and administrative expenses 195,945 184,198
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34,750 38,771
Depreciation and amortization 11,698 11,207
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Operating earnings before the undernoted 23,052 27,564
Investment income (note 8) 4,320 4,180
Interest on long-term debt 254 270
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Earnings before income taxes 27,118 31,474
Income taxes:
Current 9,647 9,675
Future (1,367) 125
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8,280 9,800
Québec tax assessments - current (note 7) 454 -
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8,734 9,800
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Net earnings $ 18,384 $ 21,674
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Earnings per share:
Basic $ 0.26 $ 0.31
Diluted 0.26 0.30
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the three months ended
May 5, April 29,
(in thousands) 2007 2006
CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES
Net earnings $ 18,384 $ 21,674
Adjustments for:
Depreciation and amortization 11,698 11,207
Future income taxes (1,367) 125
Stock-based compensation 256 277
Amortization of deferred lease credits (1,084) (958)
Deferred lease credits 1,352 1,170
Pension expense 400 336
Gain on sale of marketable securities (1,996) (2,007)
Changes in non-cash working capital items
relating to operations (55,668) (24,389)
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(28,025) 7,435
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES
Purchases of marketable securities - (1,194)
Proceeds on sale of marketable securities 11,062 4,950
Additions to capital assets (18,224) (11,965)
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(7,162) (8,209)
CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES
Dividends paid (11,412) (9,847)
Repayment of long-term debt (263) (247)
Proceeds from issue of share capital 1,250 620
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(10,425) (9,474)
NET DECREASE IN CASH AND CASH EQUIVALENTS (45,612) (10,248)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE
PERIOD 188,491 135,399
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CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 142,879 $ 125,151
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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
May 5, April 29, February 3,
(in thousands) 2007 2006 2007
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 142,879 $ 125,151 $ 188,491
Marketable securities (note 8) 43,500 58,383 52,675
Accounts receivable 4,795 4,221 3,439
Merchandise inventories 92,044 86,823 61,834
Prepaid expenses 23,061 8,392 21,405
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Total Current Assets 306,279 282,970 327,844
CAPITAL ASSETS 231,502 207,912 226,734
GOODWILL 42,426 42,426 42,426
FUTURE INCOME TAXES 5,127 1,303 3,407
ACCRUED PENSION ASSET - 169 -
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$ 585,334 $ 534,780 $ 600,411
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued items $ 83,071 $ 92,783 $ 85,317
Income taxes payable 18,331 2,612 40,289
Future income taxes 685 - 248
Current portion of long-term debt 1,093 1,026 1,076
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Total Current Liabilities 103,180 96,421 126,930
DEFERRED LEASE CREDITS 21,126 19,237 20,858
LONG-TERM DEBT 14,817 15,910 15,097
FUTURE INCOME TAXES - 231 112
ACCRUED PENSION LIABILITY 1,695 - 1,295
SHAREHOLDERS' EQUITY
Share capital 22,866 17,994 21,323
Contributed surplus 3,546 2,800 3,583
Retained earnings 418,185 382,187 411,213
Accumulated other comprehensive loss (81) - -
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418,104 382,187 411,213
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Total Shareholders' Equity 444,516 402,981 436,119
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$ 585,334 $ 534,780 $ 600,411
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The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
For the three months ended
May 5, April 29,
(in thousands) 2007 2006
SHARE CAPITAL
Balance, beginning of period $ 21,323 $ 17,374
Cash consideration on exercise of stock options 1,250 620
Ascribed value credited to share capital from
exercise of stock options 293 -
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Balance, end of period $ 22,866 $ 17,994
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CONTRIBUTED SURPLUS
Balance, beginning of period $ 3,583 $ 2,523
Stock option compensation costs 256 277
Ascribed value credited to share capital from
exercise of stock options (293) -
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Balance, end of period $ 3,546 $ 2,800
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RETAINED EARNINGS
Balance, beginning of period $ 411,213 $ 370,360
Net earnings 18,384 21,674
Dividends (11,412) (9,847)
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Balance, end of period $ 418,185 $ 382,187
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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance, beginning of period $ - $ -
Adjustment to opening balance due to the new
accounting policies adopted regarding
financial instruments (net of income taxes
of $523) 2,883 -
Net unrealized loss on available-for-sale
financial assets arising during the period (1,245) -
Reclassification adjustment for net gains and
losses included in net earnings (1,719) -
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Balance, end of period(1) $ (81) $ -
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Total Shareholders' Equity $ 444,516 $ 402,981
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(1)Available-for-sale financial investments constitute the sole item in
accumulated other comprehensive income.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
For the three months ended
May 5, April 29,
(in thousands) 2007 2006
Net earnings $ 18,384 $ 21,674
Other comprehensive income:
Net unrealized loss on available-for-sale
financial assets arising during the period,
net of tax of $239 (1,245) -
Reclassification adjustment for net gains and
losses included in net earnings, net of tax
of $312 (1,719) -
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Other comprehensive income (2,964) -
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Comprehensive Income $ 15,420 $ 21,674
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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 May 5, 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 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 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 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 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:
May 5, April 29,
2007 2006
Balance at beginning of period 57,817 56,747
Shares issued pursuant to exercise of stock
options 108 148
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Balance at end of period 57,925 56,895
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The Company has authorized an unlimited number of Common shares. At May 5,
2007, there were 13,440 common shares issued (April 29, 2006 - 13,440;
February 3, 2007 - 13,440) with a value of $482 (April 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 month period ended May 5, 2007, no options were granted, while
8 stock options were cancelled.
5. LONG-TERM DEBT
Audited
May 5, April 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 $ 15,910 $ 16,936 $ 16,173
Less current portion 1,093 1,026 1,076
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$ 14,817 $ 15,910 $ 15,097
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6. EARNINGS PER SHARE
May 5, April 29,
2007 2006
Weighted average number of shares for basic
earnings per share calculations 71,284 70,237
Effect of dilutive options outstanding 757 1,497
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Weighted average number of shares for diluted
earnings per share calculations 72,041 71,734
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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. An additional amount
of $454 was expensed in the quarter ended May 5, 2007 (April 29, 2006 - nil)
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
May 5, April 29, February 3,
2007 2006 2007
Balance with banks (overdraft) $ 8,845 $ (6,790) $ 6,239
Short-term deposits, bearing interest
at 4.3% (April 29, 2006 - 4.0%;
February 3, 2007 - 4.3%) 134,034 131,941 182,252
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$ 142,879 $ 125,151 $ 188,491
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Non-cash transactions:
Capital asset additions included in
accounts payable $ 1,646 $ 2,030 $ 3,404
Cash paid during the period for:
Income taxes $ 32,113 $ 21,707
Interest 300 310
Investment income:
Available-for-sale financial assets:
Interest income $ 19 $ 19
Dividends 685 965
Realized gain on disposal 1,996 2,007
Held-for-trading financial assets:
Interest income 1,620 1,189
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$ 4,320 $ 4,180
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At May 5, 2007, marketable securities amounted to $43,500 reported at fair
value (cost of $43,609) as compared with $58,383 last year reported at cost
(with a market value of $61,743). 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 was adopted by the
Company in the first quarter of fiscal 2008 marketable securities have been
measured and reported at their fair value at May 5, 2007 while the comparative
year is reported at cost.
9. FINANCIAL INSTRUMENTS
As at May 5, 2007, the Company had entered into a series of European call
options which limit the Company's exposure on future purchases during the
second quarter of fiscal 2008 of $30,000 US at a rate of $1.11 Canadian. The
impact of measuring these derivatives at fair value was an unrealized gain of
$202, which was recorded in net earnings.
10. 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.
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For further information: Jeremy H. Reitman, President, (514) 385-2630; www.reitmans.ca |