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

Nov 28, 2012
5:20pm

MONTREAL, Nov. 28, 2012 /CNW Telbec/ - Results for the third quarter and nine months ended October 27, 2012 were adversely impacted by a previously announced disruption in the flow of inventory to stores.  In June 2012 the Company installed a new warehouse management system.  As announced on August 16, 2012, issues associated with the system resulted in a disruption in the flow of inventory to stores in the third quarter ending October 27, 2012.  This resulted in an estimated loss of sales between $7,000,000 and $15,000,000 and a corresponding decline in gross margin and adjusted EBITDA1 for both the three and nine months ended October 27, 2012.

Sales for the nine months ended October 27, 2012 decreased 3.5% to $732,854,000 as compared with $759,443,000 for the nine months ended October 29, 2011. Same store sales1 decreased 2.2%.  The decrease in sales was due to a reduced number of stores, continued lower store traffic in a challenging retail environment and a disruption in the planned flow of inventory to stores.  The Company's gross margin decreased to 64.1% from 65.7%.  Net earnings decreased 35.4% to $27,699,000 or $0.42 diluted earnings per share as compared with $42,865,000 or $0.65 diluted earnings per share.  Adjusted EBITDA1 decreased 25.7% to $77,811,000 as compared with $104,767,000.  The disruption in the flow of inventory to stores contributed to the significant drop in earnings for the year to date fiscal 2013.

Sales for the third quarter ended October 27, 2012 decreased 7.0% to $236,247,000 as compared with $254,072,000 for the third quarter ended October 29, 2011.  Same store sales1 decreased 4.0%.  The Company's gross margin decreased to 63.0% from 65.8%.  The Company recorded net earnings of $38,000 ($0.00 diluted earnings per share) as compared with $10,561,000 ($0.16 diluted earnings per share).  Adjusted EBITDA1 decreased by 55.8% to $14,091,000 as compared with $31,845,000.

During the third quarter, the Company opened 18 new stores, comprised of 5 Reitmans, 4 RW & CO., 2 Thyme Maternity, 4 Penningtons and 3 Addition Elle.  Thirteen stores were closed, comprised of 4 Reitmans, 2 Smart Set, 2 Thyme Maternity, 3 Penningtons and 2 Addition Elle.  At October 27, 2012, there were 923 stores in operation, consisting of 361 Reitmans, 150 Smart Set, 72 RW & CO., 74 Thyme Maternity, 155 Penningtons and 111 Addition Elle, as compared with a total of 975 stores as at October 29, 2011.  In addition, there were 18 Thyme Maternity boutiques ("shop-in-shop") in select Babies"R"Us locations in Canada.

In June 2012, the Company announced a partnership with Babies"R"Us to sell Thyme Maternity apparel and accessories in the U.S. As of this date, Thyme Maternity products are available in the U.S. in 135 Babies"R"Us stores with additional locations to launch in the coming months.

Sales for the month of November (the four weeks ended November 24, 2012) decreased 4.4% with same store sales1 decreasing 1.2%.

The Company continues to address the issues related to the warehouse management system in order to improve the flow of goods to the stores and optimize system performance. The Company believes that all system implementation issues have been identified and are being addressed.  Although progress has been made in addressing the issues that occurred as a result of the implementation of the new warehouse management system, the Company anticipates that an impact on sales may continue in the fourth quarter ending February 2, 2013.

At the Board of Directors meeting held on November 28, 2012, a quarterly cash dividend (constituting eligible dividends) of $0.20 per share on all outstanding Class A non-voting and Common shares of the Company was declared, payable January 31, 2013 to shareholders of record on January 17, 2013.

As reported in the November 26, 2012 press release, the Company received approval from the Toronto Stock Exchange to proceed with a normal course issuer bid, under which the Company may purchase up to 2,557,275 Class A non-voting shares, representing 5% of the issued and outstanding Class A non-voting shares as at November 15, 2012. The bid commenced on November 28, 2012 and may continue to November 27, 2013.

1Non-GAAP Financial Measures

In addition to discussing earnings in accordance with IFRS, this press release provides adjusted EBITDA as a supplementary earnings measure, which is defined as earnings (loss) before income taxes, dividend income, interest income, realized gains or losses on disposal of available-for-sale financial assets, impairment losses on available-for-sale financial assets, interest expense, depreciation, amortization and net impairment losses related to property and equipment. The Company also discloses same store sales, which are defined as sales generated by stores that have been open for at least one year.  The Company believes these measures provide meaningful information on the Company's performance and operating results. However, readers should know that these non-GAAP financial measures have no standardized meaning as prescribed by IFRS and may not be comparable to similar measures presented by other companies.  Accordingly, they should not be considered in isolation.

The following table reconciles adjusted EBITDA to earnings (loss) before income taxes for the three and nine months ended October 27, 2012 and October 29, 2011:

                 
  For the three months ended For the nine months ended
  October 27, 2012 October 29, 2011 October 27, 2012 October 29, 2011
Earnings (loss) before income taxes $ (103,000) $ 14,456,000 $ 36,585,000 $ 59,172,000
Dividend income   (874,000)   (850,000)   (2,615,000)   (2,598,000)
Interest income   (198,000)   (336,000)   (859,000)   (948,000)
Impairment losses on available-for-sale financial assets   -   73,000   106,000   73,000
Interest expense   145,000   168,000   453,000   520,000
Depreciation, amortization and net impairment losses   15,121,000   18,334,000   44,141,000   48,548,000
ADJUSTED EBITDA $ 14,091,000 $ 31,845,000 $ 77,811,000 $ 104,767,000

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. Such risks include but are not limited to: the impact of general economic conditions, general conditions in the retail industry, seasonality, weather and other risks included in public filings of the Company. Consequently, actual future results may differ materially from the anticipated results expressed in forward-looking statements. The reader should not place undue reliance on the forward-looking statements included herein. These statements speak only as of the date made and the Company is under no obligation and disavows any intention to update or revise such statements as a result of any event, circumstances or otherwise, except to the extent required under applicable securities law.

The Company's unaudited interim condensed consolidated financial statements including notes and Management's Discussion and Analysis for the third quarter ended October 27, 2012 are available online at www.sedar.com.

Montreal, November 28, 2012

Jeremy H. Reitman
Chairman and Chief Executive Officer

Telephone: (514) 385-2630
Corporate Website: www.reitmans.ca


REITMANS (CANADA) LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands of Canadian dollars except per share amounts)

   
  For the nine months ended For the three months ended
  October 27, 2012 October 29, 2011 October 27, 2012 October 29, 2011
                 
Sales $ 732,854 $ 759,443 $ 236,247 $ 254,072
Cost of goods sold   262,803   260,374   87,417   86,982
Gross profit   470,051   499,069   148,830   167,090
Selling and distribution expenses   402,769   408,947   138,276   144,125
Administrative expenses   33,819   33,527   11,447   12,356
Results from operating activities   33,463   56,595   (893)   10,609
                 
Finance income   4,332   3,546   1,464   4,088
Finance costs   1,210   969   674   241
Earnings (loss) before income taxes   36,585   59,172   (103)   14,456
                 
Income tax expense (recovery)   8,886   16,307   (141)   3,895
                 
Net earnings $ 27,699 $ 42,865 $ 38 $ 10,561
                 
Earnings per share:                
  Basic $ 0.42 $ 0.65 $ 0.00 $ 0.16
  Diluted   0.42   0.65   0.00   0.16


REITMANS (CANADA) LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands of Canadian dollars)

   
  For the nine months ended For the three months ended
  October 27, 2012 October 29, 2011 October 27, 2012 October 29, 2011
                 
Net earnings $ 27,699 $ 42,865 $ 38 $ 10,561
Other comprehensive income:                
  Net change in fair value of available-for-sale financial assets arising
during the period (net of tax of $100 for the nine months and $29 for
the three months ended October 27, 2012; $121 for the nine months
and $246 for the three months ended October 29, 2011) 		  (704)   (808)   184   (1,647)
  Reclassification of impairment loss on available-for-sale financial
assets (net of tax of $14 for the nine months ended October 27, 2012;
$9 for the nine and three months ended October 29, 2011) 		  92   64   -   64
                 
Total comprehensive income $ 27,087 $ 42,121 $ 222 $ 8,978



REITMANS (CANADA) LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands of Canadian dollars)

 
  October 27, 2012 October 29, 2011 January 28, 2012
ASSETS            
CURRENT ASSETS            
  Cash and cash equivalents $ 108,935 $ 159,309 $ 196,835
  Marketable securities   70,954   69,799   71,442
  Trade and other receivables   4,004   3,516   3,033
  Derivative financial asset   527   -   751
  Income taxes recoverable   8,283   7,396   4,735
  Inventories   106,757   107,591   78,285
  Prepaid expenses   11,789   13,964   11,902
    Total Current Assets   311,249   361,575   366,983
             
NON-CURRENT ASSETS            
  Property and equipment   203,401   184,666   184,221
  Intangible assets   18,652   15,962   17,057
  Goodwill   42,426   42,426   42,426
  Deferred income taxes   26,129   22,492   23,174
    Total Non-Current Assets   290,608   265,546   266,878
             
TOTAL ASSETS $ 601,857 $ 627,121 $ 633,861
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
CURRENT LIABILITIES            
  Trade and other payables $ 70,480 $ 65,830 $ 63,875
  Derivative financial liability   423   -   1,505
  Deferred revenue   8,153   9,279   22,278
  Current portion of long-term debt   1,545   1,451   1,474
    Total Current Liabilities   80,601   76,560   89,132
             
NON-CURRENT LIABILITIES            
  Other payables   11,541   11,022   11,110
  Deferred revenue   -   2,323   -
  Deferred lease credits   17,719   18,513   17,317
  Long-term debt   7,406   8,951   8,573
  Pension liability   15,596   13,948   14,877
    Total Non-Current Liabilities   52,262   54,757   51,877
             
SHAREHOLDERS' EQUITY            
  Share capital   39,227   31,512   39,890
  Contributed surplus   5,979   6,462   5,158
  Retained earnings   415,663   450,431   439,067
  Accumulated other comprehensive income   8,125   7,399   8,737
    Total Shareholders' Equity   468,994   495,804   492,852
             
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 601,857 $ 627,121 $ 633,861



REITMANS (CANADA) LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(in thousands of Canadian dollars)

  Share Capital Contributed
Surplus 		Retained
Earnings 		Accumulated Other
Comprehensive
Income 		Total
Shareholders'
Equity
                     
Balance as at January 29, 2012 $ 39,890 $ 5,158 $ 439,067 $ 8,737 $ 492,852
                     
Cancellation of shares pursuant to share repurchase program   (663)   -   -   -   (663)
Share-based compensation costs   -   821   -   -   821
Net earnings   -   -   27,699   -   27,699
Dividends   -   -   (39,151)   -   (39,151)
Premium on repurchases of Class A non-voting shares   -   -   (11,952)   -   (11,952)
Net change in fair value of available-for-sale financial assets (net of tax of $100)   -   -   -   (704)   (704)
Reclassification of impairment loss on available-for-sale financial assets to net earnings (net of tax of $14)   -   -   -   92   92
                     
Balance as at October 27, 2012 $ 39,227 $ 5,979 $ 415,663 $ 8,125 $ 468,994
                     
Balance as at July 29, 2012 $ 39,890 $ 5,694 $ 440,494 $ 7,941 $ 494,019
                     
Cancellation of shares pursuant to share repurchase program   (663)   -   -   -   (663)
Share-based compensation costs   -   285   -   -   285
Net earnings   -   -   38   -   38
Dividends   -   -   (12,917)   -   (12,917)
Premium on repurchases of Class A non-voting shares   -   -   (11,952)   -   (11,952)
Net change in fair value of available-for-sale financial assets (net of tax of $29)   -   -   -   184   184
                     
Balance as at October 27, 2012 $ 39,227 $ 5,979 $ 415,663 $ 8,125 $ 468,994
                     
Balance as at January 30, 2011 $ 29,614 $ 6,266 $ 468,777 $ 8,143 $ 512,800
                     
Cash consideration on exercise of share options   2,133   -   -   -   2,133
Ascribed value credited to share capital from exercise of share options   545   (545)   -   -   -
Cancellation of shares pursuant to share repurchase program   (780)   -   -   -   (780)
Share-based compensation costs   -   741   -   -   741
Net earnings   -   -   42,865   -   42,865
Dividends   -   -   (39,581)   -   (39,581)
Premium on repurchases of Class A non-voting shares   -   -   (21,630)   -   (21,630)
Net change in fair value of available-for-sale financial assets (net of tax of $121)   -   -   -   (808)   (808)
Reclassification of impairment loss on available-for-sale financial assets to net earnings (net of tax of $9)   -   -   -   64   64
                     
Balance as at October 29, 2011 $ 31,512 $ 6,462 $ 450,431 $ 7,399 $ 495,804
                     
Balance as at July 31, 2011 $ 31,518 $ 6,772 $ 474,507 $ 8,982 $ 521,779
                     
Cash consideration on exercise of share options   617   -   -   -   617
Ascribed value credited to share capital from exercise of share options   157   (157)   -   -   -
Cancellation of shares pursuant to share repurchase program   (780)   -   -   -   (780)
Share-based compensation costs   -   (153)   -   -   (153)
Net earnings   -   -   10,561   -   10,561
Dividends   -   -   (13,007)   -   (13,007)
Premium on repurchases of Class A non-voting shares   -   -   (21,630)   -   (21,630)
Net change in fair value of available-for-sale financial assets (net of tax of $246)   -   -   -   (1,647)   (1,647)
Reclassification of impairment loss on available-for-sale financial assets to net earnings (net of tax of $9)   -   -   -   64   64
                     
Balance as at October 29, 2011 $ 31,512 $ 6,462 $ 450,431 $ 7,399 $ 495,804



REITMANS (CANADA) LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of Canadian dollars)

   
  For the nine months ended For the three months ended
  October 27, 2012 October 29, 2011 October 27, 2012 October 29, 2011
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES                
  Net earnings $ 27,699 $ 42,865 $ 38 $ 10,561
  Adjustments for:                
    Depreciation, amortization and impairment losses   44,141   48,548   15,121   18,334
    Share-based compensation costs   821   741   285   (153)
    Amortization of deferred lease credits   (3,381)   (3,468)   (1,123)   (1,148)
    Deferred lease credits   3,783   2,970   2,243   2,146
    Pension contribution   (271)   (816)   (32)   (459)
    Pension expense   990   1,138   330   380
    Impairment loss on available-for-sale financial assets   106   73   -   73
    Net change in fair value of derivatives   (858)   -   (392)   -
    Foreign exchange loss (gain)   203   2,793   (651)   342
    Interest and dividend income, net   (3,021)   (3,024)   (927)   (1,016)
    Interest paid   (453)   (522)   (145)   (170)
    Interest received   977   969   250   336
    Dividends received   2,610   2,592   872   866
    Income tax expense (recovery)   8,886   16,307   (141)   3,895
      82,232   111,166   15,728   33,987
  Changes in:                
    Trade and other receivables   (1,085)   (665)   (1,127)   (809)
    Inventories   (28,472)   (34,390)   (26,386)   (26,114)
    Prepaid expenses   113   (1,473)   3,483   300
    Trade and other payables   7,862   3,531   10,843   7,265
    Deferred revenue   (14,125)   (10,616)   (1,806)   (5,066)
  Cash from operating activities   46,525   67,553   735   9,563
  Income taxes received   4,497   -   22   -
  Income taxes paid   (19,800)   (31,060)   (2,354)   (3,546)
  Net cash flows from (used in) operating activities   31,222   36,493   (1,597)   6,017
                 
CASH FLOWS USED IN INVESTING ACTIVITIES                
  Purchases of marketable securities   (315)   (315)   (105)   (105)
  Additions to property and equipment and intangible assets   (65,742)   (43,223)   (24,243)   (18,604)
  Cash flows used in investing activities   (66,057)   (43,538)   (24,348)   (18,709)
                 
CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES                
  Dividends paid   (39,151)   (39,581)   (12,917)   (13,007)
  Purchase of Class A non-voting shares for cancellation   (12,615)   (22,410)   (12,615)   (22,410)
  Repayment of long-term debt   (1,096)   (1,029)   (371)   (349)
  Proceeds from exercise of share options   -   2,133   -   617
  Cash flows used in financing activities   (52,862)   (60,887)   (25,903)   (35,149)
                 
FOREIGN EXCHANGE (LOSS) GAIN ON CASH HELD IN FOREIGN CURRENCY   (203)   (2,793)   651   (342)
NET DECREASE IN CASH AND CASH EQUIVALENTS   (87,900)   (70,725)   (51,197)   (48,183)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD   196,835   230,034   160,132   207,492
                 
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 108,935 $ 159,309 $ 108,935 $ 159,309

 

SOURCE: Reitmans (Canada) Limited

For further information:

Jeremy H. Reitman
Chairman and Chief Executive Officer

Telephone:  (514) 385-2630
Corporate Website: www.reitmans.ca