Reitmans (Canada) Limited announces its results for the three months ended May 3, 2008Jun 4, 2008
MONTREAL, June 4 /CNW Telbec/ - Sales for the first quarter ended May 3,
2008 decreased 1.0% to $228,318,000 as compared with $230,695,000 for the
first quarter ended May 5, 2007. Comparable store sales decreased 4.8% in a
challenging retail environment characterized by unseasonable weather
conditions, reduced customer traffic and reduced consumer confidence.
Operating earnings before depreciation and amortization (EBITDA(1)) for
the period increased 13.2% to $39,337,000 as compared with $34,750,000 last
year. A stronger Canadian dollar and tight inventory management positively
impacted operating margins. Higher depreciation expenses due to an increased
number of stores in operation and lower investment income negatively affected
earnings before tax. Net earnings increased marginally to $18,436,000 compared
to $18,384,000 while diluted earnings per share was unchanged at $0.26
per share.
The Company adopted the Canadian Institute of Chartered Accountants new
standard relating to the accounting for inventory costs (section 3031 -
Inventories) in the first quarter of fiscal 2009 retrospectively, without
restatement of prior periods. The adoption of this new standard resulted in a
decrease in operating earnings of $2,721,000 and a reduction of net earnings
for the quarter ended May 3, 2008 of $1,837,000 or $0.03 per share, on a
diluted basis.
Sales for the month of May (4 weeks ended May 31, 2008), as a result of
the continuing difficult retail environment, decreased 8.8% with comparable
store sales decreasing 12.2%.
During the first quarter, the Company opened 14 new stores comprised of
7 Reitmans, 2 Smart Set, 2 RW & CO., 1 Thyme Maternity, 1 Penningtons and
1 Addition Elle; 8 stores were closed. Accordingly, at May 3, 2008, there were
964 stores in operation, consisting of 375 Reitmans, 164 Smart Set,
55 RW & CO., 73 Thyme Maternity, 14 Cassis, 162 Penningtons and
121 Addition Elle, as compared with a total of 929 stores last year. An
additional 32 stores are scheduled to open this year, 18 stores will be
remodeled and 14 stores will be closed.
At the Board of Directors meeting held on June 4, 2008, a quarterly cash
dividend (constituting eligible dividends) of $0.18 per share on all
outstanding Class A non-voting and Common shares of the Company was declared,
payable July 31, 2008 to shareholders of record on July 17, 2008.
Financial statements are attached.
Montreal, June 4, 2008
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)
(in thousands except per share amounts)
For the three months ended
May 3, 2008 May 5, 2007
Sales $ 228,318 $ 230,695
Cost of goods sold and selling, general and
administrative expenses (note 2) 188,981 195,945
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39,337 34,750
Depreciation and amortization 13,965 11,698
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Operating earnings before the undernoted 25,372 23,052
Investment income (note 8) 2,191 4,320
Interest on long-term debt 237 254
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Earnings before income taxes 27,326 27,118
Income taxes:
Current 8,997 9,647
Future (107) (1,367)
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8,890 8,280
Québec tax reassessments - current - 454
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8,890 8,734
Net earnings $ 18,436 $ 18,384
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Earnings per share:
Basic $ 0.26 $ 0.26
Diluted 0.26 0.26
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
For the three months ended
May 3, 2008 May 5, 2007
CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES
Net earnings $ 18,436 $ 18,384
Adjustments for:
Depreciation and amortization 13,965 11,698
Future income taxes (107) (1,367)
Stock-based compensation 174 256
Amortization of deferred lease credits (1,279) (1,084)
Deferred lease credits 1,894 1,352
Pension contribution (90) -
Pension expense 410 400
Gain on sale of marketable securities - (1,996)
Unrealized foreign exchange (gain) loss (255) 56
Changes in non-cash working capital items
relating to operations (44,913) (55,668)
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(11,765) (27,969)
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES
Proceeds on sale of marketable securities - 11,062
Additions to capital assets (13,074) (18,224)
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(13,074) (7,162)
CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES
Dividends paid (12,765) (11,412)
Repayment of long-term debt (280) (263)
Proceeds from issue of share capital 124 1,250
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(12,921) (10,425)
EFFECT OF FOREIGN EXCHANGE ON CASH AND CASH
EQUIVALENTS 255 (56)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (37,505) (45,612)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE
PERIOD 214,301 188,491
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CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 176,796 $ 142,879
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Supplemental disclosure of cash flow information (note 8)
Cash and cash equivalents consist of cash balances with banks and
investments in short-term deposits.
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands)
Audited
May 3, May 5, February 2,
2008 2007 2008
ASSETS
CURRENT ASSETS
Cash and cash equivalents (note 8) $ 176,796 $ 142,879 $ 214,301
Marketable securities (note 8) 30,559 43,500 30,053
Accounts receivable 4,187 4,795 3,546
Income taxes recoverable 2,041 - -
Merchandise inventories (note 2) 90,514 92,044 52,441
Prepaid expenses 24,516 23,061 22,847
Future income taxes 185 - 1,772
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Total Current Assets 328,798 306,279 324,960
CAPITAL ASSETS 247,560 231,502 247,963
GOODWILL 42,426 42,426 42,426
FUTURE INCOME TAXES 6,213 5,127 5,611
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$ 624,997 $ 585,334 $ 620,960
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued items $ 77,009 $ 83,071 $ 69,189
Income taxes payable - 18,331 16,546
Future income taxes - 685 761
Current portion of long-term debt
(note 6) 1,164 1,093 1,146
---------- ---------- ----------
Total Current Liabilities 78,173 103,180 87,642
DEFERRED LEASE CREDITS 22,081 21,126 21,466
LONG-TERM DEBT (note 6) 13,653 14,817 13,951
FUTURE INCOME TAXES - - 261
ACCRUED PENSION LIABILITY 2,841 1,695 2,521
SHAREHOLDERS' EQUITY
Share capital 23,932 22,866 23,777
Contributed surplus 4,144 3,546 4,001
Retained earnings (note 2) 480,770 418,185 468,374
Accumulated other comprehensive loss (597) (81) (1,033)
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480,173 418,104 467,341
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Total Shareholders' Equity 508,249 444,516 495,119
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$ 624,997 $ 585,334 $ 620,960
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The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
(in thousands)
For the three months ended
May 3, 2008 May 5, 2007
SHARE CAPITAL
Balance, beginning of period $ 23,777 $ 21,323
Cash consideration on exercise of stock options 124 1,250
Ascribed value credited to share capital from
exercise of stock options 31 293
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Balance, end of period 23,932 22,866
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CONTRIBUTED SURPLUS
Balance, beginning of period 4,001 3,583
Stock option compensation costs 174 256
Ascribed value credited to share capital from
exercise of stock options (31) (293)
---------- ----------
Balance, end of period 4,144 3,546
---------- ----------
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RETAINED EARNINGS
Balance, beginning of period 468,374 411,213
Adjustment to opening retained earnings due to
adoption of new accounting standard (net of
tax of $3,121) (note 2) 6,725 -
Net earnings 18,436 18,384
Dividends (12,765) (11,412)
---------- ----------
Balance, end of period 480,770 418,185
---------- ----------
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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance, beginning of period (1,033) -
Adjustment to opening balance due to the new
accounting policies adopted regarding financial
instruments (net of tax of $523) - 2,883
Net unrealized gain (loss) on available-for-sale
financial assets arising during the period (net
of tax of $70; 2007 - $239) 436 (1,245)
Reclassification adjustment for net gains
included in net earnings (net of tax of $312) - (1,719)
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Balance, end of period(1) (597) (81)
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Total Shareholders' Equity $ 508,249 $ 444,516
---------- ----------
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(1) Available-for-sale financial investments constitute the sole item in
accumulated other comprehensive income (loss).
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in thousands)
For the three months ended
May 3, 2008 May 5, 2007
Net earnings $ 18,436 $ 18,384
Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale
financial assets arising during the period (net
of tax of $70; 2007 - $239) 436 (1,245)
Reclassification adjustment for net gains
included in net earnings (net of tax of $312) - (1,719)
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436 (2,964)
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Comprehensive Income $ 18,872 $ 15,420
---------- ----------
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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 52 week period ended February 2, 2008. The Company applied the same
accounting policies in the preparation of the financial statements as
disclosed in note 4 of its annual consolidated financial statements in the
Company's fiscal 2008 Annual Report except as described below in note 2 -
Adoption of new accounting standard.
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 3, 2008, 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. ADOPTION OF NEW ACCOUNTING STANDARD
In June 2007, the CICA issued Section 3031, Inventories, which replaces
Section 3030 and harmonizes the Canadian standards related to inventories with
International Financial Reporting Standards ("IFRS"). This section provides
changes to the measurement and more extensive guidance on the determination of
cost, including allocation of overhead; narrows the permitted cost formulas;
requires impairment testing and expands the disclosure requirements to
increase transparency. This section applies to interim and annual financial
statements for fiscal years beginning on or after January 1, 2008. The Company
adopted this standard in the first quarter of fiscal 2009 retrospectively,
without restatement of prior periods.
Merchandise inventories are valued at the lower of cost, determined
principally on an average basis using the retail inventory method and net
realizable value. Costs include the cost of purchase, transportation costs
that are directly incurred to bring inventories to their present location and
condition and certain distribution centre costs related to inventories. The
Company estimates net realizable value as the amount that inventories are
expected to be sold taking into consideration fluctuations of retail prices
due to seasonality. Inventories are written down to net realizable value when
the cost of inventories is not estimated to be recoverable due to declining
selling prices. The transitional adjustments resulting from the implementation
of Section 3031 are recognized in the first quarter of fiscal 2009 opening
balance of retained earnings and prior periods have not been restated. Upon
implementation of these requirements, an increase in opening inventories of
$9,846, an increase in taxes payable of $3,121 and an increase of $6,725 to
opening retained earnings were recorded on the consolidated balance sheet
resulting from the application of this new standard. The cost of inventory
recognized as an expense and included in cost of goods sold and selling,
general and administrative expenses for the quarter ended May 3, 2008 was
$66,145. During the quarter, the Company recorded $1,267 of write-downs of
inventory as a result of net realizable value being lower than cost and no
inventory write-downs recognized in previous years were reversed. The
retrospective impact on net earnings for the quarter ended May 3, 2008 was a
reduction of $1,837 or $0.03 per share.
3. RECENT ACCOUNTING PRONOUNCEMENTS
CICA Section 3064 - Goodwill and Intangible Assets
In February 2008, the CICA issued Handbook Section 3064, Goodwill and
Intangible Assets, which replaces Section 3062, Goodwill and Other Intangible
Assets, and amends Section 1000, Financial Statement Concepts. The new section
establishes standards for the recognition, measurement, presentation and
disclosure of goodwill and other intangible assets subsequent to its initial
recognition. Standards concerning goodwill are unchanged from the standards
included in the previous Section 3062. This new standard is applicable to
fiscal years beginning on or after October 1, 2008. The Company has evaluated
the new section and determined that there is no impact of its adoption on its
consolidated financial statements.
International Financial Reporting Standards
The Canadian Accounting Standards Board has confirmed that the use of IFRS
will be required for publicly accountable profit-oriented enterprises. IFRS
will replace Canada's current GAAP for those enterprises. These new standards
are applicable to fiscal years beginning on or after January 1, 2011.
Companies will be required to provide comparative IFRS information for the
previous fiscal year. The Company will implement this standard in its first
quarter of fiscal year ending January 28, 2012 and is currently evaluating the
impact of their adoption on its consolidated financial statements.
4. 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:
Audited
May 3, May 5, February 2,
2008 2007 2008
Balance at beginning of period 57,473 57,817 57,817
Shares issued pursuant to exercise of
stock options 18 108 217
Shares purchased under issuer bid - - (561)
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Balance at end of period 57,491 57,925 57,473
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The Company has authorized an unlimited number of Common shares. At May 3,
2008, there were 13,440 common shares issued (May 5, 2007 - 13,440; February
2, 2008 - 13,440) with a value of $482 (May 5, 2007 - $482; February 2, 2008 -
$482).
5. STOCK-BASED COMPENSATION
The Company has a share option plan as described in note 10 c) to the
consolidated financial statements contained in the 2008 Annual Report. During
the quarter ended May 3, 2008, forty thousand options were granted and no
options were cancelled.
Compensation cost related to stock option awards granted during the
quarter under the fair value based approach was calculated using the following
assumptions:
Expected option life 4.2 years
Risk-free interest rate 3.55%
Expected stock price volatility 32.29%
Average dividend yield 4.27%
Weighted average fair value of options granted $3.46
6. LONG-TERM DEBT
Audited
May 3, May 5, February 2,
2008 2007 2008
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 $ 14,817 $ 15,910 $ 15,097
Less current portion 1,164 1,093 1,146
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$ 13,653 $ 14,817 $ 13,951
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7. EARNINGS PER SHARE
The number of shares used in the earnings per share calculation is as
follows:
May 3, 2008 May 5, 2007
Weighted average number of shares for basic
earnings per share calculations 70,931 71,284
Effect of dilutive options outstanding 388 757
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Weighted average number of shares for diluted
earnings per share calculations 71,319 72,041
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As at May 3, 2008, 213 stock options were excluded from the calculation of
diluted earnings per share as these were deemed to be anti-dilutive, because
the exercise prices were greater than the average market price of the shares
during the quarter.
8. SUPPLEMENTARY INFORMATION
Audited
May 3, May 5, February 2,
2008 2007 2008
Balance with banks $ 6,147 $ 8,845 $ 2,474
Short-term deposits, bearing interest
at 3.4% (May 5, 2007 - 4.3%;
February 2, 2008 - 4.0%) 170,649 134,034 211,827
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$ 176,796 $ 142,879 $ 214,301
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Marketable securities:
Fair value $ 30,559 $ 43,500 $ 30,053
Cost 31,249 43,609 31,249
Non-cash transactions:
Capital asset additions included in
accounts payable $ 1,817 $ 1,646 $ 1,329
Cash paid during the period for:
Income taxes $ 30,367 $ 32,113 $ 73,305
Interest 239 300 1,045
Investment income:
Available-for-sale financial assets:
Interest income $ 11 $ 19 $ 62
Dividends 419 685 2,398
Realized gain on disposal - 1,996 474
Held-for-trading financial assets:
Interest income 1,761 1,620 8,194
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$ 2,191 $ 4,320 $ 11,128
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9. FINANCIAL INSTRUMENTS
The Company's significant financial instruments consist of cash and cash
equivalents along with marketable securities. Financial instruments that are
exposed to concentrations of credit risk consist primarily of cash
equivalents. The Company uses its cash resources to fund ongoing store
construction and renovations along with working capital needs. The Company
reduces its credit risks by investing available cash in bank bearer deposit
notes and bank term deposits with major Canadian chartered banks. The Company
closely monitors its risk with respect to short-term cash investments.
Marketable securities consist primarily of preferred shares of Canadian public
companies. The Company has gradually been reducing the size of its investment
portfolio and managing its cash on a short-term basis.
The Company early adopted the requirements of the CICA Handbook Section
3862 at February 2, 2008, Financial Instruments - Disclosures, which apply to
fiscal years beginning on or after October 1, 2007. This new Handbook section
requires disclosures to enable users to evaluate the significance of financial
instruments for the entity's financial position and performance, and the
nature and extent of an entity's exposure to risks arising from financial
instruments, including how the entity manages those risks. Disclosures
relating to exposure to risks, in particular credit risk, liquidity risk,
foreign currency risk, interest rate risk and equity price risk were provided
in the Company's Annual Report for the year ended February 2, 2008 and there
have been no significant changes in the Company's risk exposures in the first
quarter of fiscal 2009.
%SEDAR: 00002316EF
For further information: Jeremy H. Reitman, President, (514) 385-2630; Corporate Website: www.reitmans.ca |