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

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: [phone]
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

Jeremy H. Reitman
Chairman and Chief Executive Officer

Telephone:  [phone]
Corporate Website: www.reitmans.ca