Reitmans (Canada) Limited announces its results for the three and nine months ended November 1, 2014

MONTRÉAL, Dec. 4, 2014 /CNW Telbec/ -

Three months ended November 1, 2014

Sales for the three months ended November 1, 2014 decreased 4.5%, impacted by a net reduction of 52 stores, to $238.3 million as compared with $249.4 million for the three months ended November 2, 2013.  Same store sales¹ increased 0.2% with conventional stores decreasing 1.5% and e-commerce sales increasing 76.4%.  The third quarter of fiscal 2015 was challenging in most banners, as store traffic declines contributed to weak sales.  Sales through the various banners' e-commerce channels continued to show strong growth, although representing a small proportion of total Company sales.

The Company's gross margin for the three months ended November 1, 2014 was 61.2% comparable with 61.0% for the three months ended November 2, 2013. The decline in the Canadian dollar against the U.S. dollar negatively impacted margins in the three months ended November 1, 2014, the impact of which has been offset by improved inventory and markdown management.

Net earnings for the three months ended November 1, 2014 were $12.9 million ($0.20 diluted earnings per share) as compared with net earnings of $5.8 million ($0.09 diluted earnings per share) for the three months ended November 2, 2013.  Adjusted EBITDA¹ increased by 48.2% to $31.1 million for the three months ended November 1, 2014 as compared with $21.0 million for the three months ended November 2, 2013.  The increase in earnings before income taxes and improvement in adjusted EBITDA were primarily attributable to the closure of non performing stores and previously reported initiatives aimed at reducing costs across the organization.  A reduction in the number of employees in both head office and field operations in conjunction with a reduction in the number of store locations have resulted in wages and benefit savings.  Additional savings have been achieved through improved cost management in non-wage areas.

Nine months ended November 1, 2014

Sales for the nine months ended November 1, 2014 were $703.1 million as compared with $719.7 million for the nine months ended November 2, 2013, a decrease of 2.3%, impacted by a net reduction of 52 stores. Same store sales¹ increased 0.9% with conventional stores decreasing 0.1% and e-commerce sales increasing 52.3%.  Sales for the year to date fiscal 2015 were impacted by particularly poor weather in the first quarter contributing to weak demand for spring and summer apparel followed by improvement in sales for the second quarter as consumers responded well to the summer fashion offerings.  The third quarter was challenging in most banners, as store traffic declines contributed to weak sales.  Sales through the various banners' e-commerce channels continued to show strong growth, although representing a small proportion of total Company sales.

The Company's gross margin for the nine months ended November 1, 2014 decreased to 60.1% from 62.6% for the nine months ended November 2, 2013, primarily due to the impact of a significant decline in the Canadian dollar vis-à-vis the U.S. dollar resulting in increased cost of goods sold.

Net earnings for the nine months ended November 1, 2014 were $9.0 million ($0.14 diluted earnings per share) as compared with net earnings of $13.4 million ($0.21 diluted earnings per share) for the nine months ended November 2, 2013.  For the nine months ended November 1, 2014, adjusted EBITDA¹ was $50.7 million as compared with $62.3 million for the nine months ended November 2, 2013, a decrease of $11.6 million.  The decrease in earnings before income taxes and reduction in adjusted EBITDA were primarily attributable to a significant decline in the Canadian dollar vis-à-vis the U.S. dollar resulting in increased costs of goods sold and a significant loss on the remeasurement to fair value of foreign currency option contracts somewhat reduced by a foreign exchange gain attributable to foreign currency option contracts expiring at favorable exchange rates.  Previously reported initiatives aimed at reducing costs across the organization have yielded savings.  A reduction in the number of employees in both head office and field operations, in conjunction with a reduction in the number of store locations has resulted in wages and benefit savings.  Additional savings have been achieved through improved cost management in non-wage areas.

On November 25, 2014 the Company announced its plan to close all 107 Smart Set stores over the next twelve to eighteen months. Despite some improvement in the performance of the Smart Set banner, management has determined that its optimum strategy to improve its operating results is to refocus its sales and merchandising efforts by converting approximately 76 Smart Set stores to other Company banners and closing 31 stores.  The Smart Set banner sales for the nine months ended November 1, 2014 were $68.5 million as compared to $72.5 million for the nine months ended November 2, 2013, while losses from operating activities for the nine months ended November 1, 2014 were $10.5 million as compared to $21.5 million for the nine months ended November 2, 2013 (including an allocation of general overhead costs).  The decision to close the Smart Set banner resulted in non-cash asset write-offs of $2.7 million for the three and nine months ended November 1, 2014.

Dividends

At the Board of Directors meeting held on December 4, 2014, a quarterly cash dividend (constituting eligible dividends) of $0.05 per share on all outstanding Class A non-voting and Common shares of the Company was declared, payable January 29, 2015 to shareholders of record on January 19, 2015.

Sales for the four weeks ended November 29, 2014

Sales for the month of November (the four weeks ended November 29, 2014) increased 0.2% with same store sales¹ increasing 4.1%, conventional stores increasing 2.4% and e-commerce sales increasing 60.6%.

About Reitmans (Canada) Limited

The Company is a leading ladieswear specialty apparel retailer with retail outlets throughout Canada.  The Company operates 843 stores consisting of 343 Reitmans, 141 Penningtons, 105 Addition Elle, 79 RW & CO., 68 Thyme Maternity and 107 Smart Set. The Company also operates 21 Thyme Maternity shop-in-shop boutiques in select Babies"R"Us locations in Canada.

¹Non-GAAP Financial Measures

In addition to discussing earnings in accordance with IFRS, this press announcement provides adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA") as a non-GAAP financial measure.  Adjusted EBITDA is defined as net earnings before income tax expense, other income, dividend income, interest income, realized gains or losses on disposal of available-for-sale financial assets, interest expense, depreciation, amortization and net impairment losses.  The following table reconciles the most comparable GAAP measure, net earnings, to adjusted EBITDA.  Management believes that adjusted EBITDA is an important indicator of the Company's ability to generate liquidity through operating cash flow to fund working capital needs and fund capital expenditures and uses the metric for this purpose.  The exclusion of dividend and interest income eliminates the impact of revenue derived from non-operational activities.  The exclusion of depreciation, amortization and impairment charges eliminates the non-cash impact.  The intent of adjusted EBITDA is to provide additional useful information to investors and analysts and the measure does not have any standardized meaning under IFRS.  Adjusted EBITDA should therefore not be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS.  Other companies may calculate adjusted EBITDA differently. From time to time, the Company may exclude additional items if it believes doing so would result in a more effective analysis of underlying operating performance. The exclusion of certain items does not imply that they are non-recurring.

The Company uses a key performance indicator ("KPI"), same store sales, to assess store performance (including each banner's e-commerce store) and sales growth.  Same store sales is defined as sales generated by stores that have been continuously open during both of the periods being compared and includes e-commerce sales.  The same store sales metric compares the same calendar days for each period.  Although this KPI is expressed as a ratio, it is a non-GAAP financial measure that does not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures used by other companies.  Management uses same store sales in evaluating the performance of stores and considers it useful in helping to determine what portion of new sales has come from sales growth and what portion can be attributed to the opening of new stores.  Same store sales is a measure widely used amongst retailers and is considered useful information for both investors and analysts.  Same store sales should therefore not be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS.

The following table reconciles net earnings to adjusted EBITDA for the three and nine months ended November 1, 2014 and November 2, 2013:

(unaudited) (in thousands of Canadian dollars)	For the three months ended		For the nine months ended
	November 1, 2014	November 2, 2013	November 1, 2014	November 2, 2013
Net earnings	$    12,866	$      5,763	$      9,008	$    13,359
Depreciation, amortization and net impairment losses	15,942	13,913	41,773	46,412
Dividend income	(592)	(872)	(1,889)	(2,608)
Interest income	(273)	(133)	(617)	(437)
Realized gain on disposal of available-for-sale financial assets	(836)	-	(775)	-
Impairment loss on available-for-sale financial assets	564	190	574	692
Interest expense	95	121	306	382
Income tax expense	3,362	2,029	2,283	4,517
ADJUSTED EBITDA	$    31,128	$    21,011	$    50,663	$    62,317

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, including those described in the Operating Risk Management and Financial Risk Management sections of the Company's Management Discussion and Analysis.  Consequently, actual future results may differ materially from the anticipated results expressed in forward-looking statements, which reflect the Company's expectations only as of the date of this press announcement.  Forward-looking statements are based upon the Company's current estimates, beliefs and assumptions, which are based on management's perception of historical trends, current conditions and currently expected future developments, as well as other factors it believes are appropriate in the circumstances.  Specific forward-looking statements in this press announcement include, but are not limited to, statements with respect to the Company's anticipated future results and events, future liquidity, planned capital expenditures, amount of pension plan contributions, status and impact of systems implementation, the ability of the Company to successfully implement its strategic initiatives and cost reduction and productivity improvement initiatives as well as the impact of such initiatives.  The reader should not place undue reliance on any 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 complete financial statements including notes and Management's Discussion and Analysis for the nine months ended November 1, 2014 are available online at www.sedar.com.

Montreal, December 4, 2014
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 three months ended		For the nine months ended
		November 1, 2014	November 2, 2013	November 1, 2014		November 2, 2013
Sales		$ 238,295	$ 249,414	$ 703,099		$ 719,720
Cost of goods sold		92,462	97,190	280,740		269,119
Gross profit		145,833	152,224	422,359		450,601
Selling and distribution expenses		127,018	136,075	379,699		404,141
Administrative expenses		9,882	10,827	35,187		34,931
Results from operating activities		8,933	5,322	7,473		11,529
Finance income		7,954	2,781	9,723		7,421
Finance costs		659	311	5,905		1,074
Earnings before income taxes		16,228	7,792	11,291		17,876
Income tax expense		3,362	2,029	2,283		4,517
Net earnings		$  12,866	$    5,763	$    9,008		$  13,359
Earnings per share:
	Basic	$     0.20	$     0.09	$     0.14		$     0.21
	Diluted	0.20	0.09	0.14		0.21

REITMANS (CANADA) LIMITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (in thousands of Canadian dollars)
			For the three months ended		For the nine months ended
			November 1, 2014	November 2, 2013	November 1, 2014	November 2, 2013
Net earnings			$    12,866	$      5,763	$      9,008	$    13,359
Other comprehensive (loss) income
	Items that are or may be reclassified subsequently to net earnings:
		Reclassification of realized gains on available-for-sale financial assets to net earnings (net of tax of $109 for the 3 months and $101 for the 9 months ended November 1, 2014)	(727)	-	(674)	-
		Net change in fair value of available-for-sale financial assets (net of tax of $229 for the three months and $124 for the nine months ended November 1, 2014; $237 for the three months and $422 for the nine months ended November 2, 2013)	(1,480)	(1,547)	825	(2,770)
		Reclassification of impairment loss on available-for-sale financial assets to net earnings (net of tax of $75 for the three months and $76 for the nine months ended November 1, 2014; $25 for the three months and $93 for the nine months ended November 2, 2013)	489	165	498	599
		Foreign currency translation differences	(112)	223	(263)	223
Total other comprehensive (loss) income			(1,830)	(1,159)	386	(1,948)
Total comprehensive income			$    11,036	$      4,604	$      9,394	$    11,411

REITMANS (CANADA) LIMITED CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands of Canadian dollars)
			November 1, 2014	November 2, 2013	February 1, 2014
ASSETS
CURRENT ASSETS
	Cash and cash equivalents		$ 121,014	$ 52,381	$ 122,355
	Marketable securities		48,373	68,753	55,062
	Trade and other receivables		6,536	5,163	6,422
	Derivative financial asset		4,154	2,794	11,775
	Income taxes recoverable		-	2,951	5,656
	Inventories		124,324	127,749	109,601
	Prepaid expenses		12,820	27,433	12,512
		Total Current Assets	317,221	287,224	323,383
NON-CURRENT ASSETS
	Property and equipment		157,211	189,851	178,341
	Intangible assets		18,532	17,089	17,211
	Goodwill		42,426	42,426	42,426
	Deferred income taxes		32,254	29,680	28,578
		Total Non-Current Assets	250,423	279,046	266,556
TOTAL ASSETS			$ 567,644	$ 566,270	$ 589,939
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
	Trade and other payables		$ 79,763	$ 76,040	$ 90,734
	Derivative financial liability		469	1,472	3,065
	Deferred revenue		12,422	6,424	19,998
	Income taxes payable		1,663	-	-
	Current portion of long-term debt		1,753	1,646	1,672
		Total Current Liabilities	96,070	85,582	115,469
NON-CURRENT LIABILITIES
	Other payables		10,451	11,910	11,842
	Deferred lease credits		14,294	16,613	15,607
	Long-term debt		4,007	5,760	5,331
	Pension liability		19,026	18,247	18,259
		Total Non-Current Liabilities	47,778	52,530	51,039
SHAREHOLDERS' EQUITY
	Share capital		39,227	39,227	39,227
	Contributed surplus		7,847	7,126	7,188
	Retained earnings		368,980	375,088	369,660
	Accumulated other comprehensive income		7,742	6,717	7,356
		Total Shareholders' Equity	423,796	428,158	423,431
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY			$ 567,644	$ 566,270	$ 589,939

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 August 3, 2014		$     39,227	$     7,503	$   359,343	$     9,572	$   415,645
Total comprehensive income for the period
	Net earnings			12,866		12,866
	Total other comprehensive loss				(1,830)	(1,830)
Total comprehensive income for the period		-	-	12,866	(1,830)	11,036
Contributions by and distributions to owners of the Company
	Share-based compensation costs		344			344
	Dividends			(3,229)		(3,229)
Total contributions by and distributions to owners of the Company		-	344	(3,229)	-	(2,885)
Balance as at November 1, 2014		$     39,227	$     7,847	$   368,980	$     7,742	$   423,796
Balance as at February 2, 2014		$     39,227	$     7,188	$   369,660	$     7,356	$   423,431
Total comprehensive income for the period
	Net earnings			9,008		9,008
	Total other comprehensive income				386	386
Total comprehensive income for the period		-	-	9,008	386	9,394
Contributions by and distributions to owners of the Company
	Share-based compensation costs		659			659
	Dividends			(9,688)		(9,688)
Total contributions by and distributions to owners of the Company		-	659	(9,688)	-	(9,029)
Balance as at November 1, 2014		$     39,227	$     7,847	$   368,980	$     7,742	$   423,796
Balance as at August 4, 2013		$     39,227	$     6,997	$   382,242	$     7,876	$   436,342
Total comprehensive income for the period
	Net earnings			5,763		5,763
	Total other comprehensive loss				(1,159)	(1,159)
Total comprehensive income for the period		-	-	5,763	(1,159)	4,604
Contributions by and distributions to owners of the Company
	Share-based compensation costs		129			129
	Dividends			(12,917)		(12,917)
Total contributions by and distributions to owners of the Company		-	129	(12,917)	-	(12,788)
Balance as at November 2, 2013		$     39,227	$     7,126	$   375,088	$     6,717	$   428,158
Balance as at February 3, 2013		$     39,227	$     6,521	$   400,480	$     8,665	$   454,893
Total comprehensive income for the period
	Net earnings			13,359		13,359
	Total other comprehensive loss				(1,948)	(1,948)
Total comprehensive income for the period		-	-	13,359	(1,948)	11,411
Contributions by and distributions to owners of the Company
	Share-based compensation costs		605			605
	Dividends			(38,751)		(38,751)
Total contributions by and distributions to owners of the Company		-	605	(38,751)	-	(38,146)
Balance as at November 2, 2013		$     39,227	$       7,126	$   375,088	$       6,717	$   428,158

REITMANS (CANADA) LIMITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands of Canadian dollars)
			For the three months ended		For the nine months ended
			November 1, 2014	November 2, 2013	November 1, 2014	November 2, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
	Net earnings		$   12,866	$     5,763	$     9,008	$   13,359
	Adjustments for:
		Depreciation, amortization and net impairment losses	15,942	13,913	41,773	46,412
		Share-based compensation costs	344	129	659	605
		Amortization of deferred lease credits	(986)	(1,149)	(2,941)	(3,407)
		Deferred lease credits	1,359	388	1,628	3,215
		Pension contribution	(215)	(539)	(709)	(662)
		Pension expense	492	450	1,476	1,350
		Realized gain on sale of marketable securities	(836)	-	(775)	-
		Impairment loss on available-for-sale financial assets	564	190	574	692
		Net change in fair value of derivatives	(4,399)	(103)	5,025	(1,040)
		Foreign exchange gain on cash and cash equivalents	(502)	(115)	(1,588)	(270)
		Interest and dividend income, net	(831)	(884)	(2,200)	(2,663)
		Interest paid	(95)	(121)	(306)	(382)
		Interest received	182	135	563	445
		Dividends received	470	869	1,909	2,603
		Income tax expense	3,362	2,029	2,283	4,517
			27,717	20,955	56,379	64,774
	Changes in:
		Trade and other receivables	(1,192)	(1,542)	(164)	(1,163)
		Inventories	(11,869)	(10,994)	(14,723)	(34,272)
		Prepaid expenses	14,314	436	(308)	(1,489)
		Trade and other payables	(7,802)	(5,054)	(12,135)	7,436
		Deferred revenue	(2,937)	(4,538)	(7,576)	(9,873)
	Cash from (used in) operating activities		18,231	(737)	21,473	25,413
	Income taxes received		-	-	5,133	650
	Income taxes paid		(839)	-	(3,872)	(2,306)
	Net cash flows from (used in) operating activities		17,392	(737)	22,734	23,757
CASH FLOWS USED IN INVESTING ACTIVITIES
	Purchases of marketable securities		-	(105)	(185)	(315)
	Proceeds on sale of marketable securities		2,822	-	7,822	-
	Proceeds on sales of trademarks		29	-	84	-
	Additions to property and equipment and intangible assets		(9,412)	(10,139)	(22,191)	(29,039)
	Cash flows used in investing activities		(6,561)	(10,244)	(14,470)	(29,354)
CASH FLOWS USED IN FINANCING ACTIVITIES
	Dividends paid		(3,229)	(12,917)	(9,688)	(38,751)
	Repayment of long-term debt		(421)	(395)	(1,243)	(1,167)
	Cash flows used in financing activities		(3,650)	(13,312)	(10,931)	(39,918)
FOREIGN EXCHANGE GAIN ON CASH HELD IN FOREIGN CURRENCY			453	115	1,326	270
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			7,634	(24,178)	(1,341)	(45,245)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD			113,380	76,559	122,355	97,626
CASH AND CASH EQUIVALENTS, END OF THE PERIOD			$ 121,014	$   52,381	$ 121,014	$   52,381

SOURCE: Reitmans (Canada) Limited

Jeremy H. Reitman, Chairman and Chief Executive Officer, Telephone: [phone], Corporate Website: www.reitmans.ca