Reitmans (Canada) Limited

Thank you. Good morning, everyone.

Joining me this morning is Caroline Goulian, RCL's Chief Financial Officer. We reported our third quarter results yesterday afternoon post-market.

Our news release, financial statements, and MD&A are available on our website and have been filed on SEDER+. We also posted a slide presentation on the events and presentations page of our website under the financial and news heading.

If you are following along with those slides, we'll get started on Slide 4, which shows our current footprint of 390 stores. This includes 223 Reitmans branded stores, 86 Penningtons locations, and 81 RW&Co.

Stores. I will provide a brief update on each of these brands momentarily.

Looking at our top line, our third quarter net revenues were down 2.9% due to two factors. First, warmer than normal temperatures dominated across most of Canada in September and much of October.

The continued warm temperatures resulted in customers postponing their seasonal purchases, and so our fall collections saw softer sales. However, as temperatures finally turned more seasonal levels, we saw customers responding well to our fall collections and messaging.

The second factor was our lower store count. We had 11 fewer locations compared to the third quarter of last year.

However, for our stores in operations year-over-year, we are pleased with their results. On the gross margin front, we achieved a 166 basis point improvement compared to a year ago.

We benefited from strong inventory management and being less promotional during the quarter as we continued our disciplined approach to markdown and our focus on driving a stronger full-price business. Now for the brand updates on Slide 6.

During the quarter we opened a new RW&Co. store in the Mirabel Premium Outlet in Quebec.

For RW&Co, we were also pleased to see the continued strong growth in menswear during the quarter. For the Reitmans Banner, three stores that we planned on opening during Q3 were pushed to Q4, and all three are now open, including new locations in Chilliwack, Toronto, and Montreal.

During the third quarter, we saw strong results from our ambassadors marketing campaign featuring Lauren Chan, Ashley Callingbull and Sarah-Maude Beauchesne. Meanwhile, at PENN, we opened two new stores in the quarter, including Avalon Mall in St.

John's, Newfoundland, and Durham Center in Ajax, Ontario. We saw strong growth in customer and loyalty performance indicators.

On the operations side, we are happy with the progress of the ongoing modernization of our distribution center, including our investment in streamlined handling equipment. Meanwhile, we now have 50 of our stores on our new POS system, and we'll continue with the rollout after the holiday season.

On Slide 8, we have our recent people update. As I'm sure you know, last month we announced that Caroline Goulian has been promoted to Chief Financial Officer, taking over the reins from Richard Wait, who remains our Executive Vice President, but will be retiring in April.

Caroline was already a valued and proven member of our leadership team, having held the role of Senior Vice President, Financial Performance Analysis since early 2020, after previously working with RCL from 2017 to 2018. With over 20 years of progressively senior financial management experience, including at EMEA and AtkinsRéalis, previously SNC LaValin, Caroline has a strong track record in executive leadership, driving growth, and achieving strategic financial objectives.

Before I pass the call over to Caroline to review our financial results, I want to briefly shine the spotlight on Richard, who has been a great help to me since I joined RCL as President and CEO in September of 2023. Richard has shown exceptional leadership and has made invaluable contributions to RCL over his remarkable 40-year tenure.

Not only has he been an outstanding Chief Financial Officer, but he is also a friend and trusted colleague to many. While his continued leadership over the next few months will help ensure a seamless transition.

When he does step down, he will be surely missed. Richard, thank you for everything.

And now, I'd like to turn the call over to Caroline to discuss our financial results for the quarter. Caroline?

Thank you, Andrea, and good morning, everyone. Please note that all comparisons I will be discussing are for the third quarter ended November 2, 2024, against results for the third quarter a year ago, which ended October 28, 2023.

Also note, that all dollar amounts discussed are in Canadian currency. Our net revenues reached $187.7 million for the quarter compared to $193.4 million a year ago.

As Andrea mentioned, the 2.9% decrease was due to our lower store count and customers holding off on their fall clothing purchases until the weather turned cooler. Comparable sales for the quarter were down 1.9%, largely due to lower e-commerce traffic, which was partially offset by increased sales per transaction.

Despite the lower revenues, our gross profit held steady at $107.6 million as margins improved by 166 basis points to 57.3% compared to 55.6% a year ago. The improvement in gross margin is mainly due to fewer markdowns and reduced promotional activities in the quarter, again highlighting our disciplined approach to managing our inventory.

Adjusted EBITDA for the quarter was $3.8 million, down from $9.5 million in Q3 last year. The $5.7 million decrease was mainly due to a $3.2 million increase in selling, general and administrative expenses, as well as an increase in foreign exchange loss for the period.

Within SG&A, the largest variance was due to many previously preferential rent arrangements having been renewed closer to market rates. We had net earnings of $2.1 million or $0.04 per share compared to $5.3 million or $0.11 per share a year ago.

On Slide 12, we highlight our strong financial position. We finished the quarter with working capital of $172.9 million compared to $170.1 million at the end of Q3 last year.

At the end of the quarter, we had a cash position of $123.1 million and $141.3 million in inventory versus $147.9 million last year. We also had zero debt as our $150 million revolving credit facility remained completely undrawn.

On the NCIB front, from August 5th to December 6th, we repurchased 181,900 Class A shares, returning $464,000 to shareholders. This includes 91,100 shares purchased during the quarter.

On Slide 14, you can see our capital allocation priorities, which include opening new stores, investing in store renovations, and continuing to modernize our business through advancements in digital technology and infrastructure, including our distribution center. We are forecasting capital expenditures of $31 million for the fiscal year and have spent $20.1 million in the first nine months.

And I'll reiterate, we have a strong cash position and no debt. With that, we would like to open the call to questions.

Hi, Andrea. Hi, Caroline.

Hi, Eddie. Good to hear your voice.

Likewise. And Carolyn, congratulations on your promotion and good luck with it all.

Thank you.

So Andrea, well done to you and the team on a solid quarter, it's great to see gross margins expanding again and top line is very solid. So changes you're making are having an impact.

So well done, that's great. We'd probably like to see some of the cost come out of SG&A, but in general, operationally, you're doing a great job, you and your team.

And we're really looking forward to seeing you guys building on that over the coming quarters. So well done.

And while it's not wanting to detract from the company's operational performance, I suppose you're aware that ourselves and other shareholders are not satisfied with how the company has been chaperoned at a board and share level. So, we've a collective group of shareholders now making up almost 20% of the share register and we all share common concerns.

And as you know, the concerns that I've raised is, Parma Investments is probably the second biggest shareholder in the company is the continued minority shareholder oppression and the board lacking independence and not actually acting in the best interests of all of the shareholders collectively which includes employees who are also incentivized by stock and the share price, and who are working really hard to do their good job. The continued refusal to uplift and lack of any clear reason as to why that's not taking place can only lead us to the assumption that the reasoning behind it could be cynical.

So the shares excluding leases trading on a negative enterprise value. The token small buyback at the moment is menial when the IRR is close to 100% on buybacks.

You look at Group Dynamite Forward EV, but damn, it's 11 times, Reitmans with a similar top line, whilst different companies on a margin profile basis is in negative enterprise value. So a lot of the gap in terms of valuation is down to the poor governance and decision making at board and chair level at Reitmans.

So, I'd like to call out to any other shareholders to contact me and join the collective group who have concerns around governance and the decisions that the board and the chair have made and collectively try and encourage the board and the chair to do what's right by all shareholders and not just the one shareholder and satisfy what they want to do. My email is [email protected] [Multiple Speakers]

Yes.

Okay. So in terms of the capital expenditure going forward, what kind of a return on investment capital hurdle have you satisfied internally, Andrea or Caroline, for these investments?

Thanks Eddie. First, I appreciate your acknowledgement of the good work being done by the team.

We're on a long-term journey here to drive growth for the organization. We're going to continue to stay on it.

We're laser-focused on it and see, as you know, strong upside as we continue to make good decisions for the growth and long-term growth of the organization as we move from -- into our 99th year with the vision of another 99 plus years forward. So thank you for that.

Acknowledge your comments as well from a minority shareholder perspective and well received. In terms of capital investment, we're really quite conservative on our return on capital.

We ensure that our projects all hurdle in a relatively short time frame. We are looking at potentially sharing that metric more directly in the coming years.

So more to come on that. But so far very conservative metrics with quite near-term profitability requirements.

Excellent. Thank you, Andrea.

Thank you, Caroline.

I just want to thank everyone who joined the call this morning. Wish you all a happy and hopefully restful holiday season and look forward to speaking with you next quarter.

Thanks so much. Goodbye.