The North West Company Inc. (the "Company" or "North West") today
announced a CEO transition plan, reported its unaudited financial
results for the fourth quarter ended January 31, 2021 and released
its 2020 Annual Report and Annual Information Form. The Annual
Report includes the Company's Annual Audited Consolidated Financial
Statements and Management's Discussion and Analysis for the year
ended January 31, 2021. These documents are available on the
Company's profile on the SEDAR website at www.sedar.com and on the
Company's website at www.northwest.ca. It also announced that the
Board of Directors have declared a dividend of $0.36 per share to
be paid on April 28, 2021 to shareholders of record on April 16,
2021.
CEO Transition - Chairman's
Statement
This year, Edward Kennedy is celebrating his
30th year as a senior executive at The North West Company, and his
25th year as President & CEO. That length of tenure is, in
itself, extraordinary in Canadian business.
Edward's guiding hand has touched all facets of
the company's development, from taking North West public, to
shifting our product focus to food, expanding internationally,
forging dozens of partnerships with Indigenous entities and growing
into exciting new areas like health and transportation, all while
being a true ally of the communities we are privileged to serve.
Under Edward's time as CEO, North West's financial performance has
been equally stellar with sales growth from $590 million to $2.4
billion, EBITDA growth from $59 million to over $300 million and
nearly $1.2 billion in total dividends paid to shareholders;
delivering compound annual returns of 15.6% – indeed it has been a
remarkable run for Edward and the company.
But in the words of Ecclesiastes 'to everything,
there is a season and a time' and now is the time for Edward to
move on to the next stage of his life and for the company to move
forward under new leadership.
The Board has been aware for several years of
Edward’s desire to retire, which has allowed us to prepare for this
transition. While it is very difficult to imagine North West
without Edward we have had plenty of time to get used to the idea
and to have put a robust process in place to plan for a new
CEO.
I am delighted to announce that, when Edward
steps down on August 1 of this year, he will be succeeded by Dan
McConnell. Dan has spent 19 years with North West with a range of
key senior responsibilities, most recently as head of our
International Operations, based in Boca Raton, Florida. Dan has a
strong track record in his current role and previously as Executive
Vice President, Corporate Development and is well prepared to
assume his new position. He will be supported by a very strong
senior management team. The Board is excited by this appointment
because change brings opportunities and we know Dan’s passion for
the business will be infectious for all Nor' Westers.
As part of our plan, Edward has agreed to remain
available to Dan to help him fully acclimatize to the breadth of
his new responsibilities. The Board is also committed to working
closely with Dan, continuing the CEO transition process, and
helping to ensure Dan's success in his new role.
We are going to miss Edward on a day-to-day
basis but we understand that life goes on. We want to thank him for
all of his contributions and we wish him well in the years ahead.
We also want to congratulate Dan in his appointment and wish him
all success as he embarks on his journey as CEO.
H. Sanford Riley Chairman, Board of DirectorsThe North West
Company
CEO Comments on Fourth Quarter
Results and Annual Results
“2020 was the most intensely active and reactive
year in The North West Company’s history. We started with a great
playbook and ended with completely different and unexpected
outcomes, including the highest annual sales gains of any
Canadian-based retailer.” Commented President & CEO Edward
Kennedy. “The single constant was the adaptability of North West,
or more accurately, the people of North West and the communities we
are privileged to serve. Our associates handled big increases in
sales volumes while dealing with new work protocols and constraints
presented by COVID-19. These were challenging physical factors.
Added was the stress of being front-line workers, with many living
in high risk circumstances, and the Pandemic anxieties that
affected us all. Under these circumstances we tried our best to
financially recognize workloads and help each other stay positive,
healthy and energized.
The final chapter in our 2020 story was our
focus and drive for sales amid adverse operating conditions. North
West’s store sales increased by $270 million or 19%, generated from
the same 207 stores as the year before. Without question we
benefitted from lower travel and higher consumer incomes derived
from government support programs in Canada and the U.S. On the
other hand we faced constraints on food supply, closures of most of
our food service departments, a drop-off in convenience store
business and depressed tourism-dependent markets. How we responded
was critical to our performance.
Based on the current vaccine and variant
situation, combined with the Company's initiatives to retain market
share gains from 2020, it is expected that earnings in 2021 will be
meaningfully above pre-Pandemic (2019) levels but likely below
2020. The Pandemic also presents North West with unprecedented
growth opportunities beyond the successes of 2020 and the
post-pandemic transition year of 2021. After the GT store
divestiture we are a more focused company with a more attractive
mix of retail banners and complementary businesses, like our
airline and shipping investments. We are still seeing attractive
opportunities in rural retail and wholesale, in transportation and
in other adjacent spaces within our core geographies. We are more
active in health, triggered by allowable virtual physician service
delivery and billing protocols. Within our retail businesses that
grew the most last year, we have enhanced customer and community
relationships that will enable new partnership opportunities in a
post-Pandemic environment.
Most important and hardest to measure is a
renewed pure merchant capability and 'get sales' attitude within
North West. We convincingly know that we have the ability to set
and reach higher sales goals within both in-store product and
service categories and other channels like B to B and e-commerce,
where we had accepted lesser growth targets in the past. In short,
the enterprising spirit at North West is alive and energized.“
Fourth Quarter and Annual
Results
The following table provides a summary of
selected information for the fourth quarter and annual results.
Further information on the fourth quarter and annual financial
performance is provided in the 2020 Annual Report available on the
Company's website at www.northwest.ca or on SEDAR at
www.sedar.com.
Selected Fourth
Quarter(3)
and Annual Information
|
Three Months |
|
Three Months |
|
Twelve Months |
|
Twelve Months |
|
|
Ended |
|
Ended |
|
Ended |
|
Ended |
($ in
thousands, except per share) |
January 31, 2021 |
January 31, 2020 |
January 31, 2021 |
January 31, 2020 |
Sales |
|
$ |
565,191 |
|
|
$ |
553,061 |
|
|
$ |
2,359,239 |
|
|
$ |
2,094,393 |
|
Same store sales %
increase(2) |
|
16.8 |
% |
|
0.8 |
% |
|
19.0 |
% |
|
1.3 |
% |
Gross profit |
|
$ |
187,873 |
|
|
$ |
169,154 |
|
|
$ |
774,553 |
|
|
$ |
664,398 |
|
Selling, operating and
administrative expenses |
|
(138,759 |
) |
|
(142,420 |
) |
|
(565,204 |
) |
|
(534,045 |
) |
EBITDA(1) |
|
71,410 |
|
|
50,433 |
|
|
301,427 |
|
|
219,575 |
|
EBIT |
|
49,114 |
|
|
26,734 |
|
|
209,349 |
|
|
130,353 |
|
Interest expense |
|
(3,448 |
) |
|
(5,632 |
) |
|
(16,808 |
) |
|
(20,948 |
) |
Income taxes |
|
(12,834 |
) |
|
(3,839 |
) |
|
(48,981 |
) |
|
(23,132 |
) |
Net earnings |
|
32,832 |
|
|
17,263 |
|
|
143,560 |
|
|
86,273 |
|
Net earnings attributable to
shareholders of the Company |
|
32,060 |
|
|
16,344 |
|
|
139,874 |
|
|
82,724 |
|
Net earnings per share -
basic |
|
0.66 |
|
|
0.34 |
|
|
2.87 |
|
|
1.70 |
|
Net earnings per share -
diluted |
|
0.63 |
|
|
0.33 |
|
|
2.82 |
|
|
1.68 |
|
Cash flow from operating
activities |
|
106,660 |
|
|
48,320 |
|
|
338,718 |
|
|
161,117 |
|
Cash flow used in investing
activities |
|
(11,904 |
) |
|
(19,218 |
) |
|
(66,900 |
) |
|
(104,272 |
) |
Cash flow used in financing
activities |
|
(81,765 |
) |
|
(53,035 |
) |
|
(227,060 |
) |
|
(67,236 |
) |
Cash
dividends per share |
|
$ |
0.36 |
|
|
$ |
0.33 |
|
|
$ |
1.38 |
|
|
$ |
1.32 |
|
(1) See Non-GAAP Financial Measures section within the 2020
Annual Report.(2) All references to same store sales exclude the
foreign exchange impact. (3) Unaudited interim financial
information.
Other Annual
Highlights
- The Company
increased annual incentive plan payments to front-line managers by
$10.8 million and paid $10.1 million in hourly premiums and
one-time special payments to front-line associates to recognize
their critical role in serving our customers.
- Donations
increased $5.5 million in response to greater community needs
during COVID-19.
- Debt-to-Equity
decreased to 0.56 compared to 0.96 at January 31, 2020.
- Return on net
assets(1) improved to 22.4% compared to 13.5% in 2019.
- Completed the
sale of 36 Giant Tiger stores resulting in a pre-tax gain of $24.7
million or $20.0 million net of tax.
- Quarterly
dividends increased $0.03 per share or 9.1% to $0.36 per
share.
- The Company
purchased 180,744 shares under a normal course issuer bid.
Fourth Quarter Results
Consolidated
Sales Sales for the fourth quarter increased 2.2%
to $565.2 million as strong same store sales gains were largely
offset by lower sales in Giant Tiger stores related to the
previously announced sale of 36 stores which was completed on July
5, 2020 and the closure of five stores in the third quarter
(collectively the "Giant Tiger Transaction"). Excluding the foreign
exchange impact, consolidated sales increased 2.4% and were up
16.8%(2) on a same store basis. Food sales(2) increased 4.4% and
were up 12.0% on a same store basis and general merchandise
sales(2) decreased 4.7% due to the Giant Tiger Transaction but were
up 39.8% on a same store basis. Similar to the first three quarters
of the year, sales were driven by market share gains and
COVID-19-related factors including consumer spending changes in
favor of in-community and at-home activities, supported by enhanced
government income support payments to individuals in many of the
jurisdictions in which the Company operates.
Gross Profit
Gross profit increased 11.1% driven by sales gains and a 266 basis
point rate increase compared to last year. The increase in gross
profit rate was primarily due to favourable changes in product
sales blend and higher inventory turns contributing to lower
markdowns and inventory shrinkage. These factors were partially
offset by a higher blend of CUL sales which carry a lower gross
profit rate consistent with CUL's discount warehouse format and the
impact of lower margin wholesale food sales as part of the Giant
Tiger Transaction.
Selling, Operating and
Administrative Expenses Selling, operating and
administrative expenses ("Expenses") decreased $3.7 million
compared to last year and were down 120 basis points as a
percentage to sales. The decrease in Expenses related to the Giant
Tiger Transaction and lower Canadian administration costs was
largely offset by an increase in annual incentive plan costs, the
impact of COVID-19-related expenses and higher share-based
compensation costs. COVID-19-related expenses of $5.8 million
include $3.5 million in wage premiums and a special one-time
payment of 5% of wages to non-bonus eligible front-line in
recognition of their contributions to serving our customers and
$2.3 million in other COVID-19-related expenses primarily related
to temporary workers to provide additional support during
outbreaks, the purchase of protective equipment and enhanced
sanitation procedures. These factors were partially offset by
insurance-related gains of $5.3 million this year compared to $3.2
million last year.
Earnings from operations and
EBITDA(1) Earnings from
operations or earnings before interest and taxes ("EBIT") increased
$22.4 million to $49.1 million compared to $26.7 million last year
and earnings before interest, income taxes, depreciation and
amortization ("EBITDA(1)") increased $21.0 million to $71.4 million
due to the sales, gross profit and Expense factors previously
noted. Adjusted EBITDA(1), which excludes share-based compensation
costs and insurance-related gains, increased $21.6 million compared
to last year and as a percentage to sales was 12.2% compared to
8.6%.
Interest
Expense Interest expense decreased 38.8% to
$3.4 million compared to $5.6 million last year mainly due to lower
average debt levels related to a reduction in amounts drawn on
revolving loan facilities.
Income Tax
Expense Income tax expense was $12.8 million
compared to $3.8 million last year and the consolidated effective
tax rate was 28.1% compared to 18.2%. The increase in income tax
expense is due to higher earnings and a higher effective tax rate.
The increase in the income tax rate was primarily due to the blend
of earnings in International Operations across various tax rate
jurisdictions. The impact of non-tax deductible share-based
compensation costs in Canadian Operations was also a factor.
Net Earnings
Consolidated net earnings increased $15.6 million to $32.8 million.
Net earnings attributable to shareholders were $32.1 million and
diluted earnings per share were $0.63 per share compared to $0.33
per share last year due to the factors noted above. Adjusted net
earnings(1), which excludes the impact of the after-tax share-based
compensation costs and after-tax insurance-related gains, increased
$15.3 million compared to last year driven by earnings gains in
Canadian Operations and International Operations resulting from the
factors previously noted.
Annual
Results
Consolidated
Sales Sales for the year increased 12.6% to
$2.359 billion and were up 19.0%(2) on a same store basis driven by
market share gains and COVID-19-related factors including consumer
spending changes in favor of in-community and at-home activities,
supported by enhanced government income transfers in many
jurisdictions. These factors were partially offset by lower sales
in Giant Tiger stores resulting from the Giant Tiger
Transaction.
Gross
Profit Gross profit increased
16.6% to $774.6 million compared to $664.4 million last year driven
by sales growth and an 111 basis point increase in gross profit
rate. The gross profit rate increased to 32.8% compared to 31.7%
last year primarily due to favourable changes in product sales
blend and higher inventory turns contributing to lower markdowns
and inventory shrinkage.
Selling, Operating and
Administrative Expenses Selling,
operating and administrative expenses (“Expenses”) of
$565.2 million increased $31.2 million or 5.8% compared to
last year but were down 154 basis points as a percentage of sales.
This increase in Expenses is partially due to higher annual
incentive plan costs, COVID-19-related expenses and corporate
donations. Annual incentive plan costs increased $18.2 million of
which $10.8 million relates to front-line associates.
COVID-19-related expenses of $19.6 million includes $10.1 million
in wage premiums and a special one-time payment of 5% of wages to
non-bonus eligible front-line associates in recognition of their
contributions to serving our customers and $9.5 million in other
COVID-19-related expenses primarily related to additional employees
recruited to provide support to stores during outbreaks, the
purchase of protective equipment and enhanced sanitation
procedures. Donations increased $5.5 million in response to greater
community needs during COVID-19. These factors were partially
offset by lower Giant Tiger store expenses related to the Giant
Tiger Transaction and Canadian administrative cost reductions, net
of a $5.0 million provision for support office employee severance
costs.
Earnings from Operations (EBIT)
and
EBITDA(1)
Earnings from operations or earnings before interest and income
taxes ("EBIT”) increased 60.6% to $209.3 million compared to $130.4
million last year due to the sales, gross profit and Expense
factors previously noted. Earnings before interest, income taxes,
depreciation and amortization ("EBITDA(1)") increased 37.3% to
$301.4 million compared to $219.6 million last year.
Interest
Expense Interest expense decreased 19.8% to $16.8
million compared to $20.9 million last year. This decrease is due
to lower average debt levels and lower interest rates.
Income Tax
Expense Income taxes increased to $49.0 million
compared to $23.1 million last year and the effective tax rate for
the year was 25.4% compared to 21.1% last year. The increase in
income tax expense is due to higher earnings and a higher effective
tax rate.
Net
Earnings Consolidated net earnings increased
66.4% to $143.6 million compared to $86.3 million last year.
Net earnings attributable to shareholders of the Company were
$139.9 million compared to $82.7 million last year and diluted
earnings per share were $2.82 per share compared to $1.68 per share
last year due to the factors previously noted.
Additional information regarding the financial
performance of North West can be found within the 2020 Annual
Report, Annual Audited Financial Statements and the Annual
Information Form available on the Company's website at
www.northwest.ca or on SEDAR at www.sedar.com.
Fourth Quarter Conference
Call
North West will host a conference call for its
fourth quarter results on April 7, 2021 at 1:30 p.m. (Central
Time). To access the call, please dial 416-340-2217 or 800-806-5484
with a pass code of 7653198. The conference call will be archived
and can be accessed by dialing 905-694-9451 or 800-408-3053 with a
pass code of 4955667 on or before May 8, 2021.
Notice to
Readers
Certain forward-looking statements are made in
this news release, within the meaning of applicable securities
laws. These statements reflect North West's current expectations
and are based on information currently available to management. The
words may, will, should, believe, expect, plan, anticipate, intend,
estimate, predict, potential, continue, or the negative of these
terms, identify forward-looking matters. These statements speak
only as of the date of this press release. The actual results could
differ materially from those anticipated in these forward-looking
statements.
Reliance should not be placed on forward-looking
statements because they involve known and unknown risks,
uncertainties and other factors, which may cause the actual
results, performance, capital expenditures or achievements of North
West to differ materially from anticipated future results,
performance, capital expenditures or achievement expressed or
implied by such forward-looking statements, including the Company's
intentions regarding a normal course issuer bid, the anticipated
impact of the COVID-19 pandemic on the Company's operations and the
Company's related business continuity plans and the realization of
expected savings from administrative cost reduction plans. Factors
that could cause actual results to differ materially from those set
forth in the forward-looking statements include, but are not
limited to, business performance, fluctuations in interest rates
and currency values, legislative and regulatory developments, legal
developments, the occurrence of weather-related and other natural
catastrophes, changes in tax laws, and those risks and
uncertainties detailed in the section entitled Risk Factors in
North West's Management's Discussion and Analysis and Annual
Information Form, both for the year-ended
January 31, 2021. The preceding list is not an exhaustive
list of possible factors. These and other factors should be
considered carefully and readers are cautioned not to place undue
reliance on these forward-looking statements. North West undertakes
no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise, other than as required by applicable law.
Company
Profile The North West Company Inc., through its
subsidiaries, is a leading retailer of food and everyday products
and services to rural and developing small population communities
in northern Canada, rural Alaska, the South Pacific and the
Caribbean. North West operates 212 stores under the trading names
Northern, NorthMart, Giant Tiger, Alaska Commercial Company,
Cost-U-Less and RiteWay Food Markets and has annualized sales of
approximately CDN$2.4 billion.
The common shares of North West
trade on the Toronto Stock Exchange under the symbol
NWC.
For more information
contact:
Edward Kennedy, President and Chief Executive
Officer, The North West Company Inc. Phone 204-934-1482; fax
204-934-1317; email ekennedy@northwest.ca
John King, Executive Vice-President and Chief
Financial Officer, The North West Company Inc. Phone 204-934-1397;
fax 204-934-1317; email jking@northwest.ca
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