The North West Company Inc. (the "Company" or "North West") today
reported its unaudited financial results for the first quarter
ended April 30, 2022. It also announced that the Board of
Directors has declared a dividend of $0.37 per share to
shareholders of record on June 30, 2022, to be paid on
July 15, 2022.
“I am pleased with our performance in a
difficult environment and following two years of exceptional
pandemic-related sales and earnings gains,” said President and CEO
Dan McConnell. "Our year over year sales remained strong as we
retained customer business in the communities we serve despite
substantially lower COVID-related support payments and fewer travel
restrictions compared to last year. Our margins declined because of
a change in sales mix and due to inflationary cost pressures that
were not fully passed through in retail prices as we balance
competitive factors and rapidly changing economic conditions. At
the bottom line, our profitability was lower than last year but
meaningfully above pre-pandemic levels. Looking ahead, we are
optimistic about the strength of our business and the opportunities
for growth through new stores, products and services across our
Canadian and International Operations.”
Financial Highlights
Sales First
quarter consolidated sales increased 0.2% to $552.0 million as
sales gains in International Operations and the positive impact of
foreign exchange on the translation of International Operations
sales were largely offset by lower sales in Canadian Operations
which were down compared against COVID-19-related sales gains last
year. The impact of higher inflation was also a factor. On a same
store basis, sales decreased 0.7%1 compared to a 3.8% increase in
the first quarter last year, but were up 21.3% compared to
pre-pandemic sales in the first quarter of 2019. Food same store
sales were up 2.5% compared to a 0.5% increase last year but
general merchandise same store sales were down 16.1% compared to an
exceptionally strong 23.9% same store sales gain last year driven
by COVID-19-related factors including government income support
payments to individuals and in-community spending as a result of
travel restrictions. The impact of higher cost inflation has also
contributed to changes in product sales blend as consumers
allocated more of their spending to food and reduced purchases of
general merchandise.
Gross Profit
Gross profit decreased 3.6% due to a 125 basis point decrease in
gross profit rate compared to last year. The decrease in gross
profit rate was substantially due to changes in food and general
merchandise sales blend as previously noted and the impact of
higher merchandise and freight cost inflation that was not fully
passed through in retail prices. An increase in markdowns on
seasonal general merchandise and a higher blend of Cost-U-Less
sales which have a lower gross profit rate consistent with a
discount warehouse format were also factors.
Selling, Operating and Administrative
Expenses Selling, operating and administrative expenses
("Expenses") increased $8.3 million or 6.6% compared to last year
and were up 146 basis points as a percentage to sales primarily due
to the impact of an $8.6 million insurance-related gain last year
partially offset by a $1.9 million decrease in share-based
compensation costs this year. Excluding the insurance-related gain
and share-based compensation costs (collectively "Non-Comparable
Factors"), Expenses increased $1.7 million and were up 26 basis
points as a percentage to sales mainly related to new stores, the
impact of foreign exchange on the translation of International
Operations Expenses and higher fuel-based utility costs, partially
offset by lower COVID-19-related expenses and annual incentive plan
costs compared to last year.
Earnings From Operations
Earnings from operations decreased to $41.4 million compared to
$56.3 million last year and earnings before interest, income taxes,
depreciation and amortization ("EBITDA2") decreased 17.4% to $64.9
million compared to $78.7 million last year due to the gross profit
and Expense factors previously noted. Adjusted EBITDA2, which
excludes the Non-Comparable Factors, decreased $7.0 million
compared to last year and as a percentage to sales was 12.4%
compared to 13.7% last year due to the sales, gross profit and
Expense factors previously noted, but was up $23.6 million or 52.4%
compared to pre-pandemic adjusted EBITDA2 in the first quarter of
2019.
Interest Expense Interest
expense decreased to $3.0 million compared to $3.5 million last
year largely due to lower average debt. Further information on
long-term debt is provided in Note 9 to the Company's Interim
Condensed Consolidated Financial Statements.
Income Tax Expense Income tax
expense decreased to $10.2 million compared to $12.6 million last
year and the consolidated effective tax rate was 26.7% compared to
23.8% last year. The effective tax rate can fluctuate as a result
of various factors, including the taxation of items such as
share-based compensation and insurance-related gains, changes in
tax estimates and the blend of earnings across the various tax rate
jurisdictions.
Net Earnings Net earnings
decreased to $28.2 million compared to $40.3 million last year. Net
earnings attributable to shareholders were $27.4 million and
diluted earnings per share were $0.57 per share compared to $0.80
per share last year. Adjusted net earnings2, which excludes the
after-tax impact of the $7.1 million insurance related gain and
share-based compensation costs, decreased $6.7 million compared to
the strong, COVID-19-related driven earnings last year due to the
gross profit and Expense factors previously noted, but were up
$16.1 million or 106.4% compared to the pre-pandemic first quarter
of 2019.
Non-GAAP Financial Measures
The Company uses the following non-GAAP
financial measures: earnings before interest, income taxes,
depreciation and amortization ("EBITDA"), adjusted EBITDA and
adjusted net earnings. The Company believes these non-GAAP
financial measures provide useful information to both management
and investors in measuring the financial performance and financial
condition of the Company for the reasons outlined below.
Earnings Before Interest, Income Taxes,
Depreciation and Amortization (EBITDA) is not a recognized
measure under IFRS. Management believes that in addition to net
earnings, EBITDA is a useful supplemental measure as it provides
investors with an indication of the Company's operational
performance before allocating the cost of interest, income taxes
and capital investments. Investors should be cautioned however,
that EBITDA should not be construed as an alternative to net
earnings determined in accordance with IFRS as an indicator of the
Company's performance. The Company's method of calculating EBITDA
may differ from other companies and may not be comparable to
measures used by other companies.
Adjusted EBITDA and Adjusted Net
Earnings are not recognized measures under IFRS.
Management uses these non-GAAP financial measures to exclude the
impact of certain income and expenses that must be recognized under
IFRS. The excluded amounts are either subject to volatility in the
Company's share price or may not necessarily be reflective of the
Company's underlying operating performance. These factors can make
comparisons of the Company's financial performance between periods
more difficult. The Company may exclude additional items if it
believes that doing so will result in a more effective analysis and
explanation of the underlying financial performance. The exclusion
of these items does not imply that they are non-recurring.
These measures do not have a standardized
meaning prescribed by GAAP and therefore they may not be comparable
to similarly titled measures presented by other publicly traded
companies and should not be construed as an alternative to the
other financial measures determined in accordance with IFRS.
Reconciliation of consolidated net
earnings to EBITDA and adjusted EBITDA:
|
Consolidated |
|
First Quarter |
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
|
2019 |
|
|
|
|
|
|
|
EBIT |
$ |
41,431 |
|
$ |
56,312 |
|
|
$ |
37,033 |
|
Add:
Amortization |
|
23,514 |
|
|
22,357 |
|
|
|
21,215 |
|
EBITDA |
$ |
64,945 |
|
$ |
78,669 |
|
|
$ |
58,248 |
|
Adjusted for: |
|
|
|
|
|
Insurance gains |
|
— |
|
|
(8,632 |
) |
|
|
(10,656 |
) |
Share-based compensation
expense |
|
3,737 |
|
|
5,681 |
|
|
|
(2,520 |
) |
Adjusted EBITDA |
$ |
68,682 |
|
$ |
75,718 |
|
|
$ |
45,072 |
|
Reconciliation of consolidated net
earnings to adjusted net earnings:
|
Consolidated |
|
First Quarter |
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
|
2019 |
|
|
|
|
|
|
|
Net earnings |
$ |
28,161 |
|
$ |
40,288 |
|
|
$ |
26,225 |
|
Adjusted for: |
|
|
|
|
|
Insurance gains, net of tax |
|
— |
|
|
(7,123 |
) |
|
|
(8,399 |
) |
Share-based compensation expense, net of tax |
|
3,000 |
|
|
4,743 |
|
|
|
(2,731 |
) |
Adjusted net earnings |
$ |
31,161 |
|
$ |
37,908 |
|
|
$ |
15,095 |
|
The Company recorded gains on the partial
settlement of insurance claims. These gains were due to the
difference between the replacement cost of the assets destroyed and
their book value.
Certain share-based compensation costs are
presented as liabilities on the Company's consolidated balance
sheets. The Company is exposed to market price fluctuations in its
share price through these share-based compensation costs. These
liabilities are recorded at fair value at each reporting date based
on the market price of the Company's shares at the end of each
reporting period with the changes in fair value recorded in
selling, operating and administrative expenses. Further information
on share-based compensation is provided in Note 11 and Note 14 to
the Company's Interim Condensed Consolidated Financial
Statements.
Further information on the financial results is
available in the Company's 2022 first quarter Report to
Shareholders, Management's Discussion and Analysis and unaudited
interim period condensed consolidated financial statements which
can be found in the investor section of the Company's website at
www.northwest.ca.
First Quarter Conference
Call
North West will host a conference call for its
first quarter results on June 8, 2022 at 2:00 p.m. (Central Time).
To access the call, please dial 416-641-6104 or 800-952-5114 with a
pass code of 8118986. The conference call will be archived and can
be accessed by dialing 905-694-9451 or 800-408-3053 with a pass
code of 6020751 on or before July 9, 2022.
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.
Forward-looking statements about the Company, including its
business operations, strategy and expected financial performance
and condition. Forward-looking statements include statements that
are predictive in nature, depend upon or refer to future events or
conditions, or include words such as “expects”, “anticipates”,
“plans”, “believes”, “estimates”, “intends”, “targets”, “projects”,
“forecasts” or negative versions thereof and other similar
expressions, or future or conditional future financial performance
(including sales, earnings, growth rates, capital expenditures,
dividends, debt levels, financial capacity, access to capital, and
liquidity), on-going business strategies or prospects, the
Company's intentions regarding a normal course issuer bid, the
anticipated impact of the COVID-19 pandemic on the Company's
operations, supply chain and the Company's related business
continuity plans, the realization of expected savings from cost
reduction plans and possible future action by the Company.
Forward-looking statements are based on current
expectations and projections about future events and are inherently
subject to, among other things, risks, uncertainties and
assumptions about the Company, economic factors and the retail
industry in general. They are not guarantees of future performance,
and actual events and results could differ materially from those
expressed or implied by forward-looking statements made by the
Company due to changes in economic conditions, political and market
factors in North America and internationally. These factors
include, but are not limited to, the duration and the impact of the
COVID-19 pandemic, changes in inflation, interest and foreign
exchange rates, the Company's ability to maintain an effective
supply chain, changes in accounting policies and methods used to
report financial condition, including uncertainties associated with
critical accounting assumptions and estimates, the effect of
applying future accounting changes, business competition,
technological change, changes in government regulations and
legislation, changes in tax laws, unexpected judicial or regulatory
proceedings, catastrophic events, the Company's ability to complete
and realize benefits from capital projects, E-Commerce investments,
strategic transactions and the integration of acquisitions, the
Company's ability to realize benefits from investments in
information technology ("IT") and systems, including IT system
implementations, or unanticipated results from these initiatives
and the Company's success in anticipating and managing the
foregoing risks.
The reader is cautioned that the foregoing list
of important factors is not exhaustive. Other risks are outlined in
the Risk Management section of the 2021 Annual Report and in the
Risk Factors sections of the Annual Information Form and Management
Information Circular, material change reports and news releases.
The reader is also cautioned to consider these and other factors
carefully and not place undue reliance on forward-looking
statements. Other than as specifically required by applicable law,
the Company does not intend to update any forward-looking
statements whether as a result of new information, future events or
otherwise.
Additional information on the Company, including
our Annual Information Form, can be found on SEDAR at www.sedar.com
or on the Company's website at www.northwest.ca.
Company
Profile
The North West Company Inc., through its
subsidiaries, is a leading retailer of food and everyday products
and services to rural communities and urban neighbourhoods in
Canada, Alaska, the South Pacific and the Caribbean. North West
operates 216 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$2.2
billion.
The common shares of North West
trade on the Toronto Stock Exchange under the symbol
NWC.
For more information
contact:
Dan McConnell, President and Chief Executive
Officer, The North West Company Inc. Phone 204-934-1482; fax
204-934-1317; email dmcconnell@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
1 Excluding the impact of foreign exchange2 See
Non-GAAP Measures Section of the news release
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