Reitmans (Canada) Limited (CX40.F) Q2 FY2026 Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Reitmans (Canada) Limited Fiscal 2026 Second Quarter Earnings Call. [Operator Instructions]. Before turning the call over to management, listeners are reminded that today's call may contain forward-looking statements within the meaning of applicable securities laws. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. For additional information, please refer to the disclaimers in the forward-looking statements section of the company's press release and MD&A for the quarter. Reitmans (Canada) Limited does not undertake to update any forward-looking statements. Such statements speak only as of the date made. I would now like to turn the meeting over to Andrea Limbardi, President and CEO of Reitmans (Canada) Limited. Please go ahead, Ms. Limbardi.

Thank you. Good morning, everyone. Joining me this morning is Caroline Goulian, RCL's Chief Financial Officer. Yesterday afternoon, we reported our second quarter results. Our news release, financial statements and MD&A are available on our website and have been filed on SEDAR+. A slide presentation for this earnings call is available on the Events and Presentations page of our website under the Financial and News heading. If you'd like to follow along with that presentation, we'll get started on Slide 4. RCL has 3 distinct brands with their own unique value propositions. At the end of Q2, our footprint included 219 Reitmans' stores, 83 RW&CO stores and 84 PENN locations. Our national network of stores and robust e-commerce platform allow us to serve Canadians from coast-to-coast-to-coast. Net revenues reached $215.9 million slightly ahead of a year ago and marked one of our strongest quarterly performances in the past 5 years. We did this with 3 fewer stores than Q2 of last year. We were particularly encouraged by Reitmans' results and a positive customer response to our summer collections. We saw customers remaining price conscious in the quarter. Our targeted promotional strategy successfully moved inventory but impacted our margins. Meanwhile, continued efforts to improve our SG&A led to cost reductions exceeding $2.7 million with our SG&A as a percentage of sales down to 47.8% in Q2 of this year, versus 49.1% a year ago. For the quarter, adjusted EBITDA totaled $21.4 million, with net earnings of $13.1 million. We remain future focused on our multiyear strategy aimed at reaching [ $1 billion ] in annual revenues by the end of fiscal 2030. Alongside that, we're targeting $60 million to $70 million in adjusted EBITDA, driven by operational efficiencies, accelerated product speed to market and continued inventory discipline. To get there, we expect to reinvest approximately $100 million in growth initiatives over the next 5 years. Approximately 75% of that will be invested in our stores, including renovations, expansions and new stores. The remaining 25% is earmarked for upgrading our digital technology and modernizing our infrastructure. I'm happy to share a few updates with regards to our strategic initiatives, starting with Reitmans where we completed the relocation and expansion of our South Gate location in Edmonton, Alberta, elevating the customers experience with a light and open design that showcases our product offering in an elevated way. In PENN, we rolled out an Elevated 360 Store Experience Pilot program at 12 stores as part of our strategy to modernize our brand image and identity providing a fresh and exciting store experience to our customers. Early results are quite positive, and we plan to further the rollout through fall. And coming soon in October, RW&CO will be opening a new 8,000 square foot flagship store in Saint-Bruno, Quebec showcasing a bold new experience that embodies the brand's evolving identity and focus. With regards to fueling our growth with modernization, last quarter, we announced that we commenced the first phase of our digital strategic road map designed to enhance our digital experience and provide a seamless journey across all touch points. This will include newly designed front-end e-commerce storefronts for all 3 brands and migrating to Shopify. We remain on track to complete the migration and launch of our enhanced e-commerce offering by end of this fiscal year. Importantly, this project will enhance our digital experience and aims to provide a seamless journey across all of our touch points. With that, I will now turn things over to Caroline to discuss our financial results for the quarter in more detail and provide an update on our normal course issuer bid. Caroline?

Thank you, Andrea, and good morning, everyone. Please note that all comparisons for the second quarter ended August 2, 2025, against results for the second quarter a year ago, which ended August 3, 2024. As usual, all dollar amounts discussed are in Canadian currency. We had net revenues of $215.9 million for the quarter, representing a $400,000 or 0.2% increase from a year ago. The slight increase was achieved while operating 3 fewer stores and despite the closure of Thyme Maternity back in January. Although in-store traffic was up during the quarter, our comparable sales, which includes e-commerce, were down 1.3%. The decrease was primarily due to lower sales dollars per transaction. As Andreas said earlier, our targeted promotions successfully moved inventory but impacted our margins in the quarter. Gross profit decreased by $4.5 million to $122.8 million or 56.9% of net revenues, representing a 220 basis point decrease. In addition to the effect of our markdown and promotional activity, there was an unfavorable impact of $3 million on U.S. dollar-denominated purchases included in our cost of goods sold. Adjusted EBITDA for the quarter was $21.4 million compared to $23.4 million a year ago. The $2 million decrease was primarily attributable to lower gross profit for the quarter as well as a foreign exchange gain in the second quarter of last year. However, our SG&A were down $2.7 million or 2.6% in the quarter as decreases in performance incentive plan expense, advertising expenses and lower e-commerce shipping costs more than offset higher store-related lease and other costs. Net earnings were $13.1 million or $0.26 per share compared to net earnings of $15.7 million or $0.32 per share for the same period last year. Looking quickly at our balance sheet. At the end of the quarter, we had working capital of $149.6 million, including a strong cash position of $125.3 million and a healthy inventory level of $126.3 million. We had no long-term debt other than lease liabilities and no amounts were drawn under our bank credit facilities. In short, we remain well positioned to execute on our CapEx plan for the year. In the first 6 months of fiscal 2026, we had capital expenditures of $20.3 million with an overall budget of approximately $30 million for the year. The $30 million budgeted was earmarked for new stores, store renovations, technology, including the migration and launch of our enhanced e-commerce offering later this fiscal year and approximately $3.9 million investment in our distribution center fulfillment operations. At the end of July, we received the approval from the TSX Venture Exchange to renew our NCIB, permitting us to acquire up to approximately 10% of the public float of Class A nonvoting shares. During the 12 months of our prior NCIB, which expired August 4, 2025, we purchased 390,600 shares on the open market, returning $900,000 to shareholders. With that, we would now like to open the call to questions. Operator?

[Operator Instructions] The first question today comes from Edward O'Flynn with Parma Investments.

Eddie O'Flynn here from Parma. A little bit disappointing on a like-for-like basis in light of Roots and Groupe Dynamite. Could you talk us through the -- what year 1 looks like in terms of the strategic rollout of additional stores and give us some more color on store payback and return investments? That's my first question. Also, as has been pointed out in the past several times. The company is in a very advantageous position in terms of cash balance on the balance sheet. What are we going to do or what rather, what are you going to do in terms of maximizing shareholder value with this cash pile in terms of returns or other strategies around that.

Eddie, it's Andrea. Thank you for your question. In regards to our results and the competitors that you mentioned, very impressive results, certainly from our competition. And I think for us, a bright light as they're multiyears into their strategies and show that we, too, as we execute our strategy, which is just a few months old now, we will see same and perhaps even better results. So -- and yes, you're right, a big part of that strategy is around our store fleet and around getting the best locations possible and renovating our locations in some cases that haven't been touched in many, many years, if not decades. And as I mentioned, the store renovations that we have done are seeing excellent returns and excellent top line results as well as better-than-expected payback in most cases. And so we're quite confident in that continued strategy. We have 18 more stores either being opened or renovated or relocated the rest of this fiscal year. So the back half of our year is strong from that perspective. While we don't share externally the exact payback results, we're pleased at this point on the results we're seeing. In terms of the second part of your question, we believe the cash on hand right now, we're using to fuel this strategy. We believe the best return for shareholders is by driving up both our revenue and our profitability, which for us is the key focus. We will continue the NCIB, as Caroline mentioned. And otherwise, we continue to look at other options, but at this point, nothing new to share.

Thank you, Andrea. I'm conscious I don't want to take too much of your time. But on payback and return on investment, as a public company, it's uncommon to be that vague around what shareholders are getting for the capital to be deployed. What's the justification for not publishing any numbers around return on investment capital or IRR hurdles or anything like that we should be aware of how our capital is being spent, not just listen, trust us here. No other public company that I own takes that approach to things. Transparency here is key.

So at this point, we're not ready to share individual IRR per store, but you can be assured that we have a rigorous process internally to assess every single investment we make in stores. I can't comment on the disclosure of other companies that you have in your portfolio. But at this point, we're quite confident, as Andrea mentioned, in our strategy to invest in stores for the future.

This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks.

Thank you for joining us this morning. We look forward to speaking with you next quarter. Have a wonderful day.

The conference call has now concluded. You may now disconnect, and have a great day.