Reitmans (Canada) Limited (CX40.F) Q3 FY2026 Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Reitmans Canada Limited Fiscal 2026 Third 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 security 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 third 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 have that presentation open and would like to follow along, we'll get started on Slide 4. RCL has three distinct brands with their own unique value proposition. At the end of the third quarter, our footprint included 221 Reitmans stores, 84 RW&CO stores and 86 PENN. locations. Our national network of stores and robust e-commerce platform allow us to serve Canadians from coast to coast to coast. We had a strong third quarter with higher sales and higher profitability on an adjusted basis. Our net revenues were up 3.8% to $194.9 million due in part to improved traffic in the quarter. Gross profit increased to last year, while gross profit margin declined slightly due to increased promotional activity and foreign exchange. We're happy to report that our adjusted EBITDA was up more than 47% to $5.6 million in the quarter. As we moved further along in our five-year strategy, we incurred $1.4 million in strategic transformation costs during the quarter, lowering our net earnings for the period to $0.9 million compared to $2.1 million a year earlier. The multiyear strategy we announced back in April is aimed at reaching $1 billion in revenues and $60 million to $70 million in adjusted EBITDA on an annualized basis by the end of fiscal 2030. Over that time, we plan to reinvest roughly $100 million in growth initiatives with about 75% going towards our store network, including renovations, expansions and new stores, while 25% will be for upgrading our digital technology and modernizing our infrastructure. I'm pleased to provide an update on our strategic initiatives, starting with Reitmans, where customers responded very well to product offering and marketing initiatives delivering a strong quarter. Our capital investments in stores continue to deliver superior performance. During Q3, we opened two new stores, one in Clearwater Landing in Fort McMurray, Alberta and one at Dartmouth Crossing in Dartmouth, Nova Scotia. In addition, we completed five store refreshes, including two in British Columbia and one each New Brunswick, Quebec and Newfoundland. In PENN., our brand strategy is progressing well with clear improvements in branding and product modernization. Back in August, we launched an Elevated 360 Store Experience pilot in 12 stores. That pilot proved very successful with those 12 experienced stores outperforming the rest of the chain in the third quarter, thanks to stronger conversion rates and higher units per transaction. Subsequently, in October, we completed the rollout of the elevated service and stylist model across the rest of the stores. We opened two new stores in the quarter, including one at Complexe Pointe-Claire in Point Claire, Quebec and one at Bayers Lake in Halifax, Nova Scotia. We also refreshed three stores including one in Saskatchewan and two in Ontario. Moving to RW&Co. Our continued focus and disciplined execution began to show results in October, with encouraging momentum across channels. The launch of our new concept store in St. Bruno, Quebec with an important milestone, showcasing our refreshed brand direction and elevated assortments for both men and women. We're encouraged by the positive customer response to our new collections and the early impact of our strategic repositioning, reinforcing RW&Co's potential as a key growth engine for RCL. During the quarter, we opened a new store at Richmond Center in Richmond, BC and temporarily relocated our Toronto Eaton Center location to a pop-up space, while renovations are underway. I should add, as it relates to all three brands, that we remain on track to complete the migration and launch of our enhanced e-commerce offering to Shopify by the end of the fiscal year. The project will elevate our digital experience and deliver a more seamless journey across all customer touch points. During the quarter, activities were undertaken towards restructuring, and we established our transformation in motion office, which is responsible for driving the execution of our strategic transformation initiatives in support of our fiscal 2030 ambitions, serving as a strategy control tower, the office insurers initiatives are aligned with our operational and financial targets and focuses on measurable outcomes. And before handing the call over to Caroline, I'd like to inform our shareholders that our Board of Directors has recently formed a special committee comprised solely of independent directors to consider and assess moving RCL's listing from the TSX Venture Exchange to the Toronto Stock Exchange. We intend to inform shareholders, when appropriate, of the developments in the special committee's work. And with that, I will now turn things over to Caroline to discuss our financial results for the quarter in more detail. Caroline?

Thank you, Andrea, and good morning, everyone. Please note that all comparisons I'll be discussing are for the third quarter ended November 1, 2025, against results for the third quarter a year ago, which ended November 2, 2024. As usual, all dollar amounts discussed are in Canadian currency. Starting with our top line. We had net revenues of $194.9 million for the quarter, which was an increase of $7.2 million or 3.8% compared to the third quarter last year. Comparable sales, which include our e-commerce, were up 2.1%, primarily from an increase in transaction count. The higher net revenues resulted in a $2 million increase in our gross profit, which was $109.6 million for the quarter. However, gross margin declined to 56.2% from 57.3% a year ago. The 110 basis point decrease was driven mainly by higher markdowns and promotional activity along with a $1.6 million unfavorable impact on U.S. dollar-denominated purchases included in cost of goods sold. Adjusted EBITDA was $5.6 million, which was an increase of $1.8 million or 47.4% from the same quarter last year. Our higher gross profit in the quarter contributed to the increase, partly offset by higher SG&A expenses included -- including increases in store wages and benefits as well as store-related lease and other costs. Having said that, SG&A expense as a percentage of revenues did decrease versus last year. We had net earnings of $0.9 million or $0.02 per share compared to net earnings of $2.1 million or $0.04 per share for the same period last year. Turning to the balance sheet. We ended the quarter with $149.2 million in working capital, including a strong cash position of $190.4 million and a healthy inventory level of $129.6 million headed into the holiday season. We continue to carry no long-term debt other than lease liabilities and we had no borrowings outstanding under our bank credit facilities. Overall, we remain in a very strong position to advance our growth initiatives. I would also note that capital expenditures totaled $31 million over the first 9 months of fiscal 2026, and we now anticipate full year CapEx to come in around $35 million. Finally, a quick update on our normal course issuer bid. For the fiscal year-to-date, we purchased 292,300 shares on the open market, returning $0.6 million to shareholders. With that, we would now like to open the call to questions. Operator?

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Andrea Limbardi for any closing remarks.

Thank you, and thank you all for joining us today. We wish you and your loved ones a very happy holidays and a healthy and happy New Year. Thank you.

This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.