Reitmans (Canada) Limited (RTMAF) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the Reitmans (Canada) Limited Fiscal 2025 Fourth 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 consult the MD&A for this quarter and the company's other filings with the Canadian securities regulators on SEDAR+. 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. We reported our fourth quarter and full year results yesterday afternoon post market. Our news release, financial statements and MD&A are available on our website and have been filed on SEDAR+. We also posted a slide presentation on the Events and Presentations page of our website under the Financials and News heading. In addition to discussing our financial and operational results this morning, we're excited to present highlights from our new 5-year strategy. And so we do urge you to find our slide presentation on our website and follow along. Slide 4 of that presentation highlights each of our 3 brands and provides store count for each brand at year-end with 222 Reitmans branded stores, 82 RW&CO stores and 86 PENN. Pennington locations. RCL is a proudly Canadian company with a strong national presence. Slide 5 shows you the distribution of our 390 stores at year-end for each of our 3 brands by province and territory. Our strong store network across the country and our robust e-commerce platform makes us well positioned to serve customers from coast-to-coast-to-coast. While we are proudly Canadian, as you can see on Slide 6, we source from around the world. We have long understood that depending on a single source or region poses inherent risks. Geopolitical tensions, natural disasters and unexpected events can disrupt even the most efficient supply chains. With our strong and diversified supply chain, we have mitigated these risks to ensure a reliable flow of products to our distribution center, our stores and our customers while maintaining exact same standards in all elements of production. Now taking a look at our fiscal 2025 year, starting with our progress on a couple of key initiatives. As part of our continued focus on advancing and transforming our supply chain operations, in May of last year, we announced the replacement of the existing 6 sorters at our Montreal distribution center with the SORTRAK inventory systems. With an objective of optimizing store inventory management, the SORTRAK system improves efficiency by reducing item handling and maximizing space utilization. We're proud to report that the implementation process was smooth and has been successfully completed. We also made the strategic decision to end our Thyme Maternity and RCL market business units in January of 2025. Ensuring our teams and our resources are laser-focused on our 3 core brands, Reitmans, RW&CO and PENN is key to executing our ambitious strategy that I will be sharing later on in this presentation. In fiscal 2025, we had an amazing Black Friday and Cyber Monday events, which were among our best ever, and these were complemented by a strong lead up to Christmas and Boxing Week. The success of these shopping events helped counter the effects of warmer weather in November and early December, which had otherwise delayed consumers from transitioning to winter apparel. We ended the year with net revenues of $773.8 million and gross profit of $435 million, which represented a 200 basis point improvement in gross profit margin. For the year, growing from 54.2% to 56.2%. Our adjusted EBITDA for the year was $25.4 million with net earnings of $12.1 million. I will now turn things over to Caroline to discuss our financial results for the fourth quarter before I come back to introduce our new 5-year strategy. Caroline?

Thank you, Andrea, and good morning, everyone. Please note that all comparisons I will be discussing are for the fourth quarter ended February 1, 2025, against results for the fourth quarter a year ago, which ended February 3, 2024, and which included an additional week due to the company's floating year-end. As usual, all dollar amounts discussed are in Canadian currency. On Slide 11, we see that in the fourth quarter, we had net revenues of $204.8 million, which was down 2.9% when excluding the extra week in the prior year period. The 2.9% decrease was mostly due to a slightly lower store count year-over-year. Our comparable sales, which include e-commerce net revenues decreased 0.2% with a slight variance being attributable to unseasonably warm weather in the first half of the quarter, delaying sales of winter apparel. Our gross profit decreased by $8.7 million to $106.2 million, mainly due to 1 less week compared to the prior year period. Our gross profit margin of 51.9% was on par with the prior year period as we maintained strong inventory management and continued our disciplined approach to markdowns. Adjusted EBITDA for the quarter was negative $2.6 million versus $1.7 million in the prior year. The decrease of $4.3 million was due to the decrease in gross profit. Our SG&A expenses were down 1.6% in the quarter, mainly due to the inclusion of the additional week in the prior year quarter and lower e-commerce shipping costs, partly offset by higher software expenses and pension costs related to the wind up of the pension plan. We had a net loss of $4.2 million or $0.08 per share for the quarter compared to breaking even a year ago. We finished the quarter and the year with working capital of $165.7 million compared to $154.4 million a year earlier. At year-end, we had a strong cash position of $158.1 million and $132.9 million in inventory. We also had no long-term debt other than lease liabilities and no amounts were drawn under the company's bank credit facilities. That completes my review of our financials. I will now turn the call back over to Andrea to introduce our new 5-year strategy. Andrea?

Thank you, Caroline. Over the course of the last several months, we have thoroughly evaluated our company's strengths, challenges and opportunities. We developed a multiyear strategy designed for our future. We are now launching our new strategy, and I'm pleased to share key highlights with you this morning. Our ambition is to reach $1 billion in annual revenues by the end of fiscal 2030 with an adjusted EBITDA to grow to between $60 million and $70 million by the end of that same period. We expect to reinvest approximately $100 million in growth initiatives over the next 5 years to reach those targets, reflecting our commitment to creating long-term value for our shareholders while enhancing our competitive position in the retail landscape. As you can see on Slide 16, annual revenues of $1 billion by the end of fiscal 2030 would represent a compounded annual growth rate of 5.3%. In terms of drivers, RW&CO represents our largest growth opportunity, while we expect to grow market share at Reitmans. Meanwhile, at PENN, we plan to own and maintain the plus size market. Importantly, just by growing our annual revenues to $1 billion organically, we expect to be able to grow our adjusted EBITDA from $25.4 million today to between $60 million and $70 million by the end of fiscal 2030, representing a compounded annual growth rate of 20.7%. In addition to the top line growth, the higher adjusted EBITDA would be achieved through increasing efficiencies and improving our product speed to market while maintaining our inventory discipline. We are focused on driving long-term profitable growth through our multichannel growth strategy anchored around 3 strategic pillars as follows: one, drive accelerated brand growth; two, fuel that growth with modernization; and three, ignite high performance. I will provide a high-level summary of each. First, we will expand our 3 great brands and capitalize on their ultra- loyal customer bases. We will be investing significantly in our stores, including store renovations and expansion as well as selectively and strategically opening new stores. Overall, we expect to grow our square footage by approximately 10% by the end of fiscal 2030. At the same time, we would look to drive more productivity per square foot, all while operating approximately 400 total stores. At the end of the day, we want to make sure we have the right store at the right place, making the right amount of money. With regards to RW&CO, we believe there is a white space in the Canadian market for elevated and accessible menswear as well as an opportunity to further drive our women's offering. As such, we plan on doubling our Men's business while driving double-digit growth in Women's by fiscal 2030. We aim to fuel our brand growth through continued modernization. While we've already made good progress, we have further investments and initiatives planned to streamline and improve systems and processes for faster customer-centric operations. Our objectives under this pillar include improving our product speed-to-market, enhancing our digital experience, which will involve a newly designed front-end e-commerce storefront for all 3 of our brands and continuing to automate processes to drive efficiencies. Under our third pillar, we look to ignite high performance across our organization and empowering creativity at the heart of our Fashion business. We will strengthen our employee value proposition by continuing to build a compelling and rewarding workplace that helps us attract, retain and empower top talent. And we will elevate our brand and market position to inspire employees, customers and other stakeholders, including engaging more with shareholders. To execute this strategy, we plan to reinvest approximately $100 million in growth initiatives over the next 5 years. Approximately 75% of this spend is earmarked for investing in our stores, including renovations, expansions and new stores. The other 25% will be invested in modernization of digital technology and overall company infrastructure. We are confident that this new strategy will set RCL on a strong trajectory for profitable organic growth. By leveraging opportunities within each of our brands and focusing on operational excellence, we strive to not only achieve our financial goals, but also deliver sustainable value to our shareholders. With that, we would like to now open the call to questions.

[Operator Instructions] The first question today comes from Jesse Gamble with Donville Kent Asset Management.

Andrea, main question is just on SG&A expense as a percent of revenue and how you and your CFO view that and the trends versus competitors and where that number should be?

Thanks, Jesse, and I appreciate the question. We see an opportunity with our SG&A. Our SG&A was a little lower than last year when we look at a 52-week comparable lens. Having said that, one of our focuses this year is to dive in deeper in our SG&A and see where we can find more efficiencies. It's part of our strategy when we talk about automating processes to drive further efficiencies and looking at it in a few other ways as well. So great question and something that's important to us for sure.

[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. Thank you, everyone, for joining us this morning. We appreciate your support and look forward to speaking with you again next quarter. Have a great day.

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