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

Good morning, everyone. Welcome to Reitmans Canada Limited Fiscal 2027 Second Quarter Earnings Call. After management's remarks, this call will include a question-and-answer session when institutional investors and qualified equity analysts may ask questions. [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 but 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. Lombardi.

Thank you. Good morning, everyone. Joining me on the call today is Caroline Goulian ourselves Chief Financial Officer. Yesterday afternoon, we reported our financial results for the second quarter ended August 1, 2026. Our news release, financial statements and MD&A are available on our website and have been filed on SEDAR. The slide presentation for today's call is available on the Events and Presentations page of our website under the Financial and News heading. We will get started on Slide 4. We RCL operates 3 distinct brands, each with a clear and differentiated value proposition. At the end of the second quarter, our footprint included 216 Reitman stores and co-locations and 85 PENN stores. Our national network of stores together where e-commerce platform allows us to serve Canadians from coast to coast. Our sales performance in the second quarter varied by channel. Our net revenues and comparable sales, which include e-commerce were year-over-year. However, our retail store network remained resilient. Sales from comparable stores were up slightly, and we saw continued strong momentum from our recently renovated flagship locations. Meanwhile, e-commerce revenues are lower year-over-year, reflecting intentional reduction in clearance and promotional activity. The big story for us this quarter was our purposeful focus on gross margin expansion. Through stronger regular press selling, a more disciplined approach to promotions and tighter inventory management, we delivered a meaningful 160 basis point improvement in gross margin. On the expense side, we saw increases in occupancy costs, freight due to fuel surcharges related to the geopolitical circumstances and made investments in advertising and the development of a loyalty program. While higher operating expenses tempered our margin gains, we are encouraged by the resilience of our store network, the strength of our brands and the advancement of our long-term strategic priorities. Looking at the key highlights for each of our brands in the quarter, at Reitmans, we celebrated a significant milestone, our 100th anniversary. The brand's Leave Evolve campaign generated more than 365 million impressions and delivered its highest ad recall on record. The campaign also resonated strongly with consumers with 80% respondents associating it with a more modern rate mens and 77% with a younger brand image. Collaborations and partnerships with supermodel Coco Rocha, Quebec Actros, Catherine San oven, the Toronto Tempo and the McCord Stewart Museum reinforced our fashion credibility and cultural reliance. Collectively, these initiatives created a significant PR moment for the brand broadening its appeal and supporting future growth. Meanwhile, our new concept flagship store at Carrefour Laval just outside of Montreal, performed very well, posting double-digit sales gains compared to Q2 of last year. The renovated space offers an immersive and elevated retail experience were thoughtful design and the customer journey converge to transform how customers interact with the brand. Our W & Co performed well in the quarter with a more disciplined approach to pricing, assortment and product strategy. Improved pricing integrity and lower markdown penetration drove stronger margins. The brand's performance in the quarter gives us confidence that the brand and product strategies that are resonating with customers and building a stronger foundation for long-term growth. Early in the quarter, our W & Co completed the transformation of its Toronto Eaton Center store to their new concept introduced last fall in St. Bruno. The 7,000 square foot flagship store immediately saw a strong increase in sales, achieving double-digit sales growth for the quarter. In PENN, we continue to build momentum with stronger performance as the quarter progressed. We saw improved customer responses to key product and experience initiatives and continued traction across stores, digital, PR and social media. In particular, our new VA by additional dress collection has been met with great customer enthusiasm and full price sell-through. The elevated occasion-focused capsule is designed for customers seeking more refined fashion-forward pieces for special events, work occasions, celebrations and standout moments while maintaining the fit expertise and size inclusivity that we are known for at PENN. During our last quarter, I briefly touched on the challenging economic and geopolitical environment, including higher fuel costs, as I mentioned earlier. We expect those challenges to continue for the near term. While we are proudly Canadian, we source from around the world, and we have seen the impacts of higher oil prices and fuel costs on the freight side. Due to the volatility we have seen in recent months, it remains difficult to predict the impact higher fuel costs will have on our business going forward or how long these costs will be elevated. Regardless, we remain focused on advancing our strategy, building a stronger, more resilient business and importantly, being a destination Canadians rely on for finding the best quality fashion at the best value. I will now turn things over to Caroline to discuss our financial results in more detail. Caroline?

Thank you, Andrea, and good morning, everyone. Please note that all comparisons I will be discussing are for the second quarter ended August 1, 2026, and against results for the second quarter a year ago, which ended August 2, 2025. As usual, all dollar amounts discussed are in Canadian currency. On Slide 13, you can see that our net revenues for the quarter were down 1.9% to $211.8 million. Comparable sales, which include e-commerce net revenues decreased 1.5%. The decreases were attributable to lower transaction volume as well as reduced clearance activity compared to the same time last year. As Andrea said, the highlights for the quarter was how our deliberate actions on pricing and more selective and targeted promotions translated to increases in gross profit and gross margin. Gross profit increased $1.1 million to $123.9 million, while gross margin improved 160 basis points to 58.5% of net revenues. Adjusted EBITDA was $18.8 million, down from $21.4 million in Q2 of last year. The $2.6 million decrease was driven by a $4.5 million increase in SG&A expenses, which more than offset our gross profit gains. Contributing to the higher SG&A expenses for the quarter, we had a $1.6 million increase in store-related rents, occupancy and other costs. a $2.1 million increase in advertising expenses and freight with advertising being largely tied to our campaign and activities related to Reitman's 100th anniversary and a $1.2 million increase in project spending, primarily related to preliminary rework on the development of a loyalty program and continuing to improve our digital platform. Partly offsetting these increases, we have a $400,000 decrease in wages primarily due to the workforce reduction stemming from our strategic transformation. We had net earnings of $10.1 million or $0.20 per share compared with net earnings of $13.1 million or $0.26 per share in the prior year period. We had strategic transformation expenses of $1.1 million in the quarter related to employee termination benefits and consulting fees associated with restructuring efforts to evolve our operating structure. We did not have strategic transformation expenses in the same quarter a year ago. I would add that our probability for the year-to-date is ahead of last year. with adjusted EBITDA being up $2.7 million or 25%, while our net earnings increased $700,000 or 22.6% compared to the same time a year ago. Turning to the balance sheet. We closed the quarter with $149.2 million in working capital supported by a strong cash position of $152.7 million. Inventory at quarter end totaled $119.7 million, which was down 5.2% year-over-year, reflecting our disciplined approach to inventory management. We continue to carry no long-term debt other than lease liabilities and with no amounts drawn on our bank credit facilities. Finally, under our normal course issuer bid for the year-to-date ended or repurchased 295,300 Class A nonvoting shares, returning $600,000 to shareholders. On July 30, we announced the renewal of our NCIB. Under the renewal, the company may acquire up to 3 million Class A nonvoting shares over the 12 months period spanning August 2026 to August 4 2027, representing less than 10% of the public float of the Class A shares. That concludes my financial review. We would now like to open the call to questions. Operator?

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] One moment, please. There are no questions at this time. I will now turn the call over to Andrea Limbardi for closing remarks.

Thank you for joining us this morning. We look forward to speaking with you in our next quarter in December.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.