Richelieu Hardware Ltd. (RCH) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to Richelieu Hardware Fourth Quarter Results Conference Call. [Operator Instructions] Also note that this call is being recorded on January 16, 2025. [Foreign Language].

Thank you. Good afternoon, ladies and gentlemen, and welcome to Richelieu's conference call for the fourth quarter and the year ended November 30, 2024. With me is Antoine Auclair CFO and COO as of now. As usual, note that some of today's issue include forward-looking information, which is provided with the usual disclaimer as reported in our financial filings. The year 2024 ended well for Richelieu, with good results in the fourth quarter, including sales up 5%, driven almost equally from internal growth and acquisition. For the year, our total sales were $1.8 billion, which we are pleased with given the renovation slowdown and the price deflation on some commodity products. Our team brought its expertise and drive to meet the challenge with continuous product innovation, second to none service and customer support. The diversification of our market segment -- sorry, I've lost my page. The diversification of our loss segments and the expansion of our operation in Canada and in the U.S. with a strategically well-established network gives us the strength to face the market and economic condition. We pursued our acquisition strategy in the fourth quarter, closing our fourth acquisition since the beginning of the year. Panexel of November 13. We are looking forward to integrate this new Quebec-based business located in Boucherville, which specializes in surfaces and decorative panels, adding new products for our Eastern Canadian market. In addition, we signed 3 agreements in principle in the fourth quarter which were successfully concluded in December and early January 2025. We acquired 3 new fully compatible businesses. Mill Supply on December 1 located in Dartmouth and Charlotte town, Darant Distributing in Denver, Colorado adding a location in this long time, targeted strategic market where we did not have a physical presence and Midwest specialty products in Minneapolis, Minnesota, as a result of this acquisition, we now operate 2 distribution centers in the Minneapolis, while adding product lines related to the counter-top manufacturing market. Together, the 7 acquisition closed in 2024 and early 2025 will bring an additional $100 million in annual sales, boost our market presence and diversify and expand our product lines. Antoine will now go over the financial highlights for the quarter and the year. Then I will conclude and we will take our questions Antoine.

Thanks, Richard. Our fourth quarter sales reached $476 million, up 5%. Sales to manufacturers stood at $421.6 million, up 7.2% with 4.1% from internal growth and 3.1% from acquisitions. In the hardware retailers and renovation superstores market, sales were down 9.7%. In Canada, sales amounted to $275 million, an increase of $7.8 million or 2.9%. Our sales to manufacturers reached $230 million, up 4.4%. As for the retailers market, sales stood at $45 million, down 4% with last year. In the U.S., sales totaled USD 146 million , up 7.1%. Sales to manufacturers reached USD 139 million, up 10%, evenly split between internal growth and acquisitions. In the retailers market, sales were down 29.6%. Total sales in the U.S. reached CAD 201 million, an increase of 7.9%, representing 42% of total sales. Total sales for 2024 reached $1.8 billion, an increase of 2.5%, of which 2.2% from acquisition and 0.3% from internal growth. Sales to manufacturers reached $1.6 billion, up 4.6%, of which 2% from internal growth and 2.6% from acquisitions. Sales to hardware retailers were down by 10.9%. In Canada, sales totaled $1 billion comparable to last year. Our sales to manufacturers amounted to $873 million, up by 1.8%, mostly from acquisitions. Sales to hardware retailers and renovation superstores were $191 million, down 7.9%. In the U.S., sales amounted to USD 575 million up 5%, of which 2.1% from internal growth and 2.9% from acquisitions. They reached CAD 784 million, up 6%, accounting for 43% of total sales. Sales to manufacturers reached USD 544 million, an increase of 7.1% and sales to hardware retailers were down by 22.1%. Fourth quarter EBITDA amounted to $54.3 million compared to $58.8 million in the fourth quarter of 2023, down 7.7%. Our gross margin was slightly lower than last year, and the EBITDA margin stood at 11.4%, compared to 13% in the same period last year. This decline was primarily driven by a lower sales price on certain products higher cost of goods sold in specific categories as well as the impact of our expansion projects that are still in ramp-up mode. Fourth quarter net earnings attributable to shareholders totaled $24.4 million compared with $28.5 million last year. Diluted net earnings per share reached $0.44 compared with $0.51 in 2023. For the year, net earnings reached $86 million, a decrease of 23.1% and $1.53 per share compared to $1.98 per share last year. Fourth quarter cash flow from operating activities before net change in noncash working capital balances were $43 million or $0.77 per share. Net change in noncash working capital balance used cash flow of $15.8 million. Consequently, we generated $27.2 million in cash flow from operating activities compared with $72.7 million for the fourth quarter of 2023. For the year, we generated $165.7 million in adjusted cash flow from operating activities. Throughout the year, we paid dividends of $33.5 million, with $8.3 million paid in the fourth quarter. We also repurchased common share for $38.7 million, including $20 million in the fourth quarter. In total, we distributed a total of $72.2 million to our shareholders this year. Investing activities used cash flow of $51 million, which included $20 million primarily for our 4 business acquisitions completed in fiscal 2024. Additionally, $30 million was spent on operational equipment to maintain and improve efficiency, as well as on distribution center expansion projects, including major investments in our new 250,000 square foot building in Calgary. Now I'll now turn it over to Richard.

Thank you, Antoine. Our results affect the efficiency of our business model, which we want always to be well adapted to our customer needs. Our value-added distinctive service, the strength of our network, the performance of our website, richelieu.com and our capacity for ongoing innovation. We have a unique product offering, featuring diversity, quality and depth in our product clients. The depth of our product lines is very variable. It enables us to respond to the increasing specialized needs of our customers. To increase -- in order to increase sales and to distinguish ourselves in the market. Over the coming period, we will continue to build on our lead developing synergies with our recent acquisition. Our strength must benefit each acquired business and vice versa. We will do our utmost to preserve and improve our margins and continue to invest in innovations and value-creating acquisition to prepare the future. Our strengths are multiple, and we continue to optimize them. In conclusion, I'm pleased to announce to you that following the Board of Director approval, Antoine Auclair, Chief Financial Officer; of the corporation since 2011, will now also assume the function of Chief Operating Officer in addition to his current responsibility. With this new role, Antoine will allow me to dedicate more of my time to strategy and business development while continuing to leverage his leadership and expertise to ensure that the company continues to achieve solid results. Antoine, would you like to add something to that?

Yes. Thanks for your trust, Richard. I think that with the growth and multiple acquisition, we were at a point where we could really benefit from streamlining the organization and give the chance to Richard spend is time and focus on strategy and market development. So I'm up for the challenge.

Very good Antoine. Thanks, everyone, for listening. We'd now be happy to answer your questions.

[Operator Instructions] First, we will hear from Hamir Patel at CIBC Capital Markets.

Good afternoon and congratulations Antoine on the new role.

Thanks Hamir.

Richard, maybe we could just start first talking about the sort of price volume dynamics in the quarter. I know there's noise on the retailer side because of the U.S. Lowe's business. But at least when I look at the manufacturer side, in Q4, you kind of had organic sort of 4% growth. What would be the breakdown there between price and and volume? Because it does -- from elsewhere, it looks like the price comps were still negative in Q4?

Yes. We don't expect any price increases in Q4. So basically, the business for the pricing is going to be stable. As far as the market, though it seems that the market is doing okay. And let me show you, I think we're more aggressive than ever in order to seize as much sales as we can because in a more competitive market are -- they're starting and the Richelieu's is really the target. But we do really well with the sales force that we have, our website and anything else. And the same thing happened in the U.S. where -- because we have to understand also that the U.S. is 10x the people, but also 10x time more competition. So in the circumstances, Richelieu does very, very well. And we expect -- except for the -- not to mention the Trump, whatever is going to happen next week. We expect for us to achieve a very good result in the course of the next 12 months.

And Hamir -- the year -- for the retailers, most of the price reduction behind us took place at the beginning of the year. So -- soon, we're going to -- those will be behind us.

Okay. And based on maybe what's been, obviously we'll see what happens next week on tariffs. But Richard, based on sort of existing sort of communications of pricing, are you seeing signs of prices increasing yet?

I think that will happen. We hear -- it's not official yet, but the suppliers are just starting to discuss about the new pricing, mainly the North American pressing, but everything is in the hold because like us, they wait till next week, what's going to happen. So they might have to increase their price by 20% next week or 25% instead of 2% or 3%. So basically, everything is on hold, but the market is ready and is desperate, for price increases because the cost -- operating costs of all the companies, all our suppliers, whatever they're in Europe, in China or in North America, they have cost increase in 2 or 3 years, and they did not have the possibility to increase the pricing. So people really need this to happen soon. So basically, we're going to see what's going to happen next week. But after that, something should start to move.

It's a question of time, yes.

Okay. And I mean, Richard, I know we've had -- there's been tariff talk since the election in November. So given your strong balance sheet, have you positioned yourselves after the end of the quarter with perhaps staging or having more inventory in advance of tariffs, which maybe could drive some higher margins near term?

We don't have an inventory in advance because I think we have plenty of inventory. Whatever will happen that we're going to pass through -- the tariff will be passed through the customers. So basically -- and regarding our competition, we're all the same boat. They buy basically from the same country and some same sources and many of our real U.S. supplier that are used to manufacturer in the U.S., the manufacturer in Mexico now. So that would have quite an effect in the market because for example, in the Rev-A-Shelf business, which is a kitchen accessory business, they are all made in -- that's a big business for us. It's all made in Mexico and our competitors also sell the same products. So we're all in the same path. But on top of that, I think the big advantage will Richelieu is our ability to react fast to whatever will happen and our balance sheet, as you said earlier.

And also our product offering, because alternate products -- if a product comes from Canada or another country with tariffs, we can look at alternative products. So -- we have over 130,000 products. So we definitely have a good competitive advantage.

It's going to be a challenge. We're going to have fun.

Okay. That's helpful. And Antoine, are you able to just maybe update us what the geographic mix of your products are right now?

Almost 45% in the U.S. as we speak.

Yes, 43%.

No, I meant for the products when you're sourcing products from outside of...

Okay, sorry, 25% from Asia, 15% from Europe and 60% from North America.

Okay. Perfect. That's helpful. And just the last question I had, Richard, when you look at margins, 11.4% in Q4 looks like they kind of almost picked up 10 basis points each of the last 3 quarters. Could -- is that -- should we expect that slow steady kind of 10 basis points each quarter, gradual over '25. And where is that long-term margin going?