(TSX:NWC):
The North West Company Inc. (the "Company" or
"North West") today reported its unaudited financial results for
the third quarter ended October 31, 2017. It also
announced that the Board of Directors have declared a dividend of
$0.32 per share to shareholders of record on December 29,
2017, to be paid on January 15, 2018.
"North West was tested by climate events in the quarter
that demonstrated the resilience of our people and their dedication
to service," commented President & CEO Edward Kennedy. "At the
same time other areas of our business, most notably our convenience
categories in northern Canada and Alaska, continued to deliver
exceptional growth and helped to offset the challenges we
faced."
Financial Highlights
Sales increased 3.3% to $479.3 million compared
to $464.0 million in the third quarter last year due to the
acquisition of Roadtown Wholesale Trading Ltd. ("RTW") in the
British Virgin Islands and the acquisition of North Star Air Ltd.
("NSA"). Same store sales gains in International Operations
were also a factor. These gains were partially offset by
store closures related to hurricanes in the Caribbean.
Excluding the foreign exchange impact, consolidated sales increased
5.1% and were up 0.4%1 on a same store basis. Food sales1 increased
3.1% and were up 0.8% on a same store basis. General
merchandise sales1 increased 0.2% but were down 1.2% on a same
store basis.
Earnings from operations decreased 18.6% to
$31.8 million compared to $39.1 million in the third quarter last
year. Gross profit dollars were up 7.0% driven by the
acquisition related sales growth and a 105 basis point increase in
gross profit rate compared to last year. The increase in the
gross profit rate is mainly due to sales blend changes.
Selling, operating and administrative expenses increased 17.3% and
were up 284 basis points as a percentage to sales. This
increase was due to the RTW and NSA acquisitions, higher share
based compensation costs and new stores in Canadian
Operations. Further information on the acquisitions of RTW
and NSA is provided in Note 17 to the 2017 third quarter unaudited
interim period condensed consolidated financial statements.
The impact of the store closures in International Operations
related to hurricanes in the Caribbean was offset by the settlement
of a fire insurance claim in Canadian Operations.
The increase in share-based compensation costs
of $8.6 million was largely due to option expense of $2.4 million
this year compared to a recovery of $4.0 million last year. A
substantial portion of the options granted are accounted for as a
liability and are re-measured based on the share price at each
quarterly reporting date. The higher option expense this
quarter was due to an increase in the share price in the quarter
this year compared to a decrease in the share price in the third
quarter last year.
Earnings before interest, income taxes,
depreciation and amortization (EBITDA2) decreased $5.5 million or
10.8% to $45.6 million as the higher share-based compensation costs
noted above more than offset the impact of the RTW and NSA
acquisitions. Excluding the impact of share option expense,
adjusted EBITDA2 was up 1.7% compared to last year and as a
percentage to sales was 10.0% compared to 10.2% last year.
Net earnings decreased 24.5% to $21.0 million
and diluted earnings per share were $0.42 per share compared to
$0.57 per share last year due to the factors noted above. Excluding
the impact of share-based compensation option expense, adjusted net
earnings2 decreased 2.0%.
Further information on the financial results is
available in the Company's 2017 third quarter Report to
Shareholders, Management's Discussion and Analysis and unaudited
interim period condensed consolidated financial statements which
can be found in the investor section of the Company's website at
www.northwest.ca.
Hurricane Irma and Maria Impact
In September 2017, the Company's CUL stores in
St. Maarten, St. Thomas and St. Croix, and the RTW operations in
the British Virgin Islands ("BVI") were impacted by hurricanes Irma
and Maria. These category five hurricanes had a devastating
impact on the people and infrastructure on these and other islands
in the Caribbean. Following is a summary of the impact on our
operations:
- Our 36,089 square foot store in St. Maarten sustained
significant damage and it is expected to take until the third
quarter of 2018 to repair. Part of the store representing
approximately 35% of selling square footage re-opened on November
17, 2017, offering a limited assortment of grocery and general
merchandise.
- In St. Thomas, USVI, a complete rebuild of the 42,535 square
foot store is required and is expected to take approximately 18
months to complete.
- Our store in St. Croix, USVI, was closed for seven days and
re-opened operating on generator power.
- In the BVI, six of our nine RTW stores, including our largest
supermarket and our Cash 'n Carry store, are operational.
These stores represent approximately 80% of total selling square
footage. Three remaining stores are expected to re-open in 12
to 18 months.
The store closures negatively impacted sales and
EBITDA in the quarter by approximately $11.5 million and $1.6
million respectively. On an annualized basis, these stores
represent approximately $92 million in sales and $6.6 million in
EBITDA. Infrastructure repairs, including the restoration of
electricity and clean-up efforts, are on-going and the timelines
for completing this work and the impact on the economy is currently
indeterminable.
The timelines for completing the repair and
reconstruction of our stores will depend on many factors including
the state of public infrastructure and the availability of building
materials and qualified trades people. The Company expects
that its insurance proceeds will be sufficient to cover the repair
and reconstruction costs. The Company also has business
interruption insurance that will help mitigate the earnings impact
of the store closures however, the settlement of the business
interruption claim is expected to take approximately 12 to 15
months to complete. The settlement of these claims and the
receipt of payments are expected to result in insurance-related
gains in the consolidated statements of earnings.
Third Quarter Conference
Call
North West will host a conference call for its
third quarter results on December 12, 2017 at 1:30 p.m.
(Central Time). To access the call, please dial 416-406-0743
or 800-898-3989 with a pass code of 6039304. The conference
call will be archived and can be accessed by dialing 905-694-9451
or 800-408-3053 with a pass code of 7590731 until January 12,
2018.
Notice to Readers
Certain forward-looking statements are made in
this news release, within the meaning of applicable securities
laws. These statements reflect North West's current expectations
and are based on information currently available to management. The
words may, will, should, believe, expect, plan, anticipate, intend,
estimate, predict, potential, continue, or the negative of these
terms, identify forward-looking matters. These statements speak
only as of the date of this press release. The actual results could
differ materially from those anticipated in these forward-looking
statements.
Reliance should not be placed on forward-looking
statements because they involve known and unknown risks,
uncertainties and other factors, which may cause the actual
results, performance, capital expenditures or achievements of North
West to differ materially from anticipated future results,
performance, capital expenditures or achievement expressed or
implied by such forward-looking statements. Factors that could
cause actual results to differ materially from those set forth in
the forward-looking statements include, but are not limited to,
business performance, fluctuations in interest rates and currency
values, legislative and regulatory developments, legal
developments, the occurrence of weather-related and other natural
catastrophes, changes in tax laws, and those risks and
uncertainties detailed in the section entitled Risk Factors in
North West's Management's Discussion and Analysis and Annual
Information Form, both for the year-ended
January 31, 2017. The preceding list is not an
exhaustive list of possible factors. These and other factors should
be considered carefully and readers are cautioned not to place
undue reliance on these forward-looking statements. North West
undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise, other than as required by applicable
law.
Company Profile
The North West Company Inc., through its
subsidiaries, is a leading retailer of food and everyday products
and services to rural communities and urban neighbourhoods in
Canada, Alaska, the South Pacific and the Caribbean. North West
operates 236 stores under the trading names Northern, NorthMart,
Giant Tiger, Alaska Commercial Company, Cost-U-Less and RiteWay
Food Markets and has annualized sales of approximately CDN$1.8
billion.
The common shares of North West trade on
the Toronto Stock Exchange under the symbol NWC.
For more information
contact:
Edward Kennedy, President and Chief Executive
Officer, The North West Company Inc.Phone 204-934-1482; fax
204-934-1317; email ekennedy@northwest.ca
John King, Executive Vice-President and Chief
Financial Officer, The North West Company Inc.Phone 204-934-1397;
fax 204-934-1317; email jking@northwest.ca
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