(TSX:
NWC): The North West
Company Inc. (the "Company" or "North West") today reported its
unaudited financial results for the fourth quarter ended
January 31, 2019. It also announced that the Board of
Directors have declared a dividend of $0.33 per share, an increase
of $0.01 or 3.1% per share, to shareholders of record on
March 29, 2019, to be paid on April 15, 2019.
"Fourth quarter sales were very robust across
most banners offset by expense pressures and one-time business
disruptions. Our airline continued to invest to bring aircraft
maintenance in-house. This need was reinforced by the extended
downtime of one of our ATR aircraft due to delays with third party
maintenance providers, which in turn required the use of higher
cost third-party aircraft," commented President & CEO Edward
Kennedy. "Our focus for 2019 is on driving same store sales growth
that leverage more positive economic conditions in the north and in
key Caribbean markets. We will cycle through cost inflation with
the exception of higher insurance rates which will be offset by
growth".
Financial Highlights
Fourth quarter consolidated sales increased 7.1%
to $532.5 million led by same store sales gains in International
Operations, the impact of foreign exchange on the translation of
International Operations sales and new stores in Canadian
Operations. The early issuance of the February Supplemental
Nutrition Assistance Program ("SNAP") benefit payments in January
due to the U.S. Government shut-down and the re-opening of two
stores in the British Virgin Islands that were previously closed as
a result of the hurricanes last year were also factors contributing
to the sales gains in International Operations. Excluding the
foreign exchange impact, consolidated sales increased 4.5% and were
up 4.0%1 on a same store basis. Food sales1 increased 4.6% and were
up 4.6% on a same store basis and general merchandise sales1
increased 3.5% and were up 2.0% on a same store basis. These gains
were partially offset by the temporary closure of a NorthMart store
in Iqaluit, Nunavut due to a fire and the disposition of a stand
alone Tim Hortons in Canadian Operations, and the closure of a
Cost-U-Less ("CUL") store in Kauai, Hawaii in the first quarter
this year.
Gross profit increased 5.4% driven by higher
sales but was partially offset by a 51 basis point decrease in
gross profit rate. The decrease in gross profit rate was primarily
due to competitive pricing pressures and changes in sales blend in
International Operations. Selling, operating and administrative
expenses increased 15.3% and were up 191 basis points as a
percentage to sales. This increase was mainly due to higher
share-based compensation costs, utilities and insurance expense.
The $7.5 million increase in share-based compensation costs is
primarily due to mark-to-market adjustments resulting in an option
expense of $3.6 million this year compared to an option expense
recovery of $2.8 million last year. The impact of new stores, an
increase in North Star Air Ltd. expenses and the impact of foreign
exchange on the translation of International Operations expenses
were also factors.
Earnings from operations decreased 33.0% to
$21.6 million compared to $32.2 million in the fourth quarter last
year and earnings before interest, income taxes, depreciation and
amortization (EBITDA2) decreased 20.8% to $36.9 million mainly due
to the increase in expenses previously noted. Excluding the impact
of share-based compensation option expense, adjusted EBITDA2 was
down 7.6% compared to last year and as a percentage to sales was
7.6% compared to 8.8% last year.
Income tax expense decreased $9.0 million to
$3.8 million and the consolidated effective tax rate was 21.4%
compared to last year at 44.0%. This decrease was primarily due to
U.S. tax reform in the fourth quarter last year and the blend of
earnings in the International Operations across the various tax
rate jurisdictions. The most significant impact of U.S. tax reform
was a reduction in the federal corporate income tax rate from 35.0%
to 21.0% effective January 1, 2018 and the implementation of a
one-time transition tax on undistributed earnings in foreign
subsidiaries. These changes resulted in additional income tax
expense of $5.8 million in the fourth quarter last year.
Net earnings decreased $2.4 million or 14.8% to
$13.9 million. Net earnings attributable to shareholders of the
Company were $13.0 million and diluted earnings per share were
$0.27 per share compared to $0.31 per share last year due to the
factors noted above. Excluding the impact of the share-based
compensation option expense and U.S. tax reform in the fourth
quarter last year, adjusted net earnings2 decreased 7.5% compared
to last year due to the higher expenses as previously noted.
Further information on the financial results is
available in the Company's 2018 fourth 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.
2017 Fourth Quarter Income Tax
Revision
As previously announced on April 11, 2018, in
connection with the issuance of the 2017 annual audited
consolidated financial statements for the year ended January 31,
2018, the Company recorded an additional $1.9 million income tax
expense from the amounts recorded in the fourth quarter 2017
unaudited interim period condensed consolidated financial
statements as further described below. The Company reported its
2017 fourth quarter unaudited consolidated financial statements on
March 15, 2018. On April 2, 2018, prior to the issuance of the
annual audited consolidated financial statements, the U.S.
Department of the Treasury and the Internal Revenue Service issued
notice 2018-26 providing additional guidance on the calculation of
the transition tax. As a result of this additional guidance, the
Company recorded an additional estimated transition tax of $1.9
million under section 965 of U.S. Tax Reform on accumulated
undistributed earnings in foreign subsidiaries in its annual
audited consolidated financial statements for the year ended
January 31, 2018. This adjustment increased income tax expense and
decreased net earnings by $1.9 million (US$1.5 million) from the
amounts previously reported in the fourth quarter consolidated
financial statements for both the fourth quarter and the year ended
January 31, 2018. The comparative figures referenced in this news
release and in the fourth quarter condensed consolidated financial
statements for the three and twelve months ended January 31, 2018
have been revised to include the impact of the $1.9 million
increase in income tax expense.
Fourth Quarter Conference
Call
North West will host a conference call for its
fourth quarter results on March 14, 2019 at 1:30 p.m. (Central
Time). To access the call, please dial 647-484-0476 or 866-519-2796
with a pass code of 096742. The conference call will be archived
and can be accessed by dialing 905-694-9451 or 800-408-3053 with a
pass code of 8616095 on or before April 14, 2019.
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, 2018. 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 245 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$2.0
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 ____________________1 Excluding the foreign
exchange impact
2 See Non-GAAP Measures Section of Management's Discussion &
Analysis
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