(TSX:
NWC): The North West
Company Inc. (the "Company" or "North West") announced today that
it has entered into an agreement with Giant Tiger Stores Limited to
sell 34 of the Company's Giant Tiger stores. The Company also
announced information on support office cost reductions in its
Canadian Operations, reported its unaudited financial results for
the fourth quarter ended January 31, 2020 and announced that
the Board of Directors have declared a dividend of $0.33 per share
to shareholders of record on March 31, 2020, to be paid on
April 15, 2020.
Giant Tiger Transaction
The Company and Giant Tiger Stores Limited
(“GTSL”) announced today that they have entered into a definitive
asset purchase agreement (the “GTSL Transaction”) under which GTSL
will acquire 34 of the Company’s 46 Giant Tiger stores (the
“Acquired Stores”) for cash consideration of $45 million and,
subject to meeting certain profitability milestones, total
contingent cash consideration payable of up to $22.5 million. Upon
closing of the transaction, the Company expects to recognize a
pre-tax gain ranging from approximately $20 million to $24 million
subject to certain working capital adjustments and finalization of
the purchase price including the estimation of the contingent
consideration.
Of the remaining 12 GT locations, the Company
will: (i) retain and operate five stores in northern market
locations, (ii) convert one store to a Valu-Lots clearance center
and (iii) close six stores in the second and third quarter of 2020.
The closed stores will result in a closing provision of
approximately $9 million which will be recorded in the first
quarter of 2020.
As a part of the GTSL Transaction, the Company
and GTSL will enter into reciprocal product supply and distribution
agreements related to the supply of food-related product by the
Company to the Acquired Stores and the supply of certain general
merchandise and food products by GTSL to the Company’s northern
Canada stores. These agreements will enable buying and
distribution efficiencies for both parties and will provide the
Company access to a stronger, expanded general merchandise
assortment.
“Our 20-year relationship with GTSL has been a
very important one and this new agreement creates the conditions
for mutual success going forward,” commented North West President
& CEO Edward Kennedy. “Specific to the Giant Tiger stores we
are selling to GTSL, we recognize that GTSL’s proven capability as
a leading Canadian-owned discount retailer, including their ability
to successfully franchise stores, will enable these locations to
reach their full performance potential. For North West, the GTSL
Transaction reinforces our commitment to focus on leading and
growing within our own core remote and rural retailing businesses
while fully leveraging the GTSL partnership.”
The GTSL Transaction is expected to be completed
in the second quarter of 2020, subject to the satisfaction of
customary closing conditions.
Support Office Cost Reduction
The Company also announced today that it will be
reducing administration costs in its Canadian Operations by
approximately $17 million on an annualized basis and that it
expects to record a provision of approximately $5 million in the
first quarter of 2020, related primarily to employee severance
costs. This cost reduction will largely take effect in the
first and second quarters of 2020 and is partially related to
recent and ongoing technology investments, and the impact of the
previously noted GTSL Transaction and related product supply and
distribution agreements. The Company plans to re-focus on the
core store selling activities in northern Canada and invest in
lower retail food pricing to help drive market share growth in this
region, beginning with an approximately $10 million in annualized
pricing investment over the next 12-18 months.
Financial Highlights
Fourth quarter consolidated sales increased 3.9%
to $553.1 million led by same store food sales gains and the impact
of new store sales largely driven by the November 1, 2019
re-opening of the Company's Cost-U-Less store in St. Thomas, USVI
which was destroyed by hurricane Irma in the third quarter of
2017. Excluding the foreign exchange impact, consolidated
sales increased 4.1% and were up 0.8%1 on a same store basis.
Food sales1 increased 5.2% and were up 1.5% on a same store basis
led by sales gains in northern Canada and Alaska stores ("northern
markets"). General merchandise sales1 increased 0.7% but were
down 1.7% on a same store basis as sales gains in northern markets
were more than offset by lower sales in Giant Tiger ("GT")
stores.
Gross profit increased 2.3% driven by higher
sales as the gross profit rate decreased 46 basis points compared
to last year. The decrease in gross profit rate was mainly
due to increased promotional pricing, largely in Giant Tiger
markets, and a higher blend of Cost-U-Less sales which carry a
lower gross profit rate consistent with a discount warehouse
format.
Selling, operating and administrative expenses
("Expenses") increased 0.2% but were down 93 basis points to last
year as a percentage to sales as a $5.2 million decrease in
share-based compensation costs and the impact of $3.2 million in
insurance gains were offset by higher expenses partially related to
new stores, the impact of support office restructuring costs in
International Operations, and higher depreciation and insurance
costs. Excluding the impact of the share-based compensation costs,
insurance gains, and support office restructuring costs, Expenses
increased $7.6 million or 43 basis points as a percentage to sales
partially due to the impact of new stores and higher depreciation
and insurance expense.
Earnings from operations increased $3.5 million
or 15.0% to $26.7 million compared to $23.2 million last year and
earnings before interest, income taxes, depreciation and
amortization (EBITDA2) increased $6.1 million or 13.9% to $50.4
million due to the gross profit and Expense factors previously
noted. Adjusted EBITDA2, which excludes the impact of
share-based compensation costs and the insurance-related gains,
decreased $2.3 million or 4.6% compared to last year and as a
percentage to sales was 8.6% compared to 9.3% last year as sales
gains and improvements in gross profit were more than offset by the
Expense factors noted above and lower earnings in GT stores.
Excluding the Giant Tiger results and impact of the International
support office restructuring costs, adjusted EBITDA increased $1.3
million or 2.7% mainly due to earnings gains in northern Canada and
Alaska, partially offset by lower earnings in Pacific region
stores.
Net earnings increased $3.3 million or 23.6% to
$17.3 million. Net earnings attributable to shareholders were $16.3
million and diluted earnings per share were $0.33 per share
compared to $0.27 per share last year due to the factors noted
above. Adjusted net earnings2, which excludes the impact of the
after-tax insurance-related gains and share-based compensation
costs, decreased 21.2% compared to last year due to the Expense
factors previously noted and lower earnings in GT stores.
Excluding the Giant Tiger results and the impact of the
International support office restructuring costs, adjusted net
earnings decreased $1.5 million or 7.5% mainly due to higher
depreciation and insurance costs as previously noted.
"Our core remote retail businesses were very
stable in the quarter and delivered a solid bottom line improvement
for the year," commented President & CEO Edward Kennedy.
"We were also very active with five new store openings that
increased our expense rate in the quarter but that give us growth
upside in 2020. Giant Tiger impacted Canadian results, as did
higher operating expenses at NSA due to use of more expensive,
third party aircraft. In 2020 this is being addressed through
an additional owned ATR aircraft and through improved cargo
execution."
Further information on the financial results is
available in the Company's 2019 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.
1 Excluding the foreign exchange impact2 See
Non-GAAP Measures Section of Management's Discussion &
Analysis
Fourth Quarter Conference
Call
North West will host a conference call results
on March 13, 2020 at 1:00 p.m. (Central Time). To
access the call, please dial 416-641-6104 or 800-952-5114 with a
pass code of 8679296. The conference call will be archived
and can be accessed by dialing 905-694-9451 or 800-408-3053 with a
pass code of 1201941 on or before April 12, 2020.
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, including the closing
of the GTSL Transaction which is subject to commercial risks and
closing conditions that are outside the control of the Company,
such are various third party consents which may cause the GTSL
Transaction to not close on the terms and conditions negotiated or
at all. 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, 2019. 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 249 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
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