(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, 2022. It also announced that the Board of
Directors has declared a dividend of $0.38 per share to
shareholders of record on December 30, 2022, to be paid on
January 16, 2023.
“We are pleased with our results in the quarter
considering the negative impact of high inflation this year and the
comparison to COVID-19-related sales and earnings last year,”
commented President and CEO Dan McConnell. “We have been able to
hold our ground at the top-line, particularly as our customers
shifted their discretionary spending towards essential items. We
are working with our suppliers and carriers to help mitigate the
inflationary pressures, including our Price-Drop and Price-Lock
promotions on everyday items. We remain focused on being in-stock
on essential products and providing the best value to our customers
within this high inflation environment.”
Financial Highlights
Sales Third
quarter consolidated sales increased 6.0% to $586.7 million as a
result of higher inflation in Canadian and International Operations
and the impact of foreign exchange on the translation of
International Operations sales. An increase in other sales in
Canadian Operations, which includes airline revenue, financial
services, fuel and pharmacy, and the impact of new stores were also
factors. Excluding the foreign exchange impact, consolidated sales
increased 3.2%, with food sales increasing 3.6% and general
merchandise sales decreasing 11.2% compared to last year. The
impact of higher merchandise and freight cost inflation continued
to result in changes in product sales blend as consumers allocated
more of their spending to food and reduced purchases of general
merchandise. On a same store basis1, sales decreased 0.7% compared
to the third quarter last year, as a 1.5% increase in food same
store sales was more than offset by a 13.2% decrease in general
merchandise same store sales. The decrease in total same store
sales is primarily due to the impact of COVID-19-related factors
including government income support payments and higher
in-community spending which contributed to sales gains in 2021.
Although same store sales this year have decreased compared to
strong COVID-19-related sales gains over the past two years, they
were up 16.0% compared to pre-COVID-19 levels in 2019 with food
same store sales up 16.5% and general merchandise same store sales
up 12.7%.
Gross Profit
Gross profit increased 3.3% due to sales gains partially offset by
an 84 basis point decrease in gross profit rate compared to last
year. The decrease in gross profit rate was mainly due to changes
in sales blend, the impact of higher freight and merchandise cost
inflation that was not fully passed through in retail prices and an
increase in markdowns.
Selling, Operating and
Administrative Expenses Selling, operating and
administrative expenses ("Expenses") increased $17.0 million or
13.6% compared to last year and were up 163 basis points as a
percentage to sales. The increase in Expenses is mainly due to cost
inflation impacts including higher fuel-based utility expenses, the
impact of foreign exchange on the translation of International
Operations expenses and the impact of new stores. These factors
were partially offset by lower annual incentive plan expenses and a
decrease in COVID-19-related expenses compared to last year.
Earnings From
Operations Earnings from operations (EBIT)
decreased to $45.0 million compared to $56.1 million last year and
earnings before interest, income taxes, depreciation and
amortization ("EBITDA2") decreased to $69.8 million compared to
$78.6 million last year due to the gross profit and Expense factors
previously noted. Adjusted EBITDA2, which excludes share-based
compensation costs, decreased $5.1 million compared to last year
and as a percentage to sales was 12.5% compared to 14.1% last year
but was up $14.3 million or 24.4% compared to pre-pandemic adjusted
EBITDA2 in the third quarter of 2019.
Interest
Expense Interest expense increased to $4.2
million compared to $3.2 million last year mainly due to higher
borrowing costs.
Income Tax
Expense Income tax expense decreased to $10.6
million compared to $13.7 million last year due to lower earnings
as the consolidated effective tax rate of 26.0% was the same as
last year.
Net Earnings
Net earnings decreased to $30.2 million compared to $39.2 million
last year. Net earnings attributable to shareholders were $29.5
million and diluted earnings per share were $0.61 per share
compared to $0.79 per share last year. Adjusted net earnings2,
which excludes the after-tax impact of the share-based compensation
costs, decreased $5.6 million compared to the COVID-19-related
driven earnings last year due to the gross profit and Expense
factors previously noted, partially offset by the positive impact
of foreign exchange on the translation of International Operations
earnings. Although net earnings were down compared to last year,
they were up $8.5 million or 34.9% compared to the pre-pandemic
third quarter of 2019.
Non-GAAP Financial Measures
The Company uses the following non-GAAP
financial measures: earnings before interest, income taxes,
depreciation and amortization ("EBITDA"), adjusted EBITDA and
adjusted net earnings. The Company believes these non-GAAP
financial measures provide useful information to both management
and investors in measuring the financial performance and financial
condition of the Company for the reasons outlined below.
Earnings Before Interest, Income
Taxes, Depreciation and Amortization (EBITDA) is
not a recognized measure under IFRS. Management believes that in
addition to net earnings, EBITDA is a useful supplemental measure
as it provides investors with an indication of the Company's
operational performance before allocating the cost of interest,
income taxes and capital investments. Investors should be cautioned
however, that EBITDA should not be construed as an alternative to
net earnings determined in accordance with IFRS as an indicator of
the Company's performance. The Company's method of calculating
EBITDA may differ from other companies and may not be comparable to
measures used by other companies.
Adjusted EBITDA and Adjusted Net
Earnings are not recognized measures
under IFRS. Management uses these non-GAAP financial measures to
exclude the impact of certain income and expenses that must be
recognized under IFRS. The excluded amounts are either subject to
volatility in the Company's share price or may not necessarily be
reflective of the Company's underlying operating performance. These
factors can make comparisons of the Company's financial performance
between periods more difficult. The Company may exclude additional
items if it believes that doing so will result in a more effective
analysis and explanation of the underlying financial performance.
The exclusion of these items does not imply that they are
non-recurring.
These measures do not have a standardized
meaning prescribed by GAAP and therefore they may not be comparable
to similarly titled measures presented by other publicly traded
companies and should not be construed as an alternative to the
other financial measures determined in accordance with IFRS.
Reconciliation of consolidated earnings
from operations (EBIT) to EBITDA and adjusted EBITDA:
|
Consolidated |
|
Third Quarter |
|
Year-to-Date |
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
|
2019 |
|
|
|
2022 |
|
|
2021 |
|
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations
(EBIT) |
$ |
44,955 |
|
$ |
56,063 |
|
|
$ |
36,990 |
|
|
$ |
132,481 |
|
$ |
170,837 |
|
|
$ |
103,619 |
|
Add:
Amortization |
|
24,874 |
|
|
22,579 |
|
|
|
22,289 |
|
|
|
72,737 |
|
|
67,574 |
|
|
|
65,523 |
|
EBITDA |
$ |
69,829 |
|
$ |
78,642 |
|
|
$ |
59,279 |
|
|
$ |
205,218 |
|
$ |
238,411 |
|
|
$ |
169,142 |
|
Adjusted for: |
|
|
|
|
|
|
|
|
|
|
|
Insurance gains |
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
(8,632 |
) |
|
|
(14,965 |
) |
Share-based compensation expense |
|
3,336 |
|
|
(408 |
) |
|
|
(450 |
) |
|
|
9,253 |
|
|
8,239 |
|
|
|
3,360 |
|
Adjusted EBITDA |
$ |
73,165 |
|
$ |
78,234 |
|
|
$ |
58,829 |
|
|
$ |
214,471 |
|
$ |
238,018 |
|
|
$ |
157,537 |
|
Reconciliation of consolidated net
earnings to adjusted net earnings:
|
Consolidated |
|
Third Quarter |
|
Year-to-Date |
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
|
2019 |
|
|
|
2022 |
|
|
2021 |
|
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
$ |
30,175 |
|
$ |
39,155 |
|
|
$ |
24,838 |
|
|
$ |
90,707 |
|
$ |
121,843 |
|
|
$ |
69,010 |
|
Adjusted for: |
|
|
|
|
|
|
|
|
|
|
|
Insurance gains, net of tax |
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
(7,123 |
) |
|
|
(11,547 |
) |
Share-based compensation expense, net of tax |
|
2,648 |
|
|
(732 |
) |
|
|
(502 |
) |
|
|
7,237 |
|
|
6,359 |
|
|
|
2,688 |
|
Adjusted net earnings |
$ |
32,823 |
|
$ |
38,423 |
|
|
$ |
24,336 |
|
|
$ |
97,944 |
|
$ |
121,079 |
|
|
$ |
60,151 |
|
The Company recorded gains on the partial
settlement of insurance claims. These gains were due to the
difference between the replacement cost of the assets destroyed and
their book value.
Certain share-based compensation costs are
presented as liabilities on the Company's consolidated balance
sheets. The Company is exposed to market price fluctuations in its
share price through these share-based compensation costs. These
liabilities are recorded at fair value at each reporting date based
on the market price of the Company's shares at the end of each
reporting period with the changes in fair value recorded in
selling, operating and administrative expenses. Further information
on share-based compensation is provided in Note 11 and Note 14 to
the Company's Interim Condensed Consolidated Financial
Statements.
Further information on the financial results is
available in the Company's 2022 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.
Third Quarter Conference
Call
North West will host a conference call for its
third quarter results on December 7, 2022 at 1:30 p.m. (Central
Time). To access the call, please dial 416-340-2217 or 800-806-5484
with a pass code of 9703896. The conference call will be archived
and can be accessed by dialing 905-694-9451 or 800-408-3053 with a
pass code of 1501297 on or before January 7, 2023.
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.
Forward-looking statements about the Company, including its
business operations, strategy and expected financial performance
and condition. Forward-looking statements include statements that
are predictive in nature, depend upon or refer to future events or
conditions, or include words such as “expects”, “anticipates”,
“plans”, “believes”, “estimates”, “intends”, “targets”, “projects”,
“forecasts” or negative versions thereof and other similar
expressions, or future or conditional future financial performance
(including sales, earnings, growth rates, capital expenditures,
dividends, debt levels, financial capacity, access to capital, and
liquidity), on-going business strategies or prospects, the
Company's intentions regarding a normal course issuer bid, the
anticipated impact of the COVID-19 pandemic on the Company's
operations, supply chain and the Company's related business
continuity plans, the realization of expected savings from cost
reduction plans and possible future action by the Company.
Forward-looking statements are based on current
expectations and projections about future events and are inherently
subject to, among other things, risks, uncertainties and
assumptions about the Company, economic factors and the retail
industry in general. They are not guarantees of future performance,
and actual events and results could differ materially from those
expressed or implied by forward-looking statements made by the
Company due to changes in economic conditions, political and market
factors in North America and internationally. These factors
include, but are not limited to, the duration and the impact of the
COVID-19 pandemic, changes in inflation, interest and foreign
exchange rates, the Company's ability to maintain an effective
supply chain, changes in accounting policies and methods used to
report financial condition, including uncertainties associated with
critical accounting assumptions and estimates, the effect of
applying future accounting changes, business competition,
technological change, changes in government regulations and
legislation, changes in tax laws, unexpected judicial or regulatory
proceedings, catastrophic events, the Company's ability to complete
and realize benefits from capital projects, E-Commerce investments,
strategic transactions and the integration of acquisitions, the
Company's ability to realize benefits from investments in
information technology ("IT") and systems, including IT system
implementations, or unanticipated results from these initiatives
and the Company's success in anticipating and managing the
foregoing risks.
The reader is cautioned that the foregoing list
of important factors is not exhaustive. Other risks are outlined in
the Risk Management section of the 2021 Annual Report and in the
Risk Factors sections of the Annual Information Form and Management
Information Circular, material change reports and news releases.
The reader is also cautioned to consider these and other factors
carefully and not place undue reliance on forward-looking
statements. Other than as specifically required by applicable law,
the Company does not intend to update any forward-looking
statements whether as a result of new information, future events or
otherwise.
Additional information on the Company, including
our Annual Information Form, can be found on SEDAR at www.sedar.com
or on the Company's website at www.northwest.ca.
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 221 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$2.2
billion.
The common shares of North West
trade on the Toronto Stock Exchange under the symbol
NWC.
For more information
contact:
Dan McConnell, President and Chief Executive Officer, The North
West Company Inc.Phone 204-934-1482; fax 204-934-1317; email
dmcconnell@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 impact of foreign exchange2 See
Non-GAAP Measures Section of the news release
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