The North West Company Inc.
(TSX: NWC) (the
"Company" or "North West") today announced its unaudited financial
results for the fourth quarter ended January 31, 2023 and released
its 2022 Annual Report and Annual Information Form. The Annual
Report includes the Company's Annual Audited Consolidated Financial
Statements and Management's Discussion and Analysis for the year
ended January 31, 2023. These documents are available on the
Company's profile on the SEDAR website at www.sedar.com and on the
Company's website at www.northwest.ca. It also announced that the
Board of Directors has declared a dividend of $0.38 per share to be
paid on April 27, 2023 to shareholders of record on April 17, 2023.
CEO Comments on Fourth Quarter
Results and Annual Results
“I am pleased with our results for the quarter
and for the year and excited about the momentum we are building.
Coming out of two years of challenging pandemic circumstances and
now experiencing high cost inflation, our teams continue to work
diligently to provide value to the communities and customers we
serve,” commented President and CEO, Dan McConnell. “Our journey
ahead is promising and I am optimistic about our future. The work
done by our teams over the past year has uncovered additional
potential in our core business that will continue to deliver value
for our customers and shareholders going forward.”
Fourth Quarter and Annual
Results
The following table provides a summary of
selected information for the fourth quarter and annual results.
Further information on the fourth quarter and annual financial
performance is provided in the 2022 Annual Report available on the
Company's website at www.northwest.ca or on SEDAR at
www.sedar.com.
Selected Fourth
Quarter(3)
and Annual Information
|
Three Months |
|
Three Months |
|
Twelve Months |
|
Twelve Months |
|
|
Ended |
|
Ended |
|
Ended |
|
Ended |
($ in
thousands, except per share) |
January 31, 2023 |
January 31, 2022 |
January 31, 2023 |
January 31, 2022 |
Sales |
|
$ |
635,164 |
|
|
$ |
579,019 |
|
|
$ |
2,352,760 |
|
|
$ |
2,248,796 |
|
Same store sales %
increase/(decrease)(2) |
|
|
2.1 |
% |
|
|
0.1 |
% |
|
(0.8)% |
|
(0.4)% |
Gross profit |
|
$ |
201,177 |
|
|
$ |
184,714 |
|
|
$ |
747,915 |
|
|
$ |
737,751 |
|
Selling, operating and
administrative expenses |
|
|
(153,353 |
) |
|
|
(135,126 |
) |
|
|
(567,610 |
) |
|
|
(517,326 |
) |
EBITDA(1) |
|
|
73,460 |
|
|
|
72,964 |
|
|
|
278,678 |
|
|
|
311,375 |
|
Earnings from operations |
|
|
47,824 |
|
|
|
49,588 |
|
|
|
180,305 |
|
|
|
220,425 |
|
Interest expense |
|
|
(4,192 |
) |
|
|
(3,170 |
) |
|
|
(14,836 |
) |
|
|
(13,058 |
) |
Income taxes |
|
|
(8,503 |
) |
|
|
(10,810 |
) |
|
|
(39,633 |
) |
|
|
(49,916 |
) |
Net earnings |
|
|
35,129 |
|
|
|
35,608 |
|
|
|
125,836 |
|
|
|
157,451 |
|
Net earnings attributable to shareholders of the Company |
|
|
33,930 |
|
|
|
34,581 |
|
|
|
122,190 |
|
|
|
154,802 |
|
Net earnings per share - basic |
|
|
0.71 |
|
|
|
0.72 |
|
|
|
2.55 |
|
|
|
3.21 |
|
Net earnings per share -
diluted |
|
|
0.69 |
|
|
|
0.71 |
|
|
|
2.51 |
|
|
|
3.16 |
|
Cash flow from operating activities |
|
|
100,230 |
|
|
|
84,704 |
|
|
|
182,838 |
|
|
|
224,135 |
|
Cash flow used in investing activities |
|
|
(51,907 |
) |
|
|
(15,142 |
) |
|
|
(106,802 |
) |
|
|
(75,861 |
) |
Cash flow used in financing activities |
|
|
(38,500 |
) |
|
|
(77,935 |
) |
|
|
(68,298 |
) |
|
|
(170,196 |
) |
Cash
dividends per share |
|
$ |
0.38 |
|
|
$ |
0.37 |
|
|
$ |
1.50 |
|
|
$ |
1.46 |
|
(1) See Non-GAAP Financial Measures section below.(2) All
references to same store sales exclude the foreign exchange impact.
(3) Unaudited interim financial information.
Annual
Highlights
- Six new stores
were opened, three in Canada and three in International
Operations.
- Return on equity(1)
was 20.5%.
- Return on net
assets(1) was 17.9%.
- Debt-to-Equity was
0.45 at January 31, 2023 and has remained below 1.0 since
2000.
- Quarterly dividends
increased $0.01 per share or 2.7% to $0.38 per share in September
2022 and annual dividends per share have increased 3.7% on a
compound annual growth basis over the past 10 years.
Fourth Quarter
Results
Consolidated Fourth Quarter
Sales Sales for the quarter increased 9.7% to
$635.2 million as higher inflation in Canadian and International
Operations contributed to same store sales gains. The impact of
foreign exchange on the translation of International Operations
sales, an increase in airline revenue and retail fuel sales in
Canadian Operations and the impact of new stores were also factors.
Excluding the foreign exchange impact, consolidated sales increased
7.1%. Same store sales were up 2.1%(2) compared to the fourth
quarter last year and were up 20.0% compared to the pre-pandemic
2019 fourth quarter. Food sales(2) increased 6.3% and were up 4.0%
on a same store basis compared to last year and increased 20.2%
compared to 2019. General merchandise sales(2) decreased 2.1% and
were down 6.1% on a same store basis but were up 19.3% compared to
2019. Overall, sales were strong in the quarter compared to the
COVID-19-related factors, including government income support
payments and higher in-community spending as a result of travel
restrictions, that contributed to sales gains in 2021. 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.
Gross Profit Gross profit
increased 8.9% as the impact of sales gains was partially offset by
a 23 basis point decrease in gross profit rate compared to last
year. The decrease in gross profit rate was primarily 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 on seasonal general
merchandise.
Selling, Operating and Administrative
Expenses Selling, operating and administrative expenses
("Expenses") increased $18.2 million compared to last year and were
up 80 basis points as a percentage to sales. The increase in
Expenses is mainly due to a $9.5 million insurance-related gain
last year. Excluding the Non-Comparable Factors which include the
insurance-related gain and share-based compensation, Expenses
increased $8.5 million or 6.0% compared to last year largely due to
cost inflation, including higher fuel-based utility expenses and
staff costs, the impact of foreign exchange on the translation of
International Operations expenses and new store expenses. These
factors were partially offset by a decrease in COVID-19-related
expenses.
Earnings from operations and
EBITDA(1) Earnings from operations or
earnings before interest and taxes ("EBIT") decreased $1.8 million
to $47.8 million compared to $49.6 million last year but EBITDA(1)
increased $0.5 million to $73.5 million due to the sales, gross
profit and Expense factors previously noted. Adjusted EBITDA(1),
which excludes insurance-related gains and share-based compensation
costs increased $10.3 million or 15.3% compared to last year and as
a percentage to sales was 12.2% compared to 11.6%.
Interest Expense Interest
expense increased 32.2% to $4.2 million compared to $3.2 million
last year. The increase in interest expense is mainly due to higher
average debt levels related to amounts drawn on revolving loan
facilities and an increase in borrowing costs.
Income Tax Expense Income tax
expense was $8.5 million compared to $10.8 million last year and
the consolidated effective tax rate was 19.5% compared to 23.3%
last year. The decrease in the income tax rate was primarily due to
lower Global Intangible Low-Taxed Income tax and the blend of
earnings in International Operations across various tax rate
jurisdictions.
Net Earnings Consolidated net
earnings decreased $0.5 million to $35.1 million. Net earnings
attributable to shareholders were $33.9 million and diluted
earnings per share were $0.69 per share compared to $0.71 per share
last year due to the factors noted above. Adjusted net earnings(1),
which excludes the impact of the after-tax insurance-related gains
and the after-tax share-based compensation costs, increased $5.8
million or 17.9% compared to last year driven by earnings gains in
Canadian Operations and the impact of a lower effective tax rate as
previously noted.
Annual
Results
Consolidated
Sales Sales for the year ended January 31,
2023 (“2022”) increased 4.6% to $2.353 billion compared to $2.249
billion for the year ended January 31, 2022 (“2021”). The
increase in sales compared to 2021 was largely due to 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, retail fuel and
pharmacy, and the impact of new stores. Higher inflation was also a
factor. Excluding the foreign exchange impact, sales increased 2.6%
from 2021.
Gross
Profit Gross profit increased
1.4% to $747.9 million compared to $737.8 million last year as
higher sales more than offset a 102 basis point decrease in gross
profit rate. The lower gross profit rate compared to last year 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 higher markdowns.
Selling, Operating and
Administrative Expenses Selling,
operating and administrative expenses (“Expenses”) of
$567.6 million increased $50.3 million or 9.7% compared to
last year and were up 113 basis points as a percentage of sales.
The increase in Expenses is partially due to the impact of an $18.1
million insurance-related gain last year and higher share-based
compensation costs this year resulting from mark-to-market
adjustments (collectively "Non-Comparable Factors"). Excluding the
Non-Comparable Factors, Expenses increased $30.9 million or 5.9%
compared to last year primarily due to cost inflation, including
higher fuel-based utility expenses, the impact of foreign exchange
on the translation of International Operations expenses and new
store expenses. These factors were partially offset by lower annual
incentive plan costs and an $8.2 million decrease in
COVID-19-related expenses.
Earnings from Operations (EBIT)
and
EBITDA(1) Earnings
from operations or earnings before interest and income taxes
("EBIT”) decreased 18.2% to $180.3 million compared to $220.4
million last year. Earnings before interest, income taxes,
depreciation and amortization ("EBITDA(1)") decreased 10.5% to
$278.7 million compared to $311.4 million last year. The decrease
in EBIT and EBITDA compared to last year is due to the sales, gross
profit and Expense factors previously noted. Adjusted EBITDA(1),
which excludes the impact of the previously noted Non-Comparable
Factors, decreased $13.3 million or 4.4% compared to last year but
was up $86.9 million or 42.4% compared to pre-pandemic adjusted
EBITDA in 2019.
Interest
Expense Interest expense increased 13.6% to $14.8
million compared to $13.1 million last year due to higher average
debt levels and interest rates.
Income Tax
Expense Income taxes decreased to $39.6 million
compared to $49.9 million last year and the effective tax rate for
the year was 24.0% compared to 24.1% last year. The decrease in
income tax expense is due to lower earnings and a lower effective
tax rate. Changes in the effective income tax rate may occur as a
result of various factors, including changes in tax law, the impact
of discrete items, including the taxation of share-based
compensation and insurance gains, changes in tax estimates and the
blend of earnings across the various tax rate jurisdictions.
Net
Earnings Consolidated net earnings decreased
20.1% to $125.8 million compared to $157.5 million last year.
Net earnings attributable to shareholders of the Company were
$122.2 million compared to $154.8 million last year and diluted
earnings per share were $2.51 per share compared to $3.16 per share
last year due to the factors previously noted. Excluding the impact
of the previously noted Non-Comparable Factors, adjusted net
earnings(1) decreased $17.4 million or 11.3% compared to last year
but was up $60.7 million or 80.5% compared to pre-pandemic adjusted
net earnings in 2019.
Non-GAAP Financial
Measures
These measures do not have a standardized
meaning prescribed by GAAP and therefore they may not be comparable
to similarly titled measures presented by other publicly traded
companies and should not be construed as an alternative to the
other financial measures determined in accordance with IFRS.
(1) Earnings Before Interest,
Income Taxes, Depreciation and Amortization (EBITDA), Adjusted
EBITDA and Adjusted Net
Earnings are not recognized
measures under IFRS. Management uses these non-GAAP financial
measures to exclude the impact of certain income and expenses that
must be recognized under IFRS. The excluded amounts are either
subject to volatility in the Company's share price or may not
necessarily be reflective of the Company's underlying operating
performance. These factors can make comparisons of the Company's
financial performance between periods more difficult. The Company
may exclude additional items if it believes that doing so will
result in a more effective analysis and explanation of the
underlying financial performance. The exclusion of these items does
not imply that they are non-recurring.
Reconciliation of Consolidated
Earnings from Operations to EBITDA and Adjusted
EBITDA
|
|
|
Fourth Quarter |
|
Year-to-date |
($ in
thousands) |
|
2022 |
|
|
2021 |
|
|
2019(1) |
|
|
2022 |
|
|
2021 |
|
|
2019(1) |
Earnings from operations |
$ |
47,824 |
|
$ |
49,588 |
|
|
$ |
26,734 |
|
|
$ |
180,305 |
|
$ |
220,425 |
|
|
$ |
130,353 |
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
25,636 |
|
|
23,376 |
|
|
|
23,699 |
|
|
|
98,373 |
|
|
90,950 |
|
|
|
89,222 |
|
EBITDA |
$ |
73,460 |
|
$ |
72,964 |
|
|
$ |
50,433 |
|
|
$ |
278,678 |
|
$ |
311,375 |
|
|
$ |
219,575 |
|
Gain on insurance settlement |
|
— |
|
|
(9,492 |
) |
|
|
(3,205 |
) |
|
|
— |
|
|
(18,124 |
) |
|
|
(18,170 |
) |
Share-based compensation expense |
|
3,878 |
|
|
3,615 |
|
|
|
190 |
|
|
|
13,131 |
|
|
11,854 |
|
|
|
3,550 |
|
Adjusted EBITDA |
$ |
77,338 |
|
$ |
67,087 |
|
|
$ |
47,418 |
|
|
$ |
291,809 |
|
$ |
305,105 |
|
|
$ |
204,955 |
|
(1) Pre-pandemic reconciliation of earnings from
operations to EBITDA and Adjusted EBITDA.
Reconciliation of consolidated
net earnings to adjusted net earnings:
|
Fourth Quarter |
|
Year-to-Date |
($ in
thousands) |
|
2022 |
|
|
2021 |
|
|
2019(1) |
|
|
2022 |
|
|
2021 |
|
|
2019(1) |
Net earnings |
$ |
35,129 |
|
$ |
35,608 |
|
|
$ |
17,263 |
|
|
$ |
125,836 |
|
$ |
157,451 |
|
|
$ |
86,273 |
|
Gain on insurance settlement, net of tax |
|
— |
|
|
(6,152 |
) |
|
|
(2,340 |
) |
|
|
— |
|
|
(13,275 |
) |
|
|
(13,887 |
) |
Share-based compensation expense, net of tax |
|
2,976 |
|
|
2,875 |
|
|
|
305 |
|
|
|
10,213 |
|
|
9,234 |
|
|
|
2,991 |
|
Adjusted Net Earnings |
$ |
38,105 |
|
$ |
32,331 |
|
|
$ |
15,228 |
|
|
$ |
136,049 |
|
$ |
153,410 |
|
|
$ |
75,377 |
|
(1) Pre-pandemic reconciliation of net earnings
to adjusted net earnings.
The Company recorded gains on insurance claims.
These gains were due to the difference between the replacement cost
of the assets destroyed and their book value and also for the
recovery of business interruption losses on certain insurance
claims.
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.
(2) Return on Net Assets
(RONA) is not a recognized measure under IFRS.
Management believes that RONA is a useful measure to evaluate the
financial return on the net assets used in the business. RONA is
calculated as earnings from operations (EBIT) for the year divided
by average monthly net assets. The following table reconciles net
assets used in the RONA calculation to IFRS measures reported in
the consolidated financial statements as at January 31 for the
following fiscal years:
($ in millions) |
|
2022 |
|
|
|
2021 |
|
|
|
2020 |
|
Total assets |
$ |
1,336.9 |
|
|
$ |
1,219.3 |
|
|
$ |
1,191.2 |
|
Less: Total liabilities |
|
(689.0 |
) |
|
|
(639.1 |
) |
|
|
(685.9 |
) |
Add:
Total debt and lease liabilities |
|
402.5 |
|
|
|
349.7 |
|
|
|
402.0 |
|
Net Assets Employed |
$ |
1,050.4 |
|
|
$ |
929.9 |
|
|
$ |
907.3 |
|
(3) Return on Average Equity
(ROE) is not a recognized measure under IFRS.
Management believes that ROE is a useful measure to evaluate the
financial return on the amount invested by shareholders. ROE is
calculated by dividing net earnings for the year by average monthly
total shareholders' equity. There is no directly comparable IFRS
measure for return on equity.
Additional information regarding the financial
performance of North West can be found within the 2022 Annual
Report, Annual Audited Financial Statements and the Annual
Information Form available on the Company's website at
www.northwest.ca or on SEDAR at www.sedar.com.
Fourth Quarter Conference
Call
North West will host a conference call for its
fourth quarter results on April 5, 2023 at 2:00 p.m. (Central
Time). To access the call, please dial 416-641-6104 or 800-952-5114
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 6128866# on or before May 5, 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. 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 Company's
intentions regarding a normal course issuer bid, the potential
impact of a pandemic on the Company's operations, supply chain and
the Company's related business continuity plans, the realization of
cost savings from cost reduction plans and possible future action
by the Company. Factors that could cause actual results to differ
materially from those set forth in the forward-looking statements
include, but are not limited to, 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 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, 2023. 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 and developing small population communities
in northern Canada, rural Alaska, the South Pacific and the
Caribbean. North West operates 222 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$2.4 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
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