(TSX:
NWC): The North West
Company Inc. (the "Company" or "North West") today reported its
unaudited financial results for the second quarter ended
July 31, 2020. It also announced that the Board of Directors
have declared a dividend of $0.36 per share, an increase of $0.03
per share or 9.1%, to shareholders of record on September 30,
2020, to be paid on October 15, 2020 and that, subject to TSX
approval, the Company intends to commence a normal course
issuer bid.
Second quarter sales increased 23.0% to $648.5
million and net earnings increased $44.6 million to $62.6 million
driven by COVID-19-related factors, including a shift towards
in-community and at-home spending as well as basic income support
provided by different jurisdictions within which the Company
operates.
“Like the rest of the world, the communities we
serve and our people continue to live and work under constraints
and uncertainty created by the COVID-19 pandemic,” commented
President & CEO Edward Kennedy. “This unexpected environment
has led to new thinking and behaviors, with unique implications
compared to other more urban, densely populated regions. The second
quarter gave us a clearer picture of what this looks like and the
emerging opportunities and risks for North West.
“As a major provider of essential products and
services, ranging from food to health care, we have been relied on
more than ever. Our people deeply respect and value this
responsibility and it helps sustain what has been exceptional work
on their part to serve our customers safely and without
interruption. We expect these conditions, to varying degrees, to
last well into next year and we are committed to pacing and
balancing our efforts to keep performance levels at the high
standards we set and that our customers expect.
“Beyond the strength of our everyday, core
offering, North West is a leading retailer of durable goods and
other discretionary general merchandise. COVID-19 has redirected
our customers' time to in-community and at-home activities, lifting
demand for these categories, as seen in our very strong sales
gains. Behind the scenes there has been a tremendous effort
by our people and supplier partners to rapidly and successfully
pivot to meet demand.
“Customer incomes are also playing a big role.
Approximately 20% of our retail business depends on tourism or
commercial natural resource activities, where employment has been
hardest hit by COVID-19. Government income support has to
date partially compensated for this in Canada and the U.S.,
including U.S. territories. A few island economies, like the
BVI and St. Maarten, are in a more precarious situation and will
remain this way until at least mid-next year. The other
customer segments we serve have not incurred a significant income
loss because they work in unaffected sectors or COVID-19 programs
have directly and indirectly helped them.
“Our planning is based on COVID-19 depth and
duration scenarios, incomes and our own capability. We see
COVID-19 having an effect for several more quarters and we want to
give our customers many reasons to keep their spending with us
throughout and past the time of this pandemic. As an example,
our actions to gain market share through lower food prices were
planned and underway prior to COVID-19 and will continue as we
reinforce the convenience, reliability and safety of shopping
locally at attractive prices.
“COVID-19 has also demonstrated the advantage of
our owned cargo airline, North Star Air ("NSA"). NSA’s fleet,
management and sole-cargo focus are enabling our northern Canadian
supply chain to excel compared to the challenges faced by “combi”
carriers with their dependence on passenger revenue. Similarly, our
physical store network, including in-community warehouse capacity,
enables North West to use lower cost water/ship and winter road
modes to reduce delivered costs further while giving customers an
immediate selection of products and service rather than waiting
days and often weeks under other buying options.
“In the community, North West has partnered with
large and small organizations to deliver food security programs and
other relief efforts in response to the COVID-19 pandemic.
Our donation levels have ramped up, increasing by $2.6 million so
far this year as we continue to look for ways to strengthen
community ties, including our work on diversity and inclusion.
“To investors, North West has always stood for
stable income with upside.” Mr. Kennedy added, “Our announced
dividend increase and intention to install a Normal Course Issuer
Bid program are consistent with this commitment to delivering a
consistent, attractive return while maintaining the capacity to
reinvest for growth.”
Financial Highlights
Second quarter consolidated sales increased
23.0% to $648.5 million driven by COVID-19-related factors
including consumer spending changes in favor of in-community and
at-home activities, supported by enhanced government income
transfers in many jurisdictions. Superior in-stock conditions
at Cost-U-Less ("CUL") and lower food prices in northern Canada
stores were also factors in capturing a higher share of consumer
spending. These factors were partially offset by lower sales in
Giant Tiger stores related to the previously announced sale of 36
stores which was completed on July 5, 2020 (the "Giant Tiger
Transaction").
Gross profit increased 28.2% driven by higher
sales and a 135 basis point increase in the gross profit rate
compared to last year primarily due to favourable changes in
product sales blend and higher inventory turns contributing to
lower markdowns and less inventory shrinkage. These factors were
partially offset by food price reductions in northern Canada aimed
at capturing more local spending dollars, weaker margin rates in
the British Virgin Islands and a higher blend of CUL sales which
carry a lower gross profit rate consistent with CUL's discount
warehouse format.
Selling, operating and administrative expenses
("Expenses") decreased $10.5 million or 7.5% and were down 658
basis points to last year as a percentage to sales. This decrease
in Expenses is substantially due to the impact of the pre-tax Giant
Tiger Transaction gain of $24.7 million, partially offset by a $3.4
million increase in share-based compensation costs and the impact
of a $4.3 million insurance-related gain in Canadian Operations in
the second quarter last year (collectively "Non-Comparable
Factors"). Excluding the impact of the Non-Comparable Factors,
Expenses increased $6.6 million or 4.8% but were down 388 basis
points as a percentage to sales. This increase is primarily due to
COVID-19-related expenses and higher annual incentive plan costs
and insurance expense, partially offset by lower support office
costs in Canadian Operations as a result of the previously
announced administration cost reductions.
Earnings from operations increased $58.2 million
to $87.8 million compared to $29.6 million last year and earnings
before interest, income taxes, depreciation and amortization
(EBITDA2) increased $59.3 million to $110.9 million due to the
sales, gross profit and Expense factors previously noted. Adjusted
EBITDA2, which excludes the Non-Comparable Factors, increased $42.3
million compared to last year as the impact of significant
sales gains in the quarter more than offset higher Expenses.
Net earnings increased $44.6 million to $62.6
million. Net earnings attributable to shareholders were $61.9
million and diluted earnings per share were $1.25 per share
compared to $0.35 per share last year due to the factors noted
above. Adjusted net earnings2, which excludes the impact of
the after-tax Non-Comparable Factors noted above, increased $29.8
million compared to last year driven by earnings gains in Canadian
Operations and International Operations resulting from the factors
previously noted.
Further information on the financial results is
available in the Company's 2020 second 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.
Normal Course Issuer Bid
North West intends to make a Normal Course
Issuer Bid (“NCIB”) for a portion of its shares. The maximum number
of shares that can be purchased under the NCIB is 10% of the
Company's public float. The NCIB will be made in accordance with
the requirements of the Toronto Stock Exchange (the “TSX”) and
remains subject to TSX approval. Further details regarding the NCIB
will be provided following TSX approval.
Second Quarter Conference
Call
North West will host a conference call results
on September 11, 2020 at 1:30 p.m. (Central Time). To
access the call, please dial 416-641-6104 or 800-898-3989 with a
pass code of 4547420. The conference call will be
archived and can be accessed by dialing 905-694-9451 or
800-408-3053 with a pass code of 7161621 on or before October 11,
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 Company's
intentions regarding making a normal course issuer bid, the
anticipated impact of the COVID-19 pandemic on the Company's
operations and the Company's related business continuity plans and
the realization of expected savings from administrative cost
reduction plans. 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, 2020. 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 214 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 impact of foreign exchange2 See
Non-GAAP Measures Section of Management's Discussion &
Analysis
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