ReitmansSmart SetRW&CO.PenningtonsAddition ElleThyme Maternity
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Chairman’s Report

To our shareholders,

Fiscal 2015 was a challenging year.

Sales for fiscal 2015 were $939,376,000 as compared with $960,397,000 for fiscal 2014, a decrease of 2.2%, impacted by a net reduction of 55 stores as the Company closes underperforming locations. Same store sales* increased 1.2% with mall and power centre stores decreasing 0.2% and e-commerce sales increasing 63.5%. Mall and power centre stores were impacted by e-commerce alternatives, a highly competitive environment and consumers with near record high debt levels. Sales through the various banners’ e-commerce channels continued to show strong growth, although representing a small proportion of total Company sales.

The Company’s gross margin for fiscal 2015 was 60.4% compared with 61.9% for fiscal 2014. The Company’s gross margin includes gains on foreign exchange contracts previously reported in finance income (gain of $10,921,000 for fiscal 2015 and $12,455,000 for fiscal 2014).

Net earnings for fiscal 2015 were $13,415,000 ($0.21 diluted earnings per share) as compared with net earnings of $10,788,000 ($0.17 diluted earnings per share) for fiscal 2014. The increase in net earnings was primarily attributable to the closure of non-performing stores and previously reported initiatives to reduce costs across the organization. For fiscal 2015, adjusted EBITDA* was $64,805,000 million as compared with $70,453,000 in fiscal 2014, a decrease of $5,648,000 or 8.0% largely attributable to lower sales and margins.

On November 25, 2014 the Company announced its plan to close all Smart Set stores. In fiscal 2015, 35 Smart Set stores were closed. The Company will convert 74 stores to other banners by October 31, 2015 while 20 stores will be closed upon expiry of their leases.

During the year, the Company opened 12 new stores and closed 67. Accordingly, at January 31 2015, there were 823 stores in operation, consisting of 341 Reitmans, 139 Penningtons, 105 Addition Elle, 76 RW & CO., 68 Thyme Maternity and 94 Smart Set, as compared with a total of 878 stores as at February 1, 2014. In addition, there were 21 Thyme Maternity shop-in-shop boutiques in select Babies"R"Us locations in Canada. We expect to open 6 new stores, close 51 stores, remodel 45 stores and convert 74 Smart Set stores at a capital cost of approximately $20,000,000.

The Company continues to execute its strategy of delivering fashionable clothing at excellent prices to Canadian consumers. We are proud of our achievements over the past 89 years and most confident of our future. We believe that we have the very best specialty retailing assets in Canada. Our operations are led and staffed by highly motivated, extremely competent professionals. We extend sincere thanks and appreciation to all our associates, suppliers, customers and shareholders. These are the people who have made possible our many years of success and on whom we rely for the growth of the Company.

On behalf of the Board of Directors,


Jeremy H. Reitman
Chairman and Chief Executive Officer

Montreal, April 1, 2015

* The above text includes a reference to adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA is defined as net earnings before income tax expense, other income, dividend income, interest income, realized gains or losses on disposal of available-for-sale financial assets, interest expense, depreciation, amortization and net impairment charges. The following table reconciles the most comparable GAAP measure, net earnings, to adjusted EBITDA. The Company also discloses same store sales, which are defined as sales generated by stores that have been continuously open during both of the periods being compared and includes e-commerce sales. The same store sales metric compares the same calendar days for each period. Same store sales is a measure widely used amongst retailers and is considered useful information for both investors and analysts. Although this key performance indicator is expressed as a ratio, it is a non-GAAP financial measure that does not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures used by other companies.

The following table reconciles net earnings to adjusted EBITDA for the three and nine months ended November 1, 2014 and November 2, 2013.

(unaudited) For the three months ended For the nine months ended
(in thousands of canadian dollars) January 31, 2015 February 1, 2014 January 31, 2015 February 1, 2014
Net earnings(loss) $ 4,407 $ 2,571 $ 13,415 $ 10,788
Depreciation, amortization and net impairment losses 12,265 17,312 54,038 63,724
Other income* - (6,054) - (6,054)
Dividend income (409) (873) (2,298) (3,481)
Interest income (377) (184) (994) (621)
Realized (gains) losses on disposal of available-for-sale financial assets (4,045) 248 (4,820) 248
Impairment loss on available-for-sale financial assets 384 2,007 958 2,699
Interest expense 88 114 394 496
Income tax expense (recovery) 1,829 1,863 4,112 2,654
ADJUSTED EBITDA $ 14,142 $ 8,136 $ 64,805 $ 70,453
ADJUSTED EBITDA as % of Sales 5.99% 3.38% 6.90% 7.34%

* Other income comprises a gain on sale of intellectual property rights and proceeds from the settlement of a trademark dispute.