ReitmansSmart SetRW&CO.PenningtonsAddition ElleThyme Maternity
Skip Navigation LinksHome Financial & Media Chairman’s Report

Chairman’s Report

To our shareholders,

Sales for the nine months ended November 2, 2013 were $719,720,000 as compared with $732,854,000 for the nine months ended October 27, 2012, a decrease of 1.8%. Same store sales* decreased 3.0%. Sales were negatively impacted due to a reduction in the number of stores as the Company rationalizes underperforming locations combined with competitive pressures necessitating more promotional pricing. The retail environment remains challenging with increased competitive pressure for apparel retailers. Sales were also impacted by significantly slower than anticipated acceptance by consumers of the Company’s repositioning and rebranding efforts in its Smart Set banner. The Company’s gross margin for the nine months ended November 2, 2013 decreased to 62.6% from 64.1% for the nine months ended October 27, 2012. Increased markdowns in the Smart Set banner significantly contributed to the reduction in gross margin. Net earnings for the nine months ended November 2, 2013 were $13,359,000 ($0.21 diluted earnings per share) as compared with $27,501,000 ($0.42 diluted earnings per share) for the nine months ended October 27, 2012. In the nine months ended November 2, 2013, adjusted EBITDA1 was $62,317,000 as compared with $77,543,000 for the nine months ended October 27, 2012, a decrease of 19.6%.

Sales for the three months ended November 2, 2013 increased 5.6% to $249,414,000 as compared with $236,247,000 for the three months ended October 27, 2012. Same store sales* increased 1.6%, however Smart Set sales declined significantly for the third quarter of fiscal 2014 as compared to the third quarter of fiscal 2013.The Company’s gross margin for the three months ended November 2, 2013 decreased to 61.0% from 63.0% for the three months ended October 27, 2012. A highly promotional environment combined with increased markdowns in the Smart Set banner significantly contributed to the gross margin decline. Net earnings for the three months ended November 2, 2013 were $5,763,000 ($0.09 diluted earnings per share) as compared with a loss of $29,000 ($0.00 diluted earnings per share) for the three months ended October 27, 2012. Adjusted EBITDA1 increased by 50.1% to $21,011,000 for the three months ended November 2, 2013 as compared with $14,001,000 for the three months ended October 27, 2012.

During the three months ended November 2, 2013, the Company opened 8 new stores, comprised of 2 Reitmans, 4 RW & CO. , 1 Penningtons and 1 Addition Elle. Thirteen stores were closed, comprised of 4 Reitmans, 3 Smart Set, 1 RW & CO., 1 Thyme Maternity, 3 Penningtons and 1 Addition Elle. At November 2, 2013, there were 895 stores in operation, consisting of 355 Reitmans, 138 Smart Set, 77 RW & CO., 71 Thyme Maternity, 151 Penningtons and 103 Addition Elle, as compared with a total of 923 stores as at October 27, 2012. In addition, there were 22 Thyme Maternity boutiques in select Babies"R"Us locations in Canada and 166 boutiques in Babies"R"Us stores in the United States. During the three months ended November 2, 2013, the Company began offering consumers Penningtons plus-size apparel, under a wholesale agreement, in five Sears stores in Canada, as well as online at sears.ca.

Sales for the month of November (the four weeks ended November 30, 2013) increased 1.4% with same store sales* increasing 1.1% compared to the comparable 4 weeks ended December 1, 2012.

As a result of the disappointing earnings for the nine months ended November 2, 2013, the Board of Directors has decided to reduce the quarterly cash dividend from $0.20 per share to $0.05 per share. Accordingly, at the Board of Directors meeting held on December 3, 2013, a quarterly cash dividend (constituting eligible dividends) of $0.05 per share on all outstanding Class A non-voting and Common shares of the Company was declared, payable January 30, 2014 to shareholders of record on January 20, 2014.

On behalf of the Board of Directors,


Jeremy H. Reitman
Chairman and Chief Executive Officer

Montreal, December 3, 2013

* The above text includes a reference to adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA is defined as earnings before income taxes, dividend income, interest income, realized gains or losses on disposal of available-for-sale financial assets, impairment losses on available-for-sale financial assets, interest expense, depreciation, amortization and net impairment losses related to property and equipment. The Company also discloses same store sales, which are defined as sales generated by stores that have been open for at least one year. The Company believes these measures provide meaningful information on the Company’s performance and operating results. However, readers should know that such non-GAAP financial measures have no standardized meaning as prescribed by IFRS and may not be comparable to similar measures presented by other companies. Accordingly, they should not be considered in isolation.