To our shareholders,
Fiscal 2013 was a most challenging and difficult year.
In June 2012, the Company installed a new warehouse management system. Complications associated with the system resulted in a serious disruption in the flow of inventory to stores in the third quarter of fiscal 2013, resulting in significant declines in sales, gross margin and earnings before income taxes.
Sales for fiscal 2013 (53 weeks) decreased 1.9% to $1,000,513,000 as compared with $1,019,397,000 for the year ended January 28, 2012 (52 weeks). This decrease in sales is due primarily to a net reduction of 31 stores in fiscal 2013 and lower store traffic in a challenging retail environment. The Company’s gross margin for fiscal 2013 decreased to 62.8% from 64.4% for fiscal 2012. Net earnings for fiscal 2013 decreased 44.0% to $26,619,000 ($0.41 diluted earnings per share) as compared with $47,539,000 ($0.72 diluted earnings per share) for fiscal 2012. For fiscal 2013, adjusted EBITDA decreased by $35,837,000 or 28.3% to $90,951,000 as compared with $126,788,000 for fiscal 2012.
During the year, the Company opened 54 new stores, closed 85 and remodelled 54 stores at a capital cost of $74,000,000. Accordingly, at February 2, 2013, there were 911 stores in operation, consisting of 361 Reitmans, 146 Smart Set, 73 RW & CO., 72 Thyme Maternity, 153 Penningtons and 106 Addition Elle, as compared with a total of 942 stores as at January 28, 2012. In addition, there were 20 Thyme Maternity boutiques (“shop-in-shop”) in select Babies"R"Us locations in Canada and 154 boutiques in select Babies"R"Us stores in the United States. In fiscal 2014, we expect to open 30 new stores, close 25 stores and remodel 31 stores at a capital cost of $34,000,000.
Management is disappointed with the results for fiscal 2013 and has taken action in the merchandising and marketing activities of each of its banners to improve sales and profitability. Additionally, the Company has undertaken an initiative to improve efficiencies and reduce overhead across head office and field functions. The Company has addressed the issues related to the warehouse management system and continues to improve the flow of goods to the stores and optimize system performance.
We continue to upgrade our technology platform and distribution centre and to invest in our people with skills development and management training programs. Our cash resources and infrastructure allow us to seek out new business opportunities through acquisition and development.
At the Board of Directors meeting held on April 4, 2013, a quarterly cash dividend (constituting eligible dividends) of $0.20 per share on all outstanding Class A non-voting and Common shares of the Company was declared payable April 25, 2013 to shareholders of record April 12, 2013. With regard to dividend policy, the Board of Directors considered the Company’s earnings per share, cash flow from operations, the level of planned capital expenditures and its cash and marketable securities. The Board of Directors decided to maintain its quarterly dividend on the basis of a targeted payout ratio of approximately 50% to 80% of sustainable earnings per share, 50% to 75% of cash flow from operations and the ability to augment the dividend from the approximately $170,000,000 of liquidity on the Company’s balance sheet, if these targets are missed in a given year. The Board of Directors will review these guidelines again at the end of its current fiscal year.
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 87 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. I 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 continued growth of the Company.
On behalf of the Board of Directors,
Jeremy H. Reitman
Chairman and Chief Executive Officer
Montreal, April 4, 2013