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

To our shareholders,

Sales for the first quarter ended May 3, 2014 were $206,478,000 as compared with $216,861,000 for the first quarter ended May 4, 2013, a decrease of 4.8%. Same store sales* decreased by 3.6%. Poor weather in the first quarter ended May 3, 2014 contributed to weak demand for spring and summer apparel. A net reduction of 47 stores contributed to a sales reduction of approximately $5,000,000 in the quarter, as the Company continued to rationalize underperforming locations. The Company’s gross margin for the first quarter ended May 3, 2014 decreased to 59.4% from 64.6% for the first quarter ended May 4, 2013, negatively impacted by the weaker Canadian dollar against the U.S. dollar and increased promotional activity in a highly competitive market. Net loss for the first quarter ended May 3, 2014 increased to $13,415,000 ($0.21 diluted loss per share) as compared with a net loss of $2,586,000 ($0.04 diluted loss per share) for the first quarter ended May 4, 2013. For the first quarter ended May 3, 2014, adjusted EBITDA* was $(4,061,000) as compared with $10,683,000 for the first quarter ended May 4, 2013, a decrease of $14,744,000

Previously reported initiatives aimed at reducing costs across the organization have yielded savings. A reduction in the number of employees in both head office and field operations, in conjunction with a reduction in the number of store locations, has resulted in wages and benefit savings of approximately $2,000,000 in the first quarter ended May 3, 2014. These reductions are anticipated to exceed earlier projected annualized wage and benefit savings of approximately $6,000,000. Additional savings have been achieved through improved cost management in non-wage areas.

During the quarter, the Company opened 3 new stores and closed 19. Accordingly, at May 3, 2014, there were 862 stores in operation, consisting of 345 Reitmans, 146 Penningtons, 102 Addition Elle, 77 RW & CO., 68 Thyme Maternity and 124 Smart Set, as compared with a total of 909 stores as at May 4, 2013. The Company operates 23 Thyme Maternity shop-in-shop boutiques in select Babies"R"Us locations in Canada. At May 3, 2014, the Company operated 67 Thyme Maternity shop-in-shop boutiques in the United States which were closed at June 2, 2014.

Sales for the month of May (the four weeks ended May 31, 2014) decreased 1.5% with same store sales* increasing 1.2%.

At the Board of Directors meeting held on June 10, 2014, 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 July 31, 2014 to shareholders of record on July 17, 2014.

On behalf of the Board of Directors,


Jeremy H. Reitman
Chairman and Chief Executive Officer

Montreal, June 10, 2014

* The above text includes a reference to adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA is defined as 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 impairment charges. 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.