Reitmans' Canada 2009 results

Overview
Reitmans is a Canadian ladies' wear specialty apparel retailer. The Company has seven banners: Reitmans, Smart Set, RW & CO., Thyme Maternity, Penningtons, Addition Elle and Cassis. Each banner is focused on a particular niche in the retail marketplace. As of Jan 31, 09, Reitmans has a total of 973 stores across Canada.

Fiscal 2009 Results (vs 2008)
1. Revenue: 4q09 & 2009 Sales down 2.9% and 0.1%

• As per MD&A, management believe sales down mainly due to weaken US economy have negatively impacted consumer confidence, plus the affect of unfavorable weather condition during the year.
• During fiscal 2009, RET’s net opened stores are15 stores or 1.6% increased from 2008.
  According to Stat Can, clothing & accessories stores sector sales down 3.7% in 4q08, while RET’s same store sales down 5.6%.
• I will expect RET’s 1q10 sales will continue to be week

2. Earnings: 4q09 & 2009 Reported EPS down 75% and 24.8%

• RET’s gross margin dropped to 60.8% from 64.2% due to higher transportation cost and the rise in US dollar;
• RET’s had an investment loss $0.5M & loss $2.4M in 2009 & 4q09 compare to $1.5M gain & $1.5M loss in 2008 & 4q08;
• Excluded all capital gain, the impact is immaterial

3. Balance Sheet:

• Total equity continue to go up by 5.5% to 522M & Market Capitalization as of Apr 9, 09 is $705M, that means price to book ratio is 1.35;
• AOCI loss expand to $8.2M due to loss on investment of BCE (I really don’t know why RET would invest in BCE’s shares);
• Long term debt equity ratio is 0.02. That is RET’s strength for future growth & resist financial crisis;
• Cash & cash equivalents $214M, looks ok, but it rise a concern on how management will invest those cash;
• 4q09 & 2009 cash flow from operation down 25.2% and 3.1%;

Risk

• Clothing & accessories stores sector is a highly competitive sector. RET’s products do not have an economic moat in terms of design, material and cutting. (They do have a wide moat in certain niche retail markets.)
• Canada economy go weaker as consumer spending and consumer confidence continue to go down and unemployment rate rise to 8.0% in Mar
• RET’s cost of good sales will remain high if US$ remain strong;

Comments
BUY, CA$14.8.
I think Reitmans has a narrow economic moat in Clothing & Accessories Stores Sector. Its low stock price has already reflected the negative impact on 2009 earnings.