Reitmans Canada 2q09 results

Bilibala's comments:
When retail market is falling during 1H09, Reitmans still managed to deliver strong (at least flat compare to last year) top line.
However, CAD dollar fall from 0.99 to 0.84 or 15.2% has significant impact toReitmans' gross margin as well as net margin. Given the fact that 85% of her supplies are imported from China through Hong Kong.

Looking forward, as CAD rise back to 0.91, we should see improvement in Reitmans' 3q10 & 4q10 results.

Details
Sales for the year to date remained virtually unchanged at $517,723,000
as compared with $517,820,000 for the year to date fiscal 2009. Same store
sales decreased by 1.6%. Reduced consumer spending continued to impact sales
as consumers cut back on discretionary spending. Statistics Canada reported in
their July 2009 labour force survey that from October 2008 through to July
2009 total employment fell by 2.4% and during the same period the unemployment
rate increased 2.3 percentage points to 8.6% nationally, the highest in 11
years. Rising unemployment rates in a number of key markets, most notably
southern Ontario and Alberta, impacted sales as households reduced spending on
apparel due to credit and personal liquidity constraints. Additionally,
Environment Canada reported that the national average temperature for the
spring of 2009 was below normal, ranking it as the eighteenth coolest since
nationwide records began in 1948. Although British Columbia experienced record
heat, the rest of Canada had less than favourable conditions resulting in
consumers delaying and in some cases foregoing purchases of summer merchandise
thereby further negatively impacting sales.
For the year to date, EBITDA decreased by $24,246,000 or 23.5% to
$79,073,000 as compared with $103,319,000 for the year to date fiscal 2009.
The Company's gross margin of 63.0% for the year to date decreased as compared
to 68.0% in the year to date fiscal 2009 primarily due to the impact of the
Canadian dollar vis-à-vis the US dollar. As the Company purchases the majority
of its merchandise with US dollars, a significant fluctuation of the Canadian
dollar vis-à-vis the US dollar impacts earnings. The decrease in gross margin
was primarily attributable to the impact of higher cost of merchandise sold
due to the weakening of the Canadian dollar during the fourth quarter of
fiscal 2009 and into fiscal 2010. The average rate for a US dollar in the year
to date was $1.19 Canadian as compared to $1.01 Canadian in the year to date
fiscal 2009. Spot prices for $1.00 US for the year to date ranged between a
high of $1.30 and a low of $1.08 Canadian ($1.03 and $0.97 respectively for
the year to date fiscal 2009). Significant components of store operating costs
that impacted EBITDA included rent and occupancy costs, which increased by 54
basis points as a percentage of sales, while store wage costs were unchanged
as a percentage of sales.
Depreciation and amortization expense for the year to date was
$30,159,000 compared to $28,782,000 for the year to date fiscal 2009. This
increase reflects the increased new store construction and store renovation
activities of the Company. As well, it includes $1,090,000 of write-offs as a
result of closed and renovated stores, compared to $2,074,000 in the year to
date fiscal 2009.
Investment income for the year to date decreased 66.9% to $1,407,000 as
compared to $4,257,000 in the year to date fiscal 2009. Dividend income for
the year to date was $1,072,000 as compared to $823,000 for the year to date
fiscal 2009. There was $61,000 of net capital losses for the year to date,
while there were no net capital gains or losses in the year to date fiscal
2009. Interest income decreased for the year to date to $396,000 as compared
to $3,434,000 for the year to date fiscal 2009 due to lower cash balances and
significantly lower rates of interest.
Interest expense on long-term debt decreased to $433,000 for the year to
date from $469,000 in the year to date fiscal 2009. This decrease reflects the
continued repayment of the mortgage on the Company's distribution centre.
Income tax expense for the year to date amounted to $15,661,000, for an
effective tax rate of 31.4% as compared to $24,504,000 for the year to date
fiscal 2009, for an effective tax rate of 31.3%.
Net earnings for the year to date decreased 36.4% to $34,227,000 ($0.49
diluted earnings per share) as compared with $53,821,000 ($0.76 diluted
earnings per share) for the year to date fiscal 2009. The decrease was
primarily attributable to the impact of higher cost of merchandise sold due to
the weakening of the Canadian dollar during the fourth quarter of fiscal 2009
and into fiscal 2010.

The Company in its normal course of business makes long lead time
commitments for a significant portion of its merchandise purchases, in some
cases as long as eight months. In the year to date, these merchandise
purchases, which are payable in US dollars, exceeded $104,000,000 US (August
2, 2008 - $103,000,000 US). The Canadian dollar continued to experience
volatility against the US dollar in the year to date. The Company considers a
variety of strategies designed to fix the cost of its continuing US dollar
long-term commitments, including foreign exchange option contracts with
maturities not exceeding three months.
During the year to date, the Company opened 9 stores comprised of 2
Reitmans, 3 RW & CO., 1 Thyme Maternity, 1 Cassis and 2 Penningtons; 11 stores
were closed. Accordingly, at August 1, 2009, there were 971 stores in
operation, consisting of 368 Reitmans, 164 Smart Set, 62 RW & CO., 76 Thyme
Maternity, 16 Cassis, 162 Penningtons and 123 Addition Elle, as compared with
a total of 970 stores as at August 2, 2008.
Store closings take place for a variety of reasons as the viability of
each store and its location is constantly monitored and assessed for
continuing profitability. In most cases when a store is closed, merchandise at
that location is sold off in the normal course of business and any unsold
merchandise remaining at the closing date is generally transferred to other
stores operating under the same banner for sale in the normal course of
business.