Richelieu Hardware Ltd.

Ladies and gentlemen, and welcome to Richelieu Hardware third quarter results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session, which will be restricted to analysts only. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on October 5, 2023. Bonjour, mesdames et messieurs, et bienvenue au résultat du deuxième trimestre quinquennat de Richelieu. Présentement, votre ligne est en mode écoute seulement. Suite à la présentation, nous allons procéder à une période de questions et réponses qui sera restreinte aux analystes seulement. Si vous avez besoin d'assistance au cours de l'appel, appuyez sur étoile et zéro. Veuillez prendre note que cet appel est enregistré le 5 octobre 2023. J'aimerais maintenant céder l'appel à M. Richard Lord, Président et chef de la direction. La parole est à vous.

Merci, Fabio. Vous rappelez mon éditeur d'ordre. and welcome to this conference call for the third quarter and first nine-month period ended August 31st, 2023. With me is Antoine Auclair, CFO. Our third quarter performance reflects the effectiveness of our incentive to achieve good sales in our Canadian and U.S. market, slightly below the third quarter of 2022, which benefited from exceptional market conditions in the pandemic context. For the nine months today, we reached shares of 1.3 billion in nine weeks last year. Our customer-focused business model and our diversified markets in North America are effective assets, as are our innovation and value-added service strategies and our business acquisitions, which partly offset the internal decrease in sales compared to 2022. Our EBITDA margin is lower than last year, due to the return to pre-pandemic levels of operating expenses, exceptional external warehousing costs relating to temporary higher inventories levels, and the cost related to our expansion and modernization projects of some centers in the U.S. in order to accelerate social growth. Our cash flow from operating activities was strong for the third quarter, generating $104 million of inventories is currently going to lead to more normal levels, which contributes to a positive effect on cash flow. We ended the period with a financial position that remains very solid. Antoine will now review the financial highlights of the third quarter and the first nine months, then I will conclude and we'll take your questions. Antoine Chouinardier Thanks, Richard. Third quarter sales have reached 192.8 million. down 2.9%, of which 4.6% from internal decrease and 1.7% from acquisitions. It's important to note that in the third quarter of 2022, Leisure Year had achieved strong internal growth of 16%. In Canada, sales amounted to $270.1 million, down 3.4%, of which 6.4% from internal decrease, partially offset by a 2.1% positive contribution from acquisitions. Our sales to manufacturers reached 219.9 million, down 3.6%. And for the hardware debaters, sales stood at 50.2 million, down 2.7%. In the U.S., sales grew to 141.6 million in U.S. dollars, down 5.6%. Sales to manufacturers reached 131 million in U.S. dollars, down 6.8%. In the hardware retailers and renovation super source market, sales reached 10.6 million, up 12.8%. In Canadian dollar, total sales in the U.S. reached 188.9 million, a decrease of 2.3%. For the first nine months, sales reached 1.3 billion, down 0.8%, of which 2.8% from internal decrease and 2% from acquisition. In Canada, sales reached 780.6 million, down 20.6 million, or 2.6%, of which 4.5% from internal decrease and 1.9% from acquisitions. Sales to manufacturers reached 635.4 million, down 15.3 million, or 2.4%. Sales to hardware retailers and renovation superstores reached 145.2 million, compared to 150.5 million, down 3.5%. In the U.S., Sales amounted to $411.2 million in U.S. dollars, down 3.5%, of which 5.5% from internal decrease and 2% from acquisitions. They reached $553.5 million in Canadian dollars, up 1.7%, accounting for 41% of total sales. Sales to manufacturers totaled $379.8 million, an increase of $12.6 million, or 3.2%, of which 5.4% from internal decrease and 2.2% from acquisitions. Sales to hardware retailers and innovation super stores were down 6.5% compared to last year. Third quarter EBITDA reached $61 million, down 18.2 million or 23% over last year, resulting from lower sales and higher operating expense. EBITDA margin stood at 13.3% compared to 16.7% last year. For the first nine months, EBITDA reached $171.6 million, down 18.6%. As for the EBITDA margin, it stood at 12.9% compared to 15.7% last year. Third quarter net earnings attributable to shareholders soloed $29.8 million, down 34.6%, mainly due to amortization resulting from business acquisitions and extension projects, mainly in the U.S., including higher interest expense on lease obligations. Net earnings per share was $0.53 compared to $0.83 last year, a decrease of 36.1%. For the first nine months, net earnings attributable to shareholders reached $82.9 million, down 31.1%. By nature, net earnings per share stood at $1.47 compared to $2.19 last year. Cash flows from operating activities before net change in non-cash working capital balances was $48.5 million compared to $60.9 million last year. Net change in non-cash working capital items represented a cash flow inflow of $55.1 million. Except inventories continue to reduce as planned with a positive effect of $24.5 million. As a result, operating activities represented a cash inflow of $103.5 million in the quarter compared to a cash outflow of 2.7 million in 2022. For the first nine months, cash flows from operating activities represented a cash inflow of 192 million compared to cash outflow of 37.9 million last year. For the third quarter, financing activities used cash flow of 16.9 million compared to 17.2 million last year. Dividends paid to shareholders of the corporation amounted to 8.4 million compared to 7.3 million in the same period of 2022. For the first nine months, financing activities used cash flow of $52 million compared to $46.9 million in 2022. Dividends paid to shareholders amounted to $25.1 million compared to $21.8 million last year. During the first nine months, we invested $42.5 million, $20 million for safe business acquisition, and $22.5 million mainly for distribution center modernization and extension projects, investments in equipment to maintain and improve operational efficiency, as well as for IT infrastructure development. We continue to benefit from a healthy and solid financial position with a working capital of $606.1 million for a current ratio of 3.4 to 1 and an average return on equity of 15.5%. I now turn it over to Richard. Thank you, Antoine. The integration of recent acquisitions is in progress, as are the expansions and consolidation projects underway in our network. We have finalized the consultation of our centers in the Atlanta and Nashville regions, and our Seattle center is now fully operational. We are also progressing with the Fontana Center extension and plan to complete the consultation of our centers in the Cagay area in the first quarter of 2024. We expect to end the year on November 30, 2023, with a sustained performance and a solid position by relying on successful strategies that have always served us well. mainly ongoing innovation, value-added service, market penetration, and business acquisitions, which are our key roadblocks. Thanks, everyone. We'll now be happy to answer your questions.

Thank you, ladies and gentlemen. We will now begin the question-and-answer session. Should you have a question, please press star, followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the hands up before pressing any keys. Your first question comes from Ariana Millen with JBC Capital Markets. Please go ahead.