Q1 2021 Richelieu Hardware Ltd Earnings Call
Good afternoon, ladies and gentlemen, and welcome to Richelieu hardware first quarter results conference call. At this time all lines on a listen only mode. Following the presentation. We will conduct a question and answer session, which will be restricted to analysts only and.
And if at any time during this call you'll be quite Yummy dip assistance. Please press star zero for the operator also note that the call is being recorded on April eight 2021.
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And you'll see thank you good afternoon, ladies and gentlemen, and welcome to the conference call for the first quarter ended February 28, 2021 with me is Antoine Auclair CFO.
Usual no debt that's on the studies you. She went to forward looking information, which is provided with the usual disclaimer as reported you know if and natural findings.
Ill this morning, Oh virtual and you.
And we all virtual annual general meeting and that tender.
The book shoulders.
We started 2021 with a strong first quarter.
Although most of that spectrum since historically, the first three months, although weakest period of the year.
As in itself and essential supplier and they spend they make very good we made to the tried and thanks to the strength of our customer focused business model.
I'll dedicate a team and new vision and value added service strategy entering a one stop shop approach the efficiency overweight or a website and he showed you dot com and the fact that we serve a large base of more than 90000 active customers and many diversified sector and the manufacturers and.
The way retailers market, which is a significant asset.
We also benefited from the contribution of our previous acquisitions and our new specialty markets.
Put them all I would add that throughout this pandemic period. Our team has made every effort to assist our clients as efficiently as possible in their projects.
All of these combined.
We were able to seize the opportunities are favorable conditions in the Canadian and U S. Mi nutrition market, which is our main source of growth.
Although sales increased by 19, 3% consisting of a strong internal growth of 17%.
Our two major markets manufacturers and retailers performed very well both in Canada and in the U S.
Our sales increased by 16 point and cheapest shouldn't you know and manufacturers market and by 34, 5% you know retail doors and market I didn't know based on superstores.
EBITDA was $53 four per cent benefiting from increased sales and lower operating costs as a result of rigorous cost control and diluted net earnings per share.
It was up 76, 2% over the last year.
We continue to identify acquisition targets meeting, our long term value and and.
And on creation criteria.
So at the end of the quarter, we acquired their shares of test tools and distributor of power tool accessories and related products from retailers in Canada and in the U S. Open it in two centers in BC and Ontario.
Combined with Michael acquire and Twenty-twenty. This new acquisition allows us to expand our offering of these product lines.
So the retailers I think on ovation superstores market in Canada and in the U S. We also signed two agreement in principle to acquire two Greenwich on distributors and together. These three new acquisition would bring additional sales of approximately 36 million per year.
We are very pleased to have added and I'm sure.
Counters in Dorchester, and New York, which has become a fifth center and this strategic market.
I will now ask Antoine to go through the financial highlights of the first quarter and we'll come back with editorial comments on one.
Thanks, Richard first quarter sales reached $297 6 million up by 19, 3% of which 17, 1% from internal growth and two 2% from acquisitions.
Sales from manufacturers stood at $241 8 million up by 16, 3% of which $13 six from internal growth and two 7% from acquisitions and.
And the hardware retailers and renovation superstores market, we achieved sales of $55 8 million up $14 3 million or 34, 5%, mostly resulting from internal growth.
And those increases are the result of the favorable fallout from the strong demand and the renovation market.
And Canada sales amounted to $193 2 million up by 23, 3% of which $22 five from internal growth and 8% from acquisitions.
Our sales and manufacturers reached $153 2 million up by 22% of which 19, 1% from internal growth and one 1% from acquisitions.
As far as the hardware retailers and renovation superstores market share.
<unk> stood at $40 million up 37% all from internal growth.
And the U S sales grew to $81 9 million and U S. Dollar up 16, 4% 11, 8% from internal growth and four 6% from acquisitions.
The reach hardware and $4 $3 million and Canadian dollars and increase of 13% and represented 35 per cent of the total sales.
Sales to manufacturers reached $70 million and U S dollar up by 14, 1% eight 6% from internal growth and $5 five 5% from acquisitions.
And the hardware retailers and renovation superstores market sales grew by 31, 9% entirely from internal growth.
First quarter EBITDA reached $38 2 million up $13 3 million or 53, 4% over the first quarter of 2020.
Gross margin was maintained and the EBITDA margin reached 12, 8% compared to 10% last year due to the increase in sales and continued control of expenses.
First quarter net earnings attributable to shareholders totaled $21 million up 78, 3% diluted net earnings per share rose to 37 cents compared with 21 for the first quarter of 2020 and increase of 76, 2%.
First quarter cash flow from operating activities before net change in working capital balances amounted to 30 million or <unk> 53 per share and increase of 48, 9%.
We paid dividends of $7 6 million to shareholders, representing a special dividend of $6 67 per share and a quarterly dividend of <unk>.
Which is up 5% compared to last year.
We repurchased come and share for $3 3 million and invested $2 9 million for new equipment to improve and maintain operational efficiency.
I'll now turn it over to Richard.
In conclusion on bolt on and we're committed to high standards of quality and reliability customer service, we continue to do our utmost to support our customers and their projects as efficiently as possible.
And of our service, that's clearly and the in these difficult times is the most and bolt on element in order to maintain and gain market shares.
Although the current conditions, we strictly adhere to already come on the preventive measures to protect our employees customers and business partners as much as possible currently more than 600 employees are still you're walking.
Could you share your remains customers and innovation on Oems, we continue to leverage our main growth drivers, namely our innovation and acquisition strategies. This is the most appropriate way to seize and create opportunity to achieve photo and good performance, we are very well prepared and organized.
To me did occur and possible, China, and such as labor shortage getting product on time rising shipping cost and inflation.
This opportunity to thank.
Thank you again, Oh team and business partners does supports thanks, everyone.
And I'll be happy to answer your question.
Thank you Ms alarm FC ladies and gentlemen, if you do have a question. Please press star followed by one on your Touchtone phone and you will Dan here <unk> prompt acknowledging you request.
Wish to withdraw your question simply press Star followed by two and if Youre using a speakerphone and we do ask that you. Please lift the handset before pressing any Keith. Please go ahead and press Star one now if you do have a question.
And your first question will be from Ross and I look at CIBC. Please go ahead.
Thanks, Hi, good morning, Victor can you tolerance wholesale where year over year in March and how they are doing so far and April I believe last year Covid have not impacted March sales and then the question on April Virginia with Tullow, Paul maybe it's going so far.
And could you and take.
And <unk>.
Yes, no problem and so marches.
Youre right so COVID-19.
Covid started to hit us at the end of at the end of March So last week of March, but and when we look at the current performance.
Still it is still strong so while on the industrial level, it's still double digit growth and pretty much the same thing and on the retailers' side as well.
Actually what we do we compare ourselves with the 2019, so we have established on the.
Tiger debt sales.
As the guideline is 2019 at the same period.
And we have said this what should be our sales and the month of March and so actually things are doing very positive.
Okay, Great and then just from the U S.
There are areas that.
Vaccination rates are picking up are you seeing any changes in demand and those areas.
No we see a concern growth and do you ask the growth in the U S is not as strong as in Canada, but the basically.
Basically we are just purely on the U S and the last quarter and this will not that strong.
Ken name here, the Texas because of the storms.
For whatever reason and and upper state and we are holding or those of you joining the U S. The growth was higher than 15%. So it is very positive and.
On the U S and we see there and you see the trend and Caddo is very clear the market is very very strong.
Okay, great. Thanks, that's all I have thank you. Thank you.
Thank you once again, ladies and gentlemen, if you do have any questions. Please slowly press star followed by one on your Touchtone phone.
And your next question will be from Zachary <unk> at National Bank Financial. Please go ahead.
Good afternoon, everyone and congrats on the great quarter.
Thank you good afternoon.
And it looks like great wins and sales to retailers and the quarter can you tell us if there was a high proportion of cyclical sales that won't repeat in Q2.
We think the Domo Kessler, Dave you otherwise you Sandro will remain very very strong and the months to come that we see that.
Thank you Ed.
Humor's they have I think some money on the bank and with the Covid situation being better and all across Canada, and we see the I think the trend is to be the people. We continue to to go to the hardware stores and buy some goods as well as they also buy online we see on regarding deal or the online growth.
We sell to and Canada, we see I'll say is increasing by 49%. So far this year. So we see that market and we feel good at the day bucket discontinued is going to cause you to be very very positive.
That's helpful. Thank you and then drilling down into the big increase and EBA.
EBITDA margin in Q1, 202 hundred 80 basis points year over year can you give us an idea of how much was attributable to sustainable cost containment on how.
Much was better operating leverage and what your views on on both of those going forward.
I think we have some cost reduction and I will let Antoine answer that but we also we see actually that the product mix continue to increase as well as well as and also our sales and the U S continued to increase as a result of that we see as a percentage with EBITDA margin increasing to one day be it you can you give more colors regarding the <unk>.
Cost control.
Yes for sure, but we're doing it of course, whereas act with the increased volume that that helps on the debt improve the EBITDA percent, but on.
On the cost control and we're still very and we are still very rigorous around all day travel and living across across North America. So we're still benefiting from.
From these.
These measures in place and.
And.
We'll take it as it comes but.
As of now we're still benefiting from these these cost reduction measures.
Understood and then looking back over the last decade, or so Q2 margins have generally been 150 to 200 basis points stronger and Q1.
Given how strong Q1. This year do you still believe that seasonality will apply.
Now we should we should expect to see to see improved margin and it worked.
Talking about <unk>.
Same store sales of course, if we're adding and if we're adding acquisition that could that could change the mix, but for the current business that we have we were going to work hard to improve the mix to get the synergies from the acquisition and be very rigorous on cost control. So we should see and improvement.
And the margin.
Absolutely and it's on great so far.
And then you have your sales stepped up 19%, but your inventories barely mode. So and.
International freight issue has been causing some delays in shipments from Asia, or Europe, or you're expecting to restock.
No. We are we obviously the freight the freight increases pretty pretty important but we're aware, we're working hard to get the inventory and so what comes and goes out so youre correct, the inventory increase and that as much as the <unk>.
And as the sales but.
And we're doing everything we can to serve the customers.
And then on on the topic of that increase and freight costs has the rollout of price going so far.
I just missed you at the end of your question Zach sorry.
Alright.
The rollout of the price hike going so far.
Well, we have already established from price increase.
For the manufacturer and buckets as.
Within 24 hours, we can.
And if you are pricing regarding the retailers, we have and you request increases taking effect and the.
In early May and the and we will keep watching day market on the inflation.
And if it is from more inquiries that we have to do we will do it and.
Later on during the year.
As you mentioned the freight is really and you show, which would each has more than doubled the cash but as a as a percentage of the cost of a product, it's not that high but anyway, we keep changing our pricing as needed.
And if needed.
Yeah.
Okay.
And then on your acquisitions very quick start to the year, great to see that how active is the pipeline and for the rest of the year compared to that.
And I will let up on compliance with the pipeline and I think the pipeline is very healthy, but also on doing very happy with the acquisition that we've made like the test tool business that we would be a good combination with it with my book.
So that will strengthen.
Also on the market presents from these products and that will have a sales force with southern and contribute to increase the sales tremendously and.
And also we enforce all team management team. So in order to make sure that we continue to billings from innovation and this type of market and the new.
Yeah.
Agreement in principle that we have that are not completed yet.
<unk>, we have the same synergy with other and ensure you are.
Specialized product line and specialized division that we have so that would be very positive very positive and we have very very good fits.
And those equity issue combined with Budweiser do you do with certainly and good inquiries assays tremendously and the future.
Yeah, and the pipeline Zach it's still it's still healthy so we have a nice files open that are.
We are looking at so either and the U S and and cannot either and the retailers market already industrial and market as well so.
Stay tuned.
Got you. Thank you and then on the two undisclosed acquisitions would they be active and manufacturers markets are and where do they sell to retailers.
It's mainly the theaters and market.
Understood. Thanks.
One last one from me.
Any increase and the acquisition target expectation and how strong the renovation market.
We don't know on what actually okay, I'll try and logical.
And that's not necessarily a probably the probably <unk>.
On the line and it could happen, but as of today, we're not seeing necessarily more activity, we have a lot of nice opportunities and.
But.
Well I don't think thats, it and say, it's COVID-19 related so.
We'll see.
But maybe just.
Just to add to that.
Zach and thank you.
And people after the Covid and maybe some people as we already mentioned in the previous meetings that.
After the Covid, maybe some some entrepreneurial will decide that the other day.
There is enough challenges and the alive on day <unk>.
Maybe some more business would be to sales when they are most level. When do you. When do you make some profits would be kind of it and sell to how you're at a higher price, maybe we're going to see more possible acquisition, but so far as Antoine mentioned the pipeline is very very healthy and we were excited about what's coming up.
Thank you very much for answering the questions and I'll turn it all day.
Thank you. Thank you.
Next question will be from Rob Currie at Louisbourg investments. Please go ahead.
Hi, guys haven't gone Okay go.
And when we find great. Thanks, and good good thanks Tate.
My question just wanted to ask about margins here, you talked about mix and cash in the past about how the mix U S versus Canada, Canada, and having a better margin component to it.
But gratulate swagger transition and the U S to better margin and sales over time is that playing a part here too.
And you guys being a driver here or is it is it really just overall youre seeing.
And better across the board.
It's a it's U S on overall as well and we see deposits Bullock mix, increasing as we push more and more on to a higher margin product product and we see it.
More and more resolved and regarding EBITDA EBITDA margin day is such a huge potential in the U S fault, where we have where we are seeing actually more people and also to.
And to sell more if there was high on module.
Products, so that should bring some positive result, and.
And we're very positive as well with the margins and the U S should that.
Getting closer and closer to the Canadian market window, we're not there yet, but it's coming.
Very favorably.
Yeah, that's helpful and when I think about your sales now and and this mix change is there anything that is fundamentally happening is this just a result of the COVID-19 volumes or is there a reason why that mix change is happening that you think is sustainable and that will still be there two three years.
<unk>.
As a result of it.
Default that we get and the effort that we invest for <unk> to include the sale of these products. So we are we have not started just this year is that has been started many months and maybe a couple of years ago and mainly in the U S and we.
More and more of the results coming in naturally and we are we covering new markets. For example, the day clause that market I've seen that goes up market actually to our sales increase.
By 46% in Canada, and the U S. So you see that if you remember a couple of years ago, we have invested and the new business that cover this market.
And this is completely compatible with the initial <unk> product strategy.
And we see those increasingly which has a very interesting and does not get high margin and market. So I think that that will that should continue on growth and increasing the sales with the regular products on the pushing more and more and do a high margin project products.
Yes, that's helpful.
I feel like I can't remember, specifically, but I'm sure. This has been asked over the past few quarters, but is there a concern that sale.
Sales in the past few quarters have been a pull forward and we're going to see.
And not just a drop in demand from from this elevated level, but I dropped below the run rate. We have previously yet or do you guys feel pretty confident that this is jess increased demand and then it might come to you and more normalized level later, but this is kind of scale and demand that you expect going forward.
Yes.
There's a certain percentage of all sales may be it may be temporarily increasing.
But I think overall we.
She actually that there's at least forgive me is increasing its market share. So even after the COVID-19, we're going to see.
<unk> sales and the and we're gaining customers and the.
And actually we have to be very careful though because we first serve the question and budget further they have but we have many many many customers that we've added and some debt wasteful at Westwood, we added Fortunately zynga.
You can go procurement on the web is a very good team and this department and we I think we've successfully actually to get products, while our competitors are much more problems than we than we have.
And bill as well as the beginning of the club and the <unk>.
And we told you we have not stopped purchasing we have continued to push to make sure that we did not diminish our puts.
Are you seeing holders and Thats, we keep increasing our inventory and Youll see actually is that our inventory is about 30% higher than it was in the same period last year. So basically we have made that I think the best efforts and in order to maximize all purchasing to get the inventory and we'd continue to do that as well actually to make.
For certain products, where we were paying some air freight to make sure that we have mainly for the seasonal products with retailers. We have and we have we have a budget actually for air freight and then the additional gas.
And because of the those airfreight are largely compensated by.
By increase increased sales and you see the 35 per cent for the retailers for the last quarter. So basically with taking all day means that we can in order to better serve as a question on the service makes all the different also.
Sales and sales team actually you.
Do you keep communicating with a question on that as well if one product is missing.
Non tackled the question on orders and you put it.
Product that will do the same job for them. This is another big advantage of you being a one stop shop, if you have a and something like that that we do.
And get that might be out of inventory and next week. So we call the Cosmo and say Hey, we are diesel tentative product that we do exactly the same job. So basically we make sure that we don't miss on any opportunity and oriented.
You guys have all the products that we have and the needs of our customers.
That's great last question I have for you is about M&A.
Currency is obviously improved here your cost of capital is going down.
And shares continue to rise does that change and where you guys think about capital.
Capital allocation is it possible and that you could go after a bigger fish and possibly use and equity or do you still feel like it's kind of tuck in situations that you guys have been doing for years is still on the status quo.
Just some update on what's great.
Yes, what we see and the market as we speak is as more tuck in acquisitions. So if if there is a larger gap.
And the larger fish to catch and.
And it.
It's it's aligned with our long term value creation and whether we'll go after it and thats for sure but for.
And for now what we what we have and the pipeline and are more tuck in acquisition that fit perfectly with our with our long term strategy and.
All lines that I plan to walk.
All lines as I mentioned the water just in case, a big fishery is interested to that line.
Sounds good alright, thanks, I'll turn it over.
Thank you.
As a reminder, once again, ladies and gentlemen, if you do have any questions. Please press star followed by one on your Touchtone phone.
And at this time, Michelle we have no other questions registered please proceed.
If there's no more question. Thanks, again, and it's always a pleasure to talk to you do notice it day to contact us if needed.
Bye bye have a good afternoon.
Thank you, ladies and gentlemen, and this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
Yes.
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Okay.
Okay.
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