Q2 2021 Richelieu Hardware Ltd Earnings Call
Good afternoon, ladies and gentlemen, and welcome to your second.
Second quarter results conference call.
This giant all lines are in listen only.
Following the presentation, we will conduct a question and answer session, which will be restricted you analysts Shelly if at any time during the skull you're quite media assistance. Please press star zero for the operator disclosed vindicated on July 8.2021.
Sure.
<unk>.
Should you please on small Virgin fault on the decrease suitable debt.
That's true.
Is that a question.
Cause it to set them on Tuesday.
It is 1 that you saw central that debt at just your <unk> zeal.
Thank you Pablo on that because it does that at all.
Your line us up to date update on materially Shout out because you don't issue shortly.
Doug.
Yes, Hey, Thank you good afternoon, ladies and gentlemen, and welcome to Ishares comes from skull for the second quarter on 6 month period ended may 31st 2021.
With me as Antoine Auclair CFO.
As usual no debt no debt. Some of today's issue include forward looking information, which is provided with the usual disclaimer as reported in on fact financial filings.
We are very pleased with our second quarter always all showed strong growth.
I'll finish up on just trying to remains sound and solid for income.
Provision it should be noted that during the simple yield last year.
Our sales were negatively impacted by a general decline in business.
You did a bunch of it both in the U S and Canada.
Although market segments has done very well.
It would be the kitchen cabinet manufacturers.
Let me walk on it.
And not just for Nishu.
We are really proud of the solid growth in market, where we simply made acquisitions and product innovation, such as door and window manufacturers clause that manufacturers and Blazers on.
Otherwise retailers market also showed strong growth during the quarter.
Thanks, tore what something website.
On such up approach and definitely good luck on medical network that enables us to.
To make product available to our customers in a timely manner and provide alternatives when needed.
As a result, net sales increase combined with cost control oppose it.
It will be impacted.
Mogens, but we posted an EBITDA margin of $16.4 per cent youre on.
On the quota.
With the strength of our business model the quality of our team and the ability of our organization to carefully adjusted market conditions and be proactive, but we're able to provide the best possible support to our customers in the actual circumstances.
Depending on we also successfully pursued.
On strategy and sees good opportunities they think liquidity out of complementary channel.
G potential.
Long term debt you booked the concrete the tree acquisition in the last 3 months the latest on July <unk>.
As mentioned previously a lease on it.
5 were quiet on the shares of test tools.
Distributor of power tool accessories and related product serving to how the way retailers basket in Canada and the U S. We also.
Thank 2 agreements in principle.
1 of which was completed with the acquisition of US kind of industrial Fasteners Ltd. On June the first.
Well, Scott is the leading importer and distributor of screws bolts and industrial fasteners opening a distribution center in Montreal from which.
It supplies all the way retailers, mainly in eastern Canada.
On July 5 we acquired 75% of the shares.
<unk> Co Inc.
That distributor Division 10 products for the construction industry in Canada and in the U S. Operating 2 centers in Ontario, and <unk> in the U S.
I just wonder why you on Texas.
Interesting to note that this acquisition would be combined for 1 of our divisions on or the operating in this sector of activity and cooperating Western Canada.
In addition, we signed another agreement in principle for an equity as shown in the U S altogether.
Transaction would that sales for $773 billion.
Yes.
I will now go to Antoine for differential with you on.
Thanks, Richard second quarter sales reached $271.4 million up 49, 6% of which 46, 8% from internal growth and 2.8% from acquisition.
At comparable exchange rates for last year sales increase would have been 56%.
Those increases are the result of the strong demand in the renovation market compared to last year, where sales have been negatively impacted due to the slowdown in business, resulting from the pandemic.
In Canada sales amounted to $248.1 million up 59, 8% of which 56, 7% from internal growth and 3.1% from acquisitions.
Our sales to manufacturers reached $203.7 million.
63, 5% of which 61, 7% from internal growth and 1.8% from acquisitions.
As for the hardware retailers sales stood at $44.4 million up 45, 1% 37, 4% from internal growth and 7.7% from acquisitions.
In the U S sales grew to $99.4 million on U S dollars up 49, 5%, 47% from internal growth and 2.5 per cent from acquisitions.
As in Canada, the renovation market in the United States has been growing strongly.
Sales to manufacturers reached $87 million on U S. Dollar up 52, 6%, 50% from internal growth and 2.6% from acquisitions.
In the hardware retailers and renovation superstores market sales grew by 39% mostly from internal growth.
Total sales in the U S reached $123.3 million in Canadian dollars, an increase of 32, 6% and representing 33, 2% of total sales.
For the first half of 2021 sales totaled $6.669 million up 34, 4% of which 2.5 per cent from acquisition and 31, 9% from internal growth.
In Canada sales reached $441.3 million up by $129.4 million or 41, 5% of which 39, 5% from internal growth and 2% from acquisitions.
Sales for manufacturers reached $357.3 million up 100 for $104.8 million or 41, 5% mostly from internal growth.
Sales to hardware retailers and renovation superstores reached $84 million compared to $59.4 million up 41, 4%.
In the U S sales amounted to $181.3 million.
U S dollars up 32, 5% of which 28, 8% from internal growth and 3.7% from acquisitions.
They reached $227.7 million and Canadian dollars up by 22, 6% accounting for 34% of total sales.
Sales for manufacturers total $156.1 million, an increase of $38.5 million or 32, 7% of which 28.5 per cent from internal growth and for 2% from acquisitions.
Sales to hardware retailers and renovation superstores were up 31% compared to last year.
Second quarter, EBITDA reached $61 million up $27.2 million or 85% over last year, resulting from significant increase in sales and continued control of expenses.
Gross margin improved slightly and the EBITDA margin stood at 64% compared to 13, 6% last year.
First half EBITDA reached $99.1 million up 69%.
As for the EBITDA margin it stood at 14, 8% compared to 11, 8% last year.
Second quarter net earnings attributable to shareholders totaled $37.4 million up 111, 4%.
Net earnings per share.
67, basic and <unk> 66 cents diluted compared to 31 basic and diluted last year, an increase of $116, 1 and 112, 9% respectively.
First ask net earnings attributable to shareholders reached $58.4 million up 98, 1% diluted net earnings per share stood at $1.3 compared to <unk> 52 last year up 98, 1%.
Second quarter cash flow from operating activities before net change in working capital balances amounted to $46.5 million or <unk> 82 per share an increase of 74% compared to last year, resulting primarily from.
Net earnings growth for the first asked there were 63, 2% to link $76 million or $1.36 per share.
For the second quarter of 2021 financing activities used cash flow of $6.7 million compared to $2.8 million last year.
Dividends paid.
Page 2 shareholder of the corporation amounted to $3.9 million, while no dividend was paid in the corresponding quarter of 2020.
First half financing activities used cash flow of $22.4 million compared to $10.6 in 2008 week.
Dividends paid to shareholders amounted to $11.6 million compared to $3.8 million last year and the first quarter of 2021 special dividend.
$6.6.67 per share was paid in addition to our quarterly dividend of <unk> <unk> per share.
We also repurchased common share for an amount of $3 to $3.3 million in the first half of 'twenty 'twenty, 1 on while no share repurchase in 2020.
During the second quarter, we invested $13.9 million and $16.7 million in the first half of which $9.8 million for business acquisitions, and $6.9 million primarily for the purchase of the equipment to maintain and improve operational efficiency, including the addition of <unk> licenses.
We continue to benefit from a healthy and solid financial position cash balance of $89.6 million almost no debt working capital of $416.3 million for a current ratio of 3.7 to 1.
And our return on average equity of 24%.
I'll now turn it over to Richard.
Thank you everyone and conclusion.
So just on Jeff remains the cornerstone of all leadership based on innovation product offering the most diversified on complete our feeling on market covering the widest range of specialty product categories on <unk>.
Simple and easy access for our products what our true.
Let's walk on 1 stop centers, 1 stop shops on drivers and 12 triangle website.
<unk> Dot com.
On the quality and the reliability of our service and the broad range of unique sales still know about yet that we provide to our customers.
Our decision to maintain our eventual level at the beginning of the pandemic showed to be the right decision on our customers that still are benefiting from it.
On to you to do our utmost to support them.
We expect our manufacturer market continuing to be strong for this.
<unk> done, especially on a strong future growth in the U S and in order to meet demand on probably the best possible service.
We have several expansion projects on the table for some of our U S centers, notably.
In Detroit.
Dallas, Boston and Orlando.
Additionally, we opened a new center in Pennsylvania.
At the end of the third quarter of 2021.
As for the sales of all the way retailers market, we do not expect growth in the second half.
The exceptional sales in the last 2 quarters of 2020 however.
Compared to 2019 detailed on my guess would be should show very healthy growth and should continue to be strong in the coming quarters.
We remain highly vigilant to market conditions until we closely monitor our prices and worldwide transportation cost increases.
So are we setting prices would be adjusted accordingly.
We are confident in the initial your strength and great potential to continue to grow in the coming periods and execute the strategy there.
To create long term value.
Thanks, everyone for now.
Happy to answer all your questions.
Thank you ladies and gentlemen, we will now begin the question and answer session for analysts Shelley <unk>.
Do you have any questions. Please press star followed by you want on you touched on sales.
Youll hear from acknowledging that a question for your questions Paul and deal that you received.
Should you wish to decline from the building for US is please press star followed by 2.
You're using a speaker phone please lift your handset before pressing any keys 1 moment for your first question.
Your first question comes from EMEA per <unk> with CIBC EMEA. Please go ahead.
Hi, good afternoon, and congratulations on the strong a strong quarter.
Richard I wanted to follow up on a point you made about retailers' sites. I think you said you didn't expect growth.
Should still be healthy versus 2019.
Obviously.
Clearly it will be year over year down, but any sort of order of magnitude on at least compared to the elevated 2020 levels, we should expect for the retailer category.
In the back half of the year.
Yes, I think a few remember well the 2 into 2 last quarter of the sales.
It was increased by something like correct me, if I'm wrong on that 1 something like 40 or 45%. So it could be very hard to surpass debt. So so when we compare ourselves with 22019.
And we expect the growth to be in that.
High double digit growth still in the last 2 quarters compared to 2019.
Okay.
Very helpful and then Richard.
Anything you could share on how June is paired for for sales in the manufactured category.
The manufacturers category is still very strong and continue about at the same pace that you've seen in the second quarter and then we expect that to continue on for at least for a few months because.
Actually we see we think there is a lot of cash and debt market. The consumers have been putting up cash for both in U S and Canada in the last in the last year and also many projects have been delayed because many people that that project volume for innovations like kitchen cabinets are clogged up.
I had to delay that project because they cannot find a contractor to do the job. So it's both pointing some some work and I guess with the cash on when you're building the day market and the feeling that we've got from our customers because we are in Boston.
Cash on with our customers.
Get them to be very busy still for a few months.
Okay, and then Richard just coming back to the.
The retailers market.
Other than obviously day tough year over year comps.
We've seen signs that the DIY segment slowing in recent months have you seen something similar for your products or is.
Has there been maybe differences in terms of actual product impacts on DIY.
Yes, compared to last year, we see it we also.
We also see debt some of the retailers when we add enough stock. They have created maybe buy more inventory that really need it.
Secure their business day, so that.
That would be it's also creating some delay in that if you are true.
And you're right the consumers.
For the less now that shows on the left now that they were buying last year Theres no doubt about that.
Great.
That's all I have for now I'll get back in the queue. Thanks.
Thank you.
Your next question comes from Makena on it with TD Securities Mcgain. Please go ahead.
Thank you good afternoon.
So looking at the EBIT margin are really strong performance there on the quarter.
Are there any 1 time benefits that you would call out here.
As we think about the rest of this year in fiscal 'twenty..2 just on an annual basis can you maybe update your thoughts on where you see the EBITDA margin trending maybe relative to 2019.
No. There is no 1 time in there, but definitely the the high volume is a is favorably impacting the EBITDA margin.
So thats the main debt.
The main impact we are being very rigorous in terms of cost control, but the strong the strong sales volume is.
It is benefiting the EBITDA margin that's for sure and Thats for the rest of the year. So it should be it should it should continue to be a high from a high margin vs versus last year. So you should.
Looking at looking at the few true if you're lucky if youre using the 2019 EBITDA margin you should see improvement as well because of the 20th where the 2020 EBITDA margin was not necessarily.
Recurring but if you use 2019.
With.
With improvement on it it should be.
Sure.
You should be on non target.
Okay and just.
Thinking about input costs from price increases Richard I think you touched on this a little bit. So I think we're in a fairly unique environment here, where we've seen costs rise at a rapid pace. But then we're also seeing some relief now on the cost side. So how do you manage pricing with the customer in an environment like this and do you see any reluctance to purchase.
From customers.
And on the environment such as this.
Not at all price.
Regarding the hardware product I would say.
Since 2019, the price has increased by roughly close to 10%, which is far from being the increases that we've seen for the lumber for example, so basically in theatrical distribution, we keep it close.
Very close eye to do whatever is that been eating about guest for all products. So.
We have on Asia.
Meanwhile, pricing used to protect our gross margin as a percentage. So if we have cost.
Cost increases and freight increases that we expect to continue on forever. We channel drove question immediately as far as big of a manufacturer or as I commented on it takes on.
For hours to change on a question, except for maybe 20% of our customers that that 1 quotation and for the retailers usually takes between 60 days 90 days, which is the which is normal for that type of course, all day. So basically you can be assured that our gross margin as such is very well protected.
Okay and just last question. So on later some of those global supply chain challenges can you just talk about your approach to inventory management.
Are you seeing any challenges there on sourcing key products and then as we see some of that slowdown take place.
Or maybe more for normalization with the retailers how do you plan for that from an inventory standpoint in terms of your purchases.
In the today's circumstances as we speak.
Getting a product.
Yeah.
In <unk> North America when it comes from you all up on Asia is a challenge.
We have a location for containers for the extra containers, because we have a lot of extra containers, we pay a higher price. So maybe we can transfer to.
The selling prices, but we don't but we do not neglect any possibility to do it.
We have a better service for our customers. So we paid a high price if we have to play to win containers in and we didn't pay for it if necessary to maintain.
What about EPS.
This is Jeremy so basically.
Those extra expenses, though.
Largely compensated by increased sales as you can see.
Our lesser quarters financials, and we expect that to continue on for.
For a few months and I see you.
Would we be actually the small decrease debt decrease that we see as we speak now with the hardware it will probably create an impact that in 2 months 3 months from now we might have a little bit more adventure weighted that that would be needed, but we don't see that as a problem.
For the first for the on manufacturers do we expect the growth that you're seeing now to continue on for.
Maybe not probably above or below for gold.
Many months.
Great. Thank you for all the color.
Thank you we.
We have a following question is from Mr. Carey Eversheds with National Bank. Please go ahead.
Thank you good afternoon, everyone congrats on the quarter.
Thank you.
So you've got a great piece of M&A set up thus far in 2021 can you tell me a little bit about the pipeline and if you think you can keep up that pace.
I will let Antoine complete by my comment.
Cummins, but we're very proud with your equity side has made so far as we already discussed in the previous months, we see that more people are willing to sell their business for whatever reason I think the pandemic is just that.
I know there was some day of lives that didn't the bvd add enough storm.
In the life with the Aldi.
Don't draw on businesses that we.
We had before and some would sell also because they have a good year. So it seems to make a profit this year to say, okay. Now it's time to sell the business. So because of that we even though with the multiple would be basically the same so we're going to pay a higher price because they have they do more profit this year, but that's not a problem for us because that's not what was on material difference.
And the price that you would have paid without the pandemic not what you would you hazard debt.
No Youre right. The pipeline is very healthy in Canada, and the U S on the retailers market than the manufacturers' market as well so.
We're very busy we're working on the on nice opportunities as we speak. So so you should be hearing from us in the next few months.
And we have other opportunities coming.
Great news thanks.
And you've really got cash burning a hole on your pocket at this point any plans for a substantial dividend hike or a more significant activity on the on CIB.
Yes.
It's a very good question.
We ask ourselves the same question on we don't we don't know.
We never did something like that.
It's not the first time debt to cash position like what we see what we see now.
Depending on.
Probably we think it will remain that the acquisition then.
And then I'll try on what would you add to that.
Yes, Brian definitely the acquisition is the priority that we have a share buyback program in place as well. So they are they are a few options to.
To use this cash.
Great color. Thanks.
Then in terms of the expansion in the U S. What kind of expenditure do you expect over what timeline.
That's really the expansion that we're doing the trial.
That's now should be completed at the end of August when I mean compare.
Completed if we don't on quarter on EMEA.
Come on problems, but what about the racking that we needed that type of thing we never on whats going to happen in these days. So that's why you would be we're going to go from 50000 square feet to 140000 square feet.
We also to be on the 50%, but we ought to pay for exterior warehouses.
Debt, we will have the possibility to eliminate low.
I was going to go from 50 to $1.50, a management team over there you don't have it with all the projects that we have justified to us with.
A good business plan debt that will largely compensate it.
<unk> sales the <unk>.
This meant that that would be required to install all sales and debt warehouse.
And actually we have.
Opening a new warehouse, we will opening will be opening a new warehouse in Pennsylvania. So that's we were actually we serve is dependent on market from a new job.
Well its neutral as you're aware how is that for any respect to the roof.
So over our capacity so that will give you a relative to new Jersey and gave us the opportunity to expand on our sales in the in Pennsylvania and the other projects.
It takes us he has already done we went from I don't remember what happened for from 40 to 50000 square feet in Dallas.
We went through on 45% to 70000 square feet.
Okay.
So basically I'll just for us yet.
We're working on now and should be continued many of them will be completed before the end of the year.
That's great. Thanks, and then just 1 last 1 for me, we've already talked quite a bit about margins on the call.
But could you help us break out.
How much is really torque on the higher top line and how much is a reduction in your overall.
Our central cost structure.
And Theres also is from gross margin lift in there is that correct.
Yes slight increase on the growth they.
Basically.
The EBITDA margin on.
On a normal volume would be somewhere between 12, 5% and 13%.
Okay.
Makes sense. Thank you very much I'll turn it over.
Thank you.
Your next question comes from Robert <unk> with Luis Book Investment Robert Please go ahead.
Hey, guys great quarter.
Thank you.
Wanted to ask a few questions on some mix changes that may have happened over the past little debt I'm, just kind of recalibrate.
If you don't mind, so when we look at renovation versus new builds you guys have usually been 3 quarters renovation quarter, newbuild or something like that does that change at all or are we kind of seeing channel there.
For the past.
Several months ramped up.
That does not change it but both the same store weighted theaters.
When you touch on what we have shown as well as the strength I mean doesn't that goes up manufacturer, but we see actually more sales to the new construction. It doesn't change the percentage as such but we see more and more higher end ulcers condominium being built and those are.
We think lately that day to some stats of <unk> debt.
On the new construction.
The cost for the kitchen cabinet something like a 4%. So if you. If you if you want if you're buying a new hours for $1 million, which is volume.
Quite a high on <unk>.
So the guidance that would be what for $2000 many months while in.
New construction for how is that sales for Paul.
$200000, both the batch woman.
The kitchen cabinet will account for it on the 4% or $12000.12000 kitchen cabinet.
Anything on your bathroom.
So you cannot at this price you don't even have anything and Youll clause ethics, yet except for you know what.
Why the range needed to hang your clothes, so basically it's on the $12000 for that it's very minimal so that does not require many many thanks for your products to achieve such a project, but usually you obviously didn't do it. It's all of that is worth $200 on dollars towards it on a 50000 dollar people. We do innovation on 5 years I've told you about the new ops, so would that bring some.
Some markets for the future for us as well on our customers.
Alright, that's helpful and then just thinking about your mix.
Guys you talked before on the past about how some of your U S business is a little more commoditized.
When you compare it to your Canadian business in terms of the actual product being sold.
You guys had mentioned the goal being to try to change that the attitude in the U S to want more premium product is that been also playing a part here.
For word actually up on a patient to your west continue to improve and it's.
Actually we are aware that the EBITDA margin on the U S. It's not very far from the 1 that we have in Canada.
So basically all of exclusive product as we already said that 60% of what we sell on either exclusive aldi sugar blood named products.
We see all of those products actually being very attractive for the year.
For the U S market is becoming more and more well known and also I think the COVID-19 situation, but also make it it was.
Green bar for Us for you to attract new customers and new calls for people that were contacting us before so basically I think the investment that we've made in the west are going to open.
The growth of your portfolio for although impulse on growth into future debt, we've seen in the past.
Yes, that's actually a good segue into the next question on <unk>.
When you think about.
On the U S. You look for or even Canada, as well, but looking at market share versus just talk in general.
How would you guys break down your growth for the past few strong quarters in terms of actually winning market share versus.
There were some general market growth, obviously, you on ETP from the numbers, but just kind of general little general ideas.
I would say it's 80%.
Market growth in 'twenty based on the Norway.
The new market penetration.
Last question I have for you here.
Just on I wanted to paint a scenario for you and I'm curious if you can kind of give me some guidance.
I just wanted to think about the operating leverage for picking your business just given.
Gross margin if you kind of if you were able to double your business over the next 5 years in terms of top line similar gross margin profiles out like products are very similar to that makes you have right now.
Where do you think you're actually EBITDA margin could go from here is it that you're kind of top out at close to 20% or.
If you even triple to your business from here on could you actually see your margin getting hired for that like 30% margin or do you think.
Being below 20 is kind of that's really where you are because it's a capital like business is kind of where you're probably going on Max out at just curious if you could providing kind of clarity on where the potential margin profile of the business really is just seeing like this quarter. So on such a big jump in margin just trying understand how much of that is is really are available on you guys continue to grow over the next 5 to 10 years.
If we continue to grow there is no doubt debt EBITDA margin will continue to grow as well where does that 320% that would be on doing it like.
If you were being very being.
Following us.
Putting up on the on us since a few years.
I keep saying to investors by agreements do he said 20% of return on that.
On the I'll call you called out Atlanta.
As you announced for 2 minutes ago, yes.
The average day return on average equity weighted.
So basically I think.
It's an amazing number on the day I think the EBITDA margin.
I think if we if we dream of increasing all day sales depending on the type of investment and expense added expenses that will be needed to achieve it I think that yes, EBITDA margin should be could be close to 15% I don't know how to tell that because let's say if we don't do anything we just increased on all sales not making any thoughts on investment.
Seeing as we as we all know well.
Certainly week 20 per cent, yes, no doubt, but to get that $1 billion and you try to let's say it was certainly require extra expenses and an acquisition with low EBITDA margin that will dilute the actual EBITDA guidance, we are achieving that type of thing, but we're all dreaming debt.
Our dreams altogether is to.
Inquiries on that EBITDA margin, yes, no doubts.
I mean, obviously you guys have been around for a while.
I have an excellent track record, but youre still relatively small so I'm, just I'm kind of assuming that theres still quite a runway lack of acquisitions and internal growth just in general.
Im just trying to size up what the yet a lot of companies that just seems like they can have margin expansion forever, but at 1 point has kind of stopped and I'm, just wondering where that where that stops for your guidance about your real level of you know what.
I could really go from here so.
It sounds like what you're saying is 20% Thai.
And so you can see it.
Get to marketing percent realistically over the next little debt. If you guys continue to grow in that direction you had been.
That was the way I should interpret.
Does that makes sense for everyone.
Yeah. So if you look historically the highest that we've reached historically is a 14 point.
<unk>, 5%. So we were in that area at some point so was that pre <unk> 16 or is that does that include free.
Yes, pretty ifr 16.
Yes, and that would have been before expanding heavily in the U S. And then doing all of the net I know you guys had been a lot of them.
Well I don't want to hang on to call up expansion for your warehouses that have created some headwind on margin.
You're exactly right. So thats prior year, that's prior to the.
Accelerated growth in the U S. But now you can as you can see the.
EBITDA margin is improving year after year. So it all depends of the kind of investment that we're making with the with the acquisition for example, but.
Same store sales the the EBITDA margin is always increasing.
Perfect. That's really helpful. I appreciate it thanks guys. Thank.
Thank you.
Thank you, ladies and gentlemen, as a final reminder, should you have any questions. Please press star 1.
It appears there are no more questions at this time, Mr. Lord You May proceed.
Thank you what are you doing.
There is no more question on so we will always be happy to meet you went to a book to go Vodafone if you need to more on what you should have more questions. So thank you very much on out very nicely.
Ladies and gentlemen. This concludes your conference call for 2 day with thank you for participating and ask could you. Please disconnect your lines have a great day.
Yeah.