Q1 2023 Richelieu Hardware Ltd Earnings Call

Okay.

Good afternoon, ladies and gentlemen, and welcome to the hardware first quarter results conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session, which will be restricted to analysts only.

During this call, you require immediate.

Please press Star zero.

This call is being recorded.

On April 6th two.

2023.

If I may, dumping issue.

Doug.

Hey, Casey.

Okay.

She got up to watch that film.

Hey, Paul.

Yes.

Goodbye.

He said he doesn't mean that, the staff.

It's what is their home.

Just said that that.

Sure.

Jim.

Large.

Thanks, Joe.

Yeah.

Yes. Thank you, good.

Good afternoon, ladies and gentlemen, and welcome to <unk>.

<unk> called for the first quarter ended.

February 28, 2023, with me as Antoine Auclair, CFO.

As usual note that some of today's issue include forward looking information, which is provided with the usual disclaimer as reported in our financial filings.

We started 2023 with good results for the first quarter, and we are pleased to have six new acquisition opportunities. We completed a full transaction in Canada earlier this quarter and one in the US on April 3rd.

It's important to note that the comparative numbers of 2022 were exceptionally strong, benefiting from the business context resulting from the pandemic.

Just in the first quarter of last year sales increased by 29, 2%.

And EBITDA by 48%.

In the first quarter of 2020, Street's total sales increased by 48% or $185 million.

Including one 8% organic growth and 3% from acquisition to 403 million.

We are also proud to mention that our US sales now represent 43% of our total sales.

With the acquisition of <unk>.

Bill.

Transworld Distributing.

And use them in January 2023.

We strengthened our presence in Eastern Canada.

After the end of the quarter, we completed the acquisition of Maverick outerwear in <unk>, Oregon.

This reinforced our presence in the market, where we already operated a distribution center in Portland.

With despite acquisition.

We added $22 million in annual sales.

New customers: complementary products.

And teams that are experienced in their market.

The expansion, modernization, and opening of centers in the US.

Progressed well.

Including Atlanta, Nashville, bump into Seattle, and Chicago.

We moved our stuff, but my old parachute is in a brand new building.

Our new location in Carlsbad, New Jersey and Minneapolis.

Apple Pencil Business.

Additionally, by the end of the year, we will consolidate two centers in the area.

In which will include a first class, Sean while increasing our service capacity in Western Canada.

Following these recent developments, we.

We are now operating 113 interconnected centers: 50 in Canada, <unk> in the US, plus two manufacturing facilities in Canada.

At one, we will now review the financial highlights of the quarter, and then I will conclude and we will take your questions.

Thanks, Richard. First quarter sales reached $503 million, up 4.8%, of which 1.8% came from internal growth and 3% from acquisitions.

And comparable currency to the first quarter of 2022 total sales growth would have been two 2% for the quarter.

Sales to manufacturers stood at $244 million, up 5%, of which 2% was from internal growth and 3% from acquisitions.

In the hardware retail and renovation superstore market, we achieved sales of $59 million, up $8 million, or 14%.

In Canada sales amounted to 231 million same as last year.

Sales to manufacturers reached $185.5 million, and the hardware retailers and renovation superstores market.

Sales stood at $45 4 million up three 4%.

In the US, sales grew $227.7 million in US dollars, up 5%, all from acquisitions.

They reached $172 million in Canadian dollars, an increase of 11%, representing 42.7% of total sales.

Sales to manufacturers reached $118 million in US dollars, up 6.2% or 7% from internal growth and 5.5% from acquisitions.

In the hardware retail and renovation superstore market, sales were down 10.6% from the corresponding quarter of 2022.

First quarter ended, reaching $49.1 million, down $4.6 million or 8.6% from the first quarter of 2020.

Gross margin remained stable, and EBITDA margin was 12.2% compared to 14% last year.

First-quarter net earnings attributable to shareholders totaled $22.4 million, down 25.6%. In addition to the fact that the first quarter of 2022 was a period when our financial results were especially strong.

Factors that also affected our results were mainly the return of operating expenses closer to pre-pandemic levels, as well as outside warehousing costs due to temporary inventory increase, amortization, and costs related to our U.S. expansion projects, as well as the interest rate on the line of credit.

Diluted net earnings per share was 40, <unk> compared to 53 last year.

First of all, cash flow from operating activities before net change in non-cash working capital balances was $38 million, or $0.68 per diluted share.

The net change in noncash working cap use cash flow of 22 million, mainly reflecting the decrease in accounts payable and tax payable while accounts receivable represented a cash inflow of $8 4 million.

As a result, breathing activities represented a cash inflow of $16.5 million compared to a cash outflow of $57.5 million in Q1 2020.

Regarding our inventory position, as indicated last January, inventory levels stabilized in February and started to decrease thereafter.

We paid dividends of $84 million to shareholders, and we invested $22.3 million, including $15.8 million for business acquisitions and $6.5 million in Capex.

At the end of the quarter, the financial situation was healthy and solid with working capital of $564.9 million and an average return on shareholders' equity of 21%.

I will now turn it over to Richard.

Thank you Antoine.

We are confident that we will seize and create new short and long-term growth opportunities and deliver solid future results.

Alright, we are monitoring market conditions while maintaining a disciplined approach to cost control.

What we have built our strengths with, the exception of liquidity, Turbo team did this thing just, quality of our service, ability to innovate, to pursue strategic acquisition, and to integrate them efficiently, while using our flexibility to adapt to changing market conditions.

Sure.

Customer innovation, service, and results-oriented.

Thanks, everyone and that will be happy to answer your question.

Thank you, ladies and gentlemen. We will now take questions from analysts. Should you have a question, please press the star followed by the one on your touch-tone phone.

To withdraw your question, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. - Walsh

For your first question.

Your first question comes from Amir <unk> from CIBC capital markets. Please go ahead.

Hi, good afternoon.

Okay.

Could you comment on how demand has fared in March for both the manufacturing side and the retailers' segment?

The demand for the month of March, as we speak.

Hi, guys, single-digit down, which is still really good performance considering that last year for the same month, we had an increase of, remember that 2018, plus 18% for the month of March organic growth. So basically, week with comparable sales with it varies with the best month ever.

Last month of March for 2022 was our best month ever in this company. We saw something like $130 million. Basically, we are quite satisfied with it.

The current sales performance, and despite seeing a, you know, a.

High single-digit decline in sales, but under the circumstances, we still think it is really good.

Thanks, Richard. That's helpful. In the high single-digit decline, how much of that is price versus volume? Nothing.

We have not seen any price deflation; we've managed the business needed to ensure that our pricing was stable. So, it's probably a follow-up for the quarter and for the month of April as well. So far, we haven't seen any deflation in our pricing.

And Richard the only look back in recent years, there has been quite a big increase in organic growth.

I don't know if you have to figure out in hand, but do you have a sense as to, from the beginning of the pandemic in apparel, early 2020, how much?

Price inflation.

You've seen three-year adults in what?

What about what type of deflation would you still expect to play out just given maybe pass throughs on freight.

Some moderation, maybe, on some products.

Felicia last seen in 2022, I think it was something like 10% due to the price increasing because of the what you mentioned for the freight we see the free now being coming back to normal but since we are.

We don't receive much inventory as we speak, because we still have.

The decrease in inventory that we already have on hand.

Which is what are the price of the high cost, but I think all the companies those are in the afternoon with the same circumstances, but it saves us still maintaining good too we expect to turn to have one turn of our inventory before the close of it before the end of it.

The second quarter, so things should improve.

And also, we have to consider that we will price our inventory days on average costs. So basically, it's going to be almost a full year before the costs come back to where they should be as a normal course of things. And again, that's nothing negative because that does apply to any business in the world; we have to deal with the same circumstances.

So basically.

That's about it.

Okay.

And just the final question I had.

Antoine.

It's been in that kind of, with another quarter of visibility, do you have a sense as to where you would expect EBITDA margins to stabilize?

Thinking maybe 24 basis.

<unk> Thousand 14.

Yes.

Hello <unk>.

Okay, that's great. That's all I had for now. I'll turn it over. Thanks.

Thank you.

Ladies and gentlemen, as a reminder, if you have a question, please press the star followed by the one. Your next question comes from Zachary [unintelligible] from National Bank Financial. Please go ahead.

Thank you, good afternoon. Thanks for taking my question.

So you mentioned that organic growth in March was down by high single digits, but perhaps there is a lower bar for the other months of the quarter. Since it was an all-time high in March, what are your hopes for the pace of organic growth for the quarter as a whole?

Again, the second quarter last year was very strong in terms of growth as well. So there's no way we're going to Mexico like we had last year, but.

What we see now I guess, it's the trend that we're going to see for the for the quarter at one what would you say about that.

<unk> for the total.

The second in the second quarter growth that year was 11% in the Internet I'm talking about the internal growth and 23% in the U S.

Very strong, so basically, if we maintain the performance that we had in March, I think that's still going to be good.

Hopefully, we are going to do better.

Gotcha.

Inventory rose quarter over quarter, and you're hopeful for a decline. Can you give us an update on how it's trending so far in Q2 this year, and where you hope to end the year?

It's the same answer as the one in general <unk> increase in December and January stabilize in February and then started to decrease in March and the plan is to decrease from 60 to $60 million to $80 million.

That's great. Thanks.

Quick questions on your organic expansion projects for locations: where there is an issue around showrooms in place, how much does it cost to set one up?

Do all of your facilities lend themselves to an extra room being used in that way?

We use the Q when we make some expansion projects. We are we have we went more space and we are we.

Either improve the for whom innovating new for whom an usual, whom we've cut something like $250000.

All I can do.

The.

Expansion of the warehouse requires racking, not that wacky.

Lacking what: the 50000 square feet?

Warehouse without, we're talking about maybe 200,000 dollars.

That's helpful. Thanks.

In the quarter and $65 million Capex, you have approximately $225 million for all of the expansion that we're talking about, either the new ones or the ones that we're moving.

Okay. That's great color. As for those expansion projects, what's left to do in the quarters ahead?

We're going to finalize the Nashville one.

So, it's kind of like that in the second quarter.

Elisa as well, yes, also.

Well, let's say, if things will be moving into the second quarter, and after that, it should be.

Business as usual, if we don't have any more any more projects.

Thank you.

How do clients generally respond when you consolidate facilities? Is there any loss in relationships, and does it carry over for a while?

Oh, I think I will pass the IP when we expand.

Our space, because they know that we're going to have more production, very often we add the cohort is above panels. For example, we saw customers like very much, I can assure you, that type of product, but because we sell higher-end they call it active style. So and of course, have a very well attracted by those panels because it does create more value for the product.

The sale to their own customers. So, basically, it is very positive.

Great color. Thanks, and then just one last one: gross margin seems stable with no pricing deflation yet. Could you give us more color on the return of operating expenses to pre-pandemic levels?

How will that impact margins in future quarters?

I think that's where we're where we should that we should be.

Last two years, we've mentioned it, so it was that.

The expenses were very well where people were traveling, for more expenses were very low, so now it's.

It's back.

In terms of payroll, because of the cost structure as you said, it's pretty simple. It's so we have people and we have a location. So in terms of payroll, we're where we should be and rigorous.

Regarding the rent, we have all of the new locations in place. Rents are increasing, but.

We're where we should be so.

So we are at that level.

Required to maintain these bids, the business volume, but in terms of costs, in terms of <unk>, we're still better than where we were before.

<unk>.

That's helpful. Thanks, I'll turn it over.

Thank you.

Rich Sir, there are no further questions at this time. Please proceed with your closing remarks.

Well, thank you very much for attending this call. If anybody wants to call us, we are already open to talk with you. Thank you very much.

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines. Thank you.