Q1 2024 Richelieu Hardware Ltd Earnings Call
Good afternoon, ladies and gentlemen, and welcome to this should your hardware first quarter results conference call.
Operator: Good afternoon, ladies and gentlemen, and welcome to Richelieu Hardware's first quarter results conference call. At this time, all lines are in a listen only mode.
This time all lines in a listen only mode.
Operator: Following the presentation, we'll conduct a question-and-answer session, which will be restricted to analysts. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on April 11th, 2021. Hello, ladies and gentlemen, and welcome to the results of the first quarter of the 2024 KKRI-Richelieu exercise. At the end of the presentation, we will proceed to a period of questions and answers. If you need assistance during the call, press star 1.
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 should you require immediate assistance. Please press star zero for the operator.
This call is being recorded on April 11th 'twenty 'twenty four bushel.
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Operator: Please note that this call is being recorded on April 11, 2024. I now give the floor to Mr. Richard Lord, President and Chief Executive Officer. The floor is yours.
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Richard Lord: Merci. Thank you. Good afternoon, ladies and gentlemen. First of all, I have to apologize for my voice, you know. I have a cold, so please, uh...
Speaker Change: And also do you let that hold on Mr. P shock loss picks that issue, but that's the next bill flatter holiday travel.
Speaker Change: Thank you.
Speaker Change: Good afternoon, ladies and gentlemen.
Richard Lord: I will try to do my best to render that speech. And welcome to Pritcher U's conference call for the first quarter ended February 29, 2024. With me is Antoine Auclair, CFO. As usual, note that some of today's issues include forward-looking information, which is provided with the usual disclaimer, as reported in our financial findings. Our financial year began with a good first quarter. We pursued our acquisition strategy, choosing two new acquisitions, followed by a third one on March 27th.
Speaker Change: So I apologize for my voice.
Speaker Change: Nicole.
Speaker Change: Lisa.
Speaker Change: I would try to make this work under.
Speaker Change: Under that speech I did want to come to a peaceful use those folks go into the first quarter ended February 29, 2020 full with me as always one time CFO.
Speaker Change: Usual don't have so much to this issue include forward looking information, which is provided with your usual disclaimer as opposed to anything else industrial signings.
Speaker Change: I'll filter year began with a good first quarter, we pursued all equity show strategy.
Speaker Change: Two new acquisition, followed by a third one on March 27.
Richard Lord: We achieved a good level of sales, equivalent to the first quarter of 2023, which is appreciable. Since first quarter sales last year, we continue to benefit from favorable market conditions. This result reflects a significant contribution from our acquisitions and market development initiatives, supported by our strategies of value-added service, innovation, and market segment diversification. It should be remembered that the first quarter is always the weakest period of the year.
Actually the good level of sales equal to the first quarter 2023.
Speaker Change: I appreciate it.
Since since first quarter of sales reps you have got to your benefit.
Speaker Change: Since since first quarter of sales reps you have got to your benefit.
Speaker Change: Benefited from favorable market conditions.
Speaker Change: This result reflects the significant contribution of our acquisitions and market development initiatives supported by our strategies or value added service innovation and market segment diversification.
Speaker Change: It should be remembered that the first quarter is always the weakest video out of the year.
Speaker Change: Regarding our first quarter in Belgium.
Richard Lord: Regarding our first quarter margins, they were affected by two main factors and the start-up period of Santers, which expires in 2023. Despite the significant reduction in our inventory over the past year, we still have certain inventories purchased at higher prices than current costs. The sales of these products, market-wise, have had a negative impact on our growth market. We expect the situation to be resolved, as these products are the oldest.
Speaker Change: I think there's two main factor.
Speaker Change: Gabor is lower gross margin and the startup.
Speaker Change: And the start up period of centers expenses in 2020.
Speaker Change: Despite the significant reduction at all inventory, although the best view.
Speaker Change: We still have certain inventory purchased I'll tell you that all your appraisal drilling cost.
Speaker Change: The sales of these products.
Speaker Change: If price is that the negative impact on our gross margin.
Speaker Change: We expect the situation to result.
Speaker Change: As these products are the older.
Speaker Change: Secondly, as already announced we said about distribution centers.
Richard Lord: Secondly, as already announced, several of our distribution centers underwent expansion and modernization projects in 2020, including our new Calgary Centre, which went operational last December. The startup and development of these centers, in addition to being impacted by current market conditions, have also affected our margins downward. We are actively working on these expanded and modernized centers in order to accelerate their startup and market development. As for acquisitions, we are very pleased with the three businesses we have acquired since the beginning of the year. Olympic Forest Products is a distributor of specialized lumber and paddle products with distribution centers in Avon, Ontario, and Rapid Start is a distributor of specialty hardware with a distribution center in Whitman, Hawaii.
Speaker Change: Underwent the expansion and modernization projects in 2023.
Speaker Change: Including our new Gregory Center, which went.
Speaker Change: Well first of all last December.
Speaker Change: The start up and develop into the centers. In addition to being impacted by current market conditions have also affected our margins downwards.
We are actively working on these expanded.
Speaker Change: Well the nice center.
Speaker Change: Zero, eight that stepped up and market outlook.
Speaker Change: That's correct.
Speaker Change: We are very pleased with the cheap three businesses, we have acquired since the beginning of the year.
Speaker Change: Olympic furnace products is a distributor specialized lumber and panel products.
Speaker Change: With the distribution centers in a rental Jamie.
Speaker Change: And rapid start is a distributor specialty outerwear.
Speaker Change: The call center in Whitman right.
On March 20, so that we can.
Antoine Auclair: On March 27, we completed the acquisition of Allegheny Plywood, a distributor of specialty panels and decorative surfaces, which operates distribution centers in Pittsburgh and Allentown, Pennsylvania, as well as in Cleveland, Ohio. In addition to contributing approximately $6 million to annual sales, these three transactions add new customers, complementary products, and expertise, and strengthen our presence in these markets. And now, I hand over to Antoine for Quattro di Financiarola. Thanks, Richard.
Speaker Change: Copies of the equation I think any plywood distributor with specialty pillars ethical audio services.
Speaker Change: Operator, this will be goes out there is in Pittsburgh, and then until Pennsylvania.
Speaker Change: Well as in Cleveland.
Speaker Change: In addition to contributing approximately six six.
Speaker Change: <unk> dollar general sales.
Speaker Change: These pre transaction.
Speaker Change: Customers going to about three products and expertise and strengthen our presence in these markets.
Speaker Change: And I'll hand over to Antoine.
Antoine: So you can measure.
Thanks, Richard first quarter sales reached $407 million up 1% a point for internal decrease offset by one 4%.
Antoine Auclair: First quarter sales reached $407 million, up 1%, a 0.4% internal decrease, offset by 1.4% Growth Through Acquisition sales to manufacturers, stood at $350 million, up 1.6%, mostly from acquisitions, and Renovation Superstores Market, we achieved sales of $57.3 million, down $1.6 million or, In Canada, sales amounted to $232 million, similar to last year, sales to manufacturers reached $188 million and hardware retailers and renovation superstores market sales stood at $44.5 million down 2% In the U.S., sales grew to $130 million in U.S. dollars, up 1.7%, 1.1% from internal growth and 0.6% from acquisition. They reached $175 million in Canadian dollars, an increase of 1.6% and represented 43% of total sales. Sales to manufacturers reached $120 million in US dollars, up 2.2%, 1.7% from internal growth and 0.5% from acquisition. Hardware Retailers and Renovation Superstores Market.
Antoine: Growth through acquisitions.
Antoine: Sales to manufacturers.
Antoine: Stood at $350 million up one 6% mostly from acquisitions.
Antoine: The hardware retailers and renovation superstores market, we achieved sales of $57 3 million down $1 6 million or two 7%.
Antoine: In Canada sales amounted to 232 million similar to last year.
Antoine: Sales to manufacturers reached $188 million and hardware retailers and renovation superstores market sales stood at $44 5 million down 2%.
Antoine: Yes.
Antoine: In the U S sales grew to $130 million in U S dollars up one, 7%, one 1% from internal growth and 6% from acquisitions.
Antoine: The reach $175 million and Canadian dollars, an increase of one 6% and represented 43% of total sales.
Antoine: Sales to manufacturers reached hundreds and $20 million in U S. Dollar up two 2%, one 7% from internal growth and 5% from acquisitions.
Antoine: The hardware retailers and renovation superstores market.
Antoine Auclair: Sales were down 4% from the corresponding quarter of 2023. First quarter EBITDA reached $40.4M, down $8.7M or 17.7% over the first quarter of 2022. The lower gross margin and our 2023 expansion projects being in the startup phase in the current market condition affected the EBITDA margin downwards. As a result, the EBITDA margin was 9.9% this quarter. First quarter net earnings attributable to shareholders totaled $15.2 million, down 35.7%; diluted net earnings per share was $0.27 compared to $0.40 last year. First quarter cash flow from operating activities before net change and non-cash working capital balances was $35 million, or $0.62 per share. The net change in non-cash working capital used a cash flow of $34 million, mainly reflecting the increase in inventories and the decrease in accounts payable and accrued liabilities, while accounts receivable and other items represented a cash inflow of $1.2 million. As a result, operating activities provided a cash inflow of $0.5 million compared to a cash inflow of $18.8 million last year.
Antoine: Sales were down 4% from the corresponding quarter of 2023.
Antoine: First quarter EBITDA reached $40 4 million down $8 7 million or 17, 7% over the first quarter of 2023.
Antoine: The lower gross margin in our 2023 expansion projects being in startup phase in the current market condition affected the EBITDA margin downwards.
Antoine: As a result, EBITDA margin was nine 9% this quarter.
Antoine: First quarter net earnings attributable to shareholders totaled $15 2 million down 35, 7% diluted diluted net earnings per share was 27, <unk> compared to <unk> 40 cents last year.
Antoine: First quarter cash flow from operating activities before net change in noncash working capital balances was 35 million or <unk> 62 per share.
Antoine: The net change in noncash working capital use cash flow of 34 million, mainly reflecting the increase in inventories and a decrease in accounts payable and accrued liabilities, while accounts receivable and other items represented a cash inflow of $1 2 million.
Antoine: As a result operating activities provided a cash inflow of <unk> 5 million compared to a cash inflow of $18 8 million last year.
Antoine: We paid dividends of $8 4 million to shareholders, and we invested $15 5 million, including $7 4 million for two business acquisitions and $8 million in capex of which $3 5 million relating to expansion projects.
Richard Lord: We paid a dividend of $8.4 million to shareholders, and we invested $15.5 million, including $7.4 million for two business acquisitions and $8 million in CapEx, of which $3.5 million relating to expansion projects. At the end of the quarter, our financial situation was healthy and solid, with working capital of $623.4 million and almost no debt. I now turn it over to Richard, who will continue to build on our strengths, our team, and our value-added service with logistics tailored to customer needs. Our financial solidity and our efficient network enable us to extend our coverage in the North American market more and more. With our ability to adapt to changing market conditions, we will continue to seize and create opportunities while remaining service-innovation-innovative and Resolve Oriented. Thanks, everyone. I'll be happy to answer your questions now. Thank you. Ladies and gentlemen, should you have a question... (inaudible) If you would like to withdraw your question, please press the star followed by the 2. This question comes from Amir Patel from CIBC Capital Markets. Hiya, good afternoon.
Antoine: At the end of the quarter and financial situation was healthy and solid with working capital of $623 4 billion and almost no debt.
Antoine: I'll now turn towards Richard Thank you, everyone and conclusion.
Richard: These are to push our renewed vision and business acquisition strategies develop synergies with our acquisitions.
Richard: Controlled cost develop strategic markets.
Richard: We continue to build on our strengths.
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Richard: Sure.
Richard: I know interested that enables us to extend our collaboration to north American market multiple.
Richard: Our ability to adapt to changing market condition will continue to season create opportunities while remaining service.
Richard: And result.
Speaker Change: Thanks, everyone.
Speaker Change: To answer your questions.
Speaker Change: Thank you ladies and gentlemen did you have a question. Please press star followed by the one if you'd like to withdraw your question. Please press the star followed by the Q1 moment. Please for your first question.
Speaker Change: Your first question comes from Amir <unk> from <unk>.
Amir: CIBC capital markets. Please go ahead.
Amir: Oh, yes, good afternoon.
Richard Lord: Richard, the EBITDA margins dipped below 10% in Q1. Do you think the first quarter marked a trough for margins, and what kind of recovery would you expect on the margin front? Second, I can't explain the drop in the EBITDA margin because of what we call those inventory costs that are higher than the current costs. So that has cost us, during the quarter, $3.5 billion. That should happen probably in the fourth quarter and maybe in 2025.
Amir: Sure Richard.
Amir: EBITDA margins dipped below 10% in Q1 do you think the first quarter Mark the trough for margins and I don't know what kind of recovery would you expect on the margin front in two second quarter.
Amir: Ben explained the drop in the EBITDA margin because of the what we call those inventory cost without that accrual Gus.
Amir: As customers within the quarter at $3 five beyond Dora.
Amir: Do you have more of a nice project that we achieved in 2023 increased <unk> expenses by $2 5 billion. I think these investments were pretty good and it would bring a lot of saves into future, but since I'm not good as slow as we speak so we don't recover as quickly as we were expecting there is also increased expenses.
Richard Lord: For the time being, we cannot increase our prices for the reasons that you already know, but our costs have increased at the same time. So if you take the salaries and the rent and that type of expenses, that creates $1.5 billion of additional expenses. So basically, I think things will improve. The more the years go by, the more it's going to improve. Mainly, I would say from the first third quarter, we expect the situation to improve. And I mean, one element to consider is that Q1 is always the weakest period.
Amir: No.
Amir: We have just started yet to increase.
Amir: Sending pricing that should happen.
Amir: In the fourth quarter and maybe in 'twenty to 'twenty five, but it's IBD, we cannot increase our pricing for the reason that you already know, but I'll cut having treat at the same time. So if you think the salaries and the need to rent. The type of expenses are created with <unk> I'll, let you go.
Amir: Total expenses.
Amir: So basically I think James we improve the whole. They use is going to is going to go the more it's going to improve mainly I would say from the first quarter, we expect the situation to improve in <unk>.
Amir: One one element to consider is that the Q1 is always the weakest period, so usual EQ with two three and four are.
Richard Lord: So usually, Q2, 3, and 4 are around two points higher than Q1 due to a lower volume in Q1 versus the other quarters. Okay, Antoine, so it's fair to say then all being equal, if it's two points higher, you'd be sort of north of 12% would be, kind of the low end for Q2. Richard, are you able to comment on sales comps across the business for the month of March? Yeah, what we've seen is that we have a, the kitchen cabinet industry business has decreased by 3.7%. I would say the worst decrease comes from residential furniture. In Eastern Canada, for example, residential furniture has decreased by 15%.
Amir: Around two points higher than that in Q1 due to lower volume in Q1 versus the other quarters.
Amir: Okay.
Speaker Change: Fair to say then all else equal if it's two points higher you'd be sort of north of 12% would be.
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Speaker Change: Got it.
Speaker Change: Low end for Q2.
Speaker Change: Okay fair enough.
Speaker Change: And then are you able to Richard comment on sales comps.
Speaker Change: Across the business and in the month of March.
Yes, what we've seen is that we havent does the kitchen cabinet industry.
Richard: That business has decreased three 7%.
Richard: With CBS the worst degrees come from visiting a short furniture.
Richard: John can I do it for example.
Richard: We visit our chosen Assura has decreased by 15%. So I think the people became convinced that short furniture as we speak.
Operator: So I think the people making residential furniture, as we speak, are having a hard time. So basically, this is the toughest market that we're dealing with. I would say you are in a market that is still sustaining well, like Milwaukee. What we call a commercial renovation, it's higher by 4%, so it's not that bad, and office furniture is down by 3%, and the retail market, as you know, is down by 2.7%. Okay, fair enough. That's helpful. I'll get back in the queue for now.
So we basically that this is the toughest market that we're dealing with.
John: And I would say you would you went with a market that I assume just any good 90 Dominion work, which we call the commercial utilization is higher by 4%.
John: So it's not that bad and obviously I'm curious going back to 2% and the retail market as you know is down by two 7%.
Speaker Change: Okay fair enough.
Speaker Change: That's helpful.
Speaker Change: I'll get back in the queue for now thanks a lot.
Operator: Thanks a lot. Ladies and gentlemen, again, if you'd like to ask a question, please press star 1. Zachary Evershed, National. Thank you for taking my questions and sorry to hear you're not feeling well, Richard. I feel pretty good; it's only a cold.
Speaker Change: Yes.
Speaker Change: Hello, Ladies and gentlemen, again, if you'd like to ask a question. Please press star one.
Speaker Change: Your next question comes from Zachary <unk> from National Bank. Please go ahead.
Zachary: Thank you for taking my questions and sorry to hear that you're not feeling well Richard.
Zachary: But I feel really good.
Richard Lord: It takes more than that to put them together. Perfect. So organic growth was only marginally negative in the quarter. Would you say that end market demand is recovering more quickly than you anticipated at the beginning of the year? It's Antoine, Zach.
Zachary: It takes more than that.
Zachary: Okay.
Perfect.
Zachary: So organic growth is only marginally negative in the quarter would you say that end market demand is recovering more quickly than you anticipated at the beginning of the year.
Zachary: It sounds <unk>.
It's it's still soft but.
Antoine Auclair: It's still soft, but what you need to understand is that when we compare ourselves with Q1 2023, Q1 2023 was equal to 2022, so it's still very healthy out there. So we think that we're more conservative in the first half of the year, but we think that the second half could be stronger than the first half. In the market situation that we know, I think achieving the sales we have achieved is pretty good. I think we perform very well for market penetration.
Zachary: What do you need to understand is that when you when we compare ourselves with Q <unk> Q1 2023.
Zachary: Q1, 2023 was equal to 2022, so it's still there it's still very healthy out there. So we think that.
Zachary: We're more conservative on the first half of the year.
Zachary: But.
Zachary: We think that the second ask would be or could be stronger than the first half and does not get distribution that we do I think that GBS achieving to say as we have achieved I think it's pretty good I think we would perform very well for the market in each region that didn't get all people all theyre doing their job selling the production in <unk>.
Antoine Auclair: I think our people are all there doing their job, selling the products, and promoting whatever has to be done, and we think, in the circumstances, we think that these results are very, very good. Thank you. And then you identified inventory costs as being a $3.5 million drag on the quarter. When do you expect to work through the remaining high-priced inventory? We have to reorder all the products. So basically, we have started, and we think that starting in the third quarter, we're going to see a substantial improvement. But unfortunately, for the financial statement, as you understand, for the IFRS, we have to work with the average cost. So if we buy a new product with 10% less in terms of cost compared to the cost that we had before, that means that the economy is not going directly into the growth margin because we have to work with the average cost.
Zachary: The rest will be done.
Zachary: We think in the circumstances, we think that these results are very.
Zachary: Very very good.
Speaker Change: Thank you and then your identified inventory costs as being a $3 $5 million drag in the quarter.
Speaker Change: When do you expect to work through the remaining high priced inventory.
Speaker Change: We absolutely older older products. So basically we are started we think that starting in the third quarter, we're going to see substantial improvement was unforeseen seafood.
Speaker Change: As you are in the central.
Speaker Change: We have to talk to the average cost.
Speaker Change: So if we buy a new product with 10% less.
Speaker Change: I think the cost compared to the cost that we had before does that means that the debt.
Tim: This is Tim.
Tim: We've got at least into the gross margin because we have to work with the average gross but basically things will improve.
Speaker Change: Got you thanks.
Antoine Auclair: But basically, things will improve. Thank you all. And then, if we look at the operating expenses related to expansion projects, those are categorized as temporary in your press release. Does that mean that your fixed cost absorption is temporarily low while you're ramping up volumes, or are there specific items that you won't be paying for in the near future? You're right. Your first comment is pretty much the one. So, of course, we have some moving expenses in there, but the main reason is the fact that we're in ramping mode, so it takes some time to absorb the fixed costs. So it had an impact of over $2.5 million in EBITDA for the quarter.
Tim: And then if we look at the operating expenses related to expansion projects. Those are categorized as temporary in your press release does that mean that your fixed cost absorption is temporarily low while you are ramping up volumes or are there specific items that you won't be paying for in the near future.
Speaker Change: Youre right you are there further your first comment is pretty much the ones. So of course, we have some moving expenses in there, but the main reason is that the fact that we're in ramping mode. So it takes some time to.
Speaker Change: Absorb the fixed costs. So it's had an impact of <unk>.
Speaker Change: Over $2 5 million in the India.
Speaker Change: And the EBITDA for the quarter.
Speaker Change: Thank you that's very clear I appreciate that.
Antoine Auclair: Thank you. That's very clear. And then, given your anticipation of an improving H2 versus some of the forecasts that we're seeing for an overall declining market in repair and renovation in the U.S., how do you feel about your current installed capacity, the amount of distribution centers you have in the U.S.? I think the network, with all the investment that we've done in the network, I think we're there to capture this effect that we're in good shape. On that front, we are in good shape.
Speaker Change: And then Kevin given your anticipation of an improving each two versus some of the forecast that we're seeing for an overall declining market in repair and renovation in the U S. How do you feel about your current installed capacity the amount of distribution centers you have in the U S.
Kevin: I think that network with all the investment that we've done in the network I think where we are there to capture to capture the.
Kevin: This effect that's when we're in good shape on that front, we are in good shape.
Speaker Change: Thank you very much.
Richard Lord: Thank you very much. And there are no further questions at this time. I will turn the call back over to Richard Lord. So if there are no more questions, thanks to all of you again. We're always pleased to talk to you if you have the desire to call us. Bye-bye. Ladies and gentlemen, this concludes your conference call for today. You may now disconnect your lines.
Speaker Change: And there are no further questions at this time I will turn the call back over to Vishal.
Vishal: For closing remarks.
Vishal: So there is no more question. Thanks to all of you again and we are always pleased to talk to you wish we would have the desire to call us.
Speaker Change: Ladies and gentlemen. This concludes your conference call for today you May now disconnect your lines. Thank you.
Speaker Change: [music].