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Good afternoon, ladies and gentlemen, and welcome to Richelieu 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. [Operator Instructions] This call is being recorded on April 6th 2023.
[Foreign Language]
Thank you. Good afternoon, ladies and gentlemen, and welcome to Richelieu's conference call for the first quarter ended February 28, 2023. With me is 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 result for the first quarter and we are pleased to have seized new acquisition opportunities as we completed four transaction in Canada earlier this quarter and one in the US on April the 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 40.8%. In the first quarter of 2023, our sales increased by 4.8% or $18.5 million, including 1.8% 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 Quincaillerie Rabel, Trans-World Distributing , Unigrav and Usimm in January 2023, we strengthened our presence in Eastern Canada. And after the end of the quarter, we completed the acquisition of Maverick Hardware in Eugene, Oregon, which reinforced our presence in this market, where we already operate a distribution center in Portland.
With this five acquisition, we add $22 million in annual sales. New customers, complementary products and things that are experienced in their market. The expansion, modernization, and opening of centers in the US have progressed well, including Atlanta, Nashville, Pompano, Seattle and Chicago. We moved our Fort Myers operation in a brand new building and our new location in Carlstadt, New Jersey and Minneapolis are now open for business.
In addition by the end of the year, we will consolidate two centers in the Calgary area in which we will include a first-class showroom, while increasing our service capacity in Western Canada. Following these recent developments, we are now operating 113 interconnected centers, 50 in Canada, 60 in the US plus two manufacturing facilities in Canada.
Antoine will now review the financial highlights of the quarter. And then I will conclude and we'll take your questions.
Thanks, Richard. First quarter sales reached $403 million, up 4.8% of which 1.8% from internal growth and 3% from acquisitions.
In comparable currency to the first quarter of 2022, total sales growth would have been 2.2% for the quarter. Sales to manufacturers stood at $344 million, up 5.4% of which 2% from internal growth and 3.4% from acquisitions. In hardware retailers and renovation superstores market, we achieved sales of $59 million, up $0.8 million or 1.4%.
In Canada, sales amounted to $231 million same as last year. Our sales to manufacturers reached $185.5 million and hardware retailers and renovation superstores market, sales stood at $45.4 million, up 3.4%.
In the US sales grew to US$127.7 million, up 5% all from acquisitions. They reached CAD172 million, an increase of 11% and represented 42.7% of total sales. Sales to manufacturers reached US$118 million, up 6.2%, 0.7% from internal growth and 5.5% from acquisitions.
The hardware retailers and renovation superstores market sales were down 10.6% from the corresponding quarter of 2022. First quarter EBITDA reached $49.1 million, down $4.6 million or 8.6% over the first quarter of 2022. Gross margin remained stable and the 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 2022 first quarter was a period where our financial results were especially strong. The 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 US expansion projects as well as the interest paid on the line of credit.
Diluted net earnings per share was $0.40 compared to $0.53 last year. First quarter 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 non-cash working cap used 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, operating activities represented a cash inflow of $16.5 million compared to cash outflow of $37.5 million in Q1 2022. Regarding our inventory position, as indicated last January, inventory levels stabilized in February and started to decrease thereafter. We paid dividends of $8.4 million to shareholders and we invested $22.3 million, including $15.8 million for four business acquisitions and $6.5 million in CapEx.
At the end of the quarter financial situation was healthy and solid with working capital of $564.9 million, and an average return on shareholders' equity of 21%.
I now turn it over to Richard.
Thank you Antoine. We are confident we will seize and create new short and long-term growth opportunities and deliver solid future results. We stay alert and are monitoring market conditions while keeping a disciplined approach in cost control. We will build our strengths with the exceptional quality of our team, the distinctive quality of our service, our ability to innovate, to pursue strategic acquisition and to integrate them efficiently, while using our flexibility to adapt to changing market conditions. Richelieu remains customer innovation service and results oriented.
Thanks, everyone. Now we'll be happy to answer your question.
Thank you. Ladies and gentlemen, we will now take questions from our analysts. [Operator Instructions] Your first question comes from Hamir Patel from CIBC Capital Markets. Please go ahead.
Hi. Good afternoon.
Good afternoon.
Could you comment on how demand is fared in March for the -- both -- on the manufacturers side and retailers segment?
Yeah, the demand for the month of March, as we speak was at high single-digit down, which is still really good performance considering that last year for the same month, we had an increase of, remember that, Antoine it was?
18%.
18% for the month of March, organic growth. So basically we compare ourselves with the best month ever, the last month of March of 2022 was our best month ever in this company. So we saw something like $130 million, so basically we're quite satisfied with the current sales performance and despite of seeing a high single-digit decline on sales, but in the circumstances we still think it's really good.
Thanks Richard. That's helpful. And 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 to make sure that our pricing was stable for the quarter and for the month as well. So, so far we didn't see any deflation in our pricing.
And Richard you only look back in recent years, there's been quite a big increase in organic growth. I don't know if you have the figure on hand, but do you have a sense as to, from the sort of beginning of the pandemic kind of early 2020, how much price inflation you've seen into your results. And what amount -- what type of deflation would you still expect to play out just given maybe pass-throughs on freight and some moderation maybe on some products?
Inflation last year in 2022, I think was something like 10% due to the price increasing because what you mentioned for the freight. We see the freight now being coming back to normal, but since we don't receive merchant inventory as we speak, because we still have -- to decrease the inventory that we already have on hand, with -- which is already a price at the high cost.
But I think all the competitors have to live with the same circumstances, but the sales are still maintaining good. So we expect to turn -- to have one turnover inventory before the close to before the end of the second quarter. So things should improve. And also we have to consider that we will price our inventory based on average cost.
So basically it's going to be almost a full year before the cost come back to where it should be as a normal costing. And again that's not negative, because that does apply to any business in the world. We have to live with the same circumstances. So basically that's about it.
Okay, thanks. That's helpful. And just final question I had, Antoine, it's been a kind of with another quarter of visibility. Do you have a sense as to where you would expect EBITDA margins to stabilize, I'm just thinking maybe on '24 basis.
Low 14, Hamir.
Low 14. Okay. That's great. That's all I had for now. I'll turn it over. Thanks.
Thank you.
[Operator Instructions] Your next question comes from Zachary Evershed from National Bank Financial. Please go ahead.
Thank you. Good afternoon. Thanks for taking my question.
Good afternoon.
So you mentioned that March organic growth was down high single-digits, but perhaps there's a lower bar in the other months for the quarter since there was an all-time high in March. What are your hopes for the pace of organic growth in the quarter as a whole?
Again we, the second quarter last year was very strong in terms of growth as well. So we -- there is no way we're going to match the growth that we had last year. But what we see now, I guess it's the trend that we're going to see for the quarter, Antoine, what will you say about that? The growth was what for the total?
The second quarter growth last year was 11% in Canada, I am talking about the internal growth and 23% in the US.
It was 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're going to do better.
Got you. And inventory rose quarter-over-quarter, you're hopeful for a decline this year. Can you give us an update on how that's trending so far in Q2 and where you hope to end the year?
It's a same answer as the one in January, Zach. So increase in December and January, stabilized in February and it started to decrease in March and the plan is to decrease from $60 million to $80 million.
That's great. Thanks. Quick question on your organic expansion projects. For locations where there isn't a showroom in place, how much does it cost to set one up? And do all of your facilities lend themselves to an extra room being used in that way?
Basically when we some expansion projects, we have a -- we rent more space, and we either improve the showroom or innovate the new showroom. A new showroom will cost something like $250,000, while in the expansion of the warehouse requires some racking. Racking you know for what 50,000 square feet warehouse, we're talking about maybe $200,000.
That's helpful. Thanks.
And Zach, in the quarter, and again the $6.5 million CapEx you have approximately $2.5 million for all of the expansion that we're talking about, either the new ones or the one that we're moving.
Okay, that's great color. And then on those expansion projects, what's left to do in the quarters ahead?
We're going to finalize the Nashville one in the -- you should finalize that in the second quarter. We're going to finalize Atlanta as well, Seattle also, it's going to -- where a lots of things we'll be moving in the second quarter. And after that -- it should be business as usual if we don't have any more projects.
Thank you. How do clients generally respond when you consolidate facilities? Is there any loss in relationship there? Does it carry over well?
No, I think our customer [indiscernible] happy when we expand our space because they know that we're going to have more products. So very often we add decorative board panels for example which our customers like very much. I can show you that type of products. But because we sell higher-end decorative panels. So -- and our customers are very well attracted by those panels because it does create more value for the product that they sell to their own customers. So basically it's very positive.
Great color. Thanks. And then just one last one. Gross margin seems stable, no pricing deflation yet. Could you give us more color on the return of operating expenses to closer to pre-pandemic levels? How will that impact margins in future quarters?
I think that's where we should be. In the last two years, we've mentioned it. So it was a -- the expenses were very low. People were not traveling, promo expenses was -- were very low. So now it's back in terms of payroll because the cost structure, as you said is pretty simple. We have people and we have location.
So in terms of payroll, where we should be. And regarding the rent, we have all of the new location in place. The rents are increasing, but where we should be. So we are at the level required to maintain the business volume. But in terms of ops cost, in terms of percent, we're still better than where we were -- what we were before the pandemic.
That's helpful. Thanks. I'll turn it over.
Thank you.
Richard, there are no further questions at this time. Please proceed with your closing remarks.
So thank you very much for attending this call. So if anybody wants to call us, we're 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.