Richelieu Hardware Q4 2023 Earnings Call Transcript

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January 18, 2024

There are 5 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to the Hicher Hardware 4th 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. This call is being recorded on January 18, 2024.

Speaker 1

Thank you. Good afternoon, ladies and gentlemen, and welcome to Richelieu's conference call for the 4th quarter 12 month period ended November 30, 2023, with me is Antoine Okaia, CFO. As usual, note that some of today's issue include forward looking information, We have provided with the usual disclaimer as reported in our financial filings. We ended 2023 with a solid 4th quarter. Our sales are nearly in line with those of the same quarter of 2022 When the renovation market continued to benefit from favorable market conditions, our inventory level continued to improve, I think generating over $70,000,000 of cash flow from operating activities during the quarter.

Speaker 1

As for the EBITDA and net earnings, these were essentially impacted by the return to pre pandemic operating expenses And cost incurred in projects to expand and optimize several of our solution centers, mostly in the U. S. For fiscal 2020, our total sales including acquisitions are also in line with those of 2022. Throughout the year, we maintained our commitment to financial discipline in order to continue generating healthy margins And strong cash flows, as shown by the $271,000,000 generated from the operation this year. 2023 was also another good year for acquisition complementary to our activities, As well as concrete achievements in our network in line with our optimization culture, We invested in 6 new acquisitions, Unigraf, Usim, Cataly Rabel, Altru in Quebec, then Transworld Distributing in Nova Scotia, Majvik Hardware in Oregon and Western Distributing in Biniazotope.

Speaker 1

With this full acquisition completed in 2022, we're adding $152,000,000 in sales on an annual basis, As well as extending our customer base and our offering and adding talented people to our team. Regarding our network projects, undertaken to better seize market growth opportunities, optimize our operation and service, We are pleased with our achievements to date. We have successfully completed the expansions of our centers at Atlanta, Nashville, Fort Myers, Fontaineau and Seattle areas, our brand new Chicago Center Serving the retailers market is fully operational as are the 2 new centers in the Minneapolis and Karstav regions. In December, we completed our Calgary expansion by consolidating the 2 centers into 1 single 250,000 square feet building. This center will become a destination for our customers, Architects and designers with a state of the art role.

Speaker 1

In addition, we will be able to serve our retailer customers in Western Canada And our certain Alberta manufacturers from one single location. I'd also like to add that 2023 It was a strong year in terms of innovation as we added many innovative solutions in several of our product categories, all available In our one stop shop network and on the issue.com for our customers, optimizing the customer experience is always at the top of your priorities. Antoine will now review the financial highlights of the quarter the year, then I will conclude and we will take

Speaker 2

your questions. Antoine? Thanks, Richard. Our 4th quarter sales reached $454,000,000 slightly down by 0.8%. Sales to manufacturers stood at $393,100,000 down 1.2 percent of which 2.8% from internal decrease and 1 point In the hardware retailers and renovation superstores market, we achieved sales of $61,000,000 in line with 2022.

Speaker 2

In Canada, sales amounted to $267,000,000 a decrease of $6,000,000 or 2.2 percent. Our sales to manufacturers reached $220,000,000 down 2.5%. As for retailers market, Sales stood at $47,000,000 in line with last year. In the U. S, sales totaled $136,000,000 in U.

Speaker 2

S. Dollar, Same as last year. Sales to manufacturers reached $126,000,000 in U. S. Dollar, down 0.7%.

Speaker 2

In the retailers market, sales were up 8.8%. Total sales in the U. S. Reached CAD 186 1,000,000, An increase of 1.2%, representing 41% of total sales. Total sales in 2023 reached $1,800,000,000 slight decrease of 0.8 percent of which 1.8% from acquisition and 2.6% from internal decrease.

Speaker 2

Sales to manufacturers reached $1,500,000,000 down 0.8%, of which 2.9% from internal decrease and 2.1% from acquisitions. Sales to hardware retailers were down by 8% or $2,600,000 to $248,000,000 In Canada, sales totaled $1,000,000,000 down 2.5 percent, of which 4.4% from internal decrease and 1.9% from acquisitions. Our sales to manufacturers amount to $856,000,000 down by 2.4%, of which 4.7% from internal decrease and 2.3% from acquisitions. Sales to hardware retailers and renovation superstores were $198,000,000 down 2.9%. In the U.

Speaker 2

S, sales amounted to US548 $1,000,000 down 2.7 percent of which 4.4% from internal decrease and 1.7% from acquisitions. They reached CNY740 1,000,000 in Canadian dollar, up 1.6%, Accounting for 41% of total sales. Sales to manufacturers reached $506,000,000 a decrease of 3% Sales to hardware retailers were up by 1.2%. 4th quarter EBITDA stood at 58,800,000 Compared with $76,700,000 last year, down 23.3 percent. EBITDA margin stood at 13%.

Speaker 2

For the year, EBITDA was $230,400,000 down 19.8 percent and EBITDA margin stood at 12.9%, reflecting the return to operating expense closer to pre pandemic level and expenses incurred specifically for projects to expand and modernize several of our distribution centers. 4th quarter net earnings attributable to shareholders totaled 28,500,000 For the year, net earnings reached $111,000,000 a decrease of 33.8 percent and $1.98 per share compared to $2.99 per share last year. 4th quarter cash flow from operating activities before net change in non cash working capital balances were down 20.7% to $49,300,000 or $0.88 per share. Net change in non cash working capital balances represented a cash inflow of $23,300,000 reflecting mainly the change in inventory and accounts receivable. Consequently, we generated $72,700,000 in cash from operating activities compared with $3,600,000 for the Q4 of 2022.

Speaker 2

For the year, opening activities generated a cash flow Cash inflow of $271,000,000 Net change in non cash working capital balances represented a cash inflow $80,200,000 mainly resulting from improved inventory level. During the year, we paid dividends of $33,500,000 up 15 percent over 2022, of which $8,400,000 were in the 4th quarter and repurchased common share for $800,000 We have thus distributed a total of $34,300,000 to our shareholders this year. We also invested $62,000,000 during the year, of which $20,000,000 was for business acquisitions and $42,000,000 mainly for equipment to maintain and improve operational efficiency, Including additions resulting from expansion projects and for the purchase of a building in Brumander, Quebec.

Speaker 1

As of November 30, 2023,

Speaker 2

net cash amounted to $24,000,000 compared to net bank overdraft of $112,000,000 last year. Our working capital was R622 million dollars for a current ratio of R3.721. I now turn it over to Richard.

Speaker 1

Thank you, Asuel. I will now conclude with our most assembled methods. On December 1 On January 15, respectively, we completed 2 new acquisitions. Onethic Forest, a specialty wood and tile distributor operating Distribution centers in Adrian, Ontario and Rapid Stop, a specialty hardware distributor with 1 distribution center in Richmond, Ohio. These two transactions, in line with our objectives, will add sales of approximately €18,000,000 on an annual basis.

Speaker 1

We will also benefit from the expansion projects undertaken in the last 2 years. Richelieu He's well positioned to achieve good results in 2024. That will fit very well with our solid financial history Over the last 30 years as a TSX listed company, our acquisition strategy supported by a strong balance sheet with no debt, Thanks, everyone. And I'll be happy to answer your questions.

Operator

Thank you. One moment please for your first question. Your first question comes from Sameer Patel from CIBC. Please go ahead.

Speaker 2

Hey, good afternoon.

Speaker 3

Richard, could you give us a sense

Speaker 4

as to how your sales Or tracking through the 1st 6 weeks of the new fiscal year?

Speaker 1

Yes, I see what I see is the trend that we had The last quarter of 2023 continue to be effective as we speak. We don't see The Q1 with a positive organic growth because of the situation of the market. But we expect basically the first half to be, I would say, low growth or negative slightly negative growth. But we do expect we don't know why exactly, but we expect that the second half should be much better. This is where After reading what's going on in the market, we are listening to our sales force and our people and our customers, we feel that the second quarter will much better Because the Q1 results are being impacted, but some inventory left from the pandemic period where we still have About $24,000,000 of excess inventory, which would be the whole cost.

Speaker 1

So we have to deal with that for at least The next quarter, maybe the next two quarters. So basically, things are very healthy. The balance sheet is very clean. The cash flow is very clean. Our sales force is intact.

Speaker 1

What we hear from the competition is that we're doing much better, but we cannot We feel that we really continue to capture more market penetration, selling to more customers And again, because of the new product as we have introduced in the acquisitions, the pipeline is very healthy. Basically, that should be a good year for acquisition.

Speaker 4

Okay. Thanks, Richard. That's helpful. So the it sounds like last quarter, you had kind of pointed to the excess Well, our higher warehousing costs being incurred for through the first half of fiscal 'twenty four. And it sounds like you'd still expect to Kind of have worked through that excess inventories by the end of Q2.

Speaker 4

Is that fair?

Speaker 2

Yes, that's fair. I mean, basically, what I'm expecting is We'll be flat for the Q1 because with the Chinese New Year, we have to order in advance. So we should have a flat inventory for the Q1, but And I'm expecting a reduction of around $25,000,000 over the next few quarters.

Speaker 4

Okay, great. Thanks, Antoine. And then just asking, you're referring to EBITDA margins, it moderated further to 13.0%. Does that mark the low of the sort of go forward business? Or would you expect that to continue to trend lower for another quarter or 2 before inflecting higher again?

Speaker 2

Yes, I would expect to continue to trend lower because with a volume that is slightly down, I'm Expecting the EBITDA margin to be anywhere between 12% 13%. So in a better market environment, the 13% is achievable. In a more difficult environment, I would say around 12%, so anywhere between 12% and 13%.

Speaker 4

Okay. And for a full year 24. Anton, do you have a sense as to what sort of margin you would expect on a full year basis?

Speaker 2

Depending of the market condition, it's between 12% and 13%.

Speaker 4

Okay. Fair enough. And just a last question I had. I noticed in prior years, the company tended to announce A dividend increase with the 4th quarter results. Richard, is there a reason this year the Board held off?

Speaker 1

We think that we have increased the dividends. I don't know what we have increased on the last time we have increased, I think it was a big increase. So we thought that we could take it should take it easy this year, but that doesn't mean that don't forget that our dividend policy 4th quarter, it's not a yearly dividend. So basically, we can make change whenever it's going to be needed. Okay.

Speaker 4

Fair enough. That's all I had. I'll turn it over. Thanks.

Operator

Your next question comes from Zachary Evershed from National Bank Financial. Please go ahead.

Speaker 3

Thank you for taking my questions. Hi everybody.

Speaker 1

Hello, Zach. Yes.

Speaker 3

So in terms of Gross margins and pressure there. Is the effort to reduce inventory weighing on that or are there other factors at play?

Speaker 1

Well, the excess inventory, as I said earlier, we're still left with $25,000,000 That should go quite fast. And we think the 1st 2 quarters, we should get rid of that. Unfortunately, this is creating some decrease of the gross margin temporarily. It is important to specify it temporarily because basically Our margin for the product that we have paid the right price that we sell now, we sell new, we have the same margin that we had before, but we come back to that. Basically, we have to live with a little bit of some of the deflation.

Speaker 1

But as I said, it's going to affect mainly the retail Hardware stores because the product that we sell there is mainly from Asia. So basically, our cost Would be will decrease some of our selling price will decrease, but as a percentage, the growth margin will remain the same.

Speaker 3

That's good color. Thank you. And you also mentioned that there were some project expenses weighing on EBITDA margins. How much was that in Q4 in dollars or basis points?

Speaker 2

In dollars, in Q4, you can Could estimate around for sure $1,000,000 in Q4.

Speaker 3

Perfect. Thank you. And then you mentioned that the acquisition pipeline is looking pretty good. Are seller expectations coming back down to earth after being inflated during the boom time?

Speaker 2

Yes, that's a good point. So for sure that now we're looking at 2020 we're basing the acquisition based on 2023. So It's going to change it's going to certainly change how we address these acquisitions. So yes, it's coming down to more reasonable prices.

Speaker 3

Excellent. So 2023 very eventful for projects. Should we expect more of those in 2024? Are you happy with where the network sits?

Speaker 1

No, we will finish with this. I think all the projects that we have To do what we finished at the end of 2023, we're in the process of finishing we're finished here a category in the month of December. In the year to come, we're going to have it in Vancouver. We're going to have to make a change in Vancouver, but that's not a major project, no, but we don't have any chance because You cannot take any chance because actually we have some businesses that have done it in size there and with which we have to operate in 2 different warehouses We think the stuff back and forth from one way out to the other. So we have to rationalize a few things, but that's going to be probably the only projects.

Speaker 3

That's perfect. Thanks. That's it for me.

Operator

Presenters, there are no further questions at this I will turn the call back over to Roussel for closing remarks.

Speaker 1

Okay. So thank you very much for attending this call. We We always be happy to talk to you if you decide to call us. So have a good day.

Operator

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

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Earnings Conference Call
Richelieu Hardware Q4 2023
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