RET.TO - Reitmans

[kwilde]

Am wondering if anyone here has had a look at Reitmans or can offer any insight?

 

I don’t normally invest in Retail, but it looks compelling:

 

• Market Cap $245MM - $95MM Net Debt = TEV $150MM.

• Adjusted TTM EBITDA = $66MM; TEV/EBITDA = 2.3.

• Revenue TTM = $935MM; TEV/Revenue = 0.16. 

• P/B = 0.64.

• Current dividend yield is 5%.

• Prem Watsa is major shareholder (13% of shares outstanding); Chou Funds also has a stake.

• FX headwinds (paying in USD for COGS) have hurt them this past year, but have put better hedging practices in place.

• Company has been closing underperforming stores, recently cut 10% of head office staff.

• Same store sales increased by 7.6% this past quarter while e-commerce sales increased 72%.

• They’ve been revamping their marketing campaign including adding endorsements by the likes of PK Subban of the Montreal Canadians.

 

[longlake95]

I've owned RET for a couple of years, its been disappointing...however they are holding their own in a tough retail landscape. Their RW&co brand seems to be doing well. Anecdotally, i know some 20 somethings who shop there, which a good sign that they are attracting that age group. As you outlined, online is growing fast...but its a very small sales channel. G&A is moving down...good to see. I expect FX headwing to abate. Im not sure much will happen with RET until the economy  picks up. Excellent management. Im holding for now.

[kwilde]

I've owned RET for a couple of years, its been disappointing...however they are holding their own in a tough retail landscape. Their RW&co brand seems to be doing well. Anecdotally, i know some 20 somethings who shop there, which a good sign that they are attracting that age group. As you outlined, online is growing fast...but its a very small sales channel. G&A is moving down...good to see. I expect FX headwing to abate. Im not sure much will happen with RET until the economy  picks up. Excellent management. Im holding for now.

 

Thanks longlake. 

I've been reading through their Annual and Quarterly reports, but its tough to get a read on management when they don't do conference calls.

I'm encouraged that online is growing as it is as it's higher margin business, but they do appear to bleeding cash the past couple quarters.

The big risks that worry me are the online competitive threat (will people still be going to malls in 10 years?) and whether the RW&Co and Reitman brands are gonna get run over by fast fashion companies like H&M.  I'm less worried about Pennington's, Addition Elle and Thyme maternity because they seem to have more staying power and more loyal customer base.

Another thing I did not include in my previous post is that they have 376MM in operating leases that do not appear on the B/S, which makes it look less rosy than I first thought, but I will keep digging. 

[bizaro86]

I've owned RET for a couple of years, its been disappointing...however they are holding their own in a tough retail landscape. Their RW&co brand seems to be doing well. Anecdotally, i know some 20 somethings who shop there, which a good sign that they are attracting that age group. As you outlined, online is growing fast...but its a very small sales channel. G&A is moving down...good to see. I expect FX headwing to abate. Im not sure much will happen with RET until the economy  picks up. Excellent management. Im holding for now.

 

Thanks longlake. 

I've been reading through their Annual and Quarterly reports, but its tough to get a read on management when they don't do conference calls.

I'm encouraged that online is growing as it is as it's higher margin business, but they do appear to bleeding cash the past couple quarters.

The big risks that worry me are the online competitive threat (will people still be going to malls in 10 years?) and whether the RW&Co and Reitman brands are gonna get run over by fast fashion companies like H&M.  I'm less worried about Pennington's, Addition Elle and Thyme maternity because they seem to have more staying power and more loyal customer base.

Another thing I did not include in my previous post is that they have 376MM in operating leases that do not appear on the B/S, which makes it look less rosy than I first thought, but I will keep digging.

 

I'm probably biased here because we've had 2 children in the last two years, but my wife hated Thyme maternity, mainly because their prices for everything were very high. Now, if they can get away with selling stuff at very high prices, that's good for them. But she was definitely able to not buy anything from them the whole time, and there was more choices on our second baby. It seems to me that Thyme is banking on having no real competition in the maternity space in Canada, and that is changing, which has the potential to permanently impair their business (or at least their margins).

 

Also, I'm not sure about a "loyal customer base" for a maternity store. Even if my wife had loved Thyme, we're done having kids, so presumably she won't be buying any more maternity clothes. I have a hard time seeing long-term customer loyalty when the customer base turns over every few years.

 

Anyway, I haven't done any work on Reitmans, those are just a few things that might be disconfirming to think about.

[longlake95]

Things looking up for Reitmans? I'm sure the weaker USD has help their cost of sales. I'm still holding.

 

http://www.newswire.ca/news-releases/reitmans-canada-limited-announces-its-results-for-the-three-and-six-months-ended-july-30-2016-592802441.html