The North West Company Inc. Announces Fourth Quarter Earnings and an Increase in the Quarterly Dividend

Provided by North West Company Inc/CNW

WINNIPEG, March 14, 2019 /CNW/ – (TSX: NWC):The North West Company Inc. (the “Company” or “North West”) today reported its unaudited financial results for the fourth quarter ended January 31, 2019.  It also announced that the Board of Directors have declared a dividend of $0.33 per share, an increase of $0.01 or 3.1% per share, to shareholders of record on March 29, 2019, to be paid on April 15, 2019.

“Fourth quarter sales were very robust across most banners offset by expense pressures and one-time business disruptions.  Our airline continued to invest to bring aircraft maintenance in-house.  This need was reinforced by the extended downtime of one of our ATR aircraft due to delays with third party maintenance providers, which in turn required the use of higher cost third-party aircraft,” commented President & CEO Edward Kennedy.  “Our focus for 2019 is on driving same store sales growth that leverage more positive economic conditions in the north and in key Caribbeanmarkets.  We will cycle through cost inflation with the exception of higher insurance rates which will be offset by growth”.

Financial Highlights

Fourth quarter consolidated sales increased 7.1% to $532.5 million led by same store sales gains in International Operations, the impact of foreign exchange on the translation of International Operations sales and new stores in Canadian Operations.  The early issuance of the February Supplemental Nutrition Assistance Program (“SNAP”) benefit payments in January due to the U.S. Government shut-down and the re-opening of two stores in the British Virgin Islands that were previously closed as a result of the hurricanes last year were also factors contributing to the sales gains in International Operations.  Excluding the foreign exchange impact, consolidated sales increased 4.5% and were up 4.0%1 on a same store basis.  Food sales1 increased 4.6% and were up 4.6% on a same store basis and general merchandise sales1 increased 3.5% and were up 2.0% on a same store basis.  These gains were partially offset by the temporary closure of a NorthMart store in Iqaluit, Nunavut due to a fire and the disposition of a stand alone Tim Hortonsin Canadian Operations, and the closure of a Cost-U-Less (“CUL”) store in Kauai, Hawaii in the first quarter this year.

Gross profit increased 5.4% driven by higher sales but was partially offset by a 51 basis point decrease in gross profit rate.  The decrease in gross profit rate was primarily due to competitive pricing pressures and changes in sales blend in International Operations.  Selling, operating and administrative expenses increased 15.3% and were up 191 basis points as a percentage to sales.  This increase was mainly due to higher share-based compensation costs, utilities and insurance expense.  The $7.5 million increase in share-based compensation costs is primarily due to mark-to-market adjustments resulting in an option expense of $3.6 million this year compared to an option expense recovery of $2.8 million last year. The impact of new stores, an increase in North Star Air Ltd. expenses and the impact of foreign exchange on the translation of International Operations expenses were also factors.

Earnings from operations decreased 33.0% to $21.6 million compared to $32.2 million in the fourth quarter last year and earnings before interest, income taxes, depreciation and amortization (EBITDA2) decreased 20.8% to $36.9 millionmainly due to the increase in expenses previously noted.  Excluding the impact of share-based compensation option expense, adjusted EBITDA2 was down 7.6% compared to last year and as a percentage to sales was 7.6% compared to 8.8% last year.

Income tax expense decreased $9.0 million to $3.8 million and the consolidated effective tax rate was 21.4% compared to last year at 44.0%.  This decrease was primarily due to U.S. tax reform in the fourth quarter last year and the blend of earnings in the International Operations across the various tax rate jurisdictions.  The most significant impact of U.S. tax reform was a reduction in the federal corporate income tax rate from 35.0% to 21.0% effective January 1, 2018 and the implementation of a one-time transition tax on undistributed earnings in foreign subsidiaries.  These changes resulted in additional income tax expense of $5.8 million in the fourth quarter last year.

Net earnings decreased $2.4 million or 14.8% to $13.9 million.  Net earnings attributable to shareholders of the Company were $13.0 million and diluted earnings per share were $0.27 per share compared to $0.31 per share last year due to the factors noted above.  Excluding the impact of the share-based compensation option expense and U.S. tax reform in the fourth quarter last year, adjusted net earnings2 decreased 7.5% compared to last year due to the higher expenses as previously noted.

Further information on the financial results is available in the Company’s 2018 fourth quarter Report to Shareholders, Management’s Discussion and Analysis and unaudited interim period condensed consolidated financial statements which can be found in the investor section of the Company’s website at www.northwest.ca.

2017 Fourth Quarter Income Tax Revision

As previously announced on April 11, 2018, in connection with the issuance of the 2017 annual audited consolidated financial statements for the year ended January 31, 2018, the Company recorded an additional $1.9 million income tax expense from the amounts recorded in the fourth quarter 2017 unaudited interim period condensed consolidated financial statements as further described below.  The Company reported its 2017 fourth quarter unaudited consolidated financial statements on March 15, 2018.  On April 2, 2018, prior to the issuance of the annual audited consolidated financial statements, the U.S. Department of the Treasury and the Internal Revenue Service issued notice 2018-26 providing additional guidance on the calculation of the transition tax.  As a result of this additional guidance, the Company recorded an additional estimated transition tax of $1.9 million under section 965 of U.S. Tax Reform on accumulated undistributed earnings in foreign subsidiaries in its annual audited consolidated financial statements for the year ended January 31, 2018.  This adjustment increased income tax expense and decreased net earnings by $1.9 million (US$1.5 million) from the amounts previously reported in the fourth quarter consolidated financial statements for both the fourth quarter and the year ended January 31, 2018.  The comparative figures referenced in this news release and in the fourth quarter condensed consolidated financial statements for the three and twelve months ended January 31, 2018 have been revised to include the impact of the $1.9 million increase in income tax expense.