North West Q2 2025 Earnings Report

North West EPS Results

• Actual EPS: C$0.73
• Consensus EPS: C$0.71
• Beat/Miss: Beat by +C$0.02
• One Year Ago EPS: N/A

North West Revenue Results

• Actual Revenue: $646.49 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

North West Announcement Details

• Quarter: Q2 2025
• Date: 9/4/2024
• Time: N/A
• Conference Call Date: Thursday, September 5, 2024
• Conference Call Time: 9:30AM ET

The North West (TSE:NWC) Co Inc is a Canada-based company that is principally engaged in retail business in underserved rural communities and urban neighborhoods. The company provides food, family apparel, housewares, appliances, and outdoor products, with food products accounting for the majority of the company's revenue. The company also offers services, including post offices, income tax return preparation, money transfers, commercial business sales, and others. Its geographical segment includes Canada and International. The company generates maximum revenue from Canada.

North West Q2 2025 Earnings Call Transcript

Key Takeaways

• We are driving strong top-line growth with consolidated sales up 4.6% and gross profit up 7.5%, leading to a 6.1% increase in adjusted EBITDA and a 1.6% rise in adjusted net earnings.
• Canadian operations saw a 5.6% sales increase (6.8% same-store), led by food sales boosted by First Nations settlement payments and programs enhancing access to nutritious food.
• International sales grew just 0.8% (0.9% same-store) amid softer economic conditions in tourism-dependent markets, with general merchandise sales down 2.5% versus last year.
• Net earnings fell 3% due to a $1.8 M decrease in Transport Nanook earnings from higher vessel repairs, a $1.8 M increase in non-comparable expenses, and a $1.0 M global minimum tax impact.
• The Next100 program aims to drive incremental EBIT growth starting later this year and into 2025-26, offsetting near-term one-time implementation costs.

Presentation

[Operator]

Welcome to The North West Company second quarter results conference call. I would like to turn the meeting over to Mr. Dan McConnell, President and Chief Executive Officer. Mr. McConnell, please go ahead.

[Dan McConnell, President and CEO at The North West Company Inc.]

Thank you very much, and good morning, and welcome to The North West Company second quarter conference call. I'm joined here today with, by John King, our Chief Financial Officer, and Alexis Cloutier, our VP of Legal and Corporate Secretary. I'm gonna start the meeting by asking Alexis to read our disclosure statement.

[Alexis Cloutier, VP of Legal and Corporate Secretary at The North West Company Inc.]

Thank you, Dan. Before we begin today, I remind you that certain information presented may constitute forward-looking statements. Such statements reflect North West's current expectations, estimates, projections, and assumptions. These forward-looking statements are not guarantees of future performance and are subject to certain risks, which could cause actual performance and financial results in the future to vary materially from those contemplated in the forward-looking statements. Any forward-looking statements are current only as of the date they're made, and the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future results, or otherwise, other than what's required by law. For additional information on these risks, please see North West Annual Information Form and its MD&A under the heading Risk Factors.

[John King, EVP and CFO at The North West Company Inc.]

Okay, thanks, Alexis. I will begin by providing a brief overview of this quarter's results. I'll then provide some additional color on sales within our Canadian and international operations before making some comments on the key factors impacting our consolidated gross profit and expenses. Finally, I'll wrap up with a few comments on our outlook in the Next 100 program before opening the call up for some questions. All right, so, let's dive right in. Overall, we are very pleased with the results this quarter, especially considering the impact of some non-comparable factors this year and the fact that we are up against a 17.5% increase in net earnings in the second quarter of last year.

[John King, EVP and CFO at The North West Company Inc.]

Our second quarter results this year were driven by strong top-line growth, with consolidated sales up 4.6% and gross profit up 7.5% for the quarter. However, the strong sales and gross profit results did not fully translate to the bottom line in the quarter and was primarily due to three factors. First, earnings from our investment in Transport Nanuk, which is a Canadian shipping company serving the Arctic, were down CAD 1.8 million compared to last year due to higher vessel repairs, which also temporarily delayed the start of the sealift season in Canada. Second, a CAD 1.8 million net increase in expenses resulting from two non-comparable expenses, which include higher share-based compensation costs this year, partially offset by the loss of our store in Fox Lake, Alberta, last year due to wildfire.

[John King, EVP and CFO at The North West Company Inc.]

And third, the implementation of the global minimum tax that resulted in a CAD 1 million increase in tax expense for the quarter. The net impact of these factors resulted in a 3% decrease in net earnings this year compared to the strong net earnings last year. That said, within this backdrop, we are very pleased with the results that delivered increases in Adjusted EBITDA of 6.1% and adjusted net earnings of 1.6%. With that context provided, let me unpack the operational results. Sales in Canadian operations increased 5.6% for the quarter and were up 6.8% on a same-store basis, led by strong food sales. Sales were positively impacted by increased consumer demand arising from First Nations drinking settlement payments to individuals. However, the volume of these payments in the second quarter relative to the total settlement remains low.

[John King, EVP and CFO at The North West Company Inc.]

That said, we expect to see these payments continue throughout the remainder of this year and into 2025. We also experienced increased consumer demand in certain markets from First Nations Child and Family Services and the Jordan's Principle, programs that help provide greater access to nutritious food. The positive impact of these factors was somewhat muted by higher sales in the second quarter last year, resulting from the impact of the government inflation relief payments, including the Grocery Rebate paid to individuals to help mitigate higher cost of living. Underpinning these financial drivers is a good in-stock position and improved execution at store level, particularly in fresh categories, as we remain focused on operational excellence as part of our Next 100 program. In contrast, our international operations had a more challenging economic environment, which contributed to a softer performance in the quarter.

[John King, EVP and CFO at The North West Company Inc.]

Sales in our international operations increased by 0.8% and were up 0.9% on a same-store basis, as the sales increase from new stores was partially offset by lower wholesale sales. Weaker economic conditions, particularly in tourism-dependent markets in Alaska and the South Pacific, and a slower start to the commercial fishing season in Alaska, reduced discretionary spending in certain markets. The shift in discretionary spending is evident in our sales mix, with food sales up 1.1%, while general merchandise sales decreased by 2.5% compared to last year. Okay, let me transition here and talk about consolidated gross profit results. Our gross profit rate for this quarter increased by 91 basis points, largely as a result of two key factors. First, a shift in sales plan, which includes a decrease in sales in our lower-margin wholesale business.

[John King, EVP and CFO at The North West Company Inc.]

And second, we also experienced an improvement in markdowns and shrink compared to the prior year and an increased focus on being in stock and execution in fresh departments. I will now briefly touch on the key factors that contributed to higher expenses in the quarter. During the quarter, expenses increased by 10.1% and were up 127 basis points as a percentage of sales. This increase-... I noted at the beginning of the, of the call, which included the higher impact of vessel repairs in Transport Nanuk and the increase in share-based compensation, partially offset by the CAD 3.7 million dollar loss in our Fox Lake store, destroyed by wildfires last year.

[John King, EVP and CFO at The North West Company Inc.]

In addition to these factors, inflationary headwinds and labor costs, and the increase in depreciation and the impact of foreign exchange on the translation of international operation expenses also contributed to the increase in expense for the quarter. As mentioned on previous calls, we have highlighted our efforts to control expenses at the store level through the Next 100 initiatives. This includes reviewing store resources and launching initiatives to optimize labor scheduling to align with customer demand using a data-driven approach. With that overview of our results, I will finalize by speaking briefly about our outlook for this year and provide a few remarks on the Next 100 program. The macroeconomic near term really looks uncertain, particularly in our international operations in tourism-dependent markets and countries that do not have government income support programs for individuals.

[John King, EVP and CFO at The North West Company Inc.]

As it relates to the water settlement payments in Canada, we expect an increase in consumer demand, particularly towards the end of this fiscal year and on into 2025. Longer term, the impact of Government of Canada transfer and settlement payments, combined with higher infrastructure and services spending, is expected to benefit Indigenous peoples in the communities we serve. Through the Next 100 program, our teams are driving operational excellence, expanding our capabilities, and pursuing value for our customers, our employees, and our shareholders. The outcome of this work in the Next 100 programs is expected to drive annualized incremental EBIT, which is anticipated to start later this year and continue to accelerate through 2025 and 2026 as these initiatives reach maturity. As we lay the groundwork for these improvements, we anticipate incurring some one-time costs for professional fees and other expenses.

[John King, EVP and CFO at The North West Company Inc.]

These one-time costs are expected to incur in the back half of this year and continue into 2025 as the Next 100 initiatives are operationalized. Our expectation is that the incremental EBIT from these initiatives will more than offset the one-time costs. However, there will be a timing difference as these one-time costs will be incurring before the full annualized benefits are achieved. We'll provide further information on these one-time costs in our quarterly reports as they are incurred. On that note, let me wrap up by highlighting that we are very proud to have received from Canadian Grocer an Impact Award in the Diversity, Equity and Inclusion category for our Indigenous Procurement Strategy. Diversity, equity, and inclusion are core principles of who we are as a company, and this award is reflective of our promise to Indigenous peoples.

[John King, EVP and CFO at The North West Company Inc.]

With that, I will now open it up for any questions.

[Operator]

Thank you. We will now take questions from the telephone lines. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. Please press star one at this time if you have a question. There will be a brief pause while participants register for questions. Thank you for your patience. Once again, please press star one at this time if you have a question. We have a question from Michael Van Aelst, from TD Cowen. Please go ahead.

[Michael Van Aelst, Managing Director at TD Cowen]

Hi, thank you. A few questions for you. So just looking at the higher same-store sales in Canada, particularly on the food side, it was quite strong. And you did highlight, you know, some areas where they had higher access to nutritional foods. So is this part of the CAD 48 billion dollar child welfare reform or that's supposed to come over the next 10 years, or is this something separate?

[Dan McConnell, President and CEO at The North West Company Inc.]

Hi, Michael. It's Dan here, obviously. Yeah, it is. I believe it is. It's more part of Jordan's Principle, but it hasn't been necessarily identified as such, but I think it's just along the whole emphasis behind providing more healthy living options in northern Canada. But I can't say particularly if it is part of the settlement, but it is definitely aligned with the Jordan's Principle that has some other buckets that have been reached into.

[Michael Van Aelst, Managing Director at TD Cowen]

I guess it's just hard because they don't describe in detail where that CAD 48 billion is going to be spent. I don't think they give a lot of detail on how they're gonna fund, you know, they're gonna change their approach with Jordan's Principle. Like, do you feel that the spending and the increased access to nutritious foods in certain communities is actually sustainable, or do you think that this was something that might have been more one time in nature for some reason?

[Dan McConnell, President and CEO at The North West Company Inc.]

I think it's sustainable because I think it's aligned with the, again, the overall initiative of the Jordan's Principle. I would... You know what? I would almost venture to say that it hasn't really come into the overall benefit of the child benefit, the child welfare benefit. I would say that this is just part of the Jordan's Principle. But as far as what bucket of money it's coming out of, Michael, I can't really- I can't give you that information because it's not entirely clear.

[Michael Van Aelst, Managing Director at TD Cowen]

Okay, so maybe a better way to ask it is, are you seeing the benefits of that continuing into the third quarter?

[Dan McConnell, President and CEO at The North West Company Inc.]

Yes. Yeah, the direct answer to that would be yes.

[Michael Van Aelst, Managing Director at TD Cowen]

Okay, excellent. As far as your one-time charges are concerned, how large should we expect these to be? And will you be backing these out of adjusted earnings?

[Dan McConnell, President and CEO at The North West Company Inc.]

Like I said, they're gonna come in. As they come in, we'll be very directive as far as what they are. So that'll give you an indication on the size. I mean, really, it's too early. We don't wanna disclose that at this point, Michael, but we will give a lot more information once they come in. And like I said, in the call, we expect some to start coming in later half of this year, of which I think will create a sequence, if you will, as to how we report it and how we expect you to interpret it.

[Michael Van Aelst, Managing Director at TD Cowen]

Okay. At this stage, do you expect to re-remove it from adjusted earnings?

[Dan McConnell, President and CEO at The North West Company Inc.]

Yeah.

[Michael Van Aelst, Managing Director at TD Cowen]

Perfect. And then on the vessel repairs at TNI, did you mention that it delayed the start to the sealift shipping season?

[Dan McConnell, President and CEO at The North West Company Inc.]

Yeah.

[Michael Van Aelst, Managing Director at TD Cowen]

I guess the question I have is, I know how important it is in getting your inventories up into the north at the lower cost. I was wondering if did it shorten the shipping season for you? And did you get the inventory into the north that you wanted to?

[Dan McConnell, President and CEO at The North West Company Inc.]

Yes, we did. We got the inventory into the north that we wanted to.

[Michael Van Aelst, Managing Director at TD Cowen]

Okay. So we shouldn't expect any additional impact from that event, in the coming quarters?

[Dan McConnell, President and CEO at The North West Company Inc.]

Correct.

[Michael Van Aelst, Managing Director at TD Cowen]

I think that's it, other than, you know, it sounds quite positive in Canada, given that sales are starting to pick up already, even though we're not really seeing meaningful payments being made yet, another water or child reform, welfare reform. And I guess the first question is, before I get on to international, does that, would you agree with those statements?

[Dan McConnell, President and CEO at The North West Company Inc.]

Yeah. Yeah, we're optimistic about the outlook in our Canadian business, for sure.

[Michael Van Aelst, Managing Director at TD Cowen]

And then on the international side, you're obviously more hesitant, given the macro and economic conditions, and are you seeing that deteriorate further? 'Cause you're still able to grow your sales modestly, which is a positive, given this in this environment. So are you still expecting to be able to grow, or is there some bigger headwinds coming that you're seeing?

[Dan McConnell, President and CEO at The North West Company Inc.]

No, our anticipation and our intent is to definitely grow.

[Michael Van Aelst, Managing Director at TD Cowen]

Yeah, and that's on the international side, right?

[Dan McConnell, President and CEO at The North West Company Inc.]

Correct.

[Michael Van Aelst, Managing Director at TD Cowen]

Okay, perfect. All right, I think that's it for now. Thanks very much.

[Dan McConnell, President and CEO at The North West Company Inc.]

All right. Thanks, Michael.

[Operator]

Thank you. Once again, please press star one at this time if you have a question. And the next question is from Mark Petrie from CIBC. Please go ahead.

[Mark Petrie, Equity Research Analyst at CIBC Capital Markets]

Yeah, hi there. Good morning. I just had a couple follow-up questions to Mike's questions. First, just on the inventory levels, look, I know it's flat on a dollar basis, sort of year-over-year, at the end of the quarter or flattish. How should we interpret that? Is some of that affected from the delay into the sealift season, which you've caught up now in Q3 or how should we think of it?

[John King, EVP and CFO at The North West Company Inc.]

We've had some. It's flat, and it's flat off some pretty significant sales increases, as you know, last year. So it's optimism, and it's realism to the point that we feel and we know we're in stock and ready for business. But it's an optimism for sure, Mark.

[Mark Petrie, Equity Research Analyst at CIBC Capital Markets]

Okay, so you would have expected it to be down otherwise, if it weren't for the optimism and the builds in your inventories around some of these sales opportunities?

[John King, EVP and CFO at The North West Company Inc.]

That's correct.

[Mark Petrie, Equity Research Analyst at CIBC Capital Markets]

Yeah. Okay. Fair enough. And I guess just on that, obviously, the food center sales growth is excellent to see. But the merch lagged a little bit. Could you just talk about some of the dynamics there and how you expect those two to sort of move relatively speaking as the payments kind of flow through and accelerate?

[John King, EVP and CFO at The North West Company Inc.]

Yeah, I think there's definitely a positive correlation between the general merchandise increase in sales and the settlement money coming into the market. Obviously, with some of the settlement money coming into the market, the good news is we're ready for business, and we have strong relationships with our vendors to ensure that there's a demand and cycle in place, where if we don't have it in stock, then we can definitely get it with some of the agreements that we've been putting in place recently with some of our vendors. Fortunately, you know, the rest of our business is doing well when some of the other customers of some of our major vendors are not having maybe the same increase as we are.

[John King, EVP and CFO at The North West Company Inc.]

So it's afforded us the right or the opportunity to kind of help out some of our vendors in some more creative negotiating or more creative deal structures.

[Mark Petrie, Equity Research Analyst at CIBC Capital Markets]

Yeah. Okay, understood. And I guess just on the... My last question is just with regards to the competitive dynamics that you're observing in the Canadian market. Just given the, you know, flow-through of some of these benefits and the expectations, have you observed any changes to how your competitors are approaching the market?

[John King, EVP and CFO at The North West Company Inc.]

No. I mean, everybody's working with the same vigor and obviously, as they always have, and we're obviously to the Next 100, really focusing on increasing and improving our capabilities to ensure that we get our share of the business as well, so we're really focused on operational excellence, which would, I'd say, give us our fair percentage of the business that is coming into the markets.

[Mark Petrie, Equity Research Analyst at CIBC Capital Markets]

Yeah, understood. Okay, thanks for all the comments, guys. All the best.

[John King, EVP and CFO at The North West Company Inc.]

Yeah, thanks, Mark. It's good talking to you.

[Operator]

Thank you. There are no further questions registered at this time. I'd like to turn the call back over to Mr. McConnell.

[Dan McConnell, President and CEO at The North West Company Inc.]

Okay. Well, thank you, everybody else, everybody who's tuned in, and I look forward to speaking with you again for, in December for our quarter three.

[Operator]

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.

[Operator]

Thank you.

Participants

Executives

• John King, EVP and CFO
• Dan McConnell, President and CEO
• Alexis Cloutier, VP of Legal and Corporate Secretary

Analysts

• Michael Van Aelst, Managing Director at TD Cowen
• Mark Petrie, Equity Research Analyst at CIBC Capital Markets