This firm’s food stores remained open during the onset of the COVID-19 pandemic as they provide essential products to remote communities. The company maintained its dividend and the stock has rebounded strongly from its March 2020 low of $22.
The sound balance sheet and dominant market share in northern communities should continue to support its dividend.
The stock trades at 11.7 times the company’s 2022 earnings forecast.
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NORTH WEST COMPANY (Toronto symbol NWC; www.northwest.ca) sells food and everyday products and services at 215 stores. Its outlets are mainly in northern communities across Canada, Alaska and the Caribbean. The average store is 7,500 square feet. Canada contributes 57% of overall revenue, and the company gets 78% of its sales from food.
North West has paid regular dividends for over 32 years. With the October 2021 payment, it raised its quarterly dividend by 2.8%, to $0.37 a share from $0.36. The new annual rate of $1.48 yields a high 4.3%. North West also plans to buy back 10% of its outstanding shares over the next year.
The company’s revenue rose 28.3%, from $1.84 billion in 2017 to $2.36 billion in 2021 (fiscal years end January 31). That gain was partly due to acquisitions. For example, in February 2017, North West paid $35.6 million in cash and shares for 77% of Roadtown Wholesale Trading. It operates eight profitable Riteway Food Market stores, 1 Cash and Carry store and a wholesale operation in the British Virgin Islands.
Overall earnings gained 86.3%, from $77.1 million in 2017 to $143.6 million in 2021. However, due to more shares outstanding, per-share earnings rose at a slower rate of 79.6%, from $1.57 to $2.82.
In July 2020, the company sold 36 of its 46 Giant Tiger retail stores for $45 million. It could receive an additional $22.5 million if certain profitability targets are met. Of the 10 remaining stores, it runs five Giant Tiger locations. It converted a sixth to a Valu Lots clearance centre. The other four were closed in the third quarter of 2020. North West recorded an after-tax gain of $20 million on the sale.
In the quarter ended October 31, 2021, overall sales rose slightly, to $553.7 million from $553.0 million a year earlier. Excluding foreign exchange movements, sales increased 2.1%. Last year’s sales benefited from higher spending by customers in the wake of COVID-19. As well, the company lowered prices for the food it sells in northern Canada. This was aimed at capturing more local spending dollars and lessening the impact of COVID-19 on customers.
Same-store sales fell 0.1% in the latest quarter compared to last year. Notably, though, same-store sales were up 17.4% compared to the same quarter in (pre-pandemic) 2019.
Excluding one-time items, earnings in the quarter fell 10.2%, to $38.4 million, or $0.80 a share, from $42.8 million, or $0.88. The drop was mostly due to higher costs.
The company’s sound balance sheet has helped it cope with the COVID-19 crisis and support the dividend.
As of October 31, 2021, North West held cash of $57.0 million. Its long-term debt of $191.9 million is low at 11% of its market cap.
The shares now trade at 11.7 times the $2.98 a share that the company should earn for fiscal 2022.
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