REITMANS (CANADA) LTD. $4.07 - Toronto symbol RET.A

REITMANS (CANADA) LTD. $4.07 (Toronto symbol RET.A; TSINetwork Rating: Extra Risk) (514-384- 1140; www.reitmans.com; Shares outstanding: 64.6 million; Market cap: $254.5 million; Dividend yield: 4.9%) owns 775 women’s clothing stores across Canada. The chain consists of 332 Reitmans, 136 Penningtons, 107 Addition Elle, 83 RW & Co., 68 Thyme Maternity, 17 HYBA and 32 Smart Set outlets. It also has 21 Thyme Maternity boutiques in Canadian Babies “R” Us stores. On October 8, 2015, the company opened its 17 new HYBA women’s activewear stores across Canada. Activewear is one of the country’s fastest growing clothing categories. In the three months ended October 31, 2015, Reitmans’ sales rose slightly, to $240.3 million from $238.3 million a year earlier. Same-store sales gained 7.6%, with brick-and-mortar stores increasing 4.8% and e-commerce jumping 72.2%. Reitmans lost $269,000, or nil per share, compared to a profit of $12.9 million, or $0.20 a share. The high U.S. dollar hurt profit margins, and the latest quarter included a $4.3-million loss on the market value of the company’s securities portfolio. This offset cost-cutting measures, including layoffs at its head office. The retailer’s balance sheet is strong: it holds cash and securities of $147.8 million, or $2.29 a share, and its debt is just $2.1 million. The stock yields 5.0%. In mid-2014, the company said it would close its 107 underperforming Smart Set stores. Under its plan, Reitmans is eliminating 31 locations and converting the other 76 to other banners. It aims to complete the shutdowns by early next year. The company’s willingness to close unprofitable stores and discontinue—or add—banners to boost its profits bodes well for its long-term success. However, ever-increasing competition in the clothing market still leaves its near-term sales outlook uncertain. Reitmans is a hold.

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