REITMANS (CANADA) LTD. $6.43 - Toronto symbol RET.A

REITMANS (CANADA) LTD. $6.43 (Toronto symbol RET.A; TSINetwork Rating: Extra Risk) (514-384- 1140; www.reitmans.com; Shares outstanding: 64.6 million; Market cap: $410.2 million; Dividend yield: 3.1%) owns 843 women’s clothing stores across Canada.

The chain consists of 343 Reitmans, 141 Penningtons, 107 Smart Set, 105 Addition Elle, 79 RW & Co. and 68 Thyme Maternity stores. It also has 21 Thyme Maternity boutiques in some Canadian Babies “R” Us locations.

In the three months ended November 1, 2014, Reitmans’ sales fell 4.5%, to $238.3 million from $249.4 million a year earlier. Same-store sales increased 0.2%. Sales fell because the company closed 52 underperforming stores.

Reitmans earned $12.9 million, or $0.20 a share, up from $5.8 million, or $0.09. The improvement resulted from the closure of less-profitable stores. Earnings also benefited from cost-cutting measures, including layoffs at the company’s head office.

The retailer’s balance sheet remains strong: it holds cash of $169.4 million, or $2.63 a share, and its longterm debt is just $4.0 million. The stock yields 3.1%.

After the latest quarter ended, Reitmans announced that it is shutting down its underperforming Smart Set chain. Over the next 18 months, it will close 31 locations and convert the other 76 to other banners, including Reitmans or Penningtons.

The company’s willingness to close down unprofitable stores and discontinue unpopular banners to boost future profits bodes well for its long-term success. But at the same time, ever-increasing competition in the clothing market makes its near-term sales outlook uncertain.

Reitmans is a hold.

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