Mr. Dan McConnell reports

THE NORTH WEST COMPANY INC. ANNOUNCES SECOND QUARTER EARNINGS AND AN INCREASE IN THE QUARTERLY DIVIDEND

The North West Company Inc. has released its unaudited financial results for the second quarter ended July 31, 2023. It also announced that the board of directors has declared a quarterly dividend of 39 cents, an increase of one cent or 2.6 per cent per share, to shareholders of record on Sept. 29, 2023, to be paid on Oct. 13, 2023.

"I am pleased with our second quarter results as we continue to take a balanced approach to managing cost inflation pressures while focusing on finding cost efficiencies and productivity gains within our business," said president and chief executive officer Dan McConnell. "I am optimistic about the progress we are making on our operational excellence priorities and the growth potential of our business. I also want to acknowledge the many people whose lives have been so negatively affected by the wildfires in Northern Canada, and I want to thank our front line associates, the fire fighters and community leaders for their commitment to supporting these impacted communities."

Financial highlights

Sales

Second quarter consolidated sales increased 6.8 per cent to $618.1-million led by same-store sales gains, mainly due to higher inflation and the impact of foreign exchange on the translation of international operations sales. The impact of new stores in Canadian and international operations and an increase in other sales in Canadian operations largely related to higher airline revenue were also factors. Excluding the foreign exchange impact, consolidated sales increased 5.4 per cent, with food sales increasing 5.0 per cent and general merchandise and other sales increasing 6.8 per cent compared with last year. On a same-store basis, sales increased 4.7 per cent compared with the second quarter last year, led by a 7.2-per-cent increase in same-store sales in Canadian operations, with gains in both food and general merchandise sales, and a 1.3-per-cent same-store sales increase in international operations, driven by an increase in food sales.

Gross profit

Gross profit increased 11.1 per cent, driven by sales gains and a 128-basis-point increase in gross profit rate compared with last year. The increase in gross profit rate was mainly due to changes in sales blend and a higher passthrough of cost inflation in retail prices compared with last year. An increase in the airline gross profit rate in Canadian operations resulting from higher third party cargo and charter passenger business was also a factor.

Selling, operating and administrative expenses

Selling, operating and administrative expenses increased $11.8-million or 8.6 per cent compared with last year and were up 40 basis points as a percentage to sales. The increase in expenses is largely due to cost inflation impacts, including higher staff costs and fuel-based utility expenses, the impact of foreign exchange on the translation of international operations expenses, new store expenses, and an increase in depreciation. A $3.7-million expense resulting from the write-off of assets in the Fox Lake, Alta., store that was destroyed by a wildfire was also a factor. These factors were partially offset by a decrease in share-based compensation costs.

Earnings from operations

Earnings from operations (EBIT (earnings before interest and taxes)) increased 18.6 per cent to $54.7-million, compared with $46.1-million last year, and earnings before interest, income taxes, depreciation and amortization (EBITDA) increased to $80.1-million, compared with $70.4-million last year, due to the gross profit and expense factors previously noted. Adjusted EBITDA, which excludes share-based compensation costs and the asset write-off of the Fox Lake store destroyed by wildfire, increased $10.7-million or 14.7 per cent to $83.3-million, compared with $72.6-million last year, and as a percentage to sales was 13.5 per cent, compared with 12.6 per cent last year.

Net earnings

Net earnings increased 17.5 per cent to $38.0-million, compared with $32.4-million last year. Net earnings attributable to shareholders were $36.8-million and diluted earnings per share were 76 cents per share, compared with 64 cents per share last year. Adjusted net earnings, which exclude the after-tax impact of the share-based compensation costs and the asset write-off related to the loss of the Fox Lake store, increased $6.1-million or 17.9 per cent compared with last year, largely due to the gross profit and expense factors previously noted.

Non-GAAP (generally accepted accounting principles) financial measures

The company uses the following non-GAAP financial measures: EBITDA, adjusted EBITDA and adjusted net earnings. The company believes these non-GAAP financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the company for the reasons outlined below.

EBITDA is not a recognized measure under IFRS. Management believes that in addition to net earnings, EBITDA is a useful supplemental measure as it provides investors with an indication of the company's operational performance before allocating the cost of interest, income taxes and capital investments. Investors should be cautioned, however, that EBITDA should not be construed as an alternative to net earnings determined in accordance with IFRS as an indicator of the company's performance. The company's method of calculating EBITDA may differ from other companies and may not be comparable with measures used by other companies.

Adjusted EBITDA and adjusted net earnings are not recognized measures under IFRS. Management uses these non-GAAP financial measures to exclude the impact of certain income and expenses that must be recognized under IFRS. The excluded amounts are either subject to volatility in the company's share price or may not necessarily be reflective of the company's underlying operating performance. These factors can make comparisons of the company's financial performance between periods more difficult. The company may exclude additional items if it believes that doing so will result in a more effective analysis and explanation of the underlying financial performance. The exclusion of these items does not imply that they are non-recurring.

These measures do not have a standardized meaning prescribed by GAAP and therefore they may not be comparable with similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to the other financial measures determined in accordance with IFRS.

Certain share-based compensation costs are presented as liabilities on the company's consolidated balance sheets. The company is exposed to market price fluctuations in its share price through these share-based compensation costs. These liabilities are recorded at fair value at each reporting date based on the market price of the company's shares at the end of each reporting period with the changes in fair value recorded in selling, operating and administrative expenses.

Further information on the financial results is available in the company's 2023 second 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.

Second quarter conference call

North West will host a conference call for its second quarter results on Sept. 13, 2023, at 9 a.m. Central Time. To access the call, please dial 416-406-0743 or 800-952-5114 with a passcode of 4674438 followed by the pound key. The conference call will be archived and can be accessed by dialling 905-694-9451 or 800-408-3053 with a passcode of 4665813 followed by the pound key on or before Oct. 13, 2023.

North West, through its subsidiaries, is a leading retailer of food and everyday products and services to rural communities and urban neighbourhoods in Canada, Alaska, the South Pacific and the Caribbean. North West operates 224 stores under the trading names Northern, NorthMart, Giant Tiger, Alaska Commercial Company, Cost-U-Less and RiteWay Food Markets, and has annualized sales of approximately $2.4-billion.

The common shares of North West trade on the Toronto Stock Exchange under the symbol NWC.

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