Reitmans
Annual Report 2021

Plain-text annual report

Management’s Discussion and Analysis and Consolidated Financial Statements Years ended January 29, 2022 and January 30, 2021 MANAGEMENT’S DISCUSSION AND ANALYSIS The following Management’s Discussion and Analysis ("MD&A") of Reitmans (Canada) Limited and its subsidiaries (“Reitmans” or the “Company”) should be read in conjunction with the audited consolidated financial statements of Reitmans as at and for the fiscal years ended January 29, 2022 and January 30, 2021 and the notes thereto which are available on the SEDAR website at www.sedar.com. This MD&A is dated April 21, 2022. All financial information contained in this MD&A and Reitmans’ audited consolidated financial statements has been prepared in accordance with International Financial Reporting Standards (“IFRS”), also referred to as Generally Accepted Accounting Principles (“GAAP”), as issued by the International Accounting Standards Board (“IASB”). All monetary amounts shown in the tables in this MD&A are in millions of Canadian dollars unless otherwise indicated, except per share and strike price amounts. The audited consolidated financial statements and this MD&A were reviewed by Reitmans’ Audit Committee and were approved by its Board of Directors on April 21, 2022. Unless otherwise indicated, all comparisons of results for the 13 weeks ended January 29, 2022 (“fourth quarter of 2022”) are against results for the 13 weeks ended January 30, 2021 (“fourth quarter of 2021”) and all comparisons of results for the 52 weeks ended January 29, 2022 (“fiscal 2022”) are against the results for the 52 weeks ended January 30, 2021 (“fiscal 2021”). The Company’s fiscal year ends on the Saturday closest to the end of January. Additional www.reitmanscanadalimited.com or on the SEDAR website at www.sedar.com. information about Reitmans is available on the Company’s website at COVID-19 The COVID-19 pandemic had significant impacts on the Company’s results. During fiscal 2021, all of the Company’s stores were closed for 55 consecutive days from the start of the “first wave” of governmental lockdowns. During the second quarter of 2021, the Company had a phased reopening of its stores and by the end of June 2020, all of the Company’s stores were open for business. During the fourth quarter of 2021, as the number of COVID-19 cases increased and government-imposed restrictions became effective, temporary store closures grew to approximately 62% (at its highest point) of the Company’s total retail store network. At the beginning of fiscal 2022, the Company had 240 out of its 415 stores (58% of its store network) closed as a consequence of governmental lockdown directives. This partial lockdown of the Company’s retail store network continued into the first quarter of 2022. Even though restrictions were relaxed and some stores reopened, in April 2021 a “third wave” resulting in increased COVID-19 cases required some further governmental lockdowns. By the end of June 2021, all temporarily closed stores had reopened. However, a “fourth and fifth wave” of COVID-19 variant cases resulted in most provincial authorities imposing store capacity restrictions during a portion of the fourth quarter of 2022. As at January 29, 2022, while all of the company’s stores were open, store capacity restrictions were still in effect by most provincial authorities. During partial or full lockdowns, the Company continued to fulfill e-commerce orders though sales were not sufficient to offset the lost sales due to the closures. In June 2021, the Company implemented its buy online pick up in store (“BOPIS”) initiative to enhance its customers’ omnichannel experience and reduce freight costs on fulfilling e-commerce orders. Since BOPIS only 2 started in June 2021, the impact on the Company’s operating results for the fourth quarter of 2022 and fiscal 2022 was minimal in relation to freight costs. During fiscal 2022, the Company’s measures to protect its financial situation continued to include furloughing retail sales associates during temporary store closures and obtaining financial assistance from federal programs, such as the Canada Emergency Wage Subsidy (“CEWS”), the Canada Emergency Rent Subsidy program (“CERS”) and the Tourism and Hospitality Recovery Program (“THRP”), under which the subsidies were consolidated starting from October 24, 2021. Such measures and financial assistance mitigated the financial impact of COVID-19 on the Company’s business. The extent to which COVID-19 and its variants will continue to impact the Company’s business, including its supply chain, consumer shopping behavior and consumer demand, including online shopping, will depend on future developments, which are highly uncertain and cannot be predicted at this time. These future developments include emergence of new variants of COVID-19 resulting in a resurgence of positive COVID-19 cases, vaccination rates amongst the Canadian population and other measures taken by various government authorities to contain the virus and its variants spread for potential future waves as well as future customer shopping behavior including online sales. As the Company navigates through the challenges caused by COVID-19 and its variants, its focus is to adapt to customers’ changing product preferences, closely monitor its cash position and control its spending, while managing its inventory levels in line with the change in demand behavior since COVID-19 started. Current financial information may not necessarily be indicative of future operating results. Other Key Company Updates During fiscal 2021, specifically on May 19, 2020, the Company obtained an initial order (the “Order”) from the Superior Court of Québec (the “Court”) to seek protection from creditors under the Companies' Creditors Arrangement Act (the "CCAA") and Ernst & Young Inc. was appointed as the Monitor. The CCAA process allowed the Company to implement an operational and commercial restructuring plan which included the closure of the Thyme Maternity and Addition Elle banners (see section entitled “Discontinued Operations”). In August 2020, the Company had secured interim financing (“DIP Loan”) up to a maximum amount of $60.0 million, including facilities available for securing letters of credit of up to $5.0 million, with a Canadian financial institution. On May 25, 2021, the Company obtained the Court’s approval to reduce the DIP Loan facility from $60.0 million to $30.0 million. On November 26, 2021, the Company obtained authorization from the Court to file its Plan of Arrangement (“the Plan”) under CCAA. On December 21, 2021, the Company obtained approval of the Plan from its creditors and on January 4, 2022, the Company obtained a sanction order from the Court of its Plan. On January 12, 2022, in accordance with the Plan, the Company paid the Monitor the aggregate amount of $95.0 million in full and final settlement of all claims from its creditors affected by the Plan, and emerged from the CCAA proceedings. Concurrently, the Company secured a senior secured asset-based revolving facility with a Canadian financial institution of up to $115.0 million (or its U.S. dollar equivalent), which matures on January 12, 2025. Up to $35.0 million (or its U.S. dollar equivalent) of the $115.0 million facility can be withdrawn through secured letters of credit. See Note 13 of the audited consolidated financial statements for fiscal 2022. Discontinued Operations During fiscal 2021, as part of its restructuring plan, the Company closed the Thyme Maternity and Addition Elle banners which resulted in the termination of approximately 1,600 employees in its retail locations and head office and, as a result, these results and cash flows have been classified as discontinued operations. Discontinued operations are excluded from the net earnings (loss) from continuing operations and are presented as earnings (loss) from discontinued operations, net of tax, as 3 a separate line item in the consolidated statements of earnings (loss). See notes 4 and 16 of the audited consolidated financial statements for fiscal 2022. FORWARD-LOOKING STATEMENTS All of the statements contained herein, other than statements of fact that are independently verifiable at the date hereof, are forward-looking statements. Such statements, based as they are on the current expectations of management, inherently involve numerous risks and uncertainties, known and unknown, many of which are beyond the Company’s control, including statements regarding the impact of COVID-19 on the Company’s business, financial position and operations, and are based on several assumptions which give rise to the possibility that actual results could differ materially from the Company’s expectations expressed in or implied by such forward-looking statements and that the objectives, plans, strategic priorities and business outlook may not be achieved. Consequently, the Company cannot guarantee that any forward-looking statement will materialize, or if any of them do, what benefits the Company will derive from them. Forward-looking statements are provided in this MD&A for the purpose of giving information about management’s current expectations and plans as of the date of this MD&A, and allowing investors and others to get a better understanding of the Company’s operating environment. However, readers are cautioned that it may not be appropriate to use such forward-looking statements for any other purpose. Forward-looking statements are based upon the Company’s current estimates, beliefs and assumptions, which are based on management’s perception of historical trends, current conditions and currently expected future developments, as well as other factors it believes, are appropriate in the circumstances. This MD&A contains forward-looking statements about the Company’s objectives, plans, goals, expectations, aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects, opportunities and legal and regulatory matters. Specific forward-looking statements in this MD&A include, but are not limited to, statements with respect to the Company’s belief in its strategies and its brands and their capacity to generate long-term profitable growth, future liquidity, planned capital expenditures, amount of pension plan contributions, status and impact of systems implementation, the ability of the Company to successfully implement its strategic initiatives and cost reduction and productivity improvement initiatives as well as the impact of such initiatives. These specific forward-looking statements are contained throughout this MD&A including those listed in the “Operating Risk Management” and “Financial Risk Management” sections of this MD&A. Forward-looking statements are typically identified by words such as “expect”, “anticipate”, “believe”, “foresee”, “could”, “estimate”, “goal”, “intend”, “plan”, “seek”, “strive”, “will”, “may” and “should” and similar expressions, as they relate to the Company and its management. Numerous risks and uncertainties could cause the Company’s actual results to differ materially from those expressed, implied or projected in the forward-looking statements, including: • foreign currency fluctuations, including high levels of volatility of the Canadian dollar in relation to the US dollar; • changes in economic conditions, including economic recession or changes in the rate of inflation or deflation, employment rates, interest rates, currency exchange rates or derivative prices; • significant economic disruptions caused by global health risks (such as COVID-19) that influence sanitary measures (such as confinement and store closures), consumer demand and hamper the ability to get merchandise on a timely basis; • changes in product costs and disruption of the Company’s supply chain; • heightened competition, whether from current competitors or new entrants to the marketplace; • the changing consumer preferences toward e-commerce, online retailing and the introduction of new technologies; • seasonality and weather; 4 • • • • the inability of the Company’s information technology (“IT”) infrastructure to support the requirements of the Company’s business, or the occurrence of any internal or external security breaches, denial of service attacks, viruses, worms and other known or unknown cyber security or data breaches; failure to realize benefits from investments in the Company’s new IT systems; the inability of the Company to manage inventory to minimize the impact of obsolete or excess inventory and to control shrinkage; failure to realize anticipated results, including revenue growth, anticipated cost savings or operating efficiencies associated with the Company’s major initiatives, including those from restructuring; and • changes in the Company’s income, capital, property and other tax and regulatory liabilities, including changes in tax laws, regulations or future assessments. This is not an exhaustive list of the factors that may affect the Company’s forward-looking statements. Other risks and uncertainties not presently known to the Company or that the Company presently believes are not material could also cause actual results or events to differ materially from those expressed in its forward-looking statements. Additional risks and uncertainties are discussed in the Company’s materials filed with the Canadian securities regulatory authorities from time to time. The reader should not place undue reliance on any forward-looking statements included herein. These statements speak only as of the date made and the Company is under no obligation and disavows any intention to update or revise such statements as a result of any event, circumstances or otherwise, except to the extent required under applicable securities law. NON-GAAP FINANCIAL MEASURES & SUPPLEMENTARY FINANCIAL MEASURES This MD&A makes reference to certain non-IFRS measures. These measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS. They are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for the Company’s analysis of its financial information reported under IFRS. FINANCIAL MEASURES This MD&A discusses adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) and is considered a non-GAAP financial measure. This MD&A also indicates Adjusted EBITDA as a percentage of sales and is considered a non-GAAP financial ratio. Adjusted EBITDA is defined as net earnings (loss) before income tax expense/recovery, interest income, interest expense, depreciation, amortization, impairment of non-financial assets, restructuring costs and recoveries and gain on settlement of liabilities subject to compromise. With the classification of the Addition Elle and Thyme Maternity businesses as discontinued operations, Adjusted EBITDA is presented excluding discontinued operations. The intent of Adjusted EBITDA is to provide additional useful information to investors and analysts. Management believes that Adjusted EBITDA is an important indicator of the Company’s ability to generate liquidity through operating cash flow to fund working capital needs and fund capital expenditures and uses the metric for this purpose. Management believes that Adjusted EBITDA as a percentage of sales indicates how much liquidity is generated for each dollar of sales. The exclusion of interest income and expenses eliminate the impact on earnings derived from non-operational activities. The exclusion of depreciation, amortization and impairment charges eliminates the non-cash impact, and the exclusion of 5 restructuring items, gain on settlement of liabilities subject to compromise and discontinued operations presents the results of the on-going business. The following table reconciles net earnings (loss) from continuing operations to Adjusted EBITDA from continuing operations: Net earnings (loss) from continuing operations Depreciation and amortization Impairment of non-financial assets Interest income Interest expense on lease liabilities Income tax (recovery) expense Restructuring Gain on settlement of liabilities subject to compromise Adjusted EBITDA from continuing operations Adjusted EBITDA from continuing operations as % of Sales For the fourth quarter of For fiscal 2022 2021 2022 2021 $ 97.2 11.3 2.2 (0.1) 1.0 - 0.5 $ (10.9) 14.0 3.4 (0.1) 1.4 (0.5) (4.5)2 (88.6) - $ 143.2 47.6 1.6 (0.4) 4.0 (0.4) (12.2) (88.6) $ (100.0) 64.01 16.5 (0.4) 5.7 0.2 20.62 - $ 23.5 $ 2.8 $ 94.8 $ 6.6 12.4% 1.9% 14.3% 1.2% 1 Depreciation and amortization has been increased by $11.5 million with a corresponding decrease to selling, distribution and administrative expenses for fiscal 2021 to properly record depreciation and amortization expense for continuing operations. See Notes 4, 8, 9 and 10 of the audited consolidated financial statements for fiscal 2022. 2 In order to conform to the fiscal 2022 presentation, comparative figures have been decreased by $3.7 million for the fourth quarter of 2021 and decreased by $5.9 million for fiscal 2021 due to a reclassification of rent and occupancy costs recovered on lease re- negotiations to restructuring costs (gains), net. See Note 16 of the audited consolidated financial statements for fiscal 2022. SUPPLEMENTARY FINANCIAL MEASURES The Company uses a key performance indicator (“KPI”), comparable sales, to assess store performance and sales growth. The Company engages in an omnichannel approach in connecting with its customers by appealing to their shopping habits through either online or store channels. This approach allows customers to shop online for home delivery or to pick up in store, purchase in any of our store locations or ship to home from another store when the products are unavailable in a particular store. Due to customer cross-channel behavior, the Company reports a single comparable sales metric, inclusive of store and e-commerce channels. Comparable sales are defined as sales generated by stores that have been continuously open during both of the periods being compared and include e-commerce sales. The comparable sales metric compares the same calendar days for each period. Although this KPI is expressed as a ratio, it is a supplementary financial measure that does not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures used by other companies. Management uses comparable sales in evaluating the performance of stores and online sales and considers it useful in helping to determine what portion of new sales has come from sales growth and what portion can be attributed to the opening of new stores. Comparable sales is a measure widely used amongst retailers and is considered useful information for both investors and analysts. Comparable sales should not be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS. As highlighted in the section entitled “COVID-19”, at various times throughout fiscal 2022, the Company was required to temporary close some of its retail stores as a consequence of governmental lockdown directives. Due to the unprecedented nature of COVID-19 and its significant impact on consumers and our ability to service our customers, management believes that comparable sales are not currently representative of the underlying trends of our business and 6 consequently would not provide a meaningful metric in comparisons of year-over-year sales results. Accordingly, this MD&A does not include a discussion of the Company’s comparable sales in respect of the fourth quarter of and fiscal 2022. Management will continue to monitor and evaluate the effects of COVID-19 and will resume the evaluation of comparable sales when year-over-year results are more representative. OVERVIEW The Company has a single reportable segment that derives its revenue primarily from the sale of women’s apparel to consumers through its retail banners. The Company’s stores are primarily located in malls and retail power centres across Canada while also offering e-commerce website shopping for all of its banners. The online channels provide customers convenience, selection and ease of purchase, while enhancing customer loyalty and continuing to build the brands. The Company currently operates under the following banners: The Reitmans banner, operating stores averaging 4,700 sq. ft., is one of Canada’s largest women’s apparel specialty chains and a leading fashion brand. Reitmans has developed strong customer loyalty through superior service, insightful marketing and quality merchandise. Penningtons is a leader in the Canadian plus-size market, offering trend-right styles and affordable quality for plus-size fashion sizes 12–32. Penningtons operates stores averaging 6,000 sq. ft. in power centres across Canada. RW&CO. operates stores averaging 4,500 sq. ft. in premium locations in major shopping malls, catering to a customer with an urban mindset by offering fashions for men and women. RETAIL BANNERS Number of stores at January 30, 2021 2 Q s g n i s o C l 3 Q Reitmans Penningtons RW&CO. Total stores from continuing operations 245 92 78 415 (3) (1) - (4) i s g n n e p O - 3 1 4 3 Q s g n i s o C l - (1) (1) (2) 4 Q i s g n n e p O - 1 - 1 4 Q s g n i s o C l Number of stores at January 29, 2022 (5) (4) (1) (10) 237 90 77 404 Individual store closings take place for a variety of reasons as the viability of each store and its location is constantly monitored and assessed for continuing profitability. In most cases when a store is closed, merchandise at that location is sold off in the normal course of business and any unsold merchandise remaining at the closing date is generally transferred to other stores operating under the same banner for sale in the normal course of business. 7 THREE-YEAR REVIEW OF SELECTED FINANCIAL INFORMATION Fiscal 2022 Fiscal 2021 Fiscal 2020 Total stores at end of fiscal year Sales Gross profit Earnings (loss) before income taxes Net earnings (loss) from continuing operations Earnings (loss) from discontinued operations, net of tax Net earnings (loss) Earnings (loss) per share Basic Diluted Earnings (loss) per share, continuing operations Basic Diluted Total assets Total non-current liabilities Dividends per share 404 $ 662.0 353.2 142.8 143.2 15.0 158.2 3.24 3.24 2.93 2.93 314.3 31.4 - $ 415 $ 533.4 246.3 (99.8) (100.0) (72.2) (172.2) (3.52) (3.52) (2.05) (2.05) 397.2 91.0 - $ 451 $ 705.5 363.9 (49.3) (73.2) (14.3) (87.5) (1.56) (1.56) (1.31) (1.31) 560.2 176.5 $ 0.15 The Canadian retail marketplace reflects consumers shopping behaviours that include traditional in- store purchases and online shopping. The Company’s omnichannel strategy includes investing in both store locations and e-commerce. While most of the Company’s capital investments were focused on traditional store locations during fiscal 2022, the Company has invested in the past and will continue to invest in improvements in e-commerce fulfillment and technology to enhance the customers’ online and in-store experiences. The Company is well positioned in an omnichannel shopping environment with a store portfolio that is located in highly desirable major malls and power centres across Canada and a compelling e-commerce offering. On January 26, 2022, the Company announced that it will be launching its on-line marketplace in the Fall of 2022 with third party sellers offering an expanded and curated product array. The value of the Canadian dollar vis-à-vis the U.S. dollar is a significant factor that can impact profitability of the retail operations. A focus on improved sourcing practices and reducing costs, while maintaining a value proposition for customers, along with managing exchange market risks through U.S. dollar foreign exchange forward contract purchases allows the Company to mitigate any negative impact. As described under the section entitled “Foreign Exchange Contracts”, early in fiscal 2021, the Company temporarily paused its hedging program due to the uncertainties surrounding future inventory purchase commitments as a result of COVID-19 and the restructuring plan under the now finalized CCAA proceedings. As at January 29, 2022, the Company’s hedging program remained temporarily paused. Sales In fiscal 2020, the reduction in sales was primarily due to lower sales performance in the Company’s plus-size banner and the reduced number of stores. Strategic brand initiatives in the plus-size banner implemented early in fiscal 2020 failed to resonate with their customer base, negatively affecting sales. Although a variety of corrective measures were implemented, the implementation of these corrective strategies occurred late in fiscal 2020 and did not have a positive impact for fiscal 2020. In the first half 8 of fiscal 2020, the Company completed the deployment of its ship from store initiative across all banners, enhancing the availability of inventory across all channels. In fiscal 2021, the reduction in sales was primarily due to the COVID-19 outbreak as temporary lockdown measures were implemented by governmental health authorities and the reduced number of stores. Government mandated temporary closures of the Company’s entire store network occurred from mid-March 2020 with stores fully reopened by the end of June 2020. Shopping behaviour however did not return to pre-pandemic levels. Further governmental measures to mitigate the spread of the virus in certain affected areas resulted in a majority of the Company’s stores being temporarily closed during the fourth quarter of 2021 (see section entitled “COVID-19”). In fiscal 2021, the reduction in the Company’s store sales was partially offset by an increase in e-commerce sales as consumers shifted to online shopping habits. The Company’s prior investments in its omnichannel strategy, including its ship from store capabilities, were a major contributor in its ability to handle the increase in e-commerce orders. In fiscal 2022, the increase in sales was primarily due to the Company’s store network operating capacity being closed for far fewer total number of days while under partial lockdowns for fiscal 2022 as compared to a phased store re-opening from full and partial lockdowns for fiscal 2021, resulting in an increase in store traffic and number of transactions, with customers transitioning back to a “brick and mortar” shopping experience and an increase in the Company’s e-commerce sales. Gross Profit Overall, the Company’s gross profit and net earnings over the past three fiscal years have been significantly impacted by the value of the Canadian dollar in relation to the U.S. dollar. During fiscal 2022, the strengthening of the Canadian dollar has resulted in lower merchandise costs, whereas, during fiscal 2021, the weakening of the Canadian dollar had resulted in higher merchandise costs, as virtually all merchandise payments are settled in U.S. dollars. In fiscal 2020, the Company’s gross profit declined primarily due to lower sales and higher promotional activity in the Company’s plus- size banner despite a positive foreign exchange impact on U.S. dollar denominated purchases included in cost of goods sold. In fiscal 2021, the Company’s gross profit declined primarily due to lower sales and higher promotional activity as a result of the unprecedented negative impact from the COVID-19 pandemic, as well as a negative foreign exchange impact on U.S. dollar denominated purchases included in cost of goods sold. In fiscal 2022, in addition to the favorable impact of a stronger Canadian dollar, the Company’s gross profit increased due to higher sales and lower promotional activity. This was partially offset by higher merchandise freight costs as the global shipping industry disruption required an increased usage of air freight shipments to meet customer demand. Summary As at January 29, 2022, the Company had emerged from CCAA proceedings, secured a credit facility of up to $115.0 million and settled all its claims with creditors affected by the Plan of Arrangement. As at the end of fiscal 2022, the Company had a positive working capital position as compared to a negative working capital position at the end of fiscal 2021, as current assets were $194.7 million (January 30, 2021 - $214.1 million) and current liabilities were $99.0 million (January 30, 2021 - $284.5 million including liabilities subject to compromise of $204.1 million) and no long-term debt (other than lease liabilities). As at January 29, 2022, included in the Company’s current assets is cash of $25.5 million (January 30, 2021 - $75.2 million). As at the end of fiscal 2022, inventory levels were higher as compared to the end of fiscal 2021 due primarily to the having more stores in operation compared to the end of fiscal 2021 where 240 stores of the Company’s store network were temporarily closed due to governmental lockdown directives, and in fiscal 2022, the Company accelerated merchandise deliveries to mitigate global shipping industry disruptions. 9 As at the end of fiscal 2021, inventory levels were higher as compared to the end of fiscal 2020 due in part to the Company’s restructuring plan to optimize its retail footprint through a reduction in the number of its stores and from the closures of the Addition Elle and Thyme Maternity banners (see section entitled “Discontinued Operations”). The Company managed its capital expenditures, which were $23.5 million in fiscal 2020, $6.2 million in fiscal 2021 and $15.2 million in fiscal 2022. During fiscal 2021, the Company cancelled or delayed significant investments in capital expenditures due to impact of the COVID-19 pandemic outbreak, whereas the Company increased its capital spending in fiscal 2022 mostly on store locations. Capital expenditures over the past three fiscal periods are primarily investments related to existing store renovations and new store builds and digital technology improvements. OPERATING RESULTS FOR FISCAL 2022 COMPARED TO FISCAL 2021 Fiscal 2022 Fiscal 2021 $ Change % Change Sales $ Cost of goods sold Gross profit Gross profit % Selling, distribution and administrative expenses1 Gain on settlement of liabilities subject to compromise Results from operating activities Net finance (costs) income Earnings (loss) before income taxes Income tax (recovery) expense Net earnings (loss) from continuing operations Earnings (loss) from discontinued operations, net of tax Net earnings (loss) $ 662.0 308.9 353.1 53.3% 298.6 (88.6) 143.1 (0.3) 142.8 (0.4) 143.2 15.0 158.2 $ 533.4 287.1 246.3 46.2% $ 128.6 21.8 106.8 24.1% 7.6% 43.4% 354.3 (55.7) (15.7)% - (108.0) 8.2 (99.8) 0.2 (100.0) (72.2) (172.2) $ $ (88.6) 251.1 (8.5) 242.6 (0.6) 243.2 87.2 330.4 Adjusted EBITDA from continuing operations2 Earnings (loss) per share: Basic Diluted Earnings (loss) per share, continuing operations: Basic Diluted $ 94.8 $ 6.6 $ 88.2 $ 3.24 3.24 $ (3.52) (3.52) $ 6.76 6.76 $ 2.93 2.93 $ (2.05) (2.05) $ 4.98 4.98 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1 Includes an impairment of non-financial assets of $1.6 million and restructuring gains of $12.2 million for fiscal 2022 (an impairment charge of non-financial assets and restructuring costs of $16.5 million and $20.6 million, respectively, for fiscal 2021). 2 This is a Non-GAAP Financial Measure. See section entitled “Non-GAAP Financial Measures and Supplementary Financial Measures” for reconciliations to Net earnings (loss) from continuing operations and for an explanation of changes to the comparative figure. 10 Sales Sales for fiscal 2022 increased by $128.6 million, or 24.1%, to $662.0 million as compared with $533.4 million for fiscal 2021, primarily due to the Company’s store network operating capacity being closed for far fewer total number of days while under partial lockdowns for fiscal 2022 as compared to a phased store re-opening from full and partial lockdowns for fiscal 2021, resulting in an increase in store traffic and number of transactions, with customers transitioning back to a “brick and mortar” shopping experience and an increase in the Company’s e-commerce sales. Gross Profit Gross profit for fiscal 2022 increased $106.8 million, or 43.4%, to $353.1 million as compared with $246.3 million for fiscal 2021. Gross profit as a percentage of sales for fiscal 2022 increased to 53.3% from 46.2% for fiscal 2021. The increase both in gross profit and as a percentage of sales is primarily attributable to lower markdowns and promotional activity in fiscal 2022 combined with a favourable foreign exchange impact on U.S. dollar denominated purchases included in cost of goods sold, partially offset by higher merchandise freight costs as the global shipping industry disruption required an increased usage of air freight shipments to meet customer demand. Selling, Distribution and Administrative Expenses Total selling, distribution and administrative expenses of $298.6 million for fiscal 2022 decreased by $55.7 million or 15.7% as compared to fiscal 2021, while sales have increased 24.1%. The decrease in these expenses is primarily attributable to the following: • a decrease of $32.8 million in restructuring costs due primarily to the $20.6 million restructuring charge incurred for fiscal 2021 compared to a restructuring costs recovery of $12.2 million realized for fiscal 2022 mainly from favourable rent related retroactive adjustments totalling $10.5 million resulting from the finalization of the lease re-negotiations of certain of the Company’s stores locations, $6.7 million of gains from lease re-measurements and an adjustment of $4.3 million to the provision for disclaimed leases reflecting the most recent settlement with landlords under the Court approved Plan of Arrangement, net of professional and other restructuring fees (see Note 16 of the audited consolidated financial statements for the year ended fiscal 2022); • a $16.4 million decrease in depreciation and amortization due primarily to the decrease in the number of stores and related right-of-use assets and the reduction of investments in property and equipment and intangible assets since the outbreak of the pandemic; • a $14.9 million decrease in impairment of non-financial assets given the Company’s re- assessment of anticipated profitability of individual retail store locations; • a $2.4 million decrease in overall freight costs incurred due primarily to a $1.9 million non- recurring volume rebate received from a local transport supplier and a $0.5 million decrease in overall freight costs as the fulfillment of e-commerce orders during fiscal 2022 decreased; • decreased store expenses due primarily to improved lease arrangements from lease re- negotiations and fewer number of stores, partially offset by an increase in store personnel wages and higher digital media advertising spend; partially offset by, • a $12.7 million decrease in total combined financial support from the CEWS, the CERS and the THRP programs which has been recognized as a reduction of selling, distribution and administrative expenses; • a $2.1 million discretionary compensation bonus to the Company’s head office employees in recognition of their efforts to emerge from the CCAA proceedings. 11 Gain on Settlement of Liabilities Subject to Compromise As a result of the Company’s emergence from the CCAA proceedings and the settlement of all claims, the Company recognized a gain on settlement of liabilities subject to compromise of $88.6 million. See Note 16 of the audited consolidated financial statements for fiscal 2022. Net Finance Income (Costs) Net finance costs were $0.3 million for fiscal 2022 as compared to net finance income of $8.2 million for fiscal 2021. This change of $8.5 million is primarily attributable to the following: • a decrease of $10.2 million in foreign exchange gain, largely attributable to a $ 9.7 million gain realized in fiscal 2021 on the maturity and disposal of foreign exchange forward contracts that were no longer being designated as cash flow hedges and to the foreign exchange impact on U.S. denominated monetary assets and liabilities; partially offset by, • a decrease of $1.7 million in interest expense on lease liabilities as a result of the Company’s negotiations and the resulting changes to lease arrangements (i.e., fixed to variable lease) with some landlords. Income Taxes The income tax recovery of $0.4 million for fiscal 2022 is mainly comprised of adjustments in respect of prior year periods net of the estimated tax expense related to the operations of a foreign subsidiary. The tax expense for fiscal 2021 of $0.2 million was comprised of the deferred income tax impact related to the reclassification of the accumulated unrealized gain associated with forward contracts from tax expense in other comprehensive income to net earnings and estimated taxes related to a foreign subsidiary. Unrecognized deferred tax assets were utilized to eliminate taxable income of the Company’s Canadian operations. As a result of the uncertainties related to the Company’s ability to generate future profitable operations and management’s assessment that it is not probable that future taxable profits will be available, the Company has not recognized deferred tax assets on all temporary differences and operating losses carried forward relating to its Canadian based operations. Net Earnings (Loss) from Continuing Operations Net earnings from continuing operations for fiscal 2022 was $143.2 million ($2.93 basic and diluted earnings per share) as compared with a $100.0 million net loss ($2.05 basic and diluted loss per share) for fiscal 2021. The increase in net earnings from continuing operations of $243.2 million is primarily attributable to a recovery of restructuring costs, the gain realized on settlement of liabilities subject to compromise, the increase in gross profit, a decrease in overall operating costs and an increase in tax recovery, partially offset by an increase in net finance costs, as noted above. Adjusted EBITDA from Continuing Operations Adjusted EBITDA from continuing operations for fiscal 2022 was $94.8 million as compared to $6.6 million for fiscal 2021. The increase of $88.2 million is primarily attributable to the increase of $106.8 million in gross profit, partially offset by an increase in operating costs (excluding restructuring costs, depreciation, amortization and impairment of non-financial assets) of $8.4 million and a decrease of $10.2 million in foreign exchange gain, as noted above. 12 Net Earnings (Loss) from Discontinued Operations As highlighted in the section entitled “Discontinued Operations”, the Company, as part of its restructuring plan, closed the Thyme Maternity and Addition Elle banners in the year ended January 30, 2021. The financial information presented within discontinued operations is directly attributable to both banners. All administrative expenses and various selling and distribution expenses from shared, centralized and common functions of the Company are excluded from the determination of net earnings (loss) from discontinued operations. Net earnings from discontinued operations for fiscal 2022 was $15.0 million as compared to a net loss from discontinued operations of $72.2 million for fiscal 2021. As the discontinued banners were no longer in operation during fiscal 2022, the net earnings of $15.0 million was due to an adjustment to the provision for disclaimed leases reflecting the most recent settlement discussions with certain landlords and the total liabilities subject to compromise under the Plan of Arrangement. Further financial information can be found in Notes 4 and 16 of the audited consolidated financial statements as at and for the year ended fiscal 2022. 13 OPERATING RESULTS FOR THE FOURTH QUARTER OF 2022 COMPARED TO THE FOURTH QUARTER OF 2021 Fourth Quarter of 2022 Fourth Quarter of 20211 $ Change % Change Sales $ Cost of goods sold Gross profit Gross profit % Selling, distribution and administrative expenses1 Gain on settlement of liabilities subject to compromise Results from operating activities Net finance income Earnings (loss) before income taxes Income tax recovery Net earnings (loss) from continuing operations Earnings from discontinued operations, net of tax Net earnings (loss) $ 190.2 94.0 96.2 50.6% $ 144.7 79.8 64.9 44.9% $ 45.5 14.2 31.3 31.4% 17.8% 48.2% 12.0 15.6% 88.7 (88.6) 96.1 1.1 97.2 (0.0) 97.2 - 97.2 76.7 - (11.8) 0.4 (11.4) (0.5) (10.9) - (10.9) $ (88.6) 107.9 0.7 108.6 0.5 108.1 - 108.1 $ Adjusted EBITDA from continuing operations2 Earnings (loss) per share: Basic Diluted Earnings (loss) per share, continuing operations: Basic Diluted $ 23.5 $ 2.8 $ 20.7 $ 1.99 1.99 $ (0.22) (0.22) $ 2.21 2.21 $ 1.99 1.99 $ (0.22) (0.22) $ 2.21 2.21 1 Includes an impairment charge of non-financial assets of $2.2 million and restructuring costs of $0.5 million for the fourth quarter of 2022 (an impairment charge of non-financial assets of $3.4 million and a reversal of restructuring costs of $4.5 million for the fourth quarter of 2021). 2 This is a Non-GAAP Financial Measure. See section entitled “Non-GAAP Financial Measures and Supplementary Financial Measures” for reconciliations to Net earnings(loss) from continuing operations and for an explanation of changes to the comparative figure. Sales Sales for the fourth quarter of 2022 increased by $45.5 million, or 31.4%, to $190.2 million as compared with $144.7 million for the fourth quarter of 2021, primarily due to an increase in store traffic and number of transactions as a fewer number of the Company’s retail stores operated under government imposed store capacity restrictions during a portion of the fourth quarter of 2022 as compared to a larger number of the Company’ s retail stores being closed under partial lockdowns during the fourth quarter of 2021. Gross Profit Gross profit for the fourth quarter of 2022 increased $31.3 million, or 48.2%, to $96.2 million as compared with $64.9 million for the fourth quarter of 2021. Gross profit as a percentage of sales for the fourth quarter of 2022 increased to 50.6% from 44.9% for the fourth quarter of 2021. The increase both in gross profit and as a percentage of sales is primarily attributable to lower markdowns and promotional activity in the fourth quarter of 2022 combined with a favourable foreign exchange n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 14 impact on U.S. dollar denominated purchases included in cost of goods sold, partially offset by higher merchandise freight costs as the global shipping industry disruption required an increased usage of air freight shipments to meet customer demand. Selling, Distribution and Administrative Expenses Total selling, distribution and administrative expenses of $88.7 million for the fourth quarter of 2022 increased by $12.0 million or 15.6%, as compared to the fourth quarter of 2021, which is primarily attributable to the following: • increased store operating costs due primarily to an increase in store personnel wages and higher digital media advertising spend, partially offset by improved lease arrangements from lease re- negotiations and fewer number of stores; • a $4.5 million decrease in total combined financial support from the CEWS, the CERS and the THRP programs which has been recognized as a reduction of selling, distribution and administrative expenses; • a $5.0 million increase in restructuring costs due primarily to the $0.5 million restructuring charge incurred during the fourth quarter of 2022 as compared to a recovery of restructuring costs of $4.5 million realized during the fourth quarter of 2021; • a $2.1 million discretionary compensation bonus to the Company’s head office employees in recognition of their efforts to emerge out of the CCAA proceedings; partially offset by, • a $2.7 million decrease in depreciation and amortization due primarily to the decrease in the number of stores and related right-of-use assets and the reduction of investments in property and equipment and intangible assets since the outbreak of the pandemic; • a $1.2 million decrease in impairment of non-financial assets given the Company’s re- assessment of anticipated profitability of individual retail store locations. Gain on Settlement of Liabilities Subject to Compromise As a result of its emergence from the CCAA proceedings and the settlement of all claims, the Company recognized a gain on settlement of liabilities subject to compromise of $88.6 million. See Note 16 of the audited consolidated financial statements for fiscal 2022. Net Finance Income (Costs) Net finance income was $1.1 million for the fourth quarter of 2022 as compared to net finance income of $0.4 million for the fourth quarter of 2021. This change is primarily attributable to the foreign exchange impact on U.S. denominated monetary assets and liabilities and lower interest expense on lease liabilities. Income Taxes Unrecognized deferred tax assets were utilized to eliminate taxable income for the fourth quarter of 2022. As a result of the uncertainties related to the Company’s ability to generate future profitable operations and management’s assessment that it is not probable that future taxable profits will be available, the Company has not recognized deferred tax assets on all temporary differences and operating losses carried forward relating to its Canadian based operations. The income tax recovery of $0.5 million for the fourth quarter of 2021 includes the impact of the estimated taxes related to a foreign subsidiary. 15 Net Earnings (Loss) from Continuing Operations Net earnings from continuing operations for the fourth quarter of 2022 was $97.2 million ($1.99 basic and diluted earnings per share) as compared with a $10.9 million net loss from continuing operations ($0.22 basic and diluted loss per share) for the fourth quarter of 2021. The increase in net earnings from continuing operations of $108.1 million is primarily attributable to the gain realized on settlement of liabilities subject to compromise, the increase in gross profit, an increase in net finance income, partially offset by an increase in overall operating costs and a decrease in income tax recovery, as noted above. Adjusted EBITDA from Continuing Operations Adjusted EBITDA from continuing operations for the fourth quarter of 2022 was $23.5 million as compared with $2.8 million for the fourth quarter of 2021. The increase of $20.7 million is primarily attributable to the increase of $31.3 million in gross profit and an increase of $0.3 million in foreign exchange gain on U.S. denominated monetary assets and liabilities, partially offset by an increase in operating costs (excluding restructuring costs, depreciation, amortization and impairment of non- financial assets) of $10.9 million as noted above. Net Earnings (Loss) from Discontinued Operations As highlighted in the section entitled “Discontinued Operations”, the Company, as part of its restructuring plan, closed the Thyme Maternity and Addition Elle banners in the year ended January 30, 2021. The discontinued banners were not in operation during the fourth quarter of 2022 or the fourth quarter of 2021. FOREIGN EXCHANGE CONTRACTS The Company imports a majority of its merchandise purchases from foreign vendors, with lead times in some cases extending twelve months. The Company had entered into foreign exchange forward contracts to hedge a significant portion of its exposure to fluctuations in the value of the U.S. dollar. Early in fiscal 2021, the Company temporarily paused its hedging program due to the uncertainties surrounding future inventory purchase commitments as a result of COVID-19 and the restructuring plan under the now finalized CCAA proceedings. As at January 29, 2022, the Company’s hedging program remained temporarily paused. Consequently, no foreign exchange contracts were outstanding as at January 29, 2022 and January 30, 2021. 16 SUMMARY OF QUARTERLY RESULTS The results of operations for any quarter are not necessarily indicative of the results of operations for the fiscal year. The table below presents selected consolidated financial data for the eight most recently completed quarters. All references to “2022” are to the Company’s fiscal year ended January 29, 2022 and “2021” are to the Company’s fiscal year ended January 30, 2021. Sales $ 190.2 $ 144.7 $ 178.2 $ 163.4 $ 172.3 $ 144.0 $ 121.3 $ 81.3 Fourth Quarter 2021 2022 Third Quarter 2022 2021 Second Quarter 2021 2022 First Quarter 2022 20211 Net earnings (loss) from continuing operations Earnings (loss) from discontinued operations, net of tax 97.2 (10.9) 22.0 (14.9) 23.9 (27.4) (0.0) (46.7) - - 4.8 0.4 10.2 (44.6) - (28.0) Net earnings (loss) 97.22 (10.9)2 26.8 3 (14.5) 3 34.1 4 (72.0) 4 (0.0)5 (74.7)5 Earnings (loss) per share Basic Diluted Earnings (loss) per share, continuing operations: Basic Diluted $ 1.992 1.992 $ (0.22)2 $ 0.55 3 $ (0.22)2 0.55 3 (0.30) 3 $ 0.70 4 $ (0.30) 3 0.70 4 (1.47) 4 $ (1.47) 4 (0.00)5 $ (0.00)5 (1.53)5 (1.53)5 $ 1.99 1.99 $ (0.22) (0.22) $ 0.45 0.45 $ (0.31) (0.31) $ 0.49 0.49 $ (0.56) (0.56) $ (0.00) (0.00) $ (0.96) (0.96) 1 Comparative figures have been restated to separately present continuing and discontinued operations. 2 During the fourth quarter of 2022, net earnings includes the impact of wage and rent subsidies totalling $4.7 million, gain on settlement of liabilities subject to compromise of $88.6 million, partially offset by restructuring costs of $0.5 million and $2.2 million of an impairment of non-financial assets. During the fourth quarter of 2021, net loss includes the impact of wage and rent subsidies totalling $9.1 million, restructuring costs recovery of $4.5 million, partially offset by $3.4 million of an impairment of non-financial assets. 3 During the third quarter of 2022, net earnings includes the impact of wage and rent subsidies totalling $1.6 million, restructuring costs recovery of $5.1 million and a reversal of impairment on non-financial assets of $0.1 million. During the third quarter of 2021, net loss includes the impact of an impairment of non-financial assets of $3.9 million, restructuring costs of $2.6 million, partially offset by $6.8 million of wage subsidy. 4 During the second quarter of 2022, net earnings includes the impact of wage and rent subsidies totalling $6.1 million, restructuring costs recovery of $16.1 million and a reversal of impairment on non-financial assets of $0.3 million. During the second quarter of 2021, net loss includes the impact of an impairment of non-financial assets of $3.6 million, restructuring costs of $74.2 million, partially offset by $14.8 million of wage subsidy. 5 During the first quarter of 2022, net loss includes the impact of wage and rent subsidies totalling $10.3 million, restructuring costs recovery of $6.6 million and a reversal of impairment on non-financial assets of $0.2 million. During the first quarter of 2021, net loss includes the impact of an impairment of non-financial assets of $20.3 million, additional provision for valuation of inventory of $18.3 million partially offset by $11.6 million of a net unrealized foreign exchange gain on reclassification of foreign contracts and $6.6 million of wage subsidy. 17 BALANCE SHEET Selected line items from the Company’s balance sheets as at January 29, 2022 and January 30, 2021 are presented below: Cash1 Trade and other receivables Inventories Prepaid expenses and other assets Property and equipment & intangible assets Right-of-use assets Pension asset (liability) Revolving credit facility Trade and other payables Deferred revenue Income taxes payable Lease liabilities (current and non-current) Liabilities subject to compromise $ 2022 25.5 7.6 119.0 42.6 71.6 45.0 0.1 29.6 34.5 13.5 0.5 52.3 - $ 2021 75.2 10.7 96.1 32.1 76.4 103.8 (3.1) - 31.5 12.5 1.2 123.2 204.1 $ Change % Change (66.1)% $ (49.7) (29.0)% (3.1) 23.8% 22.9 32.7% 10.5 (6.3)% (4.8) (56.6)% (58.8) n/a 3.2 n/a 29.6 9.5% 3.0 8.0% 1.0 (58.3)% (0.7) (57.5)% (70.9) (100.0)% (204.1) 1 Cash in fiscal 2022 and fiscal 2021 does not include restricted cash of $2.8 million. See Note 5 of the audited consolidated financial statements for fiscal 2022. Changes in selected line items from the Company’s balance sheets at January 29, 2022 as compared to January 30, 2021 were primarily due to the following: • cash decreased $49.7 million due to the $95.0 million payment made as full and final settlement of all claims affected by the Plan and higher investments made in property and equipment in fiscal 2022, partially offset by the cash generated from operations as retail locations reopened during the fiscal 2022, the financial support received from the CEWS, CERS and THRP programs and the funds obtained from the secured asset-based revolving credit facility; • • • • • trade and other receivables decreased primarily due to the timing of receipts of wage and rent subsidies and other government assistance, partially offset by higher insurance claims and credit card receivables; inventories are higher primarily due to the normal build-up for the spring selling season and having more stores in operation as compared to the end of fiscal 2021 where 240 stores were temporarily closed due to governmental lockdown directives, and in fiscal 2022, the Company accelerated merchandise deliveries to mitigate global shipping industry disruptions; the increase of $10.5 million in prepaid expenses and other assets is primarily due to required supplier deposits and prepayments, partially offset by lower prepaid insurance premiums; in fiscal 2022, $15.2 million had been spent primarily on store renovations and information technology investments at head office. Depreciation and amortization of $18.1 million and an impairment charges of $1.6 million on property and equipment and intangible assets were recognized in fiscal 2022 ($25.0 million of depreciation and amortization and $13.6 million of impairment charges were recognized in fiscal 2021); right-of-use assets represent the right-to-use the retail stores and certain equipment over their lease terms. Right-of-use assets decreased by $58.8 million, primarily due to depreciation and amortization and to lease modifications from the Company’s re-negotiations of leases that have not been disclaimed and the resulting changes to its lease arrangements (i.e. fixed to variable lease). Right-of-use assets increased by lease additions of $23.4 million in fiscal 2022. Depreciation and amortization were $29.5 million in fiscal 2022 ($43.3 million in fiscal 2021) and no impairment charges on right-of-use assets were recognized in fiscal 2022 (impairment charges of $17.7 million in fiscal 2021); 18 • pension asset increased by $3.2 million primarily due to actuarial gains arising from the remeasurement of the pension obligation based on a discount rate of 3.4% as at the end of fiscal 2022 versus 2.6% as at the end of fiscal 2021 and the return on plan assets was greater than expected during fiscal 2022. See Note 11 of the audited consolidated financial statements for fiscal 2022. • • revolving credit facility of $29.6 million consists of the amount borrowed under the secured asset- based revolving credit facility. trade and other payables increased by approximately $3.0 million primarily due to an increase in sales tax liabilities and the timing of payments of personnel related liabilities; • deferred revenue increased by $1.0 million due to an increase in gift cards issued during the fourth quarter of 2022. Deferred revenue consists of unredeemed gift cards, loyalty points and awards granted under customer loyalty programs; • • • income taxes payable consists of estimated net tax liabilities of a foreign subsidiary. The decrease of $0.7 million in income taxes payable is primarily due to payments made for prior years’ taxes by a foreign subsidiary; lease liabilities represent the present value of the Company’s obligations to make lease payments for its store and equipment leases. During fiscal 2022, lease liabilities decreased by lease payments of $38.8 million and lease modifications of $59.5 million, offset by lease additions of $23.4 million and interest expense of $4.0 million; liabilities subject to compromise consisted mainly of amounts owed to creditors (including landlords), ex-employees and beneficiaries of the Company’s Supplementary Employee Retirement Pension (“SERP”) plan under the CCAA proceedings. As at January 30, 2021, liabilities subject to compromise of $204.1 million represented the best estimate at the time of unsecured creditor claims. Throughout fiscal 2022, the Company revised the liabilities subject to compromise to $183.6 million. On January 12, 2022, the Company issued a payment of $95.0 million in accordance with the Plan as full and final settlement of all claims affected by the Plan, resulting in a gain on settlement of liabilities subject to compromise of $88.6 million. See Note 16 of the audited consolidated financial statements for fiscal 2022. OPERATING RISK MANAGEMENT Economic Environment Economic factors that influence consumer-spending patterns could deteriorate or remain unpredictable due to global, national or regional economic volatility. These factors could negatively affect the Company’s revenue and margins. Inflationary trends are unpredictable and changes in the rate of inflation or deflation will affect consumer prices, which in turn could negatively affect the financial performance of the Company. The Company closely monitors economic conditions in order to react to consumer spending habits and constraints in developing both its short-term and long-term operating decisions. 19 Competitive Environment The retail apparel business in Canada is highly competitive with competitors including department stores, specialty apparel chains and independent retailers. If the Company is ineffective in responding to consumer trends or in executing its strategic plans, its financial performance could be negatively affected. There is no effective barrier to entry into the Canadian apparel retailing marketplace by any potential competitor, foreign or domestic, as witnessed by the arrival over the past years of a number of foreign-based competitors and additional foreign retailers continuing to expand into the Canadian marketplace. Additionally, Canadian consumers have a significant number of e-commerce shopping alternatives available to them on a global basis. The Company believes that it is well positioned to compete with any competitor. The Company operates multiple banners with product offerings that are diversified as each banner is directed to and focused on a different niche in the Canadian women’s apparel market. The Company’s stores, located throughout Canada, offer affordable fashions to consumers. The Company also offers an e-commerce alternative for shoppers through each of the banner’s websites. The e-commerce retail landscape is highly competitive with both domestic and foreign competition. The Company has invested significantly in its e-commerce websites and social media to drive consumers to the websites and believes that it is positioned well to compete in this environment. Distribution and Supply Chain The Company depends on the efficient operation of its sole distribution centre, such that any significant disruption in the operation thereof (e.g. global supply chain delays, natural disaster, system failures, destruction or major damage by fire), could materially delay or impair the Company’s ability to replenish its stores on a timely, cost-efficient basis or satisfy e-commerce demand causing a loss of sales and potential dissatisfaction amongst its customers, which could have a significant effect on the results of operations. Loyalty Programs The Company’s loyalty programs are a valuable offering to customers and provide a key marketing tool for the business. The marketing, promotional and other business activities related to possible changes to the loyalty programs must be well managed and coordinated to preserve positive customer perception. Any failure to successfully manage the loyalty programs may negatively affect the Company’s reputation and financial performance. Leases All of the Company’s stores are held under leases, most of which can be renewed for additional terms at the Company’s option. Any factor that would have the effect of impeding or affecting, in a material way, the Company’s ability to lease prime locations or re-lease and/or renovate existing profitable locations, or delay the Company’s ability to close undesirable locations could adversely affect the Company’s operations. Consumer Shopping Patterns Changes in customer shopping patterns could affect sales. Many of the Company’s stores are located in enclosed shopping malls. The ability to sustain or increase the level of sales depends in part on the continued popularity of malls as shopping destinations and the ability of malls, tenants and other attractions to generate a high volume of customer traffic. Many factors that are beyond the control of the Company may decrease mall traffic, including economic downturns, closing of anchor department stores, weather, concerns of terrorist attacks, restrictions on customer capacity in stores resulting from continued COVID-19 health protocols, construction and accessibility, alternative shopping formats such as e-commerce, discount stores and lifestyle centres, among other factors. Any changes in consumer shopping patterns could adversely affect the Company’s financial condition and operating results. 20 Natural Disasters, Adverse Weather, Pandemic Outbreaks, Boycotts and Geopolitical Events The occurrence of one or more natural disasters, such as earthquakes and hurricanes, unusually adverse weather, pandemic outbreaks, boycotts and geopolitical events, such as civil unrest in countries in which suppliers are located and acts of terrorism, or similar disruptions could materially adversely affect the Company’s business and financial results. Furthermore, the impact of any such events on its business and financial results could be exacerbated if they occur during the Company’s peak selling seasons. These events could result in physical damage to one or more of the Company’s properties, increases in fuel or other energy prices, the temporary or permanent closure of its distribution centre or of one or more of its stores, delays in opening new stores, the temporary lack of an adequate workforce in a market, the temporary or long-term disruption in the supply of products from some local and overseas suppliers, the temporary disruption in the transportation of goods from overseas, delays in the delivery of goods to the distribution centre or stores, the temporary reduction in the availability of products in stores, the temporary reduction of store traffic and disruption to information systems. These factors could materially adversely affect the Company’s business and financial results. The fallout from COVID-19 continues to cause a global shipping industry disruption resulting in increased merchandise freight costs, merchandise delivery delays and the increased usage of air freight shipments. In addition, while recent government containment protocols have recently been eased, any future COVID-19 and its variants outbreaks can require governments to re-establish previously implemented containment protocols in Canada and can have an impact on consumer shopping patterns and behavior that could have further negative consequences to the Company in fiscal 2023. Information Technology The Company depends on information systems to manage its operations, including a full range of retail, financial, merchandising and inventory control, planning, forecasting, reporting and distribution systems. The Company continues to undertake investments in new IT systems to improve the operating effectiveness of the organization. Failure to successfully migrate from legacy systems to new IT systems or a significant disruption in or the hacking of the Company’s IT systems in general could result in a lack of accurate data or the inability of management to effectively manage day-to- day operations of the business or achieve its operational objectives, causing significant disruptions to the business and potential financial losses. The Company also depends on relevant and reliable information to operate its business. As the volume of data being generated and reported continues to increase across the Company, data accuracy, quality and governance are required for effective decision-making. Failure to successfully adopt or implement appropriate processes to support the new IT systems, or failure to effectively leverage or convert data from one system to another, may preclude the Company from optimizing its overall performance and could result in inefficiencies and duplication in processes, which in turn could adversely affect the reputation, operations or financial performance of the Company. Failure to realize the anticipated strategic benefits including revenue growth, anticipated cost savings or operating efficiencies associated with the new IT systems could adversely affect the reputation, operations or financial performance of the Company. Laws and Regulations The Company is structured in a manner that management considers most effective to conduct its business. The Company is subject to material and adverse changes in government regulation that might affect income and sales, taxation, duties, quota impositions or re-impositions and other legislated or government regulated matters. Changes to any of the laws, rules, regulations or policies (collectively, “laws”) applicable to the Company’s business, including income, capital, property and other taxes, and laws affecting the 21 importation, distribution, packaging and labelling of products, could have an adverse impact on the financial or operational performance of the Company. In the course of complying with such changes, the Company could incur significant costs. Changing laws or interpretations of such laws or enhanced enforcement of existing laws could restrict the Company’s operations or profitability and thereby threaten the Company’s competitive position and ability to efficiently conduct business. Failure by the Company to comply with applicable laws and orders in a timely manner could subject the Company to civil or regulatory actions or proceedings, including fines, assessments, injunctions, recalls or seizures, which in turn could negatively affect the reputation, operations and financial performance of the Company. The Company is subject to tax audits from various government and regulatory agencies on an ongoing basis. As a result, from time to time, taxing authorities may disagree with the positions and conclusions taken by the Company in its tax filings or laws could be amended or interpretations of current laws could change, any of which events could lead to reassessments. These reassessments could have a material impact on the Company’s financial position, operating results or cash flows in future periods. Merchandise Sourcing Virtually all of the Company’s merchandise is private label. On an annual basis, the Company directly imports over 90% of its merchandise, largely from Asia. In fiscal 2022, only one supplier represented over 10% of the Company’s purchases (respectively in dollars and units) and there is a variety of alternative sources (both domestic and international) for virtually all of the Company’s merchandise. The Company has good relationships with its suppliers and has no reason to believe that it is exposed to any material risk that would prevent the Company from acquiring, distributing and/or selling merchandise on an ongoing basis. In fiscal 2022, COVID-19 and its variants continued to cause disruptions in the Company’s supply chain. An unprecedented increase in containerized cargo demand and reduced vessel capacity has resulted in merchandise delivery delays, increasing merchandise freight costs and an increased usage of air freight shipments that could have negative financial consequences to the Company in fiscal 2023. The Company endeavours to be environmentally responsible and recognizes that the competitive pressures for economic growth and cost efficiency must be integrated with sound sustainability management, including environmental stewardship. The Company has adopted sourcing and other business practices to address the environmental concerns of its customers. The Company has established guidelines that require compliance with all applicable environmental laws and regulations. Although the Company requires its suppliers to adhere to these guidelines, there is no guarantee that these suppliers will not take actions that could hurt the Company’s reputation, as they are independent third parties that the Company does not control. However, if there is a lack of apparent compliance, it may lead the Company to search for alternative suppliers. This may have an adverse effect on the Company’s financial results, by increasing costs and potentially causing delays in delivery. Cyber Security, Privacy and Protection of Personal Information The Company is subject to various laws regarding the protection of personal information of its customers, cardholders and employees and has adopted a Privacy Policy setting out guidelines for the handling of personal information. The Company’s IT systems contain personal information of customers, cardholders and employees. Any failures or vulnerabilities in these systems or non- compliance with laws or regulations, including those in relation to personal information belonging to the Company’s customers and employees, could negatively affect the reputation, operations and financial performance of the Company. The Company depends on the uninterrupted operation of its IT systems, networks and services including internal and public internet sites, data hosting and processing facilities, cloud-based services and hardware, such as point-of-sale processing at stores, to operate its business. In the 22 ordinary course of business, the Company collects, processes, transmits and retains confidential, sensitive and personal information (“Confidential Information”) regarding the Company and its employees, vendors, customers and credit card holders. Some of this Confidential Information is held and managed by third party service providers. As with other large and prominent companies, the Company is regularly subject to cyber attacks and such attempts are occurring more frequently, are constantly evolving in nature and are becoming more sophisticated. The Company has implemented security measures, including employee training, monitoring and testing, maintenance of protective systems and contingency plans, to protect and to prevent unauthorized access of Confidential Information and to reduce the likelihood of disruptions to its IT systems. The Company also has security processes, protocols and standards that are applicable to its third party service providers. Despite these measures, all of the Company’s information systems, including its back-up systems and any third party service provider systems that it employs, are vulnerable to damage, interruption, disability or failures due to a variety of reasons, including physical theft, fire, power loss, computer and telecommunication failures or other catastrophic events, as well as from internal and external security breaches, denial of service attacks, viruses, worms and other known or unknown disruptive events. The Company or its third party service providers may be unable to anticipate, timely identify or appropriately respond to one or more of the rapidly evolving and increasingly sophisticated means by which computer hackers, cyber terrorists and others may attempt to breach the Company’s security measures or those of our third party service providers’ information systems. As cyber threats evolve and become more difficult to detect and successfully defend against, one or more cyber threats might defeat the Company’s security measures or those of its third party service providers. Moreover, employee error or malfeasance, faulty password management or other irregularities may result in a breach of the Company’s or its third party service providers’ security measures, which could result in a breach of employee, customer or credit card holder privacy or Confidential Information. If the Company does not allocate and effectively manage the resources necessary to build and sustain reliable IT infrastructure, fails to timely identify or appropriately respond to cyber security incidents, or the Company’s or its third party service providers’ information systems are damaged, destroyed, shut down, interrupted or cease to function properly, the Company’s business could be disrupted and the Company could, among other things, be subject to: transaction errors; processing inefficiencies; the loss of existing customers or failure to attract new customers; the loss of sales; the loss or unauthorized access to Confidential Information or other assets; the loss of or damage to intellectual property or trade secrets; damage to its reputation; litigation; regulatory enforcement actions; violation of privacy, security or other laws and regulations; and remediation costs. Legal Proceedings In the ordinary course of business, the Company is involved in and potentially subject to legal proceedings. The proceedings may involve landlords, suppliers, customers, regulators, tax authorities or other persons. The potential outcome of legal proceedings and claims is uncertain and could result in a material adverse effect on the Company’s reputation, operations or financial condition or performance. Merchandising, Electronic Commerce and Disruptive Technologies The Company may have inventory that customers do not want or need, is not reflective of current trends in customer tastes, habits or regional preferences, is priced at a level customers are not willing to pay or is late in reaching the market. In addition, the Company’s operations, specifically inventory levels, sales, volume and product mix, are impacted to some degree by seasonality, including certain holiday periods in the year. If merchandising efforts are not effective or responsive to customer demand, it could adversely affect the Company’s financial performance. 23 Customers expect innovative concepts and a positive customer online experience, including a user- friendly website, safe and reliable processing of payments and a well-executed merchandise pick up or delivery process. If systems are damaged or cease to function properly, capital investment may be required. The Company is also vulnerable to various additional uncertainties associated with e- commerce including website downtime and other technical failures, changes in applicable federal and provincial regulations, security breaches, and consumer privacy concerns. If these technology- based systems do not function effectively, the Company’s ability to grow its e-commerce business could be adversely affected. The Company’s omnichannel strategy entails digital customer experience investments, but there can be no assurances that the Company will be able to recover the related costs incurred. The retail landscape demands an efficient and seamless digitally influenced shopping experience. The emergence of disruptive technologies and the effect of increasing digital advances could have an impact on the physical space requirements of retail businesses. Although the importance of a retailer’s physical presence has been demonstrated, the size requirements and locations may be subject to further disruption. Any failure to adapt the business models to recognize and manage this shift in a timely manner could adversely affect the Company’s operations or financial performance. Key Management and Ability to Attract and/or Retain Key Personnel The Company’s success depends upon the continued contributions of key management, some of whom have unique talents and experience and would be difficult to replace in the short term. The loss or interruption of the services of a key executive could have a negative effect on the Company during the transitional period that would be required for a successor to assume the responsibilities of the key management position. The Company’s success will also depend on the ability to attract and retain other key personnel. The Company may not be able to attract or retain these employees, which could negatively affect the business. FINANCIAL RISK MANAGEMENT The Company is exposed to a number of financial risks, including those associated with financial instruments, which have the potential to affect its operating and financial performance. The Company may periodically use derivative instruments to offset certain of these risks. The Company’s policies and guidelines prohibit the use of any derivative instrument for trading or speculative purposes. The fair value of derivative instruments is subject to changing market conditions that could adversely affect the financial performance of the Company. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. Disclosures relating to the Company’s exposure to risks, in particular credit risk, liquidity risk, foreign currency risk and interest rate risk are provided below. Credit Risk Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company’s financial instruments that are exposed to concentrations of credit risk are primarily cash and trade and other receivables. The Company limits its exposure to credit risk with respect to cash by dealing with major Canadian financial institutions. The Company’s trade and other receivables consist primarily of government assistance receivable and credit card receivables from the last few days of the fiscal year, which are settled within the first days of the next fiscal year. Due to the nature of the Company’s activities and the low credit risk of the Company’s trade and other receivables as at January 29, 2022 and January 30, 2021, expected credit loss on these financial assets is not significant. 24 As at January 29, 2022, the Company’s maximum exposure to credit risk for these financial instruments was as follows: Cash Trade and other receivables $ $ 25.5 7.6 33.1 Liquidity Risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet liabilities when due. Cash flows provided by operations and funds available from the revolving credit facility will be sufficient to meet the Company’s operational requirements and financial obligations. The contractual maturity of the Company’s revolving credit facility is January 12, 2025. The majority of trade and other payables are payable within twelve months. For fiscal 2022, the Company realized net earnings of $158.2 million (including a $88.6 million gain on settlement of liabilities subject to compromise). As at January 29, 2022, the Company’s current assets total $194.7 million and current liabilities total $99.0 million. On January 12, 2022, the Company entered into a senior secured asset-based revolving facility with a Canadian financial institution for an amount of up to $115.0 million (“borrowing base”), or its U.S. dollar equivalent. As of January 29, 2022, the Company’s borrowing base was $90.7 million of which $29.6 million was drawn down under the revolving credit facility. Refer to Note 13 in the audited consolidated financial statements for fiscal 2022. Foreign Currency Risk The Company purchases a significant amount of its merchandise with U.S. dollars and as such significant volatility in the U.S. dollar vis-à-vis the Canadian dollar can have an adverse impact on the Company’s gross margin. The Company has a variety of alternatives that it considers to manage its foreign currency exposure on cash flows related to these purchases. These include, but are not limited to, various styles of foreign currency option or forward contracts, normally not to exceed twelve months, and U.S. dollar spot rate purchases. A foreign currency option contract represents an option or obligation to buy a foreign currency from a counterparty. A forward foreign exchange contract is a contractual agreement to buy or sell a specified currency at a specific price and date in the future. The Company may enter into certain qualifying foreign exchange contracts that it designated as cash flow hedging instruments. This results in mark-to-market foreign exchange adjustments, for qualifying hedged instruments, being recorded as a component of other comprehensive income. As at January 29, 2022, the Company’s hedging program remained temporarily paused and no foreign exchange contracts were outstanding. The Company has performed a sensitivity analysis on its U.S. dollar denominated financial instruments, which consist principally of cash of $12.6 million U.S. and trade payables of $5.0 million U.S. to determine how a change in the U.S. dollar exchange rate would affect net earnings. On January 29, 2022, a 10% rise or fall in the Canadian dollar against the U.S. dollar, assuming that all other variables, in particular interest rates, had remained the same, would have resulted in a $1.0 million increase or decrease, respectively, in the Company’s net earnings for fiscal 2022. 25 Interest Rate Risk Interest rate risk exists in relation to the Company’s cash and its revolving credit facility. Market fluctuations in interest rates impacts the Company’s earnings with respect to interest earned on cash that are invested mainly with major Canadian financial institutions and interest paid on outstanding balances of the revolving credit facility. The Company has performed a sensitivity analysis on interest rate risk related to interest income earned on its cash as at January 29, 2022 to determine how a change in interest rates would impact net earnings. For fiscal 2022, the Company earned interest income of $0.4 million on its cash. An increase or decrease of 50 basis points in the average interest rate earned during the year would have increased net earnings by $0.3 million or decreased net earnings by $0.2 million respectively. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The Company has performed a sensitivity analysis on interest rate risk related to interest expense incurred on its revolving credit facility as at January 29, 2022 to determine how a change in interest rates would impact net earnings. For the year ended January 29, 2022, the Company determined that an increase or decrease of 100 basis points in the average interest rate incurred during the year would not have a material impact to net earnings in fiscal 2022 as the revolving credit facility was only available effective January 12, 2022. LIQUIDITY, CASH FLOWS AND CAPITAL RESOURCES The Company primarily uses funds for working capital requirements and capital expenditures. Shareholders’ equity as at January 29, 2022 amounts to $183.8 million or $3.76 per share (January 30, 2021 - $21.7 million or $0.44 per share) based on 48.9 million shares being the total of common and class A non-voting shares as of the end of fiscal year (January 30, 2021 – 48.9 million shares). As at January 29, 2022, the Company has current assets of 194.7 million (January 30, 2021 - $214.1 million) and current liabilities of $99.0 million (January 30, 2021 - $284.5 million including liabilities subject to compromise of $204.1 million) and no long-term debt (other than lease liabilities). As at January 29, 2022, included in the Company’s current assets is cash of $25.5 million (January 30, 2021 - $75.2 million). Cash is held in interest bearing accounts mainly with a major Canadian financial institution. On January 12, 2022, the Company emerged from CCAA by issuing a payment of $95.0 million to the Monitor in accordance with the Plan to be distributed to its creditors in full and final settlement of all claims affected by the Plan. The CCAA process had allowed the Company to implement its operational and commercial restructuring plan to re-position the Company for long-term success. As part of its emergence from CCAA proceedings, the Company refinanced its interim financing (“DIP Loan”) and entered into a senior secured asset-based revolving facility with a Canadian financial institution of up to $115.0 million (or its U.S. dollar equivalent), which matures on January 12, 2025. This committed facility shall be used to finance the ongoing operations of the Company. In fiscal 2022, the Company invested $15.2 million in capital expenditures, on a cash basis, primarily in store renovations and head office hardware and software additions. Excluding any extended economic uncertainty impact from COVID-19, the Company expects to invest approximately $10.0 million in capital expenditures in fiscal 2023 in various areas such as store renovations, visual capacity projects, digital platform enhancements, customer service engagement and other corporate initiatives. 26 FINANCIAL COMMITMENTS The following table sets forth the Company’s financial commitments as at January 29, 2022: Contractual Obligations Trade and other payables Revolving credit agreement Lease obligations1 Purchase obligations2 Other service contracts Total $ 34.5 29.6 59.5 154.5 7.0 Within 1 year $ 34.5 29.6 24.0 148.0 3.5 2 to 4 years - $ 5 years and over $ - - 29.0 6.5 3.5 - 6.5 - - Total contractual obligations $ 285.1 $ 239.6 $ 39.0 $ 6.5 1 Represents the undiscounted minimum lease payments for leases of retail locations and office equipment 2 Includes amounts pertaining to agreements to purchase goods or services that are enforceable and legally binding on the Company. OUTSTANDING SHARE DATA At April 21, 2022, 13,440,000 Common shares and 35,427,322 Class A non-voting shares of the Company were issued and outstanding. Each Common share entitles the holder thereof to one vote at meetings of shareholders of the Company. The Company has 800,000 share options outstanding at an average exercise price of $6.36. Each share option entitles the holder to purchase one Class A non-voting share of the Company at an exercise price established based on the market price of the shares at the date the option was granted. OFF-BALANCE SHEET ARRANGEMENTS Derivative Financial Instruments The Company in its normal course of business must make long lead-time commitments for a significant portion of its merchandise purchases, in some cases as long as twelve months. Most of these purchases must be paid for in U.S. dollars. The Company considers a variety of strategies designed to manage the cost of its continuing U.S. dollar long-term commitments, including spot rate purchases and foreign currency forward contracts with maturities generally not exceeding twelve months and are normally designated as cash flow hedges. During fiscal 2021, future U.S. dollar denominated purchases, hedged by outstanding forward contracts were no longer expected to occur as a result of the Company’s effort to reduce future inventory purchases in response to the uncertainty surrounding COVID-19 and the restructuring plan. As a result, the Company had initially reclassified the accumulated unrealized gain associated with these forward contracts from other comprehensive income to net earnings. During fiscal 2021, such forward contracts with a notional amount of $15.0 million U.S. dollars matured and the Company disposed of all remaining forward contracts with a notional amount of $115.0 million U.S. dollars, resulting in a realized foreign exchange gain of $9.7 million for fiscal 2021. In early fiscal 2021, the Company had temporarily paused its hedging program due to the uncertainties surrounding future inventory purchase commitments as a result of COVID-19 and the restructuring plan under the now finalized CCAA proceedings. Once the uncertainties surrounding COVID-19 cease to exist, the Company will re-evaluate its foreign exchange risk management options, including the use of foreign exchange forward hedge contracts. As at January 29, 2022, the Company’s hedging program remained temporarily paused and there were no foreign exchange contracts outstanding. 27 RELATED PARTY TRANSACTIONS Transactions with Key Management Personnel Key management personnel are those persons (both executive and non-executive) who have the authority and responsibility for planning, directing and controlling the activities of the entity - directly or indirectly. The Board of Directors (which includes the Chief Executive Officer and President) has the responsibility for planning, directing and controlling the activities of the Company and are considered key management personnel. The members of the Board of Directors participate in the share option plan, as described in Note 18 to the audited consolidated financial statements for fiscal 2022. During fiscal 2022, the Company incurred $1.8 million (fiscal 2021- $1.3 million) in compensation expenses for key management personnel consisting of salaries, directors’ fees and short-term benefits. Other Related-Party Transactions The Company incurred $1.2 million in fiscal 2022 (fiscal 2021 - $1.3 million) for legal services rendered by a law firm connected to certain members of the Board of Directors. These transactions are recorded at the amount of consideration paid as established and agreed to by the related parties. As at January 30, 2021, liabilities subject to compromise included pension liabilities in the amount of $7.2 million payable to the Company’s President and Chief Executive Officer and Chief Financial Officer. See Note 11 and 16 of the audited consolidated financial statements for fiscal 2022. FINANCIAL INSTRUMENTS The Company uses its cash resources and its credit facilities to fund ongoing working capital needs along with capital expenditures. Financial instruments that are exposed to concentrations of credit risk consist primarily of cash, trade and other receivables and foreign currency contracts. The Company reduces this risk by dealing only with highly-rated counterparties, normally major Canadian financial institutions. The Company closely monitors its risk with respect to short-term cash investments. The volatility of the U.S. dollar vis-à-vis the Canadian dollar impacts earnings and while the Company considers a variety of strategies designed to manage the cost of its continuing U.S. dollar commitments, such as spot rate purchases and foreign exchange contracts, this volatility can result in exposure to risk. With the Company temporarily pausing its hedging program, the exposure to risk is augmented subject to the U.S. dollar appreciating in value. For further disclosure of the Company’s financial instruments, their classification, their impact on financial statements, and determination of fair value refer to Note 25 of the audited consolidated financial statements for fiscal 2022. CRITICAL ACCOUNTING ESTIMATES, JUDGMENTS AND ASSUMPTIONS The preparation of the consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, the disclosure of contingent assets and contingent liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the period. Management has made significant judgments in 28 connection with the potential impact of COVID-19 on the Company’s reported assets, liabilities, revenue and expenses, and on the related disclosures, using estimates and assumptions, which are subject to significant uncertainties. Government authorities have implemented several measures to mitigate the spread of and contain the virus including, but not limited to, mask mandates, vaccination rollouts and lockdowns of non-essential businesses. The extent to which COVID-19 will continue to impact the Company’s business, financial condition and results of operations will depend on future developments, including the emergence of new variants of COVID-19 resulting in a resurgence of positive COVID-19 cases, and future customer shopping behaviors, which are highly uncertain and cannot be predicted at this time. Accordingly, actual results could differ materially from those estimates and assumptions made by management. Following are the most important accounting policies subject to such judgments and the key sources of estimation uncertainty that the Company believes could have the most significant impact on the reported results and financial position. Key Sources of Estimation Uncertainty Pension Plans The cost of defined benefit pension plans is determined by means of actuarial valuations, which involve making assumptions about discount rates, future salary increases and mortality rates. Because of the long-term nature of the plans, such estimates are subject to a high degree of uncertainty. Gift Cards Gift cards sold are recorded as deferred revenue and revenue is recognized when the gift cards are redeemed. If the Company expects to be entitled to a breakage amount for the gift cards, it recognizes the expected breakage amount as revenue in proportion to the pattern of rights exercised by the customer. Breakage is an estimate of the amount of gift cards that will never be redeemed. The breakage rate is reviewed on an ongoing basis and is estimated based on historical redemption patterns. Inventories Inventories are comprised of finished goods and are valued at the lower of cost and net realizable value. Estimates are required in relation to forecasted sales and inventory balances. In situations where excess inventory balances are identified, estimates of net realizable values for the excess inventory are made. The Company has set up provisions for merchandise in inventory that may have to be sold below cost. The Company has developed assumptions regarding the quantity of merchandise to be sold below cost based on historical pattern of sales. In addition, as part of inventory valuations, provisions are accrued for inventory shrinkage for lost or stolen items based on historical trends from actual physical inventory counts. COVID-19 increases the risk of uncertainty related to these estimates because they are normally based on a historical pattern of sales. The impact of COVID-19 required management to apply a higher degree of judgment in determining the estimates to set up provisions for merchandise in inventory that may have to be sold below cost. Impairment of Non-Financial Assets The Company must assess the possibility that the carrying amounts of tangible and intangible assets may not be recoverable. Impairment testing is performed whenever there is an indication of impairment. Significant management estimates are required to determine the recoverable amount of the cash-generating unit (“CGU”) including estimates of fair value, selling costs or the discounted future cash flows related to the CGU. COVID-19 increases the risk of uncertainty surrounding management’s estimates. Differences in estimates could affect whether property and equipment, 29 right-of use assets and intangible assets are in fact impaired and the dollar amount of that impairment. Leases In determining the carrying amount of right-of-use assets and lease liabilities, the Company is required to estimate the incremental borrowing rate specific to each leased asset if the interest rate implicit in the lease is not readily determinable. Management determines the incremental borrowing rate of each leased asset by incorporating the Company's creditworthiness, the security, term and value of the underlying leased asset, and the economic environment in which the leased asset operates. The incremental borrowing rates are subject to change. Critical Judgments in Applying Accounting Policies Operating Segments The Company uses judgment in assessing the criteria used to determine the aggregation of operating segments. In order to identify the Company’s reportable segments, the Company uses the process outlined in IFRS 8, Operating Segments, which includes the identification of the Chief Operating Decision Maker (“CODM”), being the Chief Executive Officer, the identification of operating segments and the aggregation of operating segments. As at January 29, 2022, the Company’s operating segments, before aggregation, have been identified as the Company’s three brands: Reitmans, Penningtons and RW&CO. During fiscal 2021, the Company announced, as part of its restructuring plan, the closure of the Thyme Maternity and Addition Elle brands. The operating results directly attributable to both brands are presented as discontinued operations. Each operating segment is reviewed by the CODM in reviewing their profitability so that the information can be used to ensure adequate resources are allocated to that part of the Company’s operations. The CODM reviews the profitability of the banner as a whole, which includes both the store and e-commerce channels. This is consistent with the omni-channel strategy adopted by the Company whereby customers can shop seamlessly in retail stores and online. The Company has aggregated its operating segments into one reportable segment because of their similar economic characteristics, customers (mainly female) and nature of products (mainly women’s specialty apparel). The similarity in economic characteristics reflects the fact that the Company’s operating segments operate mainly in the women apparel business, primarily in Canada and are therefore subject to the same economic market pressures. The Company’s operating segments are subject to similar competitive pressures such as price and product innovation and assortment from existing competitors and new entrants into the marketplace. The operating segments also share centralized, common functions such as distribution and information technology. Leases Management exercises judgment in determining the appropriate lease term on a lease-by-lease basis. Management considers all facts and circumstances that create an economic incentive to exercise a renewal option or to not exercise a termination option, including investments in major leaseholds and store performances. The periods covered by renewal options are only included in the lease term if management is reasonably certain to renew. Management considers reasonably certain to be a high threshold. Changes in the economic environment or changes in the retail industry may influence management’s assessment of lease term, and any changes in management’s estimate of lease terms may have a material impact on the Company’s consolidated balance sheets and consolidated statements of earnings (loss). 30 Deferred tax assets Deferred tax assets are recognized only to the extent it is considered probable that those assets will be recoverable. This involves an assessment of when those deferred tax assets are likely to reverse and a judgment as to whether there will be sufficient taxable profits available against which they can be utilized. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED IN FISCAL 2022 New amendments to standards and interpretations not yet effective for fiscal 2022 for which earlier adoption was permitted have not been applied in preparing the audited consolidated financial statements for fiscal 2022. The amendments to standards and interpretations that are currently under review: • Disclosure Initiative – Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) • Definition of accounting Estimates (Amendments to IAS 8) • Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) Further information on these modifications can be found in Note 3 of the audited consolidated financial statements for fiscal 2022. CHANGE IN ACCOUNTING POLICY Cloud Computing Implementation Costs In 2021, the IASB ratified an agenda decision by the IFRS Interpretations Committee that clarifies the accounting for configuration and customization costs incurred in a cloud computing arrangement. The retrospective adoption of this agenda decision did not have a material impact on fiscal 2022. See Note 3 of the audited consolidated financial statements for fiscal 2022. 31 KPMG LLP 600 de Maisonneuve Blvd. West Suite 1500, Tour KPMG Montréal (Québec) H3A 0A3 Canada Telephone Fax Internet (514) 840-2100 (514) 840-2187 www.kpmg.ca INDEPENDENT AUDITORS’ REPORT To the Shareholders of Reitmans (Canada) Limited Opinion We have audited the consolidated financial statements of Reitmans (Canada) Limited (the "Entity"), which comprise: • • • • • the consolidated balance sheets as at January 29, 2022 and January 30, 2021 the consolidated statements of income for the years then ended the consolidated statements of comprehensive income (loss) for the years then ended the consolidated statements of changes in shareholders’ equity for the years then ended the consolidated statements of cash flows for the years then ended • and notes to the consolidated financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at January 29, 2022 and January 30, 2021, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards ("IFRS"). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditors’ Responsibilities for the Audit of the Financial Statements" section of our auditors’ report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information Management is responsible for the other information. Other information comprise the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions. KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP. 32 Page 2 Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated. We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditors’ report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditors’ report. We have nothing to report in this regard. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity’s financial reporting process. Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. 33 Page 3 We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting intentional omissions, misrepresentations, or the override of internal control. involve collusion, from error, as fraud may forgery, • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. • Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. The engagement partner on the audit resulting in this auditors’ report is Marie Valcourt. Montréal, Canada April 21, 2022 *CPA auditor, CA, public accountancy permit No. A128528 34 REITMANS (CANADA) LIMITED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) For the years ended January 29, 2022 and January 30, 2021 (in thousands of Canadian dollars except per share amounts) Sales Cost of goods sold Gross profit Selling and distribution expenses Administrative expenses Impairment of non-financial assets Restructuring Gain on settlement of liabilities subject to compromise Results from operating activities Finance income Finance costs Earnings (loss) before income taxes Income tax (recovery) expense Earnings (loss) from continuing operations Earnings (loss) from discontinued operations, net of tax Net earnings (loss) Earnings (loss) per share: Basic Diluted Earnings (loss) per share from continuing operations: Basic Diluted Notes 2022 2021(1) 7 8,9,10 16 16 $ 661,952 308,787 353,165 272,453 36,817 1,611 (12,249) (88,613) 143,146 $ 533,362 287,108 246,254 284,803 32,342 16,524 20,583 - (107,998) 20 20 12 4 21 21 3,725 4,067 142,804 (420) 143,224 15,032 13,897 5,744 (99,845) 191 (100,036) (72,181) $ 158,256 $ (172,217) $ $ 3.24 3.24 2.93 2.93 $ $ (3.52) (3.52) (2.05) (2.05) (1) For the year ended January 30, 2021, rent and occupancy costs recovered on lease re-negotiation in the amount of $5,933 were reclassified from selling and distribution expenses to restructuring. The adjustments had no effect on net earnings (loss) from continuing operations. See note 16. The accompanying notes are an integral part of these consolidated financial statements. 35 REITMANS (CANADA) LIMITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) For the years ended January 29, 2022 and January 30, 2021 (in thousands of Canadian dollars) Net earnings (loss) Other comprehensive income Items that may be reclassified subsequently to net earnings: Cash flow hedges (2021 - net of tax of $273) Foreign currency translation differences Items that will not be reclassified to net earnings: Actuarial gain on defined benefit plan (net of tax of $nil for 2022 and 2021) Total other comprehensive income Notes 2022 2021 $ 158,256 $ (172,217) 17 17 11 - 1 1 3,886 3,887 (754) 127 (627) 700 73 Total comprehensive income (loss) $ 162,143 $ (172,144) The accompanying notes are an integral part of these consolidated financial statements. 36 REITMANS (CANADA) LIMITED CONSOLIDATED BALANCE SHEETS As at January 29, 2022 and January 30, 2021 (in thousands of Canadian dollars) ASSETS CURRENT ASSETS Cash Trade and other receivables Inventories Prepaid expenses and other assets Total Current Assets NON-CURRENT ASSETS Restricted cash Property and equipment Intangible assets Right-of-use assets Pension asset Deferred income taxes Total Non-Current Assets TOTAL ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Revolving credit facility Trade and other payables Deferred revenue Income taxes payable Current portion of lease liabilities Liabilities subject to compromise Total Current Liabilities NON-CURRENT LIABILITIES Lease liabilities Pension liability Total Non-Current Liabilities SHAREHOLDERS' EQUITY Share capital Contributed surplus Retained earnings (deficit) Accumulated other comprehensive loss Total Shareholders' Equity Notes 2022 2021(1) 5 6 7 19 5 8 9 10 11 12 13 14 15 10 16 10 11 17 17 $ 25,502 7,606 118,972 42,590 194,670 2,757 65,970 5,613 44,978 100 186 119,604 $ 75,162 10,668 96,122 32,100 214,052 2,753 66,112 10,331 103,831 - 151 183,178 $ 314,274 $ 397,230 $ 29,634 34,478 13,490 537 20,888 - 99,027 31,419 - 31,419 27,406 10,295 146,980 (853) 183,828 $ - 31,522 12,462 1,169 35,303 204,083 284,539 87,914 3,092 91,006 27,406 10,295 (15,162) (854) 21,685 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 314,274 $ 397,230 (1) For the year ended January 30, 2021, restricted cash of $2,753 has be classified as non-current assets to correctly reflect the presentation of this caption. The accompanying notes are an integral part of these consolidated financial statements On behalf of the Board, (signed) Stephen F. Reitman, Director (signed) Bruce J. Guerriero, Director 37 REITMANS (CANADA) LIMITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY For the years ended January 29, 2022 and January 30, 2021 (in thousands of Canadian dollars) Notes Share Capital Contributed Surplus Retained Earnings (Deficit) Accumulated Other Comprehensive Loss Total Shareholders’ Equity Balance as at January 31, 2021 $ 27,406 $ 10,295 $ (15,162) $ (854) $ 21,685 Net earnings Total other comprehensive income Total comprehensive income for the year 11,17 - - - - - - 158,256 3,886 162,142 - 1 1 158,256 3,887 162,143 Balance as at January 29, 2022 $ 27,406 $ 10,295 $ 146,980 $ (853) $ 183,828 Balance as at February 2, 2020 $ 27,406 $ 10,283 $ 156,355 $ (227) $ 193,817 Net loss Total other comprehensive income (loss) Total comprehensive loss for the year Share-based compensation costs Total contributions by owners of the Company 11,17 18 - - - - - - - - 12 12 (172,217) 700 (171,517) - - - (627) (627) - - (172,217) 73 (172,144) 12 12 Balance as at January 30, 2021 $ 27,406 $ 10,295 $ (15,162) $ (854) $ 21,685 The accompanying notes are an integral part of these consolidated financial statements. 38 REITMANS (CANADA) LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended January 29, 2022 and January 30, 2021 (in thousands of Canadian dollars) CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES Net earnings (loss) Adjustments for: Notes 2022 2021(1) (2) $ 158,256 $ (172,217) Depreciation and amortization Impairment of non-financial assets Share-based compensation costs Net change in transfer of realized gain on cash flow hedges to inventory Foreign exchange loss (gain) Gain on lease re-measurements due to restructuring Gain on settlement of liabilities subject to compromise Interest on lease liabilities Interest on revolving credit facility Interest income Income tax (recovery) expense 8,9,10 8,9,10 18 10,16 16 10,20 20 20 12 Changes in: Trade and other receivables Inventories Prepaid expenses and other assets Pension asset Trade and other payables Liabilities subject to compromise Deferred revenue Cash (used in) from operating activities Interest received Income taxes received Income taxes paid Net cash flows (used in) from operating activities CASH FLOWS USED IN INVESTING ACTIVITIES Additions to property and equipment and intangible assets, net Cash flows used in investing activities CASH FLOWS USED IN FINANCING ACTIVITIES Restricted cash Net proceeds from revolving credit facility Payment of lease liabilities Cash flows used in financing activities FOREIGN EXCHANGE (LOSS) GAIN ON CASH HELD IN FOREIGN CURRENCY NET DECREASE IN CASH CASH, BEGINNING OF THE YEAR CASH, END OF THE YEAR 11 16 8,9,24 5 13 10,24 47,585 1,611 - - 518 (6,732) (88,613) 4,026 41 (353) (420) 115,919 3,059 (22,850) (10,490) 694 3,272 (114,419) 1,028 (23,787) 356 - (1,298) (24,729) (15,222) (15,222) (4) 29,634 (38,822) (9,192) (517) (49,660) 75,162 68,231 31,342 12 (250) (435) (8,216) - 6,201 - (436) 271 (75,497) (4,510) 51,306 (22,659) (20,421) (78,644) 194,615 (2,580) 41,610 591 133 (2,139) 40,195 (6,164) (6,164) (2,753) - (46,818) (49,571) 1,292 (14,248) 89,410 $ 25,502 $ 75,162 (1) For the year ended January 30, 2021, depreciation and amortization has been increased and impairment of non-financial assets has been decreased by $7,200, respectively, to correctly reflect the presentation of these captions within continuing operations and discontinued operations. See note 8. (2) For the year ended January 30, 2021, restricted cash of $2,753 has be classified as cash flows used in financing activities to correctly reflect the presentation of this caption. Supplementary cash flow information (note 24) The accompanying notes are an integral part of these consolidated financial statements. 39 REITMANS (CANADA) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended January 29, 2022 and January 30, 2021 (all amounts in thousands of Canadian dollars except per share amounts) 1. REPORTING ENTITY Reitmans (Canada) Limited (the “Company”) is a company domiciled in Canada and is incorporated under the Canada Business Corporations Act. The address of the Company’s registered office is 155 Wellington Street West, 40th Floor, Toronto, Ontario M5V 3J7. The Company’s issued and outstanding common and Class A shares are listed on Toronto Stock Venture Exchange under the symbol “RET.V” and “RET-A.V”, respectively. The principal business activity of the Company is the sale of women’s wear. 2. BASIS OF PRESENTATION a) Fiscal Year The Company’s fiscal year ends on the Saturday closest to the end of January. All references to 2022 and 2021 represent the 52 weeks ended January 29, 2022 and January 30, 2021, respectively. b) COVID-19, CCAA Proceedings and Restructuring Plan COVID-19 The COVID-19 pandemic had significant impacts for the Company. The lockdown measures adopted by the Federal and Provincial governments in order to mitigate the spread of COVID-19 required the Company to close all of its retail locations across Canada early in the fiscal year ended January 30, 2021. Throughout the fiscal years ended January 29, 2022 and January 30, 2021, these lockdown measures were lifted and reinstated at different times to stop the spread of COVID-19 and its variants. During those periods when all the stores were closed, the Company’s only sales were derived from its e-commerce channel. As at January 29, 2022, all of the Company’s stores were open. The Company received financial assistance from the Government of Canada for related wages and rent expenses, which were introduced as a result of COVID-19. See note 6. CCAA Proceedings During the fiscal year ended January 30, 2021, specifically on May 19, 2020, the Company obtained an initial order (the “Order”) from the Superior Court of Quebec (the “Court”) to seek protection from creditors under the Companies’ Creditors Arrangement Act (the “CCAA”). Under the terms of the Order, Ernst & Young Inc. was appointed as the monitor (the “Monitor”). The CCAA process allowed the Company to implement an operational and commercial restructuring plan to re-position the Company for long-term success (the “restructuring plan”). See note 16. On August 20, 2020, a claims process order (the “claims process”) was approved by the Court. The claims process was initiated on September 10, 2020 and ended October 21, 2020 (“claims bar date”). 40 On November 26, 2021, the Company obtained authorization from the Court to file its Plan of Arrangement (“the Plan”) under CCAA. On December 21, 2021, the Company obtained approval of the Plan from its creditors and on January 4, 2022, the Company obtained a sanction order from the Court of its Plan. On January 12, 2022, in accordance with the Plan, the Company paid the Monitor the aggregate amount of $95,000 in full and final settlement of all claims from its creditors affected by the Plan, and emerged from CCAA proceedings. Concurrently, the Company secured a senior asset-based revolving facility with a Canadian financial institution of up to $115,000. See note 13. Restructuring Plan As part of its restructuring plan, during the year ended January 30, 2021, the Company closed all retail stores and e-commerce for Thyme Maternity and Addition Elle brands, which resulted in the termination of approximately 1,600 employees in its retail locations and head office. The operating results for these brands were presented as discontinued operations for the years ended January 29, 2022 and January 30, 2021. See notes 4 and 16. c) Statement of Compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These consolidated financial statements were authorized for issue by the Board of Directors on April 21, 2022. d) Basis of Measurement These consolidated financial statements have been prepared on the historical cost basis except for the following material items: • • • lease liabilities are initially measured at the present value of the lease payments that are not paid at the lease commencement date; the pension asset (liability) is recognized as the present value of the defined benefit obligation less the fair value of the plan assets; and liabilities for cash-settled share-based payment arrangements are measured in accordance with IFRS 2, Share-Based Payment. e) Functional and Presentation Currency These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand, except per share and strike price amounts. 41 f) Estimates, Judgments and Assumptions The preparation of the consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, the disclosure of contingent assets and contingent liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the period. Management has made significant judgments in connection with the potential impact of COVID- 19 on the Company’s reported assets, liabilities, revenue and expenses, and on the related disclosures, using estimates and assumptions, which are subject to significant uncertainties. Government authorities have implemented several measures to mitigate the spread of and contain the virus including, but not limited to, mask mandates, vaccination rollouts and lockdowns of non-essential businesses. The extent to which COVID-19 will continue to impact the Company’s business, financial condition and results of operations will depend on future developments, including the emergence of new variants of COVID-19 resulting in a resurgence of positive COVID-19 cases, and future customer shopping behaviors, which are highly uncertain and cannot be predicted at this time. Accordingly, actual results could differ materially from those estimates and assumptions made by management. Following are the most important accounting policies subject to such judgments and the key sources of estimation uncertainty that the Company believes could have the most significant impact on the reported results and financial position. Key Sources of Estimation Uncertainty (i) Pension Plans The cost of defined benefit pension plans is determined by means of actuarial valuations, which involve making assumptions about discount rates, future salary increases and mortality rates. Because of the long-term nature of the plans, such estimates are subject to a high degree of uncertainty. (ii) Gift Cards Gift cards sold are recorded as deferred revenue and revenue is recognized when the gift cards are redeemed. If the Company expects to be entitled to a breakage amount for the gift cards, it recognizes the expected breakage amount as revenue in proportion to the pattern of rights exercised by the customer. Breakage is an estimate of the amount of gift cards that will never be redeemed. The breakage rate is reviewed on an ongoing basis and is estimated based on historical redemption patterns. (iii) Inventories Inventories are comprised of finished goods and are valued at the lower of cost and net realizable value. Estimates are required in relation to forecasted sales and inventory balances. In situations where excess inventory balances are identified, estimates of net realizable values for the excess inventory are made. The Company has set up provisions for merchandise in inventory that may have to be sold below cost. The Company has developed assumptions regarding the quantity of merchandise to be sold below cost based on historical pattern of sales. COVID-19 increases the risk of uncertainty related to these estimates because they are normally based on a historical pattern of sales. The impact of COVID-19 required management to apply a higher degree of judgment in determining the estimates to set up provisions for merchandise in inventory that may have to be sold below cost. 42 (iv) Impairment of Non-Financial Assets The Company must assess the possibility that the carrying amounts of tangible and intangible assets may not be recoverable. Impairment testing is performed whenever there is an indication of impairment. Significant management estimates are required to determine the recoverable amount of the cash-generating unit (“CGU”) including estimates of fair value, selling costs or the discounted future cash flows related to the CGU. COVID-19 increases the risk of uncertainty surrounding management’s estimates. Differences in estimates could affect whether property and equipment, right- of-use assets and intangible assets are in fact impaired and the dollar amount of that impairment. (v) Leases In determining the carrying amount of right-of-use assets and lease liabilities at lease inception and for lease modifications, the Company is required to estimate the incremental borrowing rate specific to each leased asset if the interest rate implicit in the lease is not readily determinable. Management determines the incremental borrowing rate of each leased asset by incorporating the Company's creditworthiness, the security, term and value of the underlying leased asset, and the economic environment in which the leased asset operates. The incremental borrowing rates are subject to change. Critical Judgments in Applying Accounting Policies (i) Operating Segments The Company uses judgment in assessing the criteria used to determine the aggregation of operating segments. In order to identify the Company’s reportable segments, the Company uses the process outlined in IFRS 8, Operating Segments, which includes the identification of the Chief Operating Decision Maker (“CODM”), being the Chief Executive Officer, the identification of operating segments and the aggregation of operating segments. As at January 29, 2022, the Company’s operating segments, before aggregation, have been identified as the Company’s three brands: Reitmans, Penningtons and RW & CO. During the year ended January 30, 2021, the Company announced, as part of its restructuring plan, the closure of the Thyme Maternity and Addition Elle brands. The operating results directly attributable to both brands are presented as discontinued operations. See notes 4 and 16. Each operating segment is reviewed by the CODM in reviewing their profitability so that the information can be used to ensure adequate resources are allocated to that part of the Company’s operations. The CODM reviews the profitability of the banner as a whole, which includes both the store and e-commerce channels. This is consistent with the omni-channel strategy adopted by the Company whereby customers can shop seamlessly in retail stores and online. The Company has aggregated its operating segments into one reportable segment because of their similar economic characteristics, customers (mainly female) and nature of products (mainly women’s apparel). The similarity in economic characteristics reflects the fact that the Company’s operating segments operate mainly in the women apparel business, primarily in Canada and are therefore subject to the same economic market pressures. The Company’s operating segments are subject to similar competitive pressures such as price and product innovation and assortment from existing competitors and new entrants into the marketplace. The operating segments also share centralized, common functions such as distribution and information technology. 43 (ii) Leases Management exercises judgment in determining the appropriate lease term on a lease-by-lease basis. Management considers all facts and circumstances that create an economic incentive to exercise a renewal option or to not exercise a termination option, including investments in major leaseholds and store performances. The periods covered by renewal options are only included in the lease term if management is reasonably certain to renew. Management considers reasonably certain to be a high threshold. Changes in the economic environment or changes in the retail industry may influence management’s assessment of lease term, and any changes in management’s estimate of lease terms may have a material impact on the Company’s consolidated balance sheets and consolidated statements of earnings (loss). (iii) Deferred tax assets Deferred tax assets are recognized only to the extent it is considered probable that those assets will be recoverable. This involves an assessment of when those deferred tax assets are likely to reverse and a judgment as to whether there will be sufficient taxable profits available against which they can be utilized. 3. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, except as described below for the adoption of new accounting policies: a) New Standards and Interpretations not yet Adopted Disclosure initiative – Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) On February 12, 2021, the IASB issued Disclosure Initiative – Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements). The amendments are effective for annual periods beginning on or after January 1, 2023. Early adoption is permitted. The amendments help companies provide useful accounting policy disclosures. The key amendments include: • requiring companies to disclose their material accounting policies rather than their significant accounting policies; • clarifying that accounting policies related to immaterial transactions, other events or conditions are themselves immaterial and as such need not be disclosed; and • clarifying that not all accounting policies that relate to material transactions, other events or conditions are themselves material to a company’s financial statements. Definition of Accounting Estimates (Amendments to IAS 8) On February 12, 2021, the IASB issued Definition of Accounting Estimates (Amendments to IAS 8). The amendments are effective for annual periods beginning on or after January 1, 2023. Early adoption is permitted. The amendments introduce a new definition for accounting estimates, clarifying that they are monetary amounts in the financial statements that are subject to measurement uncertainty. The amendments also clarify the relationship between accounting policies and accounting estimates by specifying that a company develops an accounting estimate to achieve the objective set out by an accounting policy. 44 Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) On May 14, 2020, the IASB issued Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37). The amendments are effective for annual periods beginning on or after January 1, 2022 and apply to contracts existing at the date when the amendments are first applied. Early adoption is permitted. IAS 37 does not specify which costs are included as a cost of fulfilling a contract when determining whether a contract is onerous. The IASB’s amendments address this issue by clarifying the costs of fulfilling a contract. The Company does not expect that the adoption of these new standards will have a significant impact on its consolidated financial statements. b) Change in Accounting Policy Cloud Computing Implementation Costs In 2021, the IASB ratified an agenda decision by the IFRS Interpretations Committee that clarifies the accounting for configuration and customization costs incurred in a cloud computing arrangement. The agenda decision provides guidance on assessing whether costs incurred can be capitalized as an intangible asset and timing of expense recognition. The Company adopted this agenda decision on a retrospective basis. The adoption of the amendments did not have material impact on these consolidated financial statements. c) Basis of Consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries. Control exists when the Company has existing rights that give it the current ability to direct the activities that significantly affect the entities’ returns. The Company reassesses control on an ongoing basis. Subsidiaries are consolidated from the date on which the Company obtains control until the date that such control ceases. The financial statements of subsidiaries are prepared as at the same reporting period of the Company. The accounting policies of subsidiaries are aligned with the policies of the Company. All significant inter-company balances and transactions, and any unrealized income and expenses arising from inter-company transactions, have been eliminated in preparing the consolidated financial statements. The Company has no subsidiaries representing individually more than 10% of the total consolidated assets and 10% of the consolidated net sales of the Company as at and for the fiscal years ended January 29, 2022 and January 30, 2021. d) Foreign Currency Translation Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rate at that date. Other balance sheet items denominated in foreign currencies are translated into Canadian dollars at the exchange rates prevailing at the respective transaction dates. Revenues and expenses denominated in foreign currencies are translated into Canadian dollars at average rates of exchange prevailing during the period. The resulting gains or losses on translation are included in the determination of net earnings. 45 e) Foreign Operations The assets and liabilities of foreign operations are translated to Canadian dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Canadian dollars at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income. f) Discontinued operations A discontinued operation is a component of the Company's activities that either has been disposed of, or is classified as held for sale, and represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale. When an operation is classified as a discontinued operation, the comparative consolidated statements of earnings (loss) are restated as if the operation had been discontinued from the start of the comparative year. The results from discontinued operations are excluded from the results of continuing operations and are presented as a single amount net of tax as earnings (loss) from discontinued operations in the consolidated statements of earnings (loss). g) Cash Cash consists of cash on hand and bank balances. h) Government assistance Government assistance is recognized when there is reasonable assurance that the Company has met the requirements of the approved grant program and the Company is reasonably certain based on management’s judgment that the government grant will be received. Government assistance, including grants related to operating expenses, is accounted for as a reduction to the related expenses. Government assistance, including monetary and nonmonetary grants related to the acquisition of property and equipment, is accounted for as a reduction of the cost of the related property and equipment, and is recognized in net earnings using the same methods, periods and rates as for the related property and equipment. i) Property and Equipment Items of property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset, including any costs directly attributable to bringing the asset to a working condition for its intended use. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. Depreciation is recognized in net earnings on a straight-line basis over the estimated useful lives of each component of an item of property and equipment. Land is not depreciated. Assets not in service include expenditures incurred to-date for equipment not yet available for use. Depreciation of assets not in service begins when they are ready for their intended use. Depreciation is calculated on the cost of an asset, less its residual value. 46 The estimated useful lives for the current and comparative period are as follows:  Buildings Fixtures and equipment   Leasehold improvements 10 to 50 years 3 to 20 years over the lesser of estimated useful life and the lease term Depreciation methods, useful lives and residual values are reviewed at each annual reporting date and adjusted prospectively, if appropriate. Disposals of property and equipment include write-offs from store closures and for fully depreciated items. Gains and losses on disposal of items of property and equipment are recognized in net earnings. j) Intangible Assets The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets that are acquired by the Company and have finite useful lives are measured at cost less accumulated amortization and accumulated impairment losses. Amortization is calculated on the cost of the asset less its residual value. Amortization is recognized in net earnings on a straight-line basis over the estimated useful lives of the intangible assets. Amortization of intangible assets not in service begins when they are ready for their intended use. Intangible assets with finite lives are assessed for impairment whenever there is an indication that the intangible asset may be impaired. Intangible assets consist of software with estimated useful lives of 3 to 5 years for the current and comparative period. Amortization methods, useful lives and residual values are reviewed at each annual reporting date and adjusted prospectively, if appropriate. Disposals of intangible assets include write-offs for fully depreciated items. Intangible assets with indefinite useful lives are not subject to amortization and are tested for impairment annually or more frequently if events or changes in circumstances indicate the asset may be impaired. The useful life of an intangible asset with an indefinite useful life is reviewed annually to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis. 47 k) Leases The Company recognizes a right-of-use asset and a lease liability based on the present value of future lease payments when the leased asset is available for use by the Company. The lease payments include fixed and in-substance fixed payments and variable lease payments that depend on an index or rate, less any lease incentives receivable. The lease payments are discounted using the interest rate implicit in the lease or the lessee’s incremental borrowing rate. Generally, the Company uses the lessee’s incremental borrowing rate for its present value calculations. Lease payments are discounted over the lease term, which includes the fixed term and renewal options that the Company is reasonably certain to exercise. Lease payments are allocated between the lease liability and a finance cost, which is recognized in finance costs over the lease term in the consolidated statements of earnings (loss). When a contract contains both lease and non-lease components, the Company will allocate the consideration in the contract to each of the components on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components. Relative stand-alone prices are determined by maximizing the most observable prices for a similar asset and/or service. Lease payments for assets that are exempt through the short-term exemption and variable payments not based on an index or rate are recognized in selling, distribution and administrative expenses as incurred. Lease incentives received for variable payment leases are deferred and amortized as a reduction in recognized variable rent expenses over the term of the related leases. Right-of-use assets are measured at cost, less any accumulated depreciation and accumulated impairment losses, and adjusted for any re-measurement of lease liabilities. Cost is calculated as the initial measurement of the lease liability plus any initial direct costs and any lease payments made at or before the commencement date. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term or the useful life. l) Inventories Merchandise inventories are measured at the lower of cost, determined on an average-cost-basis, and net realizable value. Costs include the cost of purchase, transportation costs that are directly incurred to bring inventories to their present location and condition, and certain distribution center costs related to inventories. The Company estimates net realizable value as the amount that inventories are expected to be sold, in the ordinary course of business, less the estimated costs necessary to make the sale, taking into consideration fluctuations of retail prices due to seasonality. 48 m) Impairment of Non-Financial Assets All non-financial assets are reviewed at each reporting date for indications that the carrying amount may not be recoverable. When there is evidence of impairment, an impairment test is carried out. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (defined as “cash-generating unit” or “CGU”). An impairment loss is recognized in net earnings if the carrying amount of an asset or its related CGU exceeds its estimated recoverable amount. The recoverable amount is the higher of the value in use and the fair value less costs to sell. The value in use is the present value of estimated future cash flows, using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. The fair value less costs to sell is the amount for which an asset or CGU can be sold in a transaction under normal market conditions between knowledgeable and willing contracting parties, less costs to sell. For the purpose of impairment testing of property and equipment and right-of-use assets, each store is managed at the corporate level, with internal reporting organized to measure performance of each retail store. Management has determined that its cash generating units are identifiable at the individual retail store level since the assets devoted to and cash inflows generated by each store are separately identifiable and independent of each other. The Company’s corporate assets do not generate separate cash inflows. Corporate assets are tested for impairment at the minimum grouping of CGUs to which the corporate assets can be reasonably and consistently allocated. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGUs to which the corporate asset belongs. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. n) Employee Benefits (i) Pension Benefit Plans The Company maintains a contributory defined benefit plan (“Plan”) that provides benefits to Reitmans (Canada) Limited (the “Employer”) executive employees based on length of service and average earnings in the best five consecutive years of employment. Contributions are made by the Plan members and Employer. A Pension Committee, as appointed under the provisions of the Plan, is responsible for the administration of the Plan. All the investments of the Plan are deposited with RBC Investors Services Trust, which acts as the custodian of the assets entrusted to it. The investment manager of the Plan’s investments is SEI Investments Canada Company. Benefits are also given to employees through defined contribution plans administered by the Federal and Québec governments. Company contributions to these plans are recognized in the periods when the services are rendered. The Company’s net liability in respect of defined benefits is calculated by estimating the amount of future benefits that members have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets. 49 Defined benefit obligations are actuarially calculated annually by a qualified actuary as at the reporting date. The actuarial valuations are determined based on management’s best estimate of the discount rate, the rate of compensation increase, retirement rates, termination rates and mortality rates. The discount rate used to value the net defined benefit obligation for accounting purposes is based on the yield on a portfolio of Corporate AA bonds denominated in the same currency in which the benefits are expected to be paid and with terms to maturity that, on average, match the terms of the defined benefit plan obligations. The fair value of plan assets is deducted from the defined benefit obligation to arrive at the net liability. Plan assets are measured at fair value as at the reporting date. Past service costs arising from plan amendments are recognized in net earnings in the period that they arise. Remeasurements of the net defined benefit liability, which comprise actuarial gains or losses, the return on plan assets, excluding interest, and the effect of the asset ceiling, if any, are recognized in other comprehensive income in the period in which they arise and subsequently reclassified from accumulated other comprehensive income to retained earnings. Pension expense consists of the following: • the cost of pension benefits provided in exchange for members' services rendered in the period; • net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the net defined benefit obligation at the beginning of the annual period to the net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments; • past service costs; and • gains or losses on settlements or curtailments. Expenses related to defined contribution plans are recognized in net earnings in the periods in which the services are rendered. (ii) Short-Term Employee Benefits Short-term employee benefits obligations, which include wages, salaries, compensated absences and bonuses, are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonuses or profit- sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. (iii) Termination Benefits Termination benefits are recognized as an expense at the earlier of when the Company can no longer withdraw the offer of those benefits and when the Company recognizes costs for a restructuring. Benefits payable are discounted to their present value when the effect of the time value of money is material. 50 (iv) Share-Based Compensation Share options (equity-settled) Share options are equity settled share-based payments. The fair value of each tranche of options granted is measured separately at the grant date using a Black-Scholes option pricing model. Estimating fair value requires determining the most appropriate inputs to the valuation model including making assumptions for the expected life, volatility, risk-free interest rate and dividend yield. Compensation cost is expensed over the award's respective vesting period which is normally up to four or five years. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service conditions are expected to be met. Compensation expense is recognized in net earnings with a corresponding increase in contributed surplus. Any consideration paid by plan participants on the exercise of share options is credited to share capital. Upon the exercise of share options, the corresponding amounts previously credited to contributed surplus are transferred to share capital. Performance Share Units (cash-settled) The Company has a Performance Share Units (“PSUs”) plan entitling executives and key management to a cash payment. A liability is recognized for the services acquired and is recorded at fair value based on the share price of the Company’s Common shares in other non-current payables, except for the current portion recorded in trade and other payables, with a corresponding expense recognized in employee benefits expense in selling and distribution and/or administrative expenses. The amount recognized as an expense is adjusted to reflect the number of units for which the related service and performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the units of awards that meet the related service and non-market performance conditions at the vesting date. At the end of each reporting period until the liability is settled, the fair value of the liability is remeasured, with any changes in fair value recognized in the consolidated statements of earnings (loss) for the period. o) Provisions A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Where discounting is used, the unwinding of the discount is recognized as finance cost. An onerous contract provision is recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations. The provision is measured at the present value of the lower of the expected cost of terminating the contract or the expected cost of continuing with the contract. Before an onerous contract provision is established, the Company recognizes any impairment loss on the assets associated with that contract. 51 p) Revenue Sale of merchandise The Company recognizes revenue when control of the goods has been transferred. Revenue is measured at the amount of consideration to which the Company expects to be entitled to, including variable consideration to the extent that it is highly probable that a significant reversal will not occur. Customer loyalty award programs Revenue is allocated between the customer loyalty award programs and the goods on which the awards were earned based on their relative stand-alone selling prices. Loyalty points and awards granted under customer loyalty award programs are recorded as deferred revenue until the loyalty points and awards are redeemed by the customer. Gift cards Gift cards sold are recorded as deferred revenue and revenue is recognized when the gift cards are redeemed. If the Company expects to be entitled to a breakage amount for the gift cards, it recognizes the expected breakage amount as revenue in proportion to the pattern of rights exercised by the customer. Sales with a right of return The Company grants rights of return on goods sold to customers. Revenue is reduced by the amount of expected returns, which is determined based on historical patterns of returns, and a related refund liability is recorded within “Trade and other payables”. In addition, the Company recognizes a related asset for the right to recover returned goods within “Inventories”. q) Finance Income and Finance Costs Finance income comprises interest income and foreign exchange gains. Finance costs comprise interest expense and foreign exchange losses. Interest income is recognized on an accrual basis and interest expense is recorded using the effective interest method. Foreign exchange gains and losses are reported on a net basis. 52 r) Income Tax Income tax expense comprises current and deferred taxes. Current income taxes and deferred income taxes are recognized in net earnings except for items recognized directly in equity or in other comprehensive income. The Company’s income tax expense is based on tax rules and regulations that are subject to interpretation and require estimates and assumptions that may be challenged by taxation authorities. Current income tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to taxes payable in respect of previous years. The Company’s estimates of current income tax assets and liabilities are periodically reviewed and adjusted as circumstances warrant, such as for changes to tax laws and administrative guidance, and the resolution of uncertainties through either the conclusion of tax audits or expiration of prescribed time limits within the relevant statutes. The final results of government tax audits and other events may vary materially compared to estimates and assumptions used by management in determining the income tax expense and in measuring current income tax assets and liabilities. Deferred income tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred income tax assets and liabilities are measured using enacted or substantively enacted income tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is included in net earnings in the period that includes the enactment date, except to the extent that it relates to an item recognized either in other comprehensive income or directly in equity in the current or in a previous period. The Company only offsets income tax assets and liabilities if it has a legally enforceable right to offset the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. A deferred income tax asset is recognized to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred income tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Deferred income tax assets and liabilities are recognized on the consolidated balance sheets under non- current assets or liabilities, irrespective of the expected date of realization or settlement. Current and deferred taxes attributable to amounts recognized directly in equity are also recognized directly in equity. 53 s) Earnings per Share The Company presents basic and diluted earnings per share (“EPS”) data for its shares. Basic EPS is calculated by dividing the net earnings of the Company by the weighted average number of Class A non-voting and Common shares outstanding during the period. Diluted EPS is determined by adjusting the weighted average number of shares outstanding to include additional shares issued from the assumed exercise of share options, if dilutive. The number of additional shares is calculated by assuming that the proceeds from such exercises, as well as the amount of unrecognized share-based compensation, are used to purchase Class A non-voting shares at the average market share price during the period. t) Share Capital Class A non-voting shares and Common shares are classified as equity. Incremental costs directly attributable to the issue of shares are recognized as a deduction from equity, net of any tax effects. When share capital recognized as equity is purchased for cancellation, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognized as a deduction from equity. The excess of the purchase price over the carrying amount of the shares is charged to retained earnings. u) Financial Instruments The Company initially recognizes financial assets on the trade date at which the Company becomes a party to the contractual provisions of the instrument. Financial assets are initially measured at fair value. On initial recognition, the Company classifies its financial assets as subsequently measured at either amortized cost, fair value through other comprehensive income or fair value through profit or loss, depending on its business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. If the financial asset is not subsequently accounted for at fair value through profit or loss, then the initial measurement includes transaction costs that are directly attributable to the asset’s acquisition or origination. (i) Financial assets measured at amortized cost A financial asset is subsequently measured at amortized cost, using the effective interest method and net of any impairment loss, if: • The asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and • The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and/or interest. The Company currently classifies its cash and cash equivalents and trade and other receivables as assets measured at amortized cost. 54 (ii) Financial assets measured at fair value through other comprehensive income (“OCI”) A financial asset is measured at fair value through OCI if it meets both of the following conditions and is not designated as measured at fair value through profit or loss: • • It is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Company currently has no financial assets measured at fair value through OCI. (iii)Impairment of financial assets The Company uses the “expected credit loss” model for calculating impairment and recognizes expected credit losses as a loss allowance in the consolidated balance sheets if they relate to a financial asset measured at amortized cost. The Company’s trade and other receivables, typically short-term receivables with payments received within a 12-month period, do not have a significant financing component. Therefore, the Company recognizes impairment and measures expected credit losses as lifetime expected credit losses. The carrying amount of these assets in the consolidated balance sheets is stated net of any loss allowance. (iv) Financial assets measured at fair value through profit or loss These assets are measured at fair value and changes therein, including any interest or dividend income, are recognized in profit or loss. The Company currently has no financial assets measured at fair value through profit or loss. (v) Financial liabilities are classified into the following categories Financial liabilities measured at amortized cost: The Company classifies non-derivative financial liabilities as measured at amortized cost. Non- derivative financial liabilities are initially recognized at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest method. The Company currently classifies its revolving credit facility and trade and other payables as financial liabilities measured at amortized cost. Financing costs related to the issuance of the revolving credit facility are classified as a reduction of the revolving credit facility and amortized over the term of the debt using the effective interest method. Financial liabilities measured at fair value through profit or loss: Financial liabilities measured at fair value are initially recognized at fair value and are re-measured at each reporting date with any changes therein recognized in profit or loss. The Company currently has no financial liabilities measured at fair value. 55 (vi) Non-hedge derivative financial instruments measured at fair value Non-hedge derivative financial instruments, including foreign exchange contracts, are recorded as either assets or liabilities measured initially at their fair value. Attributable transaction costs are recognized in profit or loss as incurred. All derivative financial instruments not designated in a hedge relationship are classified as financial instruments at fair value through profit and loss. Any subsequent change in the fair value of non-hedge foreign exchange contracts are accounted for in cost of goods sold for the period in which it arises. (vii) Hedging relationships The Company may enter into derivative financial instruments to hedge its foreign exchange risk exposures of part of its purchases in U.S. dollars. On initial designation of the hedge, the Company formally documents the relationship between the hedging instruments and hedged items, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Company makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be effective in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for which the hedge is designated. For a cash flow hedge of a forecasted transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported net earnings. The time value component of options designated as cash flow hedges is excluded from the hedging relationships and recorded in other comprehensive income as a cost of hedging and, presented separately when significant. Derivatives used for hedging are recognized initially at fair value, and attributable transaction costs are recognized in net earnings as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. Cash flow hedges When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect net earnings, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and presented in accumulated other comprehensive income as part of equity. The amount recognized in other comprehensive income is removed and included in net earnings under the same line item in the consolidated statements of earnings (loss) and comprehensive income as the hedged item, in the same period that the hedged cash flows affect net earnings. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in net earnings. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in other comprehensive income remains in accumulated other comprehensive income until the forecasted transaction affects profit or loss. If the forecasted transaction is no longer expected to occur, then the balance in accumulated other comprehensive income is recognized immediately in net earnings. When the hedged item is a non-financial asset, the amount recognized in other comprehensive income is transferred directly to the initial cost of that asset. 56 v) Fair Value Measurement When measuring the fair value of an asset or liability the Company uses observable market data whenever available. Fair values are classified within the fair value hierarchy based on the lowest level input that is significant to the fair value measurement as a whole, as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). Fair value estimates are made at a specific point in time, using available information about the asset or liability. These estimates are subjective in nature and often cannot be determined with precision. There was no change in the valuation techniques applied to financial instruments during the current year. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. 57 4. DISCONTINUED OPERATIONS During the fiscal year ended January 30, 2021, the Company closed all retail stores and e-commerce channels of the Thyme Maternity and Addition Elle brands. The financial information presented below is directly attributable to both brands. All administrative expenses and various selling and distribution expenses from shared, centralized and common functions of the Company are excluded from the determination of discontinued operations. The operating results are presented as discontinued operations: Earnings (loss) from discontinued operations Sales Cost of goods sold(1) Gross profit Selling and distribution expenses(2)(3) Impairment of non-financial assets(3)(4) Restructuring (note 16)(5) Results from operating activities Finance costs (6) Earnings (loss) before income taxes Income tax expense Net earnings (loss) from discontinued operations Earnings (loss) per share, discontinued operations: Basic Diluted For the years ended January 29, 2022 January 30, 2021 $ $ $ - - - - - (15,032) 15,032 - 15,032 - 15,032 0.31 0.31 $ $ $ 74,086 51,684 22,402 27,507 14,818 51,720 (71,643) 458 (72,101) 80 (72,181) (1.48) (1.48) (1) During the year ended January 30, 2021, inventories recognized as cost of goods sold amounted to $50,168 and the Company recorded a loss of $1,516 on write-downs of inventories due to net realizable value being lower than cost, which were recognized in cost of goods sold. (2) The Company recognized grant income in connection with the Canada Emergency Wage Subsidy of $1,979 as a reduction of selling and distribution expenses for the year ended January 30, 2021. (3) For the year ended January 30, 2021, selling and distribution expenses has increased and impairment of non-financial assets has decreased by $7,200, respectively, to correctly reflect the presentation of these captions within discontinued operations. See note 8. (4) During the year ended January 30, 2021, the Company performed an impairment test for its non-financial assets which resulted in the recognition of impairment losses related to right-of-use assets of $8,826, impairment losses related to property and equipment of $3,794 and impairment losses related to intangible assets of $2,198. See note 8 for methodology and assumptions used in the impairment test. (5) During the year ended January 29, 2022, the provision for disclaimed leases was adjusted to reflect settlement discussions with certain landlords resulting in a recognized gain of $15,032. During the year ended January 30, 2021, right-of-use assets were reduced by $28,455 and lease liabilities were reduced by $31,478. A corresponding gain of $3,023 was recognized in restructuring costs for the year ended January 30, 2021 as lease modifications in connection with leases that were disclaimed as part of the CCAA proceedings. See notes 10 and 16. (6) Finance costs represent interest expense on lease liabilities. 58 The following table presents the effect of discontinued operations on the consolidated statements of cash flows: Net cash flows used in discontinued operations For the years ended January 29, 2022 January 30, 2021 Net cash flow used in operating activities(1) Net cash flow used in investing activities Net cash flow used in financing activities Net cash flow for the period $ $ - - - - $ $ (39,585) (762) (5,903) (46,250) (1) Net cash flows used in operating activities for the year ended January 30, 2021, have increased by $11,508 to properly record depreciation and amortization expense and impairment of non-financial assets between continuing and discontinued operations. The correction of these amounts did not otherwise affect net earnings (loss) from continuing and discontinued operations or the net cash flows from operating activities presented in the consolidated statements of earnings (loss) and the consolidated statements of cash flows for the year ended January 30, 2021. See note 8. 5. CASH AND RESTRICTED CASH Cash (1) Restricted cash (2) January 29, 2022 January 30, 2021 $ 25,502 2,757 $ 28,259 $ 75,162 2,753 $ 77,915 (1) The Company’s cash held with banks bears interest at variable rates. (2) Restricted cash represents cash held in trust by a Canadian financial institution as security on a standby letter of credit. Restricted cash is presented as non-current on the consolidated balance sheets. 6. TRADE AND OTHER RECEIVABLES As at January 29, 2022, trade and other receivables include an amount of $4,651 (January 30, 2021 - $7,922) related to government grants receivable. The Government of Canada made available to businesses affected by COVID-19 the Canada Emergency Wage Subsidy (“CEWS”), which allows companies to claim a portion of employee wages, and the Canada Emergency Rent Subsidy (“CERS”), which allows companies to claim a portion of rent and occupancy costs when eligibility requirements are met. The Government of Canada consolidated these subsidies for periods starting from October 24, 2021, under the Tourism and Hospitality Recovery Program (“THRP”) through which subsidies for wages and rent can be claimed. As at January 29, 2022, the Company qualified to receive both the wage and rent subsidy through the THRP and there was reasonable assurance that the amount would be received from the government. The Company also intends to apply for the THRP in subsequent application periods, where the qualification criteria continue to be met. For the year ended January 29, 2022, the Company recognized grant income of $18,646 related to the CEWS & THRP and $2,417 related to the CERS & THRP as a reduction of selling and distribution expenses, and $1,658 related to the CEWS & THRP as a reduction of administrative expenses. For the year ended January 30, 2021, the Company recognized grant income of $31,038 related to the CEWS and $1,448 related to the CERS as a reduction of selling and distribution expenses, and $2,904 related to the CEWS as a reduction of administrative expenses. 59 7. INVENTORIES During the year ended January 29, 2022, inventories recognized as cost of goods sold amounted to $305,212 (January 30, 2021 - $272,689). In addition, for the year ended January 29, 2022, the Company recorded $3,575 (January 30, 2021 - $14,419) of inventory write-downs as a result of net realizable value being lower than cost which were recognized in cost of goods sold, and no inventory write-downs recognized in previous periods were reversed. Included in inventories is a return asset for the right to recover returned goods in the amount of $3,181 as at January 29, 2022 (January 30, 2021 - $2,484). 8. PROPERTY AND EQUIPMENT Cost Balance at February 2, 2020 Additions Derecognition of fully amortized assets Balance at January 30, 2021 Balance at January 31, 2021 Additions Derecognition of fully amortized assets Balance at January 29, 2022 Accumulated depreciation and impairment losses Balance at February 2, 2020 Depreciation(1) Impairment loss(1) Derecognition of fully amortized assets Balance at January 30, 2021 Balance at January 31, 2021 Depreciation Impairment loss (reversal) Derecognition of fully amortized assets Balance at January 29, 2022 Net carrying amounts At January 30, 2021 At January 29, 2022 Land Buildings Fixtures and Equipment Leasehold Improvements Total $ 5,860 - - $ 5,860 $ 5,860 - - $ 5,860 $ $ $ $ - - - - - - - - - - $ 38,177 326 (623) $ 37,880 $ 37,880 2 (499) $ 37,383 $ 15,856 1,295 133 (623) $ 16,661 $ 16,661 1,236 - (499) $ 17,398 $ 90,805 3,541 (22,821) $ 71,525 $ 49,003 2,124 (18,484) $ 32,643 $ 71,525 9,016 (11,256) $ 69,285 $ 32,643 3,443 (7,953) $ 28,133 $ 48,861 10,522 5,077 (22,768) $ 41,692 $ 31,038 6,053 4,828 (18,476) $ 23,443 $ 41,692 8,419 288 (11,256) $ 39,143 $ 23,443 3,328 (668) (7,953) $ 18,150 $ 183,845 5,991 (41,928) $ 147,908 $ 147,908 12,461 (19,708) $ 140,661 $ 95,755 17,870 10,038 (41,867) $ 81,796 $ 81,796 12,983 (380) (19,708) $ 74,691 $ 5,860 $ 5,860 $ 21,219 $ 19,985 $ 29,833 $ 30,142 $ $ 9,200 9,983 $ 66,112 $ 65,970 (1) For the year ended January 30, 2021, depreciation has been increased and impairment loss has been decreased by $6,308, respectively. See ‘Comparative financial information’ below. 60 During the years ended January 29, 2022 and January 30, 2021, the Company tested for impairment certain CGUs for which there were indications that their carrying amounts may not be recoverable. The impairment related to the property and equipment, intangible assets and right-of-use assets is due to the reduction in profitability of CGUs such that the estimated recoverable amount falls below the carrying amount of the CGU. Impairment losses, excluding reversals of impairment, recognized were as follows: For the year ended January 29, 2022 For the year ended January 30, 2021(1) Combined Continuing Discontinued Combined Continuing Discontinued Property and equipment Intangible assets Right-of-use assets $ 355 1,991 - $ 2,346 $ $ 355 1,991 - 2,346 $ $ - - - - $ 10,038 3,564 17,740 $ 31,342 $ 6,244 1,366 8,914 $ 16,524 $ 3,794 2,198 8,826 $ 14,818 (1) For the year ended January 30, 2021, impairment losses related to property and equipment have been decreased by $6,308 and impairment losses related to intangible assets has been decreased by $892 for discontinued operations. See ‘Comparative financial information’ below. When determining the value in use of a retail location, the Company develops a discounted cash flow model for each CGU. The duration of the cash flow projections for individual CGUs varies based on the remaining useful life of the significant asset within the CGU. Sales forecasts for cash flows are based on actual operating results, industry’s expected growth rates and management’s experiences. As at January 29, 2022, the recoverable amounts of the CGUs tested for impairment were based on their value in use which was determined using a pre-tax discount rate of 14.0% (January 30, 2021 - 19.0%). A reversal of impairment occurs when previously impaired individual retail store locations see increased profitability. During the year ended January 29, 2022, $735 (January 30, 2021 – nil) of asset impairment losses were reversed following an improvement in the profitability of certain CGUs. Depreciation expense related to property and equipment is presented as follows: For the year ended January 29, 2022 For the year ended January 30, 2021(1) Combined Continuing Discontinued Combined Continuing Discontinued Selling and distribution expenses Administrative expenses $ 11,835 1,148 $ 12,983 $ 11,835 1,148 $ 12,983 $ $ - - - $ 16,681 1,189 $ 17,870 $ 16,024 1,189 $ 17,213 $ $ 657 - 657 (1) For the year ended January 30, 2021, depreciation expenses recognized in selling and distribution expenses has been increased by $6,801 for continuing operations and decreased by $493 for discontinued operations. See ‘Comparative financial information’ below. Property and equipment include an amount of $674 (January 30, 2021 - $120) that is not being depreciated. Depreciation will begin when the assets are available for use. 61 Comparative financial information The comparative financial information for the year ended January 30, 2021, related to depreciation and amortization included within selling and distribution expenses and impairment losses related to property and equipment, intangible assets and right-of-use assets, were recast to reflect the correct presentation between those different captions within continuing and discontinued operations. The reclassification adjustments are summarized as follows: Depreciation and amortization Property and equipment Intangible assets Right-of-use assets Impairment losses Property and equipment Intangible assets Right-of-use assets For the year ended January 30, 2021 Combined Continuing Discontinued $ 6,308 892 - 7,200 $ 6,801 1,040 3,667 11,508 $ (6,308) (892) - (7,200) - - - - (493) (148) (3,667) (4,308) (6,308) (892) - (7,200) Selling and distribution expenses(1) $ - $ (11,508) $ 11,508 (1) Expenses other than depreciation and amortization presented within the caption selling and distribution expenses. The recast of these amounts did not otherwise affect net earnings (loss) from continuing and discontinued operations presented in the consolidated statements of earnings (loss) for the year ended January 30, 2021. 62 9. INTANGIBLE ASSETS Intangible assets consist of software as follows: Cost Balance at beginning of the year Additions Derecognition of fully amortized assets Write-offs (2) Balance at end of the year Accumulated amortization and impairment losses Balance at beginning of the year Amortization Impairment loss (note 8) Derecognition of fully amortized assets Balance at end of the year January 29, 2022 January 30, 2021(1) $ $ 25,450 2,404 (8,500) (1,991) 17,363 $ 15,119 5,131 - (8,500) $ 11,750 $ 37,799 726 (13,075) - $ 25,450 $ 17,532 7,098 3,564 (13,075) $ 15,119 Net carrying amounts $ 5,613 $ 10,331 (1) For the year ended January 30, 2021, amortization has been increased and impairment loss has been decreased by $892, respectively. See note 8. (2) Write-offs relate to unamortized costs for projects that were discontinued. These costs were recognized in impairment of non-financial assets in the consolidated statements of earnings. Depreciation expense related to intangible assets is presented as follows: For the year ended January 29, 2022 For the year ended January 30, 2021(1) Combined Continuing Discontinued Combined Continuing Discontinued Selling and distribution expenses Administrative expenses $ $ 2,705 2,426 5,131 $ 2,705 2,426 $ 5,131 $ $ - - - $ 4,669 2,429 $ 7,098 $ 4,536 2,429 $ 6,965 $ $ 133 - 133 (1) For the year ended January 30, 2021, depreciation expenses recognized in selling and distribution expenses has been increased by $1,040 for continuing operations and decreased by $148 for discontinued operations. See note 8. Intangible assets include an amount of $2,210 (January 30, 2021 - $2,570) that is not being amortized. Amortization will begin when the software is available for use. 63 10. LEASES The Company leases all of its retail locations and certain office equipment. Retail locations typically have a fixed lease term with additional renewal options available to exercise. The Company has included renewal options in the measurement of its right-of-use assets and lease liabilities when it is reasonably certain to exercise the options. Right-of-use assets Balance as at February 2, 2020 Lease additions Lease modifications Disclaimed leases (1) Depreciation Impairment loss (note 8) Balance as at January 30, 2021 Retail locations $ 195,894 28,207 (27,009) (35,201) (42,182) (17,740) $ 101,969 Office equipment $ 2,203 740 - - (1,081) - $ 1,862 Total $ 198,097 28,947 (27,009) (35,201) (43,263) (17,740) $ 103,831 (1) Disclaimed leases represent the right-of-use assets related to certain leases terminated as part of the CCAA proceedings. A provision related to these leases was recognized in liabilities subject to compromise. See note 16. Balance as at January 31, 2021 Lease additions Lease modifications Depreciation Balance as at January 29, 2022 Retail locations $ 101,969 23,304 (52,736) (28,465) $ 44,072 Office equipment $ 1,862 126 (76) (1,006) 906 $ Total $ 103,831 23,430 (52,812) (29,471) $ 44,978 Depreciation expenses related to right-of-use assets presented as follows: For the year ended January 29, 2022 For the year ended January 30, 2021(1) Combined Continuing Discontinued Combined Continuing Discontinued Selling and distribution expenses Administrative expenses $ 29,113 358 $ 29,471 $ 29,113 358 $ 29,471 $ $ - - - $ 42,726 537 $ 43,263 $ 39,319 537 $ 39,856 $ 3,407 - $ 3,407 (1) For the year ended January 30, 2021, depreciation expenses recognized in selling and distribution expenses has been increased and decreased by $3,667 for continuing and discontinued operations, respectively. See note 8. 64 During the year ended January 29, 2022, right-of-use assets for retail locations were reduced by $52,736 and lease liabilities were reduced by $59,468 with a corresponding gain of $6,732 recognized in restructuring costs for continuing operations as lease modifications related to lease re-negotiations. See note 16. During the year ended January 30, 2021, right-of-use assets were reduced by $6,746 and lease liabilities were reduced by $10,039. A corresponding gain of $3,293 was recognized in restructuring costs for continuing operations as lease modifications in connection with leases that were disclaimed as part of the CCAA proceedings. Lease liabilities Balance at the beginning of the year Lease additions Lease modifications Disclaimed leases (1) Payment of lease liabilities Interest expense on lease liabilities (note 20) Lease liabilities subject to compromise (note 16) Balance at the end of the year Current portion of lease liabilities Non-current portion of lease liabilities Total lease liabilities January 29, 2022 $ 123,217 23,430 (59,544) - (38,822) 4,026 - 52,307 $ $ $ 20,888 31,419 52,307 January 30, 2021 $ 213,869 28,947 (28,182) (41,517) (46,818) 6,201 (9,283) 123,217 35,303 87,914 123,217 $ $ $ (1) Disclaimed leases represented the lease liabilities related to certain leases terminated as part of the CCAA proceedings. A provision related to these leases was recognized in liabilities subject to compromise for the year ended January 30, 2021. See note 16. The following table presents a maturity analysis of future contractual undiscounted cash flows for lease liabilities by fiscal year: 2023 2024 2025 2026 2027 Thereafter Total undiscounted lease liabilities $ $ 24,030 14,989 8,243 5,720 4,004 2,468 59,454 The Company has certain retail locations where portions of the lease payments are contingent on a percentage of sales or where lease payments are made with no fixed term. During the year ended January 29, 2022, the Company recognized $7,705 (January 30, 2021 - $2,052) of variable lease payments and $1,156 (January 30, 2021 - $1,310) of lease payments with no fixed term recorded in selling and distribution expenses. During the year ended January 29, 2022, the Company recognized expenses relating to short-term leases of $161 (January 30, 2021 - $1,650). As at January 29, 2022, $32,980 (January 30, 2021 - $45,437) of undiscounted future lease payments are related to extension options that were not deemed to be reasonably certain to be exercised and were not included in lease liabilities. 65 11. PENSION ASSET (LIABILITY) The following tables present reconciliations of the pension obligation, the plan assets and the funded status of the retirement benefit plans. During the year ended January 30, 2021, and in connection with CCAA proceedings, the pre-petition portion of the pension liability related to the Supplemental Executive Retirement Plan (“SERP”) of $21,014, for which the fair value of plan assets is $nil, was reclassified to liabilities subject to compromise. The SERP, a retirement plan for certain senior executives which was neither registered nor pre-funded, was terminated effective with the settlement of these liabilities through the plan of arrangement to be entered into under CCAA. See note 16. Funded Status As at January 29, 2022 Plan As at January 30, 2021 Plan Fair value of plan assets Defined benefit obligation Pension asset (liability) $ 23,019 $ 22,919 $ 100 $ 22,676 $ 25,768 $ (3,092) Movement in the present value of the defined benefit obligation Defined benefit obligation, beginning of year Current service cost Interest cost Employee contributions Actuarial gain - experience Actuarial (gain) loss - financial assumptions Benefits paid from plan assets Benefits paid directly by the Company SERP pension liability reclassified to liabilities subject to compromise Defined benefit obligation, end of year Movement in the fair value of plan assets Fair value of plan assets, beginning of year Return on plan assets Interest income on plan assets Employer contributions Employee contributions Benefits paid Plan administration costs Fair value of plan assets, end of year For the years ended January 29, 2022 Plan January 30, 2021 SERP Total Plan $ 25,768 1,152 677 109 (113) (2,671) (2,003) - - $ 22,919 $ 22,676 1,102 571 701 109 (2,003) (137) $ 23,019 $ 26,737 1,503 694 109 (166) 173 (3,282) - $ 21,103 394 - - - - - (483) $ 47,840 1,897 694 109 (166) 173 (3,282) (483) - $ 25,768 (21,014) - $ (21,014) $ 25,768 $ 23,627 707 584 1,099 109 (3,281) (169) $ 22,676 $ $ - - - 483 - (483) - - $ 23,627 707 584 1,582 109 (3,764) (169) $ 22,676 66 For the year ended January 29, 2022, the net defined benefit obligation can be allocated to the plans’ participants as follows: • Active plan participants 39% (2021 - 37%) • Retired plan members 57% (2021 - 57%) • Deferred and other plan participants 4% (2021 - 6%) The defined benefit pension plan assets are held in trust and consisted of the following assets categories, which are not based on quoted market prices in an active market: Equity securities Canadian – pooled funds Canadian – real estate fund Foreign – pooled funds Total equity securities Debt securities – fixed income pooled funds Cash and cash equivalents Total January 29, 2022 January 30, 2021 $ 7,236 1,284 5,147 13,667 8,974 378 $ 23,019 31% 6% 22% 59% 39% 2% 100% $ 8,213 1,118 4,049 13,380 9,030 266 $ 22,676 36% 5% 18% 59% 40% 1% 100% The Company’s pension expense was as follows: Pension costs recognized in net earnings Current service cost Net interest cost on net pension asset Plan administration costs For the years ended January 29, 2022 Plan January 30, 2021 SERP Plan Total $ 1,152 106 137 $ $ 1,503 110 169 394 - - $ 1,897 110 169 Pension expense $ 1,395 $ 1,782 $ 394 $ 2,176 During the year ended January 29, 2022, the Company recognized pension expense of $774 (January 30, 2021 - $1,207) in selling and distribution expenses and $621 (January 30, 2021 - $969) in administrative expenses in the consolidated statements of earnings (loss). The following table presents the change in the actuarial gains and losses recognized in other comprehensive income and subsequently reclassified from accumulated other comprehensive income to retained earnings for the Plan: Cumulative loss in retained earnings at the beginning of the year Gain recognized during the year (net of tax of $nil for 2022 & 2021) Cumulative (gain) loss in retained earnings at the end of the year $ $ 1,434 (3,886) (2,452) January 29, 2022 January 30, 2021 $ 2,134 (700) $ 1,434 For the years ended 67 Actuarial assumptions Principal actuarial assumptions used were as follows: Accrued benefit obligation: Discount rate Salary increase Mortality Employee benefit expense: Discount rate Salary increase Sensitivity of Key Actuarial Assumptions For the years ended January 29, 2022 January 30, 2021 3.40% 4.00% 2014 Private Sector Canadian Pensioner’s Mortality Table, projected generationally using Scale MI- 2017, adjusted for pension size 2.60% 4.00% 2014 Private Sector Canadian Pensioner’s Mortality Table, projected generationally using Scale MI- 2017, adjusted for pension size 3.40% 4.00% 2.60% 4.00% The following table outlines the key assumptions for the years ended January 29, 2022 and January 30, 2021 and the sensitivity of a 1% change in each of these assumptions on the defined benefit plan obligations and the net defined benefit plan costs. The sensitivity analysis provided in the table is hypothetical and should be used with caution. The sensitivities of each key assumption have been calculated independently of any changes in other key assumptions. Actual experience may result in changes in a number of key assumptions simultaneously. Changes in one factor may result in changes in another, which could amplify or reduce the impact of such assumptions. (Decrease) increase in defined benefit obligation of the Plan Discount rate Impact of increase of 1% Impact of decrease of 1% Salary increase or decrease Impact of increase of 1% Impact of decrease of 1% Lifetime expectancy For the years ended January 29, 2022 January 30, 2021 $ (2,737) $ 3,444 $ $ 604 (501) $ (5,664) $ 6,438 $ $ 607 (593) Impact of increase of 1 year in expected lifetime of plan members $ 598 $ 1,317 68 Overall return in the capital markets and the level of interest rates affect the funded status of the Company's pension plans. Adverse changes with respect to pension plan returns and the level of interest rates from the date of the last actuarial valuation may have an adverse effect on the funded status of the retirement benefit plans and on the Company’s results of operations. The Company expects $751 in employer contributions to be paid to the Plan in the year ending January 28, 2023. The weighted average duration of the Plan is approximately 13.3 years as at January 29, 2022 (January 30, 2021 - 14 years). The Company measures its accrued benefit obligations and the fair value of plan assets for accounting purposes at year-end. The most recent actuarial valuation for funding purposes was as of December 31, 2018 and the next required valuation will be as of December 31, 2021. 12. INCOME TAX Income tax expense The Company’s income tax (recovery) expense is comprised as follows: Current tax (recovery) expense Current year Adjustment in respect of prior years Current tax (recovery) expense from continuing operations Deferred tax (recovery) expense Origination and reversal of temporary differences Changes in tax rates Deferred tax (recovery) expense from continuing operations For the years ended January 29, 2022 January 30, 2021 $ 376 (761) (385) 76 (111) (35) $ 173 (23) 150 (115) 156 41 Total tax (recovery) expense from continuing operations $ (420) $ 191 Deferred tax expense from discontinued operations Total tax (recovery) expense - (420) $ 80 271 $ Income tax recognized in other comprehensive income January 29, 2022 January 30, 2021 For the years ended Before tax Tax expense Net of tax Before tax Tax recovery Net of tax Cash flow hedges Defined benefit plan actuarial gains $ - $ 3,886 $ 3,886 $ - - - $ - $ (1,027) $ 272 $ (755) 3,886 $ 3,886 700 (327) $ - 272 700 (55) $ $ 69 Reconciliation of effective tax rate Earnings (loss) before income taxes Income tax expense (recovery) using the Company’s statutory tax rate Changes in tax rates Non-deductible expenses and other adjustments Change in unrecognized deferred tax assets Effect of tax in foreign jurisdictions Adjustment in respect of prior years Income tax (recovery) expense For the years ended January 29, 2022 January 30, 2021 $ 142,804 $ (99,845) 37,846 (111) 16 (37,161) (249) (761) (420) 26.50% (0.08%) 0.01% (26.02%) (0.17%) (0.53%) (0.29%) (26,525) 156 221 26,564 (202) (23) 191 26.57% (0.16%) (0.22%) (26.60%) 0.20% 0.02% (0.19%) $ $ Recognized deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Lease liabilities Right-of-use assets Property, equipment and intangible assets Inventories Pension asset Other Assets Liabilities Net January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021 $ 11,685 - $ 27,026 - $ - 11,685 $ - 27,026 $ 11,685 (11,685) $ 27,026 (27,026) 3,009 - - - $ 14,694 2,309 - - - $ 29,335 - 1,637 676 510 $ 14,508 - 1,621 - 537 $ 29,184 3,009 (1,637) (676) (510) 186 $ 2,309 (1,621) - (537) 151 $ Changes in deferred tax balances during the year Lease liabilities Right-of-use assets Property, equipment and intangible assets Inventories Derivative financial asset Pension asset Other Balance February 1, 2020 $ 51,771 (51,771) 2,219 (1,947) (272) - - - $ Recognized in Net Earnings $(24,745) 24,745 90 326 - - (537) (121) $ Recognized in Other Comprehensive Income $ $ - - - - 272 - - 272 Balance January 30, 2021 $ 27,026 (27,026) 2,309 (1,621) - - (537) 151 $ Recognized in Net Earnings Balance January 29, 2022 $ 11,685 $ (15,341) (11,685) 15,341 700 3,009 (16) (1,637) - (676) (510) 186 - (676) 27 35 $ $ 70  Unrecognized deferred tax assets Deferred income tax assets were not recognized on the consolidated balance sheets in respect of the following items: Non-capital losses carry-forward Deductible temporary differences Allowable capital losses carry-forward Unrecognized deferred tax assets January 29, 2022 January 30, 2021 $ 20,700 23,078 3,168 $ 46,946 $ 20,460 65,450 3,133 $ 89,043 The non-capital losses carry-forward expire between 2034 and 2042. The deductible temporary differences and allowable capital losses carry-forward do not expire under current income tax legislation. Deferred income tax assets were not recognized in respect of these items because, as at January 29, 2022, it was not probable that sufficient future taxable income will be available from the Canadian operations to utilize the benefits. 13. REVOLVING CREDIT FACILITY On January 12, 2022, as part of its emergence from CCAA proceedings, the Company replaced its interim financing (“DIP Loan”) that was for an amount of up to $30,000 and entered into a senior secured asset- based revolving facility with a Canadian financial institution for an amount of up to $115,000 (“Borrowing Base”), or its US dollar equivalent, which matures on January 12, 2025. The revolving credit facility is classified as current in the consolidated balance sheets as it is being managed and expected to be settled by the Company in its normal operating cycle. The Borrowing Base is dependent on certain factors including, but not limited to, the level of the Company’s inventory, credit card receivables and the statutory amount payables to governmental authorities. As of January 29, 2022, the Company’s Borrowing Base was $90,708. The Company can borrow in Canadian or US dollars at prime, base, CDOR or SOFR rates. The facility bears interest at the prime or base rate, plus 0.50% or 0.75% and, up to 2.00%, and at the CDOR or SOFR rate, plus 1,75% or 2,00%, based on the average excess availability of the credit facility per the Borrowing Base. Up to $35,000 (or its U.S. dollar equivalent) of the facility can be withdrawn through secured letters of credit. As at January 29, 2022, $29,634 was drawn under the revolving credit facility and there were no amounts committed for secured letters of credit (January 30, 2021 - $396). The facility is secured by certain of the Company’s assets including trade receivables, inventories and property and equipment. The Company is required to maintain certain financial covenants related to this revolving credit facility. As at January 29, 2022, the Company was in compliance of all financial covenants. 71 14. TRADE AND OTHER PAYABLES Trade payables Personnel liabilities Other non-trade payables Refund liability Deferred rent and payables relating to premises 15. DEFERRED REVENUE Loyalty points and awards granted under loyalty programs Unredeemed gift cards January 29, 2022 January 30, 2021 $ 1,280 13,049 16,406 3,181 562 $ 34,478 $ 2,098 10,898 12,687 4,439 1,400 $ 31,522 January 29, 2022 January 30, 2021 $ 248 13,242 $ 13,490 $ 209 12,253 $ 12,462 16. LIABILITIES SUBJECT TO COMPROMISE AND RESTRUCTURING On January 12, 2022, the Company emerged from its restructuring proceedings in connection with CCAA and, in accordance with the Plan, made a payment in the aggregate amount of $95,000 to the Monitor to be distributed to its creditors in full and final settlement of all claims affected by the Plan. See note 2 b). The Company identified the following unsecured liabilities subject to compromise at the time of settlement: Trade payables Provision for disclaimed leases Pension liabilities (note 11) Termination benefit liabilities Lease liabilities Sales and income taxes payable Other non-trade payables $ 77,752 33,126 21,014 13,991 9,686 3,955 24,089 $ 183,613 As a result of the settlement of the above claims, the Company recognized a gain on settlement of liabilities subject to compromise of $88,613 in the consolidated statement of earnings for the year ended January 29, 2022. 72 Restructuring As described in note 2 b), as part of its restructuring plan and as approved by the Monitor, the Company closed all retail stores and e-commerce for Thyme Maternity and Addition Elle and terminated approximately 1,600 employees at its retail locations and head office. In connection with the restructuring plan and the CCAA proceedings, the following restructuring costs (recovery of restructuring costs) were recognized: For the year ended January 29, 2022 Continuing Discontinued Combined Rent & occupancy costs recovered on lease re- negotiations Recovery for disclaimed leases (1) Gain on lease modifications on lease re- negotiations (note 10) Legal, Monitor and other consulting fees Inventory purchases cancellation costs and other expenses Termination benefits DIP lender fees $ (10,493) (19,330) $ (10,493) (4,298) $ - (15,032) (6,732) 4,210 (6,732) 4,210 - - 3,605 1,206 253 $ (27,281) 3,605 1,206 253 $ (12,249) - - - $ (15,032) (1) During the year ended January 29, 2022, the provision for disclaimed leases was adjusted to reflect settlement discussions with certain landlords. For the year ended January 30, 2021 Continuing Discontinued Combined Provision for disclaimed leases Gain on lease modifications and disclaimed leases (notes 4 and 10) Rent & occupancy costs recovered on lease re- negotiations (1) Termination benefits Inventory purchases cancellation costs and other expenses Legal, Monitor and other consulting fees DIP lender fees $ 52,455 $ 9,726 $ 42,729 (8,216) (5,933) 12,786 (5,193) (5,933) 7,365 (3,023) - 5,421 15,725 4,875 611 $ 72,303 9,132 4,875 611 $ 20,583 6,593 - - $ 51,720 (1) Rent and occupancy costs recovered on lease re-negotiation in the amount of $5,933 were reclassified from selling and distribution expenses to restructuring costs for the year ended January 30, 2021. 73 17. SHARE CAPITAL AND OTHER COMPONENTS OF EQUITY Share capital for each of the years listed was as follows: Common shares Balance at beginning and end of the year Class A non-voting shares Balance at beginning and end of the year For the years ended January 29, 2022 January 30, 2021 Number of shares (in 000’s) Carrying amount Number of shares (in 000’s) Carrying amount 13,440 $ 482 13,440 $ 482 35,427 26,924 35,427 26,924 Total share capital 48,867 $ 27,406 48,867 $ 27,406 Authorized Share Capital The Company has authorized for issuance an unlimited number of Common shares and Class A non-voting shares. Both Common shares and Class A non-voting shares have no par value. All issued shares are fully paid. The Common shares and Class A non-voting shares of the Company rank equally and pari passu with respect to the right to receive dividends and upon any distribution of the assets of the Company. However, in the case of share dividends, the holders of Class A non-voting shares shall have the right to receive Class A non- voting shares and the holders of Common shares shall have the right to receive Common shares. Accumulated Other Comprehensive Income (“AOCI”) AOCI is comprised of the following: Cash Flow Hedges Foreign Currency Translation Differences Total AOCI Balance at January 31, 2021 Change in foreign currency translation differences Balance at January 29, 2022 $ $ - - - $ $ (854) 1 (853) $ $ (854) 1 (853) Balance at February 2, 2020 Net change in fair value of cash flow hedges (net of tax of $3,229) Transfer of realized gain on cash flow hedges to inventory (net of tax of $79) Reclassification of cash flow hedges from OCI to foreign exchange gain within finance income (net of tax of $3,583) (note 25) Change in foreign currency translation differences Balance at January 30, 2021 $ 754 $ (981) $ (227) 8,815 218 - - 8,815 218 (9,787) - - $ - 127 (854) (9,787) 127 (854) $ $ 74 Dividends No dividends were declared or paid during years ended January 29, 2022 and January 30, 2021. 18. SHARE-BASED PAYMENTS Share Option Plan On April 19, 2021, the share option plan was amended to terminate the Share Appreciation Rights (“SARs”) program and, in compliance with the policies of the TSX Venture Exchange, transition to a fixed plan that limits the eligible amount of Class A non-voting shares that can be issued pursuant to the exercise of options to 3,500,000. No SARs had been granted or were outstanding as of the date of termination of the program. Those changes had no impact on these consolidated financial statements. Under the plan, the granting of options and the related vesting period, which is normally up to 4 years, are at the discretion of the Board of Directors and the options have a maximum term of up to 7 years. The exercise price payable for each Class A non-voting share covered by a share option is determined by the Board of Directors at the date of grant, but may not be less than the closing price of the Company’s Class A non-voting shares on the trading day immediately preceding the effective date of the grant. The changes in outstanding share options were as follows: For the years ended January 29, 2022 January 30, 2021 Outstanding, at beginning of year Forfeited Outstanding, at end of year Options exercisable, at end of year Options (in 000’s) 1,357 (231) 1,126 1,116 Weighted Average Exercise Price $ 8.84 10.24 8.56 8.57 $ $ Options (in 000’s) 1,759 (402) 1,357 1,325 Weighted Average Exercise Price $ 8.20 6.03 8.84 8.90 $ $ No share option awards were granted or exercised during the years ended January 29, 2022 and January 30, 2021. The cost of granted options are expensed over their vesting period based on their estimated fair values on the date of the grant, determined using the Black Scholes option pricing model. The following table summarizes information about share options outstanding at January 29, 2022: Range of Exercise Prices $4.40 - $6.00 $6.31 - $6.75 $11.68 - $15.00 Number Outstanding (in 000’s) 331 470 325 1,126 Options Outstanding Weighted Average Remaining Contractual Life 2.18 years 2.58 0.01 1.72 years Weighted Average Exercise Price $ 5.90 6.68 13.98 8.56 $ Options Exercisable Number Exercisable (in 000’s) 331 460 325 1,116 Weighted Average Exercise Price $ 5.90 6.68 13.98 8.57 $ For the year ended January 29, 2022, compensation costs related to the Company’s share option plan were negligible (January 30, 2021 - $12). 75 Performance Share Units (cash-settled) The Company has a performance share unit (“PSUs”) plan for its executives and key management that entitles them to a cash payment. The PSUs vest based on non-market performance conditions measured over a three fiscal-year period (“performance period”). The number of PSUs that can vest can be up to 1.5 times the actual number of PSUs awarded if exceptional performance is achieved. Upon settlement of the vested PSUs, the cash payment will be equal to the number of PSUs multiplied by the fair value of the Common shares calculated using the volume weighted average trading price during the five trading days commencing five trading days subsequent to the release of the Company’s financial results for the performance period. No PSUs were granted during the years ended January 29, 2022 and January 30, 2021. The changes in outstanding PSUs were as follows: Outstanding, at beginning of year Forfeited Expired Outstanding, at end of year For the years ended January 29, 2022 January 30, 2021 PSUs (in 000’s) 450 (10) (200) 240 PSUs (in 000’s) 760 (172) (138) 450 As at January 29, 2022 and January 30, 2021, the Company did not expect to meet the minimum non-market performance conditions required for all issued PSUs to vest. As a result, the Company did not recognize share-based compensation costs related to PSUs for the years ended January 29, 2022 and January 30, 2021. 19. COMMITMENTS As at January 29, 2022, financial commitments to purchase goods or services that are enforceable and legally binding on the Company, exclusive of additional amounts based on sales, taxes and other costs are payable as follows: Within 1 year Within 2 years Within 3 years Within 4 years Within 5 years Subsequent years Total Purchase Obligations $ 147,919 5,002 1,408 203 - - $ 154,532 Other Service Contracts $ 3,481 2,068 1,025 427 - - $ 7,001 Total $ 151,400 7,070 2,433 630 - - $ 161,533 Included in prepaid expenses and other assets as at January 29, 2022 is an amount of $32,221 (January 30, 2021 - $18,382) representing deposits to vendors for ordered merchandise. For the timing of payments under lease obligations, refer to note 10. 76 20. FINANCE INCOME AND FINANCE COSTS Interest income Foreign exchange gain (1) Finance income Interest expense on lease liabilities Interest expense on revolving credit facility Finance costs Net finance (costs) income recognized in net earnings (loss) For the years ended January 29, 2022 January 30, 2021 $ $ 353 3,372 3,725 4,026 41 4,067 (342) $ 436 13,461 13,897 5,744 - 5,744 8,153 $ (1) Included in foreign exchange gain for the year ended January 30, 2021, is a realized gain of $9,741 on maturity and disposal of foreign exchange contracts. See note 25. 21. EARNINGS (LOSS) PER SHARE The number of shares (in thousands) used in the basic and diluted earnings (loss) per share and basic and diluted earnings (loss) per share from continuing and discontinued operations calculations is as follows: For the years ended January 29, 2022 January 30, 2021 Weighted average number of shares – basic and diluted 48,867 48,867 As at January 29, 2022 and January 30, 2021, all share options were excluded from the calculation of diluted loss per share as these options were deemed to be anti-dilutive. The average market value of the Company’s shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding. 22. RELATED PARTY TRANSACTIONS Transactions with Key Management Personnel Key management personnel are those persons (both executive and non-executive) who have the authority and responsibility for planning, directing and controlling the activities of the entity - directly or indirectly. The Board of Directors (which includes the Chief Executive Officer and President) has the responsibility for planning, directing and controlling the activities of the Company and are considered key management personnel. The Board of Directors participate in the share option plan, as described in note 18. During the year ended January 29, 2022, the Company incurred $1,810 (January 30, 2021- $1,344) in compensation expenses for key management personnel consisting of salaries, directors’ fees and short-term benefits. Other Related-Party Transactions During the year ended January 29, 2022, the Company incurred $1,156 (January 30, 2021- $1,262) for legal services rendered by a law firm connected to certain members of the Board of Directors. These transactions are recorded at the amount of consideration paid as established and agreed to by the related parties. 77 As at January 30, 2021, liabilities subject to compromise includes pension liabilities related to the SERP of $7,194 payable to the Company’s President and Chief Executive Officer and Chief Financial Officer. See notes 11 and 16. 23. PERSONNEL EXPENSES Wages, salaries and employee benefits, net of government assistance Expenses related to defined benefit plans For the years ended January 29, 2022 January 30, 2021 $ 132,767 1,395 $ 134,162 $ 104,481 2,176 $ 106,657 24. SUPPLEMENTARY CASH FLOW INFORMATION Non-cash transactions: Additions to property and equipment and intangible assets included in trade and other payables Lease liabilities included in liabilities subject to compromise Income taxes payable included in liabilities subject to compromise For the years ended January 29, 2022 January 30, 2021 $ 1,517 - $ 1,874 9,686 - 184 For the year ended January 29, 2022, payments of lease liabilities of $38,822 include interest of $4,026 (payments of lease liabilities of $46,818 include interest of $6,201 for the year ended January 30, 2021). 25. FINANCIAL INSTRUMENTS Accounting classification and fair values The Company has determined that the fair value of its current financial assets and liabilities at January 29, 2022 and January 30, 2021 (other than liabilities subject to compromise) approximates their respective carrying amounts as at the reporting dates because of the short-term nature of those financial instruments. There were no transfers between levels of the fair value hierarchy for the years ended January 29, 2022 and January 30, 2021. Derivative financial instruments The Company had entered into forward contracts with its banks on the U.S. dollar. These foreign exchange contracts extended over a period normally not exceeding twelve months and were normally designated as cash flow hedges to mitigate foreign exchange risk that is part of its U.S. dollar purchases. During the year ended January 30, 2021, the Company determined that it no longer met the criteria for these purchases as a result of the Company’s effort to reduce future inventory purchases in response to the uncertainty surrounding COVID-19 and the restructuring plan (notes 2(b) and 16). During the year ended January 30, 2021, $130,000 of future U.S. dollar denominated purchases, hedged by outstanding forward contracts with an accumulated 78 gain of $9,787 (net of tax of $3,583), were no longer expected to occur. As a result, the Company no longer designated these forward contracts for hedge accounting and has reclassified the accumulated unrealized gain associated with these forward contracts from other comprehensive income to net earnings as part of finance income (note 20). During the year ended January 30, 2021, the Company temporarily paused its hedging program due to the uncertainties surrounding future inventory purchase commitments as a result of COVID-19 and the restructuring plan (notes 2(b) and 16). During the year ended January 30, 2021, forward contracts with a notional amount of $60,000 U.S. dollars matured and the Company disposed of all remaining outstanding forward contracts with a notional amount of $115,000 U.S. dollars, resulting in a foreign exchange gain of $9,741 recognized directly to net earnings as part of finance income. See note 20. As at January 29, 2022, the Company’s hedging program remained temporarily paused. No foreign exchange contracts were outstanding as at January 29, 2022 and January 30, 2021. 26. FINANCIAL RISK MANAGEMENT The Company may periodically use derivative financial instruments to manage risks related to fluctuations in foreign exchange rates. The use of derivative financial instruments is governed by the Company’s risk management policies approved by the Board of Directors. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. Disclosures relating to the Company’s exposure to risks, in particular credit risk, liquidity risk, foreign currency risk and interest rate risk are provided below. Credit Risk Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company’s financial instruments that are exposed to concentrations of credit risk are primarily cash and trade and other receivables. The Company limits its exposure to credit risk with respect to cash by dealing with major Canadian financial institutions. The Company’s trade and other receivables consist primarily of government assistance receivable and credit card receivables from the last few days of the fiscal year, which are settled within the first days of the next fiscal year. Due to the nature of the Company’s activities and the low credit risk of the Company’s trade and other receivables as at January 29, 2022 and January 30, 2021, expected credit loss on these financial assets is not significant. As at January 29, 2022, the Company’s maximum exposure to credit risk for these financial instruments was as follows: Cash Trade and other receivables $ 25,502 7,606 $ 33,108 Liquidity Risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet liabilities when due. The Company believes that future cash flows provided by 79 operations and funds available from the revolving credit facility will be sufficient to meet the Company’s operational requirements and financial obligations. The contractual maturity of the Company’s revolving credit facility is January 12, 2025. The majority of trade and other payables are payable within twelve months. Foreign Currency Risk The Company purchases a significant amount of its merchandise with U.S. dollars and as such significant volatility in the U.S. dollar vis-à-vis the Canadian dollar can have an adverse impact on the Company’s gross margin. The Company has a variety of alternatives that it considers to manage its foreign currency exposure on cash flows related to these purchases. These include, but are not limited to, various styles of foreign currency option or forward contracts, normally not to exceed twelve months, and U.S. dollar spot rate purchases. A foreign currency option contract represents an option or obligation to buy a foreign currency from a counterparty. A forward foreign exchange contract is a contractual agreement to buy or sell a specified currency at a specific price and date in the future. The Company may enter into certain qualifying foreign exchange contracts that it designated as cash flow hedging instruments. This results in mark-to-market foreign exchange adjustments, for qualifying hedged instruments, being recorded as a component of other comprehensive income. As at January 29, 2022, the Company’s hedging program remained temporarily paused and no foreign exchange contracts were outstanding. The Company has performed a sensitivity analysis on its U.S. dollar denominated financial instruments, which consist principally of cash of $12,628 and trade payables of $4,957 to determine how a change in the U.S. dollar exchange rate would impact net earnings. On January 29, 2022, a 10% rise or fall in the Canadian dollar against the U.S. dollar, assuming that all other variables, in particular interest rates, had remained the same, would have resulted in a $978 increase or decrease, respectively, in the Company’s net earnings for the year ended January 29, 2022. Interest Rate Risk Interest rate risk exists in relation to the Company’s cash and its revolving credit facility. Market fluctuations in interest rates impacts the Company’s earnings with respect to interest earned on cash that are invested mainly with major Canadian financial institutions and interest paid on outstanding balances of the revolving credit facility. See note 13 for credit facility details. The Company has performed a sensitivity analysis on interest rate risk related to interest income earned on its cash as at January 29, 2022 to determine how a change in interest rates would impact net earnings. For the year ended January 29, 2022, the Company earned interest income of $353 on its cash. An increase or decrease of 50 basis points in the average interest rate earned during the year would have increased net earnings by $334 or decreased net earnings by $239. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The Company has performed a sensitivity analysis on interest rate risk related to interest incurred on its revolving credit facility as at January 29, 2022 to determine how a change in interest rates would impact net earnings. For the year ended January 29, 2022, the Company incurred interest expense of $41 on its revolving credit facility. An increase or decrease of 100 basis points in the average interest rate during the year would have decreased or increased net earnings by $14. 80 27. CAPITAL MANAGEMENT The Company’s objectives in managing capital are: • • • • to ensure sufficient liquidity to support its operations and to enable the internal financing of capital projects; to ensure all financial obligations under the revolving credit facility are met to maintain a strong capital base so as to maintain investor, creditor and market confidence; and to provide an adequate return to shareholders. The Company’s capital is composed of shareholders’ equity and its access to credit facilities described in note 13. The Company’s primary uses of capital are to finance increases in non-cash working capital along with capital expenditures for new store additions, existing store renovation projects, technology infrastructure including e-commerce, and office and distribution center improvements. The Company funds these requirements out of its internally-generated cash flows and its access to credit facilities. The Company does not have any long-term financing debt (other than lease liabilities). The Board of Directors does not establish quantitative return on capital criteria for management, but rather promotes year over year sustainable profitable growth. On a quarterly basis, the Board of Directors also reviews the level of dividends paid to the Company’s shareholders, if any, and monitors any share repurchase program activities. In order to conserve cash to finance its ongoing operations, the Company has suspended the declaration and payment of any dividends. The Company does not have a defined share repurchase plan and decisions are made on a specific transaction basis and depend on market prices and regulatory restrictions. 81 

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