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.
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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