2023
FINANCIAL
RESULTS
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 28, 2023
and January 29, 2022 and the notes thereto which are available on the SEDAR website at
www.sedar.com. This MD&A is dated April 13, 2023.
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 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 13, 2023.
Unless otherwise indicated, all comparisons of results for the 13 weeks ended January 28, 2023
(“fourth quarter of 2023”) are against results for the 13 weeks ended January 29, 2022 (“fourth
quarter of 2022”) and all comparisons of results for the 52 weeks ended January 28, 2023 (“fiscal
2023”) are against the results for the 52 weeks ended January 29, 2022 (“fiscal 2022”). 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
Discontinued Operations
During the year ended January 30, 2021, as part of its restructuring plan, the Company closed the
Thyme Maternity and Addition Elle brands. The results and cash flows of these brands had been
classified as discontinued operations. As the results from discontinued operations are shown for
comparable purposes only and no amounts have been presented as discontinued operations in fiscal
2023, this MD&A does not include a discussion of discontinued operations. See Notes 4 and 16 of the
audited consolidated financial statements for fiscal 2023.
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
2
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 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;
•
•
•
•
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
3 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-GAAP 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.
NON-GAAP FINANCIAL MEASURES
This MD&A discusses the following non-GAAP financial measures: adjusted earnings from
continuing operations before interest, taxes, depreciation and amortization (“Adjusted EBITDA from
continuing operations”), adjusted results from operating activities (“Adjusted ROA”) and working
capital. This MD&A also indicates Adjusted EBITDA from continuing operations as a percentage of
net sales and is considered a non-GAAP financial ratio. Net sales represent the sale of merchandise
less discounts and returns. The intent of presenting Adjusted EBITDA from continuing operations
and Adjusted ROA is to provide additional useful information to investors and analysts. Adjusted
EBITDA from continuing operations is defined as net earnings before income tax expense/recovery,
interest income, interest expense, depreciation, amortization, net impairment of non-financial assets,
adjusted for the impact of certain items, including a deduction of interest expense and depreciation
relating to leases accounted for under IFRS 16, Leases, Federal subsidies, restructuring costs and
recoveries and the gain on settlement of liabilities subject to compromise. Management believes that
Adjusted EBITDA from continuing operations 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 this metric for this purpose. Management believes that Adjusted EBITDA
from continuing operations as a percentage of net sales indicates how much liquidity is generated
for each dollar of net sales. The exclusion of interest income and expenses, other than interest
expense related to lease liabilities as explained hereafter, eliminates the impact on earnings derived
from non-operational activities. The exclusion of depreciation, amortization and net impairment
charges, other than depreciation and net impairment charges related to right-of-use assets as
explained hereafter, eliminates the non-cash impact, and the exclusion of restructuring items and
Federal subsidies presents the results of the on-going business. Under IFRS 16, Leases, the
characteristics of some leases result in lease payments being recognized in net earnings in the
period in which the performance or use occurs while other leases are recorded as right-of-use assets
with a corresponding lease liability recognized, which results in depreciation of those assets and
interest expense from those liabilities. Management is presenting its Adjusted EBITDA from
continuing operations to reflect the payments of its store and equipment lease obligations on a
consistent basis. As such, the initial add-back of depreciation of right-of-use assets and interest on
lease obligations are removed from the calculation of Adjusted EDITDA from continuing operations,
as this better reflects the operational cash flow impact of its leases.
Adjusted ROA is defined as results from operating activities excluding Federal subsidies,
restructuring costs and recoveries and the gain on settlement of liabilities subject to compromise.
Management believes that Adjusted ROA provides a more relevant indicator in assessing current
operational performance. The exclusion of restructuring items, Federal subsidies and the gain on
settlement of liabilities subject to compromise presents the on-going operational performance of the
business.
4
Working capital is defined as current assets less current liabilities. Management believes that
working capital provides information that is helpful to understand the financial condition of the
Company.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The tables below provide a reconciliation of net earnings from continuing operations to Adjusted
EBITDA from continuing operations, results from operating activities to Adjusted ROA and the
composition of working capital:
Net earnings from continuing operations
Depreciation, amortization and net
impairment losses on property and
equipment, and intangible assets
Depreciation and net impairment losses on
right-of-use assets
Interest income
Interest expense on lease liabilities
Interest expense on revolving credit facility
Income tax recovery
Rent impact from IFRS 16, Leases1
Federal subsidies
Restructuring costs (recoveries), net
Gain on settlement of liabilities subject to
compromise
Adjusted EBITDA from continuing
operations2
Adjusted EBITDA from continuing operations
as % of Net sales
For the fourth quarter of
For fiscal
2023
$ 27.5
2022
$ 97.2
2023
$ 77.7
2022
$ 143.2
3.9
7.9
(1.5)
1.3
-
(31.7)
(9.2)
-
(1.9)
6.3
7.2
(0.1)
1.0
-
-
(8.2)
(4.7)
0.5
15.6
19.7
28.9
(2.0)
4.9
0.4
(32.1)
(33.8)
(1.2)
(1.4)
29.5
(0.4)
4.0
-
(0.4)
(33.5)
(22.7)
(12.2)
(88.6)
-
(88.6)
-
$
(3.7)
$ 10.6
$ 57.0
$ 38.6
(1.7)%
5.6%
7.1%
5.8%
1 Rent Impact from IFRS 16, Leases is comprised as follows;
Depreciation and net impairment losses on
right-of use assets
Interest expense on lease liabilities
Rent impact from IFRS 16, Leases
For the fourth quarter of
For fiscal
2023
2022
2023
2022
$
$
7.9
1.3
9.2
$ 7.2
$ 28.9
$ 29.5
1.0
4.9
4.0
$ 8.2
$ 33.8
$ 33.5
2 As a result of the current definition of Adjusted EBITDA from continuing operations, the comparative figure has been restated to
include the rent impact from IFRS 16, Leases of $8.2 million for the fourth quarter of 2022 and $33.5 million for fiscal 2022 and to
exclude Federal subsidies recognized of $4.7 million for the fourth quarter of 2022 and $22.7 million for fiscal 2022. Management
believes that the current definition of Adjusted EBITDA better reflects the operational cash flow of the Company.
5
Results from operating activities
Federal subsidies
Restructuring costs (recoveries), net
Gain on settlement of liabilities subject to
compromise
Adjusted ROA
For the fourth quarter of
For fiscal
2023
$
(4.4)
2022
$ 96.1
2023
$ 48.3
2022
$ 143.1
-
(1.9)
(4.7)
0.5
(1.2)
(1.4)
-
(88.6)
-
(22.7)
(12.2)
(88.6)
$
(6.3)
$ 3.3
$ 45.7
$ 19.6
Current assets
Current liabilities
Working capital
As at January
28, 2023
$ 265.9
As at January
29, 2022
$ 194.7
122.9
$ 143.0
99.0
$ 95.7
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 net
sales generated by stores that have been continuously open during both of the periods being
compared and include e-commerce net 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 net sales and considers it useful in helping to
determine what portion of new net 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.
This MD&A does not include a discussion of the Company’s comparable sales in respect of fiscal
2023 as management believes that comparable sales were not representative of the underlying
trends of our business due to partial lockdowns and consequently would not provide a meaningful
metric in comparisons of year-over-year net sales results. However, it does include a discussion of
the Company’s comparable sales for the fourth quarter of fiscal 2023 as compared to the fourth
quarter of 2022 given that the Company’s store network was operating at full capacity in both the
fourth quarter of 2023 and 2022.
This MD&A discloses the Company’s e-commerce net sales as a percentage of the Company’s net
sales and is defined as the net sales recognized from its e-commerce channel in relation to the
Company’s total net sales. This supplementary financial measure does not have a standardized
meaning prescribed by IFRS and may not be comparable to similar measures used by other
companies. Management uses this measure to analyze trends in the customers’ cross-channel
behaviour for operating and capital expenditure funding allocation decisions.
6
OVERVIEW
The Company has a single reportable segment that derives its revenue primarily from the sale of
women’s specialty 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, founded in 1926, operates stores averaging 4,700 sq. ft. and is Canada’s
leading specialty fashion destination. With a strong online presence and store locations across the
country, Reitmans customers account for over one-third of Canadian women. Reitmans ambition is
to offer a feel-good and inclusive space featuring on-trend styles in the most extensive size range,
from 0-22.
PENN. is Canada's premiere destination for plus-size fashion, ranging from sizes 14 to 32. Through
championing body diversity and size inclusivity, the brand believes that women deserve to
experience the freedom that comes with feeling confident in their clothing. PENN. 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 as
well as on their e-commerce site. Specializing in menswear and womenswear, the brand delivers
versatile, well-crafted collections and exceptional brand experiences to an open and inclusive brand
community.
RETAIL BANNERS
Reitmans
Penningtons
RW&CO.
Total stores
Number of
stores at
January
29, 2022
1
Q
i
s
g
n
n
e
p
O
2
Q
i
s
g
n
n
e
p
O
2
Q
s
g
n
i
s
o
C
l
3
Q
237
90
77
404
-
2
-
2
-
1
-
1
(1)
(2)
-
(3)
i
s
g
n
n
e
p
O
-
2
1
3
3
Q
s
g
n
i
s
o
C
l
(1)
(2)
-
(3)
4
Q
i
s
g
n
n
e
p
O
-
-
2
2
Number of
stores at
January 28,
2023
235
91
80
406
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 2023
Fiscal 2022
Fiscal 2021
Total stores at end of fiscal year
Net sales
Gross profit
Earnings (loss) before income taxes
Net earnings (loss) from continuing
operations
Net earnings (loss) from
discontinued operations
Net earnings (loss)
Earnings (loss) per share
Basic
Diluted
Earnings (loss) per share, continuing
operations
Basic
Diluted
Total current assets
Total assets
Total current liabilities
Total non-current liabilities
406
$ 800.6
448.7
45.6
404
$ 662.0
353.2
142.8
77.7
-
77.7
1.59
1.59
1.59
1.59
265.9
444.5
122.9
60.8
143.2
15.0
158.2
3.24
3.24
2.93
2.93
194.7
314.3
99.0
31.4
415
$ 533.4
246.3
(99.8)
(100.0)
(72.2)
(172.2)
(3.52)
(3.52)
(2.05)
(2.05)
214.0
397.2
284.5
91.0
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 2023, the Company has invested in 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. In late January 2023, the Company
launched its on-line marketplace 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
allows the Company to mitigate any negative impact. As described under the section titled “Foreign
Exchange Contracts”, early in fiscal 2021, the Company temporarily paused its hedging program
and it continues to use spot purchases of U.S. dollars to meet its merchandise commitments.
Net Sales
In fiscal 2021, the reduction in net sales (hereafter referred to as “sales” and represents sale of
merchandise less discounts and returns) was primarily due to the reduced number of stores in operation
resulting from temporary lockdown measures implemented by governmental health authorities.
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 in certain geographical areas resulted
in a majority of the Company’s stores being temporarily closed during the fourth quarter of 2021. In
8
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 during fiscal
2022 as compared to a phased store re-opening from full and partial lockdowns during 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.
In fiscal 2023, there were no government-imposed temporary lockdowns as compared to a partial
lockdown of the Company’s stores network during a portion of fiscal 2022. Increased customer traffic
in stores, higher average transaction value and less markdowns and promotional discounting
contributed to the increase in sales.
Gross Profit
Overall, the Company’s gross profit and net earnings over the past three fiscal years have been
impacted by the value of the Canadian dollar in relation to the U.S. dollar. During fiscal 2023, the
weakening of the Canadian dollar had resulted in higher merchandise costs, whereas, during fiscal
2022, the strengthening of the Canadian dollar had resulted in lower merchandise costs, as virtually
all merchandise payments are settled in U.S. dollars. 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. In fiscal 2023, the Company’s gross profit increased due to higher sales and
lower promotional activity combined with lower overall supply chain costs as the global shipping
industry disruption stabilized requiring less air freight shipments to meet customer demand. This
was partially offset by an unfavorable foreign exchange impact on U.S. dollar denominated
purchases included in cost of goods sold.
Summary
During the past three years, fiscal 2021 was the year most impacted from government mandated
temporary store closures. Consequently, during fiscal 2021, the Company filed for Companies'
Creditors Arrangement Act (“CCAA”) protection. In fiscal 2022, the impact of COVID-19 was still
omnipresent, but to a lesser degree as compared to fiscal 2021. In January 2022, the Company
successfully exited from CCAA protection and the Company recognized a gain on settlement of
liabilities subject to compromise of $88.6 million. In fiscal 2023, as any remaining government temporary
restrictions were lifted early on in the fiscal year, the Company leveraged pent-up demand for work and
social gathering apparel, and successfully drove compelling marketing campaigns that led to a 47.6%
increase in store traffic and an 8.9% increase in e-commerce traffic year over year. In addition, the
Company navigated successfully through global supply chain challenges by managing inventory levels
to meet customer demand. Despite tough inflationary market conditions, new branding initiatives and a
customer-centric product offering also contributed to the improved performance in fiscal 2023.
As at the end of fiscal 2023, the Company increased its working capital1 position by $47.3 million as
compared to the end of fiscal 2022, and the Company had no long-term debt (other than lease
liabilities).
1 This is a Non-GAAP Financial Measure. See section entitled “Non-GAAP Financial Measures & Supplementary Financial Measures” for a
reconciliation of this measure.
9
As at January 28, 2023, included in the Company’s current assets is cash of $103.0 million (January
29, 2022 - $25.5 million) and the Company had no balance owing on its secured asset-based revolving
credit facility (January 29, 2022 - $29.6 million owing).
As at the end of fiscal 2023, inventory levels were higher as compared to the end of fiscal 2022 due
primarily to higher merchandise costs and a higher number of merchandise units in order to meet the
anticipated customer demand in the spring selling season. As at the end of fiscal 2022, inventory levels
were higher as compared to the end of fiscal 2021 due primarily to 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. As at the end of fiscal 2021,
inventory levels were low 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, on a cash basis, were $6.2 million in fiscal
2021, $15.2 million in fiscal 2022 and $10.7 million in fiscal 2023. During fiscal 2021, the Company
cancelled or delayed significant investments in capital expenditures, whereas the Company increased
its capital spending in fiscal 2022 focusing mainly on store locations. Capital expenditures over the past
three fiscal periods are primarily investments related to store renovations and information technology
hardware and software.
10
OPERATING RESULTS FOR FISCAL 2023 COMPARED TO FISCAL 2022
Fiscal 2023
Fiscal 2022
$ Change
% Change
Net 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
Earnings before income taxes
Income tax recovery
Net earnings from continuing operations
Net earnings from discontinued
operations
Net earnings
$
800.6
351.9
448.7
56.0%
400.4
-
48.3
(2.7)
45.6
32.1
77.7
-
77.7
$
$
662.0
308.8
353.2
53.4%
298.7
(88.6)
143.1
(0.3)
142.8
0.4
143.2
15.0
158.2
$ 138.6
43.1
95.5
20.9%
14.0%
27.0%
101.7
34.0%
(88.6)
(94.8)
(2.4)
(97.2)
31.7
(65.5)
(15.0)
(80.6)
$
n/a
(66.2)%
n/a
(68.1)%
n/a
(45.7)%
n/a
(50.9)%
Adjusted EBITDA from continuing
operations2
$
Adjusted ROA2 $
57.0
45.7
Earnings per share:
$
$
38.6
19.6
$
$
18.4
26.1
47.7%
n/a
Basic
Diluted
$
1.59
1.59
$
3.24
3.24
$
(1.65)
(1.65)
(50.9)%
(50.9)%
Earnings per share, continuing
operations:
Basic
Diluted
$
1.59
1.59
$
2.93
2.93
$
(1.34)
(1.34)
(45.7)%
(45.7)%
1 Includes $1.4 million of restructuring costs recovery for fiscal 2023 (a restructuring costs recovery of $12.2 million for fiscal 2022).
2 This is a Non-GAAP Financial Measure. See section entitled “Non-GAAP Financial Measures & Supplementary Financial Measures”
for reconciliations of these measures.
Net Sales
Net sales for fiscal 2023 increased by $138.6 million, or 20.9%, to $800.6 million. More of the
Company’s stores were open as there were no government-imposed lockdowns during fiscal 2023
as compared to a partial lockdown of the Company’s stores network during a portion of fiscal 2022.
Continued strength in the Company’s merchandising assortment, coupled with strong customer
traffic, higher average transaction value and less markdowns and promotional discounting
contributed to the increase in sales. The Company’s e-commerce net sales continue to be strong
representing approximately 28%1 of the total net sales for fiscal 2023.
1 This is a supplementary financial measure. See section entitled “Supplementary Financial Measures”.
Gross Profit
Gross profit for fiscal 2023 increased $95.5 million to $448.7 million as compared with $353.2 million
for fiscal 2022. Gross profit as a percentage of net sales for fiscal 2023 increased to 56.0% from
53.4% for fiscal 2022. The increase both in gross profit and as a percentage of net sales is primarily
attributable to increased net sales and lower markdowns and promotional activity in fiscal 2023
combined with lower overall supply chain costs as the Company effectively managed inventory
11
shipments, and benefited from stabilized shipping rates in the third quarter of fiscal 2023, partially
offset by an unfavorable foreign exchange impact on U.S. dollar denominated purchases included
in cost of goods sold.
Selling, Distribution and Administrative Expenses
Total selling, distribution and administrative expenses of $400.4 million for fiscal 2023 increased by
$101.7 million, or 34.0%, as compared to fiscal 2022 primarily attributable to the following:
•
increased store operating costs due primarily to an increase in store personnel wages, higher
digital media advertising spend, higher credit card fees due to the improved sales performance
and higher rent expenditures as a result of lease arrangements tied to percentage of sales
performance and preferential rent arrangements put in place while under CCAA protection being
renewed at current market lease rates;
• a $21.5 million decrease in total combined financial support from Federal subsidy programs
which has been recognized as a reduction of selling, distribution and administrative expenses;
• a $10.8 million decrease in restructuring costs recoveries as $1.4 million recovery was realized
during fiscal 2023 as compared to a recovery of $12.2 million realized during fiscal 2022 (see
Note 16 of the audited consolidated financial statements for fiscal 2023);
• a $19.9 million increase in performance incentive plan expense, which plan expense is based
upon the attainment of operating performance targets;
• higher overall freight costs due primarily to higher parcel courier rates during fiscal 2023 and a
$1.9 million non-recurring volume rebate received during fiscal 2022;
• higher consulting fees primarily related to the various Company marketing and human resources
initiatives;
• higher head office and distribution centre personnel wages primarily as a result of merit increases
awarded;
partially offset by,
• a $4.7 million decrease in depreciation, amortization and net impairment losses due primarily to
the Company’s controlled spending in property and equipment and intangible assets and the
timing of renegotiated leases accounted for as right-of-use assets.
Gain on Settlement of Liabilities Subject to Compromise
In fiscal 2022, 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
2023.
Net Finance Costs
Net finance costs were $2.7 million for fiscal 2023 as compared to $0.3 million for fiscal 2022. The
increase of $2.4 million is primarily attributable to the lower foreign exchange gain on U.S.
denominated net monetary assets, higher interest expense related to lease liabilities as compared
to fiscal 2022 and higher interest expense on borrowings during the first half of fiscal 2023 under the
secured asset-based revolving credit facility, partially offset by the higher interest income earned on
funds mainly held with a Canadian bank.
12
Income Taxes
As at January 28, 2023, management’s assessment is that the Company has the ability to generate
future profitable operations and that it is probable that future taxable profits will be available to utilize
the tax benefits. The income tax recovery of $32.1 million for fiscal 2023 is comprised of the
recognition of $32.6 million of previously unrecognized deferred tax assets on all temporary
differences and operating losses carried forward relating to its Canadian operations, net of the
estimated tax expense of $0.5 million related to the operations of a foreign subsidiary.
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. In fiscal 2022, unrecognized deferred tax assets were utilized to eliminate taxable income
of the Company’s Canadian operations. As at January 29, 2022, as a result of the uncertainties
related to the Company’s ability to generate future profitable operations and management’s
assessment that it was not probable that future taxable profits will be available, the Company did not
recognize deferred tax assets on all temporary differences and operating losses carried forward
relating to its Canadian based operations.
Net Earnings from continuing operations
Net earnings from continuing operations for fiscal 2023 was $77.7 million ($1.59 basic and diluted
earnings per share) as compared with $143.2 million ($2.93 basic and diluted earnings per share)
for fiscal 2022. The decrease in net earnings of $65.5 million is primarily attributable to the increase
in overall operating costs, including performance incentive plan awards, the reduction of Federal
subsidies, the lower restructuring recoveries and an increase in net finance costs in fiscal 2023, plus
the non-recurring $88.6 million gain on settlement of liabilities subject to compromise that was
recognized in fiscal 2022, partially offset by an increase in gross profits and an increase in the income
tax recovery arising from the recognition of previously unrecognized deferred tax assets, as noted
above.
Adjusted EBITDA from continuing operations
Adjusted EBITDA from continuing operations for fiscal 2023 was $57.0 million as compared to $38.6
million for fiscal 2022. The increase of $18.4 million is primarily attributable to the increase in gross
profit, partially offset by an increase in operating costs, as noted above.
Adjusted ROA
Adjusted ROA for the fiscal 2023 was $45.7 million as compared to $19.6 million for the fiscal 2022.
The increase of $26.1 million is primarily attributable to the increase in gross profit, partially offset by
an increase in operating costs, as noted above.
13
OPERATING RESULTS FOR THE FOURTH QUARTER OF 2023 COMPARED TO THE FOURTH
QUARTER OF 2022
Fourth Quarter
of 2023
Fourth Quarter
of 20221
$ Change
% Change
Net 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
(Loss) earnings before income taxes
Income tax recovery
Net earnings from continuing operations
$
211.9
103.4
108.5
51.2%
112.9
-
(4.4)
0.2
(4.2)
31.7
27.5
$
$
190.2
94.0
96.2
50.6%
88.7
(88.6)
96.1
1.1
97.2
0.0
97.2
$
21.7
9.4
12.3
11.4%
10.0%
12.8%
24.2
27.3%
(88.6)
(100.5)
(0.9)
(101.4)
31.7
(69.7)
$
n/a
n/a
(81.8)%
n/a
n/a
(71.7)%
Adjusted EBITDA from continuing
operations2
Adjusted ROA2
Earnings per share:
Basic
Diluted
Earnings per share, continuing
operations:
Basic
Diluted
$
$
(3.7)
(6.3)
$
$
10.6
3.3
$
$
(14.3)
(9.6)
n/a
n/a
$
0.56
0.56
$
1.99
1.99
$
(1.43)
(1.43)
(71.9)%
(71.9)%
$
0.56
0.56
$
1.99
1.99
$
(1.43)
(1.43)
(71.9)%
(71.9)%
1 Includes $1.9 million of restructuring costs recovery for the fourth quarter of 2023 (a restructuring costs of $0.5 million for the fourth
quarter of 2022).
2 This is a Non-GAAP Financial Measure. See section entitled “Non-GAAP Financial Measures & Supplementary Financial Measures”
for reconciliations of these measures.
Net Sales
Net sales for the fourth quarter of 2023 increased by $21.7 million, or 11.4%, to $211.9 million. The
increase was primarily due to the strong growth in comparable sales. Comparable sales1, which
include e-commerce net sales, increased 12.7% during the fourth quarter of 2023. The increase in
comparable sales was primarily due to an increase in store and online traffic and customers’ overall
transaction value. The Company’s e-commerce net sales continue to be strong representing
approximately 34%1 of the total net sales for the fourth quarter of 2023.
1 This is a supplementary financial measure. See section entitled “Supplementary Financial Measures”.
Gross Profit
Gross profit for the fourth quarter of 2023 increased $12.3 million to $108.5 million as compared with
$96.2 million for the fourth quarter of 2022. Gross profit as a percentage of net sales for the fourth
quarter of 2023 increased to 51.2% from 50.6% for the fourth quarter of 2022. The increase both in
gross profit and as a percentage of net sales is primarily attributable to the increase in net sales and
lower promotional activity combined with lower overall supply chain costs as global shipping industry
disruptions were less prevalent in the fourth quarter of 2023 and required less air freight shipments
to meet customer demand, partially offset by an unfavorable foreign exchange impact on U.S. dollar
denominated purchases included in cost of goods sold.
14
Selling, Distribution and Administrative Expenses
Total selling, distribution and administrative expenses of $112.9 million for the fourth quarter of 2023
increased by $24.2 million or 27.3%, as compared to the fourth quarter of 2022 primarily attributable
to the following:
•
increased store operating costs due primarily to an increase in store personnel wages, higher
digital media advertising spend, higher credit card fees due to the improved sales performance
and higher rent expenditures as a result of lease arrangements tied to percentage of sales
performance and preferential rent arrangements put in place while under CCAA protection being
renewed at current market lease rates;
• a $8.6 million increase in performance incentive plan expense, which plan expense is based
upon the attainment of operating performance targets;
• a $4.7 million decrease in total combined financial support from Federal subsidy programs which
has been recognized as a reduction of selling, distribution and administrative expenses;
• higher overall freight costs primarily due to an increase in the volume of e-commerce shipments
combined with higher parcel courier rates during the fourth quarter of 2023;
• higher consulting fees primarily related to various Company marketing and human resources
initiatives;
• higher head office and distribution centre personnel wages as a result of merit increases
awarded.
partially offset by,
• a recovery of restructuring costs of $1.9 million realized during the fourth quarter of 2023 as
compared to restructuring costs of $0.5 million incurred during the fourth quarter of 2022;
• a $1.7 million decrease in depreciation, amortization and net impairment losses due primarily to
the Company’s controlled spending in property and equipment and intangible assets.
Gain on Settlement of Liabilities Subject to Compromise
In the fourth quarter of 2022, 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 2023.
Net Finance Income
Net finance income was $0.2 million for the fourth quarter of 2023 as compared to $1.1 million for
the fourth quarter of 2022. The change of $0.9 million is primarily attributable to the lower foreign
exchange gain on U.S. denominated net monetary assets and the higher interest expense related
to lease liabilities as compared to the fourth quarter of 2022, partially offset by the higher interest
income earned on funds held with a Canadian bank.
Income Taxes
The income tax recovery of $31.7 million for the fourth quarter of 2023 is mainly comprised of the
recognition of previously unrecognized deferred tax assets on all temporary differences and
operating losses carried forward relating to its Canadian operations. As at January 28, 2023,
management’s assessment is that the Company has the ability to generate future profitable
operations and that it is probable that future taxable profits will be available to utilize the tax benefits.
15
There was no income tax expense in the fourth quarter of 2022 as unrecognized deferred tax assets
were utilized to eliminate taxable income. As a result of the uncertainties related to the Company’s
ability to generate future profitable operations and management’s assessment that it was not
probable that future taxable profits will be available, the Company did not recognize deferred tax
assets on all temporary differences and operating losses carried forward relating to its Canadian
based operations.
Net Earnings from Continuing Operations
Net earnings from continuing operations for the fourth quarter of 2023 were $27.5 million ($0.56
basic and diluted earnings per share) as compared with $97.2 million ($1.99 basic and diluted
earnings per share) for the fourth quarter of 2022. The decrease in net earnings of $69.7 million is
primarily attributable to the non-recurring $88.6 million gain on settlement of liabilities subject to
compromise recognized in the fourth quarter of 2022, the increase in overall operating costs,
including performance incentive plan awards, and the reduction of Federal subsidies, partially offset
by an increase in gross profits, lower restructuring costs and an increase in the income tax recovery
arising from the recognition of previously unrecognized deferred tax assets, as noted above.
Adjusted EBITDA from Continuing Operations
Adjusted EBITDA from continuing operations for the fourth quarter of 2023 was $(3.7) million as
compared to $10.6 million for the fourth quarter of 2022. The decrease of $14.3 million is primarily
attributable to an increase in operating costs, partially offset by the increase in gross profits, as noted
above.
Adjusted ROA
Adjusted ROA for the fourth quarter of 2023 was $(6.3) million as compared with $3.3 million for the
fourth quarter of 2022. The decrease of $9.6 million is primarily attributable to an increase in
operating costs, partially offset by the increase in gross profit, as noted above.
FOREIGN EXCHANGE CONTRACTS
The Company imports a majority of its merchandise purchases from foreign vendors, with lead times
in some cases extending twelve months. To hedge a portion of its exposure to fluctuations in the
value of the U.S. dollar, the Company used to enter into foreign exchange forward 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 28, 2023, the Company’s hedging
program remained temporarily paused. As at the date of this MD&A, no foreign exchange forward
contracts have been entered into.
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.
Net sales
$ 211.9
$ 190.2
$ 205.6
$ 178.2
$ 229.2
$ 172.3
$ 153.9
$ 121.3
Fourth Quarter
2022
2023
Third Quarter
2023
2022
Second Quarter
2022
2023
First Quarter
2023
2022
27.5
97.2
14.6
22.0
37.3
23.9
(1.7)
(0.0)
Net earnings (loss) from
continuing operations
Net earnings from
discontinued operations
Net earnings (loss)
27.51
97.21
14.62
-
-
-
4.8
26.82
-
37.33
10.2
34.13
-
-
(1.7)4
(0.0)4
Earnings (loss) per share
Basic
Diluted
Earnings (loss) per share,
continuing operations:
Basic
Diluted
$ 0.561
0.561
$ 1.991
1.991
$ 0.302
0.302
$ 0.552
0.552
$ 0.763
0.763
$ 0.703
0.703
$
(0.04)4 $
(0.04)4
(0.00)4
(0.00)4
$ 0.56
0.56
$ 1.99
1.99
$ 0.30
0.30
$ 0.45
0.45
$ 0.76
0.76
$ 0.49
0.49
$
(0.04)
(0.04)
$
(0.00)
(0.00)
1 During the fourth quarter of 2023, net earnings include $1.9 million of restructuring costs recovery. During the fourth quarter of 2022,
net earnings include the impact of Federal 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.
2 During the third quarter of 2023, net earnings include restructuring costs of $0.1 million. During the third quarter of 2022, net
earnings include the impact of Federal subsidies totalling $1.6 million and a restructuring costs recovery of $0.3 million.
3 During the second quarter of 2023, net earnings include restructuring costs recovery of $0.2 million. During the second quarter of
2022, net earnings include the impact of Federal subsidies totalling $6.2 million and a restructuring costs recovery of $16.1 million.
4 During the first quarter of 2023, net loss includes restructuring costs of $0.6 million, partially offset by the impact of Federal subsidies
totalling $1.2 million. During the first quarter of 2022, net loss includes the impact of Federal subsidies totalling $10.3 million and a
restructuring costs recovery of $6.6 million.
17
BALANCE SHEET
Selected line items from the Company’s consolidated balance sheets as at January 28, 2023 and
January 29, 2022 are presented below:
Cash
Trade and other receivables
Inventories
Prepaid expenses and other assets
Property and equipment & intangible assets
Right-of-use assets
Deferred income taxes
Revolving credit facility
Trade and other payables
Deferred revenue
Income taxes payable
Lease liabilities (current and non-current)
2023
$ 103.0
3.2
142.3
14.5
66.5
79.9
32.3
-
81.1
14.1
1.0
87.5
$
2022
25.5
7.6
119.0
42.6
71.6
45.0
0.2
29.6
34.5
13.5
0.5
52.3
$ Change % Change
$ 77.5
(4.4)
23.3
(28.1)
(5.1)
34.9
32.1
(29.6)
46.6
0.6
0.5
35.2
n/a
(57.9)%
19.6%
(66.0)%
(7.1)%
77.6%
n/a
n/a
n/a
4.4%
n/a
67.3%
Changes in selected line items from the Company’s consolidated balance sheets at January 28,
2023 as compared to January 29, 2022 were primarily due to the following:
• cash increased $77.5 million due to an increase in cash generated from operations, primarily due
to improved sales performance, partially offset by the funds repaid under the secured asset-
based revolving credit facility and the investments made in property and equipment in fiscal 2023;
•
•
•
trade and other receivables decreased primarily due to the Company no longer being eligible to
receive assistance under government wage and rent subsidy programs;
inventories are higher primarily due to the normal build-up for the spring selling season and a
higher average merchandise purchase cost;
the decrease of $28.1 million in prepaid expenses and other assets is primarily due to a reduction
in deposits with suppliers;
• property and equipment & intangible assets decreased by $5.1 million. During fiscal 2023, $10.5
million had been spent primarily on store renovations and head office hardware and software
investments. Depreciation and amortization of $14.5 million and a net impairment of $1.1 million on
property and equipment and intangible assets were recognized in fiscal 2023 ($18.1 million of
depreciation and amortization and a net impairment of $1.6 million on property and equipment and
intangible assets were recognized in fiscal 2022);
•
right-of-use assets represent the right-to-use the retail stores and certain equipment over their
lease terms. Right-of-use assets increased by $34.9 million primarily due to the Company
renegotiating leases subsequent to its exit from CCAA protection and certain of those leases were
modified to return to fixed payment leases, resulting in lease additions of $64.5 million in fiscal 2023.
Depreciation and amortization of $29.3 million was recognized in fiscal 2023 ($29.5 million of
depreciation and amortization was recognized in fiscal 2022);
• deferred tax assets increased by $32.1 million from the recognition of deferred tax assets on all
temporary differences and operating losses carried forward relating to its Canadian operations as a
result of management’s assessment that the Company has the ability to generate future profitable
operations and that it is probable that future taxable profits will be available to utilize the tax benefits;
•
the revolving credit facility decreased by $29.6 million as amounts borrowed under the facility had
been paid during the second quarter of 2023;
18
•
trade and other payables increased by $46.6 million primarily due to the timing of payments
related to trade, non-trade payables and personnel related liabilities (including performance
incentive plan awards), an increase in sales tax liabilities and an increase in the refund liability
related to sales returns as a result of the increase in sales during the fourth quarter of 2023;
• deferred revenue increased by $0.6 million due to the timing of gift card redemptions. 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 increase
of $0.5 million in income taxes payable is primarily due to estimated income tax owing 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 2023, lease liabilities increased by lease
additions of $64.6 million and interest expense of $4.9 million, offset by payments of $33.7 million
and lease modifications of $0.6 million.
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.
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
19
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 future pandemic 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.
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.
While government containment protocols were eased at the beginning of fiscal 2023 and global
shipping industry disruptions have been stabilized, any future COVID-19 and its variants outbreaks
can require governments to re-establish 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 2024.
20
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
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.
Environmental, Social, Governance, (“ESG”) or Sustainability Responsibilities
Investors, shareholders, customers and employees have focused increasingly on the environmental,
social and governance ("ESG") practices of companies, including those associated with climate
change. If the Company’s ESG practices fall short of stakeholder expectations and as they continue
to evolve, our brand, reputation and employee retention may be negatively impacted. As such, the
possibility exists that stakeholders may not be satisfied with the Company’s ESG practices or the
speed of their adoption. The Company could also incur additional costs and require additional
resources to monitor, report, and comply with various ESG expectations and requirements. Also, the
21
Company’s failure, or perceived failure to do so could negatively impact our reputation, employee
retention, and the willingness of our clients and suppliers to do business with the Company. As a
strong supporter of ESG initiatives, from sustainability focused products to diversity and inclusion,
the Company has established an ESG team to develop and finalize its ESG strategies.
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 2023, only one supplier represented
over 10% of the Company’s purchases (in 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, disruptions in the Company’s supply chain resulted in an
unprecedented increase in containerized cargo demand and reduced vessel capacity, which resulted
in merchandise delivery delays, increasing merchandise freight costs and an increased usage of air
freight shipments. Future supply chain issues could have negative financial consequences to the
Company.
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
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,
22
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.
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.
23
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 28, 2023 and January 29, 2022, expected
credit loss on these financial assets is not significant.
As at January 28, 2023, the Company’s maximum exposure to credit risk for these financial
instruments was as follows:
Cash
Trade and other receivables
$
$
103.0
3.2
106.2
24
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 2023, the Company realized net earnings of $77.7 million (including a $32.1 million income
tax recovery). As at January 28, 2023, the Company’s current assets total $265.9 million and current
liabilities total $122.9 million. The Company has a senior secured asset-based revolving credit 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 28, 2023, the Company’s borrowing base was $92.8 million
(January 29, 2022 - $90.7 million) and no amount was drawn under the credit facility (January 29,
2022 - $29.6 million). Refer to Note 13 in the audited consolidated financial statements for fiscal
2023.
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 options 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 28, 2023, 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 $22.8 million U.S. and trade payables of $10.6
million U.S. to determine how a change in the U.S. dollar exchange rate would affect net earnings.
On January 28, 2023, 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 $1.2
million increase or decrease, respectively, in the Company’s net earnings for fiscal 2023.
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 28, 2023 to determine how a change in interest rates would impact
net earnings. For fiscal 2023, the Company earned interest income of $1.9 million on its cash. An
increase or decrease of 100 basis points in the average interest rate earned during the year would
have resulted in a $0.5 million increase or decrease, respectively, in the Company’s net earnings.
This analysis assumes that all other variables, in particular foreign currency rates, remain constant.
25
The Company has performed a sensitivity analysis on interest rate risk related to interest expense
incurred on its revolving credit facility as at January 28, 2023 to determine how a change in interest
rates would impact net earnings. For the year ended January 28, 2023, the Company incurred
interest expense of $0.4 million on its revolving credit facility. An increase or decrease of 100 basis
points in the average interest rate incurred during the year would have decreased or increased net
earnings by $0.1 million, respectively.
LIQUIDITY, CASH FLOWS AND CAPITAL RESOURCES
The Company primarily uses funds for working capital requirements and capital expenditures.
Shareholders’ equity as at January 28, 2023 amounts to $260.8 million or $5.34 per share (January
29, 2022 - $183.8 million or $3.76 per share) based on 48.9 million shares being the total of common
and Class A non-voting shares as of the end of the fiscal year (January 29, 2022 - 48.9 million
shares). As at January 28, 2023, the Company has current assets of $265.9 million (January 29,
2022 - $194.7 million) and current liabilities of $122.9 million (January 29, 2022 - $99.0 million) and
no long-term debt (other than lease liabilities). As at January 28, 2023, included in the Company’s
current assets is cash of $103.0 million (January 29, 2022 - $25.5 million). Cash is held in interest
bearing accounts mainly with a major Canadian financial institution.
The Company has a senior secured asset-based revolving credit facility with a Canadian financial
institution of up to $115.0 million (or its U.S. dollar equivalent), which matures on January 12, 2025. If
and when necessary, this committed facility is used to finance the ongoing operations of the
Company. As at January 28, 2023, no amount was drawn under the secured asset-based credit
facility (January 29, 2022 - $29.6 million).
In fiscal 2023, the Company invested $10.7 million in capital expenditures, on a cash basis, primarily
in store renovations and head office hardware and software additions. Excluding any economic
uncertainty, the Company expects to invest approximately $20.0 million in capital expenditures in
fiscal 2024 in various areas such as store and facility renovations and equipment related to other
corporate initiatives.
FINANCIAL COMMITMENTS
The following table sets forth the Company’s financial commitments as at January 28, 2023:
Contractual Obligations
Trade and other payables
Lease obligations1
Purchase obligations2
Other service contracts
Total
$
81.1
101.4
144.6
8.1
Within
1 year
$
81.1
32.0
140.9
3.5
2 to 4
years
-
$
54.5
3.7
4.6
5 years
and over
$
-
14.9
-
-
Total contractual obligations
$ 335.2
$ 257.5
$
62.8
$
14.9
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.
26
OUTSTANDING SHARE DATA
At April 13, 2023, 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 2,597,000 share options
outstanding at an average exercise price of $2.63. 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. In early fiscal 2021, the Company had
temporarily paused its hedging program. As at January 28, 2023, the Company’s hedging program
remained temporarily paused and there were no foreign exchange contracts outstanding.
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
2023.
During fiscal 2023, the Company incurred $1.8 million (fiscal 2022 - $1.8 million) in compensation
expenses for key management personnel consisting of salaries, directors’ fees and short-term
benefits.
Other Related-Party Transactions
The Company incurred $0.1 million in fiscal 2023 (fiscal 2022 - $1.2 million) for legal services
rendered by a law firm connected to a member of the Board of Directors.
These transactions are recorded at the amount of consideration paid as established and agreed to
by the related parties.
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 and trade and other receivables. The Company reduces this risk by
dealing only with highly-rated counterparties, normally major Canadian financial institutions.
27
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 26 of the audited consolidated
financial statements for fiscal 2023.
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
connection with the Company’s reported assets, liabilities, revenue and expenses, and on the related
disclosures, using estimates and assumptions, which are subject to significant uncertainties.
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 the Company’s defined benefit pension plan 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 plan, 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.
28
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. 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.
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 28, 2023, the
Company’s operating segments, before aggregation, have been identified as the Company’s three
brands: Reitmans, Penningtons and RW&CO.
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).
29
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 using significant assumptions, including sales growth rates, as to whether there will
be sufficient future taxable profits available against which they can be utilized.
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED IN FISCAL
2023
New amendments to standards and interpretations not yet effective for fiscal 2023 for which earlier
adoption was permitted have not been applied in preparing the audited consolidated financial
statements for fiscal 2023. 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)
• Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments
to IAS 12 Income Taxes)
Further information on these modifications can be found in Note 3 of the audited consolidated
financial statements for fiscal 2023.
ADOPTION OF NEW ACCOUNTING POLICY
Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37)
The adoption of this amendment to IAS 37 did not have a significant impact on the Company’s
audited consolidated financial statements for fiscal 2023.
Further information on the adoption of this new policy can be found in Note 3 of the audited
consolidated financial statements for fiscal 2023.
30
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 AUDITOR’S 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 28, 2023 and January 29, 2022
the consolidated statements of earnings for the years then ended
the consolidated statements of comprehensive income 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 28, 2023 and January 29, 2022, 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 "Auditor’s Responsibilities
for the Audit of the Financial Statements" section of our auditor’s 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.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the financial statements for the year ended January 28, 2023. These matters were
addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
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.
31
Page 2
We have determined the matters described below to be the key audit matters to be communicated in
our auditor’s report.
Recognition of Deferred Tax Assets
Description of the matter
We draw attention to Note 2(f)(viii), Note 3(r) and Note 12 in the financial statements. The Entity
recognized deferred tax assets of $32,308 thousands in relation to tax benefits of losses carried
forward and deductible temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes. Of this amount, $10,349
thousands is related to non-capital losses available for carry-forward and which can be applied
against future taxable profits. The recognition of these previously unrecognized deferred tax assets
resulted from the Entity’s revision of its estimate of future taxable profits, as the Entity determined it is
probable that they will be sufficient to utilize the tax benefits.
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. To assess when those deferred tax assets are
likely to reverse and whether there will be sufficient future taxable profits available against which they
can be utilized, the Entity determines its future taxable profit using significant judgments and
assumptions, including sales growth rates.
Why the matter is a key audit matter
We identified the recognition of deferred tax assets as a key audit matter. This matter represented an
area of significant risk of material misstatement due to the high degree of estimation uncertainty in
determining future taxable profits. In addition, significant auditor judgement and specialized skills and
knowledge were required in evaluating the results of our audit procedures regarding the Entity’s
significant judgments and assumptions.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
We compared the Entity’s historical budgeted to actual results to assess the Entity’s ability to
accurately predict budgeted results. We took into account changes in conditions and events affecting
the budgeted results to assess the adjustments, or lack of adjustments, made by the Entity in arriving
at future taxable profits.
We evaluated the appropriateness of the Entity’s significant judgements and assumptions used in
the determination of the Entity’s future taxable profits by comparing sales growth rates assumptions
to (i) the sales growth rates assumptions used in non-financial assets impairment analysis and to
(ii) sales growth rates of peer companies per industry research reports.
We involved tax professionals with specialized skills and knowledge who assisted in (i) testing the
amount of tax losses carried forward by inspecting tax assessments filed with applicable taxing
authorities, in (ii) assessing the tax attribute carry forward periods based on the applicable income tax
laws and regulations and in (iii) assessing the temporary differences resulting in deferred tax assets
and liabilities by comparing carrying amounts to accounting records and amounts used for taxation
purposes to tax computations.
32
Page 3
Assessment of the Existence and Accuracy of Inventories
Description of the matter
We draw attention to Note 2(f)(iii), Note 3(l) and Note 7 in the financial statements. As at January 28,
2023, the Entity’s inventory balance is $142,302 thousands. Inventories are comprised of finished
goods and are measured at the lower of cost, determined on a weighted 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.
Why the matter is a key audit matter
We identified assessment of the existence and accuracy of inventories as a key audit matter given
the magnitude of the inventories balance and due to the audit effort involved in testing the inventory
that is held in numerous locations.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
We evaluated the design and tested the operating effectiveness of certain controls over the Entity’s
inventory process, including controls over the physical inventory counts for retail stores and over the
weighted average cost.
We tested inventory purchases to validate the existence and accuracy of the inventory cost by using
computer assisted techniques to match purchase orders to invoices, to shipping reports and to
disbursements.
For a selection of items, we observed the Entity’s physical inventory counts at the distribution centre
and at a selection of retail stores near year-end and we performed test counts which we compared to
the Entity’s accounting records.
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.
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 auditor’s 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 auditor’s report.
33
Page 4
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 (IFRS), 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.
Auditor’s 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 auditor’s 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.
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.
34
Page 5
• 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
auditor’s 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 auditor’s 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.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the group Entity to express an opinion on the financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remain
solely responsible for our audit opinion.
• Determine, from the matters communicated with those charged with governance, those matters
that were of most significance in the audit of the financial statements of the current period and are
therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances,
we determine that a matter should not be communicated in our auditor’s report because the
adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
The engagement partner on the audit resulting in this auditor’s report is Marie Valcourt.
Montréal, Canada
April 13, 2023
*CPA auditor, public accountancy permit No. A128528
35
REITMANS (CANADA) LIMITED
CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended January 28, 2023 and January 29, 2022
(in thousands of Canadian dollars except per share amounts)
Net sales
Cost of goods sold
Gross profit
Selling and distribution expenses
Administrative expenses
Restructuring
Gain on settlement of liabilities subject to compromise
Results from operating activities
Finance income
Finance costs
Earnings before income taxes
Income tax recovery
Net earnings from continuing operations
Net earnings from discontinued operations
Net earnings
Earnings per share:
Basic
Diluted
Earnings per share from continuing operations:
Basic
Diluted
Notes
2023
2022
25
7
16
16
20
20
12
4
21
21
$ 800,627
351,979
448,648
350,598
51,190
(1,380)
-
48,240
$ 661,952
308,787
353,165
274,064
36,817
(12,249)
(88,613)
143,146
2,713
5,384
45,569
32,098
77,667
-
3,725
4,067
142,804
420
143,224
15,032
$
77,667
$ 158,256
$
$
1.59
1.59
1.59
1.59
$
$
3.24
3.24
2.93
2.93
The accompanying notes are an integral part of these consolidated financial statements.
36
REITMANS (CANADA) LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended January 28, 2023 and January 29, 2022
(in thousands of Canadian dollars)
Net earnings
Other comprehensive (loss) income
Items that may be reclassified subsequently to net earnings:
Foreign currency translation differences
Items that will not be reclassified to net earnings:
Net actuarial (loss) gain on defined benefit plan (net of tax of
$504; 2022 - nil)
Total other comprehensive (loss) income
Notes
2023
2022
$
77,667
$ 158,256
17
11
(191)
1
(1,054)
(1,245)
3,886
3,887
Total comprehensive income
$
76,422
$ 162,143
The accompanying notes are an integral part of these consolidated financial statements.
37
REITMANS (CANADA) LIMITED
CONSOLIDATED BALANCE SHEETS
As at January 28, 2023 and January 29, 2022
(in thousands of Canadian dollars)
ASSETS
CURRENT ASSETS
Cash
Restricted 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
Total Current Liabilities
NON-CURRENT LIABILITIES
Lease liabilities
Total Non-Current Liabilities
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive loss
Total Shareholders' Equity
Notes
2023
2022
5
5
6
7
19
5
8
9
10
11
12
13
14
15
10
10
17
17
$
$ 103,004
2,808
3,241
142,302
14,502
265,857
-
63,833
2,638
79,894
-
32,308
178,673
25,502
-
7,606
118,972
42,590
194,670
2,757
65,970
5,613
44,978
100
186
119,604
$ 444,530
$ 314,274
$
-
81,087
14,100
1,018
26,741
122,946
60,758
60,758
27,406
10,871
223,593
(1,044)
260,826
$
29,634
34,478
13,490
537
20,888
99,027
31,419
31,419
27,406
10,295
146,980
(853)
183,828
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 444,530
$ 314,274
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
38
REITMANS (CANADA) LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the years ended January 28, 2023 and January 29, 2022
(in thousands of Canadian dollars)
Notes Share Capital
Contributed
Surplus
Retained
Earnings
(Deficit)
Accumulated Other
Comprehensive
Loss
Total
Shareholders’
Equity
Balance as at January 30, 2022
$
27,406
$ 10,295
$ 146,980
$
(853)
$ 183,828
Net earnings
Total other comprehensive loss
Total comprehensive income (loss) for
11,17
the year
Share-based compensation costs
Total contributions by owners of the
18
Company
-
-
-
-
-
-
-
-
576
576
77,667
(1,054)
76,613
-
-
-
(191)
(191)
-
-
77,667
(1,245)
76,422
576
576
Balance as at January 28, 2023
$
27,406
$ 10,871
$ 223,593
$
(1,044)
$ 260,826
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
The accompanying notes are an integral part of these consolidated financial statements.
39
REITMANS (CANADA) LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended January 28, 2023 and January 29, 2022
(in thousands of Canadian dollars)
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net earnings
Adjustments for:
Depreciation, amortization and net impairment losses on property and
equipment, and intangible assets
Depreciation and net impairment losses on right-of-use assets
Share-based compensation costs
Foreign exchange (gain) loss
Gain on lease re-measurements due to restructuring
Gain on settlement of liabilities subject to compromise
Interest on lease liabilities
Interest on revolving credit
Interest income
Income tax recovery
Changes in:
Trade and other receivables
Inventories
Prepaid expenses and other assets
Trade and other payables
Liabilities subject to compromise
Pension asset
Deferred revenue
Cash from (used in) operating activities
Interest paid
Interest received
Income taxes paid
Net cash flows from (used in) operating activities
CASH FLOWS USED IN INVESTING ACTIVITIES
Additions to property and equipment and intangible assets
Cash flows used in investing activities
CASH FLOWS USED IN FINANCING ACTIVITIES
Restricted cash
Net changes in revolving credit facility
Payment of lease liabilities
Cash flows used in financing activities
8,9
8,10
18
10,16
16
10,20
20
20
12
6
7
14
16
11
15
8,9,24
5
13
10,24
FOREIGN EXCHANGE GAIN (LOSS) ON CASH HELD IN FOREIGN
CURRENCY
NET INCREASE (DECREASE) IN CASH
CASH, BEGINNING OF THE YEAR
CASH, END OF THE YEAR
Supplementary cash flow information (note 24)
The accompanying notes are an integral part of these consolidated financial statements.
Notes
2023
2022
$
77,667
$ 158,256
15,582
28,902
576
(1,628)
-
-
4,939
445
(1,952)
(32,098)
92,433
4,657
(23,330)
28,088
46,831
-
(450)
610
148,839
(486)
1,660
(46)
149,967
(10,651)
(10,651)
(51)
(29,634)
(33,674)
(63,359)
1,545
77,502
25,502
19,725
29,471
-
518
(6,732)
(88,613)
4,026
41
(353)
(420)
115,919
3,059
(22,850)
(10,490)
3,272
(114,419)
694
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
$ 103,004
$
25,502
40
REITMANS (CANADA) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended January 28, 2023 and January 29, 2022
(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 2023 and
2022 represent the 52 weeks ended January 28, 2023 and January 29, 2022, respectively.
b) CCAA Proceedings
During the fiscal year ended January 29, 2022, on January 12, 2022, the Company emerged from the
restructuring proceedings in connection with the Companies’ Creditors Arrangement Act (the “CCAA”)
under which it obtained an initial order from the Superior Court of Quebec on May 19, 2020.
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 13,
2023.
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.
41
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.
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. These estimates and assumptions are based on historical experience, other relevant factors and
expectations of the future and are reviewed regularly. Revisions to accounting estimates are recognized in
the period in which the estimates are revised and in any future periods affected. Actual results may differ
from these estimates.
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.
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. 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
(vi) 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. The Company’s operating segments, before
aggregation, have been identified as the Company’s three brands: Reitmans, Penningtons and RW
& CO.
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
(vii) 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.
(viii) 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 using significant assumptions, including sales growth rates, as to whether there will
be sufficient future 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) Adoption of new accounting policies
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. 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 adoption of this amendment to IAS 37 did not have a significant impact on the Company’s
consolidated financial statements.
b) 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).
44
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.
Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12
Income Taxes)
On May 7, 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a Single
Transaction (Amendments to IAS 12). The amendments are effective for annual periods beginning on or
after January 1, 2023. Earlier adoption is permitted. The amendments narrow the scope of the initial
recognition exemption (IRE) so that it does not apply to transactions that give rise to equal and offsetting
temporary differences. As a result, companies will need to recognize a deferred tax asset and a deferred
tax liability for temporary differences arising on initial recognition of a lease and a decommissioning
provision.
The Company does not expect that the adoption of these new standards will have a significant impact on
its 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.
45
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.
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.
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.
46
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.
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.
Configuration or customization costs incurred under cloud computing agreements that do not meet the
criteria for capitalization are recognized as an expense.
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.
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 a weighted 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 the 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 pension asset (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.
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 pension asset (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 (loss) to retained earnings.
Net defined benefit asset that can be recognized is limited to the total of any unrecognized past service
costs and the present value of economic benefits available in the form of future refunds from the Plan
or reductions in future contributions to the Plan (the “asset ceiling”). To calculate the present value
of economic benefits, consideration is given to minimum funding requirements that apply to the Plan.
Where it is anticipated that the Company will not be able to recover the value of the net defined
benefit asset, after considering minimum funding requirements for future services, the net defined
benefit asset is reduced to the amount of the asset ceiling. The impact of the asset ceiling is recognized
in other comprehensive income.
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.
50
(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.
(iv) Share-Based Compensation
Share options (equity-settled)
Share options are equity settled share-based payments. The fair value of each tranche of service-
condition options granted is measured separately at the grant date using a Black-Scholes option
pricing model. Each tranche of service and market conditions share options is measured separately
at the grant date using the Monte Carlo model 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 three to 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 the holders of the options
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 for the period.
51
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 costs of meeting its obligations. The provision is measured
at the present value of the lower of the expected cost of terminating the contract and the expected net cost
of continuing with the contract, which is determined based on the incremental costs of fulfilling the
obligation under the contract and an allocation of other costs directly related to fulfilling the contract.
Before an onerous contract provision is established, the Company recognizes any impairment loss on the
assets associated with that contract.
p) Revenue
Sales of merchandise
The Company recognizes revenue when control of the merchandise 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.
Net sales represent the sale of merchandise less discounts and returns. Net sales at retail stores are
recognized at the point-of-sale when control of the merchandise has been transferred to the customer. Net
sales recognized through the e-commerce channel are recognized at the date of delivery to the customer.
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”.
52
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.
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 is 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 from discontinued operations
Net sales
Cost of goods sold
Gross profit
Selling and distribution expenses
Restructuring (note 16)
Results from operating activities
Finance costs
Earnings before income taxes
Income tax expense
Net earnings from discontinued operations
Earnings per share, discontinued operations:
Basic
Diluted
For the years ended
January 28, 2023 January 29, 2022
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
$
$
$
-
-
-
-
(15,032)
15,032
-
15,032
-
15,032
0.31
0.31
For the fiscal years ended January 28, 2023 and January 29, 2022, discontinued operations had no impact on
the consolidated statements of cash flows.
58
5. CASH AND RESTRICTED CASH
Cash (1)
Restricted cash (2)
January 28, 2023 January 29, 2022
$ 103,004
2,808
$ 105,812
$ 25,502
2,757
$ 28,259
(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 expiring
on July 7, 2023. As at January 29, 2022, restricted cash is presented as non-current on the consolidated balance sheets.
6. TRADE AND OTHER RECEIVABLES
As at January 28, 2023, trade and other receivables include an amount of nil (January 29, 2022 – $4,651) for
COVID-19-related government grants receivable under the Tourism and Hospitality Recovery Program
through which subsidies for wages and rent were claimed.
The Company recognized grant income of $1,119 from this program as a reduction of selling and distribution
expenses and $91 as a reduction of administrative expenses for the year ended January 28, 2023 ($21,063 as
a reduction of selling and distribution expenses and $1,658 as a reduction of administrative expenses for the
year ended January 29, 2022).
7. INVENTORIES
During the year ended January 28, 2023, inventories recognized as cost of goods sold amounted to $347,831
(January 29, 2022 - $305,212). In addition, for the year ended January 28, 2023, the Company recorded
$4,148 (January 29, 2022 - $3,575) 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 $2,100 as at
January 28, 2023 (January 29, 2022 - $1,880).
59
8. PROPERTY AND EQUIPMENT
Cost
Balance at January 31, 2021
Additions
Derecognition of fully amortized assets
Balance at January 29, 2022
Balance at January 30, 2022
Additions
Derecognition of fully amortized assets
Balance at January 28, 2023
Accumulated depreciation and
impairment losses
Balance at January 31, 2021
Depreciation
Impairment loss (reversal)
Derecognition of fully amortized assets
Balance at January 29, 2022
Balance at January 30, 2022
Depreciation
Impairment loss (reversal)
Derecognition of fully amortized assets
Balance at January 28, 2023
Net carrying amounts
At January 29, 2022
At January 28, 2023
Land
Buildings
Fixtures and
Equipment
Leasehold
Improvements
Total
$ 5,860
-
-
$ 5,860
$ 5,860
-
-
$ 5,860
$
$
$
$
-
-
-
-
-
-
-
-
-
-
$ 37,880
2
(499)
$ 37,383
$ 37,383
-
(2,069)
$ 35,314
$ 16,661
1,236
-
(499)
$ 17,398
$ 17,398
1,189
-
(2,069)
$ 16,518
$ 71,525
9,016
(11,256)
$ 69,285
$ 32,643
3,443
(7,953)
$ 28,133
$ 69,285
5,272
(24,513)
$ 50,044
$ 28,133
4,500
(6,712)
$ 25,921
$ 41,692
8,419
288
(11,256)
$ 39,143
$ 23,443
3,328
(668)
(7,953)
$ 18,150
$ 39,143
7,470
125
(24,513)
$ 22,225
$ 18,150
3,159
(34)
(6,712)
$ 14,563
$ 147,908
12,461
(19,708)
$ 140,661
$ 140,661
9,772
(33,294)
$ 117,139
$ 81,796
12,983
(380)
(19,708)
$ 74,691
$ 74,691
11,818
91
(33,294)
$ 53,306
$ 5,860
$ 5,860
$ 19,985
$ 18,796
$ 30,142
$ 27,819
9,983
$
$ 11,358
$ 65,970
$ 63,833
60
During the years ended January 28, 2023 and January 29, 2022, 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:
Property and equipment
Intangible assets
For the years ended
January 28, 2023 January 29, 2022
$
$
1,002
998
2,000
$
$
355
1,991
2,346
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 28, 2023, 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 11.0% (January 29, 2022 – 14.0%).
A reversal of impairment occurs when previously impaired individual retail store locations generate increased
profitability. During the year ended January 28, 2023, $911 (January 29, 2022 – $735) of property and
equipment impairment losses and $350 of right-of-use assets impairment losses (January 29, 2022 – nil) were
reversed following an improvement in the profitability of certain CGUs.
Depreciation expense related to property and equipment is presented as follows:
For the years ended
January 28, 2023 January 29, 2022
Selling and distribution expenses
Administrative expenses
$
$
10,634
1,184
11,818
$
$
11,835
1,148
12,983
Property and equipment include an amount of $2,559 (January 29, 2022 - $674) that is not being depreciated.
Depreciation will begin when the assets are available for use.
61
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 (1)
Balance at end of the year
Accumulated amortization and impairment losses
Balance at beginning of the year
Amortization
Derecognition of fully amortized assets
Balance at end of the year
January 28, 2023
January 29, 2022
$ 17,363
698
(7,515)
(998)
9,548
$
$ 11,750
2,675
(7,515)
6,910
$
$ 25,450
2,404
(8,500)
(1,991)
$ 17,363
$ 15,119
5,131
(8,500)
$ 11,750
Net carrying amounts
$
2,638
$
5,613
(1) 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 years ended
January 28, 2023 January 29, 2022
Selling and distribution expenses
Administrative expenses
$
$
684
1,991
2,675
$
$
2,705
2,426
5,131
Intangible assets include an amount of $63 (January 29, 2022 - $2,210) that is not being amortized.
Amortization will begin when the software is available for use.
62
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 January 31, 2021
Lease additions
Lease modifications
Depreciation
Balance as at January 29, 2022
Balance as at January 30, 2022
Lease additions
Lease modifications
Depreciation
Reversal of impairment loss (note 8)
Balance as at January 28, 2023
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
Retail
locations
$ 44,072
64,092
(649)
(28,907)
350
$ 78,958
Office
equipment
$
$
906
443
(68)
(345)
-
936
Total
$ 44,978
64,535
(717)
(29,252)
350
$ 79,894
Depreciation expenses related to right-of-use assets presented as follows:
For the years ended
January 28, 2023 January 29, 2022
Selling and distribution expenses
Administrative expenses
$
$
29,228
24
29,252
$
$
29,113
358
29,471
During the year ended January 29, 2022, right-of-use assets were reduced by $52,736 and lease liabilities
were reduced by $59,468. A corresponding gain of $6,732 was recognized in restructuring costs for
continuing operations as lease modifications in connection with leases that were disclaimed as part of the
CCAA proceedings (note 16).
63
Lease liabilities
Balance at the beginning of the year
Lease additions
Lease modifications
Payment of lease liabilities
Interest expense on lease liabilities (note 20)
Balance at the end of the year
Current portion of lease liabilities
Non-current portion of lease liabilities
Total lease liabilities
January 28, 2023
$
January 29, 2022
$
52,307
64,603
(676)
(33,674)
4,939
87,499
26,741
60,758
87,499
$
$
$
123,217
23,430
(59,544)
(38,822)
4,026
52,307
20,888
31,419
52,307
$
$
$
The following table presents a maturity analysis of future contractual undiscounted cash flows for lease
liabilities by fiscal year:
2024
2025
2026
2027
2028
Thereafter
Total undiscounted lease liabilities
$
32,035
22,403
17,301
14,833
7,147
7,729
$ 101,448
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 28, 2023, the
Company recognized $14,494 (January 29, 2022 - $7,705) of variable lease payments and $4,651 (January
29, 2022 - $1,156) of lease payments with no fixed term recorded in selling and distribution expenses.
During the year ended January 28, 2023, the Company recognized expenses relating to short-term leases of
nil (January 29, 2022 - $161).
As at January 28, 2023, $23,162 (January 29, 2022 - $32,980) 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.
64
11. PENSION ASSET
The following tables present reconciliations of the pension obligation, the Plan assets and the funded status
of the Plan.
Funded Status
Fair value of plan assets
Defined benefit obligation
Funded status
Effect of asset ceiling
Pension asset
January 28, 2023
$
20,933
19,834
1,099
(1,099)
-
$
January 29, 2022
$ 23,019
22,919
100
-
100
$
Movement in the present value of the defined benefit obligation
Defined benefit obligation, beginning of year
Current service cost
Interest cost
Employee contributions
Actuarial loss (gain) - experience
Actuarial (gain) loss - financial assumptions
Benefits paid from plan assets
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 28, 2023
January 29, 2022
$ 22,919
983
780
110
749
(3,550)
(2,157)
$ 19,834
$ 23,019
(2,251)
772
1,602
110
(2,157)
(162)
$ 20,933
$ 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
For the year ended January 28, 2023, the net defined benefit obligation can be allocated to the plans’
participants as follows:
• Active plan participants 39% (2022 - 39%)
• Retired plan members 57% (2022 - 57%)
• Deferred and other plan participants 4% (2022 - 4%)
65
The 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 28, 2023
January 29, 2022
$ 6,641
1,410
4,739
12,790
7,757
386
$ 20,933
31%
7%
23%
61%
37%
2%
100%
$ 7,236
1,284
5,147
13,667
8,974
378
$ 23,019
31%
6%
22%
59%
39%
2%
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
Pension expense
For the years ended
January 28, 2023
January 29, 2022
$
983
8
162
$ 1,153
$ 1,152
106
137
$ 1,395
During the year ended January 28, 2023, the Company recognized pension expense of $703 (January 29,
2022 - $774) in selling and distribution expenses and $450 (January 29, 2022 - $621) in administrative
expenses in the consolidated statements of earnings.
The following table presents the change in the actuarial gains and losses and the effect of the asset ceiling
recognized in other comprehensive income and subsequently reclassified from accumulated other
comprehensive income to retained earnings:
Cumulative (gain) loss in retained earnings at the beginning of the year
Loss (gain) recognized during the year (net of tax of $504; 2022 - nil)
Cumulative gain in retained earnings at the end of the year
$
$
(2,452)
1,054
(1,398)
January 28, 2023
January 29, 2022
$ 1,434
(3,886)
$ (2,452)
For the years ended
66
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 28, 2023
January 29, 2022
4.70%
4.00%
2014 Private Sector
Canadian
Pensioner’s
Mortality Table,
projected
generationally
using Scale MI-
2017, adjusted for
pension size
3.40%
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 28, 2023 and January 29, 2022
and the sensitivity of a 1% change in each of these assumptions on the Plan’s defined benefit obligations and
the Plan’s net defined benefit 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 28, 2023
January 29, 2022
$ (2,157)
$ 2,641
$
$
472
(423)
$ (2,737)
$ 3,444
$
$
604
(501)
Impact of increase of 1 year in expected
lifetime of plan members
$
451
$
598
67
Overall return in the capital markets and the level of interest rates affect the funded status of the Plan.
Adverse changes with respect to the Plan’s 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 Plan and on the Company’s
results of operations.
The Company expects $1,078 in employer contributions to be paid to the Plan in the year ending February
3, 2024. The weighted average duration of the Plan is approximately 11.7 years as at January 28, 2023
(January 29, 2022 – 13.3 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, 2021
and the next required valuation will be as of December 31, 2024.
12. INCOME TAX
Income tax recovery
The Company’s income tax recovery is comprised as follows:
Current tax expense (recovery)
Current year
Adjustment in respect of prior years
Current tax expense (recovery)
Deferred tax recovery
Recognition and reversal of temporary differences
Changes in tax rates
Changes in unrecognized deferred tax asset
Adjustment in respect of prior years
Deferred tax recovery
For the years ended
January 28, 2023 January 29, 2022
$
530
(2)
528
$
11,373
3
(43,152)
(850)
(32,626)
376
(761)
(385)
76
(111)
-
-
(35)
Total tax recovery
$ (32,098)
$
(420)
Income tax recognized in other comprehensive income
January 28, 2023
January 29, 2022
For the years ended
Before tax
Tax expense Net of tax
Before tax
Tax expense
Net of tax
Defined benefit plan
actuarial (losses) gains
$
(550)
$
(504)
(1,054)
$ 3,886
$
-
$ 3,886
68
Reconciliation of effective tax rate
Earnings before income taxes
Income tax expense 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
For the years ended
January 28, 2023
45,569
$
January 29, 2022
$ 142,804
12,075
3
211
(43,152)
(383)
(852)
(32,098)
26.50%
0.00%
0.46%
(94.69%)
(0.84%)
(1.87%)
(70.44%)
37,846
(111)
16
(37,161)
(249)
(761)
(420)
26.50%
(0.08%)
0.01%
(26.02%)
(0.17%)
(0.53%)
(0.29%)
$
$
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
Accounting reserves
Tax benefit of losses
carried forward
Other
Assets
Liabilities
Net
January 28, 2023 January 29, 2022 January 28, 2023 January 29, 2022 January 28, 2023 January 29, 2022
$ 22,641
-
$ 11,685
-
$
-
20,626
$
-
11,685
$ 22,641
(20,626)
$ 11,685
(11,685)
15,091
-
504
6,491
3,009
-
-
-
-
1,780
504
-
10,349
142
$ 55,218
-
-
$ 14,694
-
-
$ 22,910
-
1,637
676
-
-
510
$ 14,508
15,091
(1,780)
-
6,491
10,349
142
$ 32,308
3,009
(1,637)
(676)
-
-
(510)
186
$
Changes in deferred tax balances during the year
Lease liabilities
Right-of-use assets
Property, equipment and intangible
assets
Inventories
Pension asset
Accounting reserves
Tax benefit of losses carried forward
Other
Balance January
30, 2021
Recognized in
net earnings
Balance January
29, 2022
Recognized in
net earnings
Recognized in other
comprehensive
income
Balance January
28, 2023
$ 27,026
(27,026)
$ (15,341) $ 11,685
(11,685)
15,341
$ 10,956
(8,941)
$
-
-
$ 22,641
(20,626)
2,309
(1,621)
-
-
-
(537)
151
$
700
3,009
(16) (1,637)
(676)
(676)
-
-
-
-
(510)
27
186
35
$
12,082
(143)
1,180
6,491
10,349
652
$ 32,626
$
$
-
-
(504)
-
-
-
(504)
15,091
(1,780)
-
6,491
10,349
142
$ 32,308
69
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 28, 2023
January 29, 2022
$
$
-
-
3,144
3,144
$ 20,700
23,078
3,168
$ 46,946
As at January 28, 2023, management revised its estimates of future taxable profits, based on several factors
including the Company’s exit from CCAA, its strong results for the year ended January 28, 2023 and its
going forward business model. This resulted in the recognition of $43,778 of previously unrecognized
deferred tax assets as it is probable that sufficient future taxable profits will be available from the Canadian
operations to utilize the benefits. The non-capital losses carry-forward expire between 2034 and 2042. The
allowable capital losses carry-forward do not expire under current income tax legislation.
As at January 28, 2023, deferred income tax assets relating to allowable capital losses were not recognized
as it was not probable that sufficient future taxable capital gains will be available from the Canadian
operations to utilize the benefits.
13. REVOLVING CREDIT FACILITY
The Company has access to 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 a current liability 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 at January 28, 2023, the Company’s Borrowing Base was $92,762 (January 29, 2022 – $90,708).
The Company can borrow funds in Canadian or US dollars at prime, base, the Canadian Dollar Offered Rate
(“CDOR”) or the Secured Overnight Financing Rate (“SOFR”). The facility bears interest at the prime or
base rate, plus 0.50% or 0.75%, 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 28, 2023, no amount (January 29, 2022 – $29,634) was drawn under the revolving credit
facility and $2,000 was committed for secured letters of credit (January 29, 2022 – nil).
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 28, 2023 and January 29, 2022, the Company was in compliance of
all financial covenants.
70
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 28, 2023 January 29, 2022
$ 18,282
37,027
20,683
4,024
1,071
$ 81,087
$
1,280
13,049
16,406
3,181
562
$ 34,478
January 28, 2023 January 29, 2022
$
242
13,858
$ 14,100
$
248
13,242
$ 13,490
16. LIABILITIES SUBJECT TO COMPROMISE AND RESTRUCTURING
During the year ended January 29, 2022, the Company emerged from CCAA proceedings and made an
aggregate payment of $95,000 as the final settlement for unsecured liabilities subject to compromise of
$183,613. 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.
Restructuring costs
In connection with the restructuring plan and the CCAA proceedings, the following restructuring costs
(recoveries) were recognized:
Rent & occupancy costs recovered on lease
re-negotiations
Recovery for disclaimed leases (1)
Gain on lease modifications on lease re-
negotiations (note 10)
Legal and other fees
Termination benefits
Bank fees
Other (recoveries) expenses
January 28, 2023
Continuing
Combined
January 29, 2022
Continuing
Discontinued
For the year ended
$
-
-
$ (10,493)
(19,330)
$ (10,493)
(4,298)
$
-
(15,032)
-
1,084
-
-
(2,464)
(1,380)
(6,732)
4,210
1,206
253
3,605
$ (27,281)
(6,732)
4,210
1,206
253
3,605
$ (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.
71
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 28, 2023
January 29, 2022
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:
Balance at January 30, 2022
Change in foreign currency translation differences
Balance at January 28, 2023
Balance at January 31, 2021
Change in foreign currency translation differences
Balance at January 29, 2022
Dividends
Foreign Currency
Translation
Differences
$
$
$
$
(853)
(191)
(1,044)
(854)
1
(853)
No dividends were declared or paid during years ended January 28, 2023 and January 29, 2022.
72
18. SHARE-BASED PAYMENTS
Share Option Plan
Under the share option plan, and in compliance with the policies of the TSX Venture Exchange, the Company
is limited to issue 3,500,000 Class A non-voting shares pursuant to the exercise of options. 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.
Service-based share options
During the year ended January 28, 2023, the Company granted 940,000 share options to certain executives,
for which service conditions are expected to be satisfied. Options will vest in equal tranches over the first
three years after the grant date and will expire three years and a month after the grant date. Estimated fair
values of options on the grant date were determined using the Black Scholes option pricing model based on
the following assumptions (amounts in dollars):
Expected share option life
Risk-free interest rate
Expected share price volatility
Dividend yield
Share price at grant date
Exercise price
940,000 Share
Options Granted
April 26, 2022
2.5 years
2.46%
71.90%
-
$1.40
$1.50
The expected volatility is based on the historical volatility of comparable companies traded in the industry.
The average fair value of stock options granted was $0.60 per option.
The changes in outstanding service-based share options were as follows:
For the years ended
January 28, 2023
January 29, 2022
Outstanding, at beginning of year
Granted
Forfeited
Outstanding, at end of year
Options exercisable, at end of year
Options
(in 000’s)
1,126
940
(431)
1,635
720
Weighted
Average
Exercise Price
$
8.56
1.50
11.85
3.63
6.34
$
$
Options
(in 000’s)
1,357
-
(231)
1,126
1,116
Weighted
Average
Exercise Price
$
8.84
-
10.24
8.56
8.57
$
$
73
Information about service-based share options outstanding at January 28, 2023:
Range of
Exercise
Prices
$1.50 - $4.39
$4.40 - $6.75
Number
Outstanding
(in 000’s)
915
720
1,635
Options Outstanding
Weighted
Average
Remaining
Contractual Life
2.32 years
1.38
2.08 years
Weighted
Average
Exercise Price
$
1.50
6.34
3.63
$
Options Exercisable
Number
Exercisable
(in 000’s)
-
720
720
Weighted
Average
Exercise Price
$
-
6.34
6.34
$
During the year ended January 28, 2023, the Company recognized $221 of compensation costs related to the
Company’s service-based share options with a corresponding credit to contributed surplus (January 29, 2022
- nil).
Market-condition share options
The Company also granted 1,110,000 share options to certain executives for which service and market
conditions exist and will expire three years and a month after the grant date. The performance condition
attached to those share options are Class A non-voting share price targets being met. The fair value of options
was estimated at the grant date using the Monte Carlo pricing model based on the following assumptions
(amounts in dollars):
Expected share option life
Risk-free interest rate
Expected share price volatility
Dividend yield
Share price at grant date
Exercise price
1,110,000 Share
Options Granted
April 26, 2022
2.6 years
2.48%
71.90%
-
$1.40
$1.50
The expected volatility is based on the historical volatility of comparable companies traded in the industry.
The average fair value of stock options granted was $0.57 per option.
The changes in outstanding market-condition share options were as follows:
For the year ended
January 28, 2023
Outstanding, at beginning of year
Granted
Outstanding, at end of year
Options exercisable, at end of year
Options
(in 000’s)
-
1,110
1,110
344
Weighted
Average
Exercise Price
$
-
1.50
1.50
1.50
$
$
Weighted
Average
Remaining
Contractual Life
-
2.32 years
2.32 years
2.32 years
74
During the year ended January 28, 2023, the Company recognized $355 of compensation costs related to the
Company’s market-condition share options with a corresponding credit to contributed surplus (January 29,
2022 - nil).
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 28, 2023 and January 29, 2022.
The changes in outstanding PSUs were as follows:
Outstanding, at beginning of year
Forfeited
Outstanding, at end of year
For the years ended
January 28, 2023 January 29, 2022
PSUs
(in 000’s)
240
(240)
-
PSUs
(in 000’s)
450
(210)
240
The Company did not recognize share-based compensation costs related to PSUs for the years ended January
28, 2023 and January 29, 2022.
19. COMMITMENTS
As at January 28, 2023, 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
$ 140,951
3,029
634
-
-
-
$ 144,614
Other Service
Contracts
$ 3,463
3,275
1,353
10
-
-
$ 8,101
Total
$ 144,414
6,304
1,987
10
-
-
$ 152,715
Included in prepaid expenses and other assets as at January 28, 2023 is an amount of $4,390 (January 29,
2022 - $32,221) representing deposits to vendors for ordered merchandise.
For the timing of payments under lease obligations, refer to note 10.
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20. FINANCE INCOME AND FINANCE COSTS
Interest income
Foreign exchange gain
Finance income
Interest expense on lease liabilities
Interest expense on revolving credit facility
Finance costs
Net finance costs recognized in net earnings
For the years ended
January 28, 2023 January 29, 2022
$
$
1,952
761
2,713
4,939
445
5,384
(2,671)
$
$
353
3,372
3,725
4,026
41
4,067
(342)
21. EARNINGS PER SHARE
The number of shares (in thousands) used in the basic and diluted earnings per share and basic and diluted
earnings per share from continuing and discontinued operations calculations is as follows:
For the years ended
January 28, 2023 January 29, 2022
Weighted average number of shares – basic and diluted
48,867
48,867
As at January 28, 2023, 720,000 (January 29, 2022 – 1,126,000) share options were excluded from the
calculation of diluted earnings 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 28, 2023, the Company incurred $1,825 (January 29, 2022 - $1,810) 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 28, 2023, the Company incurred $133 (January 29, 2022 - $1,156) for legal
services rendered by a law firm connected to a member of the Board of Directors. These transactions are
recorded at the amount of consideration paid as established and agreed to by the related parties.
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23. PERSONNEL EXPENSES
Wages, salaries and employee benefits, net of
government assistance
Expenses related to defined benefit plan
Share-based compensation costs
For the years ended
January 28, 2023 January 29, 2022
$ 194,161
1,153
576
$ 195,890
$ 132,767
1,395
-
$ 134,162
24. SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash transactions:
Additions to property and equipment and intangible assets
included in trade and other payables
$ 1,336
$ 1,517
For the years ended
January 28, 2023 January 29, 2022
For the year ended January 28, 2023, payments of lease liabilities of $33,674 include interest of $4,939
(payments of lease liabilities of $38,822 include interest of $4,026 for the year ended January 29, 2022).
25. NET SALES
Net sales disaggregated for retail stores and e-commerce is as follows:
For the years ended
Retail stores
E-commerce
Net sales
January 28, 2023
$
573,739
226,888
800,627
$
January 29, 2022
427,407
$
234,545
661,952
$
26. FINANCIAL INSTRUMENTS
Accounting classification and fair values
The Company has determined that the fair value of its current financial assets and liabilities at January 28,
2023 and January 29, 2022 (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.
77
27. 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
28, 2023 and January 29, 2022, expected credit loss on these financial assets is not significant.
As at January 28, 2023, the Company’s maximum exposure to credit risk for these financial instruments was
as follows:
Cash
Trade and other receivables
$ 103,004
3,241
$ 106,245
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
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 options 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
78
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 28, 2023, 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 $22,754 and trade payables of $10,609 to determine how a change in the
U.S. dollar exchange rate would impact net earnings. On January 28, 2023, 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 $1,188 increase or decrease, respectively, in the Company’s net earnings for
the year ended January 28, 2023.
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 28, 2023 to determine how a change in interest rates would impact net earnings. For the
year ended January 28, 2023, the Company earned interest income of $1,952 on its cash. An increase or
decrease of 100 basis points in the average interest rate earned during the year would have increased net
earnings by $486 or decreased net earnings by $443. 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 28, 2023 to determine how a change in interest rates would impact net
earnings. For the year ended January 28, 2023, the Company incurred interest expense of $445 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 $102.
79
28. 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.
80