Good afternoon, ladies and gentlemen, and welcome to the Richelieu Hardware second quarter results conference call. At this time, all lines are in the listen-only mode. Following the presentation, we will conduct a question and answer session, which will be restricted to analysts only. If at any time during this call you require immediate assistance, please press star zero for the operator. Also note that this call is being recorded on July 10, 2025. [Foreign Language]
Merci. Thank you. Good afternoon, ladies and gentlemen, and welcome to Richelieu 's conference call for the second quarter and first half, ended May 31, 2025. With me is Antoine Auclair, CFO and COO. As usual, note that some of today's issues include forward-looking information, which is provided with the usual disclaimer, as reported in our financial filings. This was another quarter of good progress for Richelieu , both in terms of sales growth and new business acquisitions. We ended the first half year with a sound financial position. We are pleased with the 6.4% increase in total sales. We posted a solid performance in the U.S., with a sales increase of 11.7% in U.S. dollars, of which 6.6% coming from internal growth.
In Canada, we had a steady performance despite the low-finishing economic conditions during the period, particularly in Ontario, where our favorite manufacturers were down, offsetting the good performance in Eastern Canada. It should also be noted that since May, we had to make selling price adjustments in response to U.S. tariffs. These adjustments had a minimal effect on the 6.6% internal growth we achieved in our U.S. markets, with no impact on our gross margin since it's a pass-through. Regarding our acquisition strategy, which we successfully pursued in the second quarter after completing four acquisitions in the first quarter. In April, we acquired Rose & Noir Architectural Products, specializing in exclusive architectural panels and related products in New Jersey. This acquisition also gives us the opportunity to expand our collaboration with architects, designers, and architectural woodworkers in the U.S.
On May 1, we acquired Kanko, a distributor of industrial wood finishing products in the Greater Montreal area. This move strengthens our sales network of finishing products in North America that we have already established over 25 years ago. This means six acquisitions concluded in the first six months for additional sales of $53 million. A stronger network, more diversification of our market segments and products, more synergies, and even more added value to our service. We also continue to invest in our network, adding over 50,000 sq ft to our Detroit facility, which gives us the opportunity to add product lines and capture growth opportunity. I will now ask Antoine to review the financial highlights for the period.
Thanks, Richard. In the second quarter, sales reached $512.2 million, up 6.4%, representing an increase of $30.8 million, equally driven by internal growth and acquisitions. In Canada, sales totaled $276 million, relatively stable compared to the same quarter of 2024. Despite a decline in sales in Ontario, where the business environment is actually more challenging, sales to manufacturers amounted to $235 million, up 1.2%, while sales to the hardware retailers totaled $41 million, down 73%, mainly due to timing differences, as year-over-year sales are roughly in line with the same period last year. In the U.S., sales grew to $168 million in U.S. dollars, up 11.7%. Sales to manufacturers reached $157 million in U.S. dollars, up 9.9%, with 4.6% coming from internal growth.
As of May, a portion of this internal growth reflects selling price adjustments following the introduction of new import tariffs, an increase that offsets the additional costs with no impact on gross margins. In the hardware retailers and renovation superstores market, sales reached $10.9 million, up $3.4 million. In Canadian dollars, total sales in the U.S. reached $236 million, up 15.3%, accounting for 46.2% of total quarterly sales. For the first half, total sales reached nearly $1 billion, up 7.4%, of which 3.9% resulted from internal growth and 3.5% from acquisitions. In Canada, sales reached $517 million, up 1.8%, primarily due to acquisitions. Sales to manufacturers totaled $431 million, up $10 million or 2.4%. Sales to hardware retailers and renovation superstores were $86.8 million compared to $87.8 million, down 1.1%. In the U.S., sales amounted to $208 million in U.S.
dollars, up 9.8%, with 5.7% from internal growth and 4.1% from acquisitions. They reached $437 million in Canadian dollars, up 14.9%, accounting for 46% of total sales. In U.S. dollars, sales to manufacturers totaled $290 million, an increase of $26.3 million or 10%, driven by 3.8% internal growth and 6.2% from acquisitions. Sales to hardware retailers and renovation superstores were up 7.1% compared to last year. Second quarter EBITDA reached $55.2 million, up $1.4 million or 2.7% over last year. Growth in EBITDA margins remained under pressure due to the contribution of recent acquisitions, which carry lower margins, as well as to integration costs and network expansion initiatives. Consequently, the EBITDA margin stood at 10.8% compared to 11.2% last year. First half EBITDA totaled $97.6 million, up 3.6%, with the EBITDA margin at 10.2% compared to 10.6% last year.
Second quarter net earnings attributable to shareholders amounted to $22.5 million, down 3.9%, mainly due to higher amortization expense resulting from capital investments, new leases, and lease renewals related to expansion projects and business acquisitions completed during the previous fiscal year and the first semester of 2025. Consequently, diluted net earnings per share was $0.41 compared to $0.42 last year. First half net earnings attributable to shareholders reached $36.4 million, down 5.9%. Diluted net earnings per share stood at $0.66 compared to $0.69 last year. Second quarter cash flow from operating activities before net change in non-cash working capital were $46.8 million compared to $45.1 million last year. The net change in non-cash working capital items represented a cash inflow of $0.5 million, reflecting a $10.2 million reduction in inventories, while other items required $9.7 million in cash.
As a result, operating activities provided a cash inflow of $47.3 million in the quarter compared to a cash inflow of $55.7 million last year. For the first half, cash flow from operating activities represented a cash inflow of $51 million compared to a cash inflow of $56.2 million last year. For the second quarter, financing activities used cash flow of $23.3 million compared to $38.6 million last year. The main variance is explained by the repurchase of common share, which amounted to $18.6 million last year. First half financing activities used cash flow of $44.7 million compared to $57.6 million in 2024. In the first half, we invested $36 million, including $27.4 million for six business acquisitions and $8.6 million primarily for the purchase of warehouse equipment related to expansions and center consolidation efforts and to maintain and improve operational efficiency.
We continue to maintain a robust financial position with working capital of $614.2 million and a current ratio of 2.9 to 1, while holding almost no debt. I now turn it over to Richard.
Thank you, Antoine. In conclusion, over the coming periods, we will continue to grow by being creative and by reacting proactively to the changes, building on our sound foundations of strength and remaining firmly connected to our market. Our business model is well adapted to our customer needs, our outstanding product offering, our solid network, and our talented team are key to our success. The integration of our recent acquisition is proceeding efficiently while developing synergies, and we remain on the lookout for further growth generating acquisitions in the short and long term. Our strategic investment in the recent years, our acquisitions are generating tangible growth and are key drivers in our long-term value creation. Thanks everyone.
Thank you. Ladies and gentlemen, we will now take questions from analysts. Should you wish to ask a question, please press star followed by one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. If you're using your speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star one now if you have any questions. The first question will be from Nikolai Goroupitch at CIBC World Markets. Please go ahead.
Hi there. Can you provide some more color on the price adjustments? You talked maybe what percentage of products you raised prices for and the price impact that had on your organic growth in the U.S.?
Our dollars were affected by those price increases in the U.S. because of the tariffs. They are only for the Chinese products and represent what, Antoine? Between 15% and 20% of our sales. The effect is minimal, because it was effective only in May. For the following quarter, though, that would be fully applied to the periods.
Okay. I see. Could you perhaps discuss the price versus volume trends in Canada as well?
Price versus volume in Canada. Price had a minimal impact in Canada. It's a pretty flat market as we speak, and it's mainly due to volume.
I see. How is the M&A pipeline looking? Are you seeing any changes in activity or multiples given the recent large deals in the distribution space?
No, no, no change in the network. The pipeline is still healthy. We've been in a position to close two this quarter. We still have others in negotiations. We didn't see any major change in the M&A environment. The pipeline is healthy both in Canada and the U.S.
Okay. Perfect. Thanks. Go ahead. I'll turn it over.
Thank you. Once again, ladies and gentlemen, if you do have any questions, please press star followed by one on your touchtone phone. Next question will be from Allison Lee at National Bank Financial. Please go ahead.
And.
Please go ahead, Allison.
Hello?
This is Zach calling in.
Okay, Zach.
Just circling back on those price increases in May, is it fair to assume that they were about the exact size of the tariffs that were declared on Chinese goods?
Exactly. We only carved the cost of the tariffs, just passed to our customers, and it's 100% done regarding the Chinese products. That's in the U.S. only.
Thank you. Given what we're seeing in terms of letters coming out from the U.S. administration, have you been adding any more price increases in June and July from other countries of origin?
We will apply one of the tariffs that we'll have to that will be charged or that will be recharged to our customers. No doubt about that. We follow up very closely on that, and nothing is going to stay in between. As soon as we get the charges, we're going to charge our customers.
Do you think you'll be able to cleanly pass those through going forward, or do you expect some pushback from customers and maybe some lost volume?
We don't expect any pushback because, first of all, short term, our customers already have a lot to work. I mean, a lot of work. They have some orders that you have to finish in order to be paid by their own customers. Basically, they don't have any choice. They have to buy the product that they need to finish those products, those projects. Regarding the tariff, though, even though with the current tariff that we have for the Chinese product in the U.S., the Chinese product is still much more or less expensive than any product, any similar product coming from any other country. Basically, we don't expect any change for that. We expect only change because people might be unsecure and the market might slow down. We don't see that so far in the current quarter in the U.S.
In Canada, we already mentioned that in Ontario, the Ontario market has been difficult for the last six months for many reasons. A lot of condominiums are inventoryed, have not sold yet. They're expensive. You know the interest rate and everything else. The tariffs are making the people a bit more nervous in Ontario than anywhere else because of the automobile industry. So far, what we're seeing in the current quarter, though, we're seeing a slowdown also in BC because, again, we're worried that some contractors are laying off employees because they have a lot of unsold condominiums. Hopefully, those situations will be temporary. As we were saying in the previous quarter, we think as we say in the third quarter, business is still steady compared to the last quarter.
We always have a threat in Canada that might be a slowdown, maybe not a recession, but a slowdown in the industry. By the way, Richelieu is very well equipped. Whatever happens with the economy, Richelieu is very well equipped, very well positioned. We have our inventory, as you know, is full. We have the best network. We have a product diversity that nobody else can touch. We're unique in the world of hardware. We have the service, our service, 24-hour service all over Canada and in the U.S. for the small customers. That's something unique that I think if the first people that have problems if the business slowdown would be hopefully our competition. Richelieu Hardware is very well equipped to continue to be successful. If the market is less, if the economy is down, our sales might be affected.
We just hope that it will not happen.
That's a very good color. Thank you. If we pivot specifically to retailers, there's a big uptick in the U.S. What drove that in particular? Is that going to be recurring?
In the U.S., you know we're sometimes dealing with big customers that could place seasonal orders. That's the case for the U.S., the growth that you see there. It's a.
In terms of go ahead.
It's a customer we used to deal with, but we never received the orders in the same quarter.
Gotcha. Just the way that that order was placed, will it straddle Q3 as well, or is that mostly a Q2 effect?
It's mostly a Q2 effect, and you will have some effects in Q3 as well, but not as big as Q2.
Understood. Looking into Canadian retailer sales, I was a little surprised to see that that was weaker given the Rona refresh and what we were hoping for from that. What's the story in Canada?
I think you need to look at it for the first semester. The Rona refresh occurred more in Q1, so that's why you've seen a larger increase in Q1. The way we look at it is first semester, the Canadian retail business is stable. That's more a cyclical effect in Q2, and we expect the last, the second half to be good. I think as good, at least I think it's going to be better than flat. I think we shall expect maybe a strong increase in the retail market in Canada because we keep pushing products into the stores. We add products. We see so far in the third quarter, we see Rona growing because of the work that we've done with our display in their stores. We see our sales with Home Depot growing as well.
Basically, I'm rather optimistic for the Canadian retail market for the rest of the year.
That's good news. If we move to capital allocation with the network expansion initiatives, where do you see your CapEx budget for the year?
I think what we spent in six months and double it. You'll end up closer to $20 million, which is more a maintenance CapEx mode. It's equaling approximately 1% of our sales. Historically, before the last three to four years, we were spending approximately 1% of our sales in maintenance CapEx. You should end up around $20 million.
Thanks. Any specific targets for working capital improvements?
We reduced this quarter. We've reduced inventory $10 million. Hopefully, we'll add another $15 million for the rest of the year. For our accounts receivable, they're in pretty good shape. We're satisfied where it is today.
Thank you. This last one for me. We've been seeing home builders lowering their outlooks, and you guys were talking about the go-to-market in Toronto and BC. Are you seeing similar read-throughs for a lower outlook from both manufacturers and retailers, or is there a split in outlooks anywhere?
I think the retailers all look to see rather positive. It might not be booming, but what we see so far is it will certainly be better than last year. Regarding the rest of the market, with the contractors, Eastern Canada is still very good. There's still some decent construction in Quebec, and the Maritimes are doing pretty well. Ontario, I don't think can be worse. I think it would be maybe, hopefully, we start to improve. Alberta is still decently good. It's a good market still. BC is something that we have to keep an eye on for the months to come because, you know, I think the people, we need some construction. I think we all know that Mr. Fahrenheit has promised to make thousands and thousands of new construction. That would be an apartment for the purpose of renting.
There is a lot of product for retail products in those types of apartments as well. Basically, there are some positive signs. As we see, as we speak with what we know, we expect a flat market in Canada. The US so far is still holding very well so far.
Very good. Thank you. I'll leave it there.
Thank you. Thank you.
Thank you. At this time, Mr. Mahon, we have no other questions registered. Please proceed, sir.
Okay. There are no more questions. Thank you very much for attending this call. It's always a pleasure to talk to you. Don't hesitate to contact us if you need more information. Thank you very much.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we do ask that you please disconnect your lines.