Good afternoon, ladies and gentlemen, and welcome to Richelieu Hardware First Quarter Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session, which will be restricted to analysts only. And if at any time during this call you require immediate assistance, please press 0 for the operator. Also note that the call is being recorded on 04/08/2021.
Thank you. Good afternoon, ladies and gentlemen, and welcome to the Richelieu conference call for the first quarter ended 02/28/2021. With me is Antoine Nau Claire, CFO. As usual, note that some of today's issue include forward looking information, which is provided with the usual disclaimer as reported in our financial filings. We held this morning our annual general meeting in attendance of the policyholders.
We started 2021 with a strong first quarter, all the more satisfactory since historically the first three months are the weakest period of the year. As an essential supplier in this pandemic period, we met the challenge thanks to the strength of our customer focused business model, our dedicated team, our innovation and value added service strategy, including our one stop shop approach, the efficiency of our website, wglichardieu.com, and the fact that we serve a large base of more than 90,000 active customers in many diversified sector in the manufacturers and hardware retailers market, which is a significant asset. We also benefited from the contribution of our previous acquisitions and our new specialty markets. Furthermore, I would add that throughout this pandemic period, our team has made every effort to assist our clients as efficiently as possible in their projects. All these combined, we were able to see the opportunities of favorable conditions in the Canadian and US renovation market, which is our main source of growth.
Our sales increased by 19.3% consisting of a strong internal growth of 17%. Our two major markets, manufacturers and retailers, performed very well both in Canada and in The US. Our sales increased by 16.2% in our manufacturers market and by 34.5% in our retailers market and innovation superstores. EBITDA was up 53.4% benefiting from increased sales and lower operating costs as a result of rigorous cost control and diluted net earnings per share was up 76.2% over the last year. We continue to identify acquisition targets meeting our long term value and creation criteria.
After the end of the quarter, we acquired the shares of Task Tools, a distributor of power tool accessories and related products for retailers in Canada and in The US, operating two centers in BC and Ontario. Combined with Marlborough acquired in 2020, this new acquisition allows us to expand our offering of this product line for the retailers and innovation superstores market in Canada and in The U. S. We also signed two agreement in principle to acquire two Canadian distributors. Together, these three new acquisitions would bring additional sales of approximately $36,000,000 per year.
In addition, we are very pleased to have added solution centers in Rochester, New York, which has become our fifth center in this strategic market. I will now ask Antoine to go through the financial highlights of the first quarter and will come back with additional comments. Antoine?
Thanks, Richard. First quarter sales reached €297,600,000 up by 19.3%, of which 17.1% from internal growth and 2.2% from acquisitions. Sales to manufacturers stood at €241,800,000 up by 16.3%, of which 13.6 acquisitions. In the Hardware Retailers and Renovation Superstores market, we achieved sales of €55,800,000 up €14,300,000 or 34.5%, mostly resulting from internal growth. Those increases are the result of the favorable fallout from the strong demand in the renovation market.
In Canada, sales amounted to €193,200,000 up by 23.3%, of which 22.5% from internal growth and 0.8% from acquisitions. Our sales to manufacturers reached €153,200,000 up by 20.2%, of which 19.1% from internal growth and 1.1% from acquisitions. As for the Hardware retailers and renovation superstores market, sales stood at EUR 40,000,000, up 37%, all from internal growth. In The U. S, sales grew to EUR 81,900,000.0 in U.
S. Dollar, up 16.4%, 11.8% from internal growth and 4.6% from acquisitions. They reached CAD 104,300,000.0, an increase of 13% and represented 35 of the total sales. Sales to manufacturers reached US70 million dollars up by 14.1%, 8.6% from internal growth and 5.5% from acquisitions. In the hardware retailers and innovation superstores market, sales grew by 31.9% entirely from internal growth.
First quarter EBITDA reached €38,200,000 up €13,300,000 or 53.4% over the first quarter of twenty twenty. Gross margin was maintained and the EBITDA margin reached 12.8% compared to 10% last year due to the increase in sales and continued control of expenses. First quarter net earnings attributable to shareholders totaled $21,000,000 up 78.3%. Diluted net earnings per share rose to $0.37 compared with $0.21 for the first quarter of twenty twenty, an increase of 76.2%. First quarter cash flow from operating activities before net change in working capital balances amounted to €30,000,000 or €0.53 per share, an increase of 48.9%.
We paid dividends of $7,600,000 to shareholders, representing a special dividend of $6.67 per share and the quarterly dividend of $07 which is up 5% compared to last year. We repurchased common share for $3,300,000 and invested 2,900,000 for new equipment to improve and maintain operational efficiency. I now turn it over to Richard.
In conclusion, more than ever, we are committed to high standards of quality and reliability in our customer service. We continue to do our utmost to support our customers and their projects as efficiently as possible. Customer service, particularly in these difficult time, is the most important element in order to maintain and gain market shares. Under the current conditions, we strictly adhere to all recommended preventive measures to protect our employees, customers, and business partners as much as possible. Currently, more than 600 employees are still fully working.
This review remains customers and innovation oriented. We will continue to leverage our main growth drivers, namely our innovation and acquisition strategies. This is the most appropriate way to seize and create opportunity to achieve further good performance. We are very well prepared and organized to meet the current possible challenge such as labor shortage, getting product on time, rising shipping costs, and inflation. I take this opportunity to thank to to thank again our team and business partners for their support.
Thanks, everyone. We'll now be happy to answer your question.
Thank you, miss Allard. Merci. Ladies and gentlemen, if you do have a question, please press star followed by one on your touch tone phone. You will then hear a three tone prompt acknowledging your request. Should you wish to withdraw your question, simply press star followed by 2.
And if you are using your speakerphone, we do ask that you please lift a handset before pressing any keys. Please go ahead and press star one now if you do have a question. And your first question will be from Roshni Lusra at CIBC. Please go ahead.
Thanks. Hi. Good morning. Richard, can you tell us how sales were year over year in March and how they're doing so far in April? I believe last year, COVID has not impacted March sales, and then they plunged in April.
Can you just tell us how maybe it's going so far?
Antoine, could you take this vowel?
Yeah. No problem. So March is you're right. So COVID started to hit us at the March, so March. But when we look at the current performance, where it's still strong.
So on the industrial level, it's still double digit growth and pretty much the same thing on the retailer side as well.
Actually, what we do, we compare ourselves with the 2019. So we established some targeted sales as the guideline is 2019, the same period, and we established what should be our sales in the month of March. So actually things are doing very positive.
Okay. Great. And then, you know, just in The US as, you know, there are areas where vaccination rates are picking up. Are you seeing any changes in demand in those areas?
No. We see a constant growth in The US. The growth in The US is not as strong as in Canada, but the basically, had a few area in The US in the last quarter that were not that strong. I I mean, I can name here the Texas because of the storms. Illinois, for whatever reason, and upper state New York.
All the other regions in The US were higher by the growth was higher than 15%. So it is very positive in The US and we we see that there and you see the trend in Canada is very clear. The the market is very, very strong.
Okay. Great. Thanks. That's all I have. Thank you.
Thank you.
Thank you. And your next question will be from Zachary Evershed at National Bank Financial. Please go ahead.
Good afternoon, everyone. Congrats on a great quarter.
Thank you. Good afternoon.
So it looks like great wins in sales to retailers in the quarter. Can you tell us that there was a high proportion of cyclical sales that won't repeat in q two?
Well, we think that the market for the other one, seller will remain very strong in the months to come. We see that. I think the consumers, they have, I think, some money at the bank. And with the COVID situation not being better all across Canada, we see the I think the trend is the people will continue to go to the hardware stores and buy some goods as well as they also buy online. We see regarding the other online customers that we sell to in Canada, we see our sales increasing by 49% so far this year.
So we see the market, and we feel really that the market is continue is going to continue to be very, very positive.
That's helpful. Thank you. And then drilling down into the big increase in EBITDA margin in q one, two hundred and two hundred and eighty basis points year over year. Can you give us an idea of how much was attributable to sustainable cost containment and how much was better operating leverage and what your views are on both of those going forward?
I think we have some some cost reduction. I will let Antoine answer that. But we also we see actually that our product mix continue to increase as well well as and also our sales in The U. S. Continue to increase.
As a result of that, we see as a percentage, the EBITDA margin increasing. Antoine, maybe you can give more colors regarding the cost control.
Yes, for sure. But we do of course, we're exactly the increased volume that helps on the that improve the EBITDA percent. But on the cost control, we're still very we are still very rigorous around all the travel and living across North America. So we're still benefiting from these measures in place. And we'll take it as it comes.
But as of now, we're still benefiting from these cost reduction measures.
Understood. And then looking back over the last decade or so, Q2 margins have generally been 150 to 200 basis points stronger than Q1. But given how strong Q1 was this year, do you still believe that seasonality will apply?
No. We should expect to see improved margin. We're talking about same store sales, of course. If we're adding acquisition, that could change the mix. But for the current business that we have, we're going to work hard to improve the mix to get the synergies from the acquisition and be very rigorous on cost control, we should see an improvement in the margin.
Absolutely. And it's going great so far. And then your your sales stepped up 19%, but your inventories barely moved. So have international freight issues been causing any delays in shipments from Asia or Europe? Are you expecting to restock?
No. We are we we obviously, the freight the freight increase is pretty important, but we're working hard to get the inventory in. So what comes in goes out. So you're correct. Inventory increased not as much as the sales, but we're doing everything we we can to to serve the the customers.
And then on on the topic of that increase in freight cost, how's the rollout of the price hike going so far?
I I just missed you at the end of your question, Zach. Sorry.
Oh, sorry. How is the rollout of the price hike going so far?
Oh, we have already established some price increase for the for the manufacturer market. It's within twenty four hours. We can review our pricing. Regarding the retailers, we have a a new price increase taking effect in the in early May, and and we we we keep watching the market and the inflation. If it if it is some more increase that we have to do, we will do it, you know, later on during the year.
As you mentioned, the the freight is really an issue, actually. It's more than double the cost. But as a as a percentage of the cost of our product, it's not that high. But, anyway, we keep changing our pricing as needed, you know, every day if needed.
Perfect. And then on your acquisitions, very quick start to the year. Great to see that. How active is the pipeline for the rest of the year compared to that?
I will definitely comply for the pipeline. I think the pipeline is very healthy. But, also, I'm very I'm very happy with the acquisition that we've made, like the Task Tool business that would be a good combination with MyBro. So that will strengthen not only our market presence with these products and that our sales force will certainly contribute to increase the sales, you know, tremendously. And also, we enforce our our team team management team.
So in order to make sure that we continue to bring some innovation in this type of market. And the new, agreement in principle that we have that are not completed yet though, basically, we have the same synergy with other HOU specialized product line and specialized division that we have. So that would be very positive. Very positive, we have very, very good fits. And those acquisition combined with what we already do will certainly increase the sales tremendously in the future.
Yes. And the pipeline, Zach, it's still healthy. So we have nice files open that are that we are looking at. So either in The US and in Canada, either in in the retailers market or the industrial market as well. So
stay tuned.
Gotcha. Thank you. And then on the two undisclosed acquisitions, would they be active in manufacturers markets or the or do they sell to retailers?
It's mainly retailers market.
Understood. Thanks. And then one last one for me. Are you noticing any increase in acquisition target expectation given how strong the renovation market is now?
Don't know, but actually okay. I just wanted to go.
No. No. Not not not necessarily. Probably the probably down the line, it it could happen. But as of today, we're not seeing necessarily more activity.
We have a lot of nice opportunities in work, but I don't I don't think that it's COVID related. So
we'll see.
Maybe to add just to add
to that, Zach, I think people after the COVID, maybe some people, as we already mentioned in other previous meetings, after the COVID, maybe some some entrepreneur will decide that they they had they had had enough challenges in their life and that maybe some more business would be to sales when they're more sellable, when they make some profit, so they cannot sell to a higher at a higher price, maybe we're going to see more possible acquisition. But so far, as Antoine mentioned, the pipeline is very, very healthy and we're excited about what's coming up.
Thank you very much for answering the questions. I will turn it over.
Thank you.
Thank you. Next question will be from Rob Currie at Luyberg Investments. Please go ahead.
Hi, guys. How's it going?
Good. What are you doing Great. Thanks. Good. Good.
Thanks for taking my question. Just wanted to ask about margins here. You talked about mix, and we've talked in the past about how is the mix US versus Canada, Canada having a better margin component to it, but gradually trying wanting to transition The US to better margin sales over time. Is that playing a part here too? Is The US being a driver here, or is it is it really just overall you're seeing, better mix across the board?
It's, it's US and overall as well. And we see the product product mix increasing as we push more and more on the higher margin products and we see more and more results regarding EBITDA margin. There is such a huge potential in The US for where we have a we're hiring actually more people you know, to to sell more of those higher margin products. So that should bring some positive result. And and we're very positive as well with the margins in The US with that are getting closer and closer to the Canadian market.
We're not we're we're not there yet, but it's it's it's coming very favorably.
That's helpful. And when I think about your sales now and this mix change, is there anything that is fundamentally happening? Is this just a result of COVID volumes? Or is there a reason why the mix change is happening that you think is sustainable that will still be there two, three years out?
It's a result of the effort that we invest for in order to increase the sale of these products. So we have we have not started just this year. Has been started, you know, many months and maybe a couple of years ago, mainly in The US. So and and we see more and more of the result coming in naturally and we are recovering new market, for example, the Clozart market. I see in the Clozart market actually our sales increased by 46% in Canada and The U.
S. So you see that if you remember a couple of years ago, we have invested in the new business that covered this market. So this is completely compatible with the usual product strategy. So we see those increases, which are very interesting. And those markets are high margin market.
So I think that that will that should continue on, increasing the sales of the regular products and pushing more and more of the high margin project products.
Yeah. That's helpful. I I feel like, I can't remember specifically, but I'm sure this has been asked over the past few quarters. But is there a concern that, sales over the past few quarters have been a pull forward and we're gonna see, you know, not just a drop in demand from from this elevated level, but a drop below the run rate we were previously yet? Or do you guys feel pretty confident that this is just increased demand and that it might come to a more normalized level later, but this is kind of still a demand that you expect going forward?
Yes. We guess, the certain percentage of our sales may be may be temporarily increasing. But I think overall, we see actually that the issue is increasing its market share. So even after the COVID, we're gonna see, I think, better sales and we're gaining customers. And actually, have to be very careful though because we first serve the customer that have, but we have many, many customers that we have added and some that wait for us to be added.
Fortunately, regarding the procurement, we have a very good team in this department and we I think we're successful actually to get products while our competitors have much more problem than we than we have. And we and if we you remember as well at the beginning of the call, and the call that we told you, you know, we have not stopped our purchasing. We have continued to push to make sure that we did not diminish our purchasing orders and that we keep increasing our inventory. And you see actually that our inventory is about 30% higher than it was in the same period last year. So basically, we have made, I think, our best effort in order to maximize our purchasing, to get the inventory, and we continue to do that as well.
Actually, to make sure that for certain products, we're paying some effort to make sure that we have mainly for the seasonal product for the retailers. We have a budget actually for air freight and the additional cost cost because of those air freight are largely compensated by increased increased sales. Like, you see the 35% for the retailers for the last quarter. So, basically, we're taking all the means that we can in order to better service the customer. The service makes all the difference.
Also, our sales team sales team actually, you know, they keep communicating with our customers as well. If one product is missing, they they contact the customers and they propose a product that will do the same job for them. This is another big advantage of LutroView being a one stop shop. If we have a a in something like that, that that with the that might be out of inventory next week. So we call the customer and say, hey.
We have this alternative product that will do exactly the same job. So, basically, we make sure that we don't miss any opportunity, you know, in regards of all the products that we have and the needs of our customers.
That's great. Last question I have for you is about m and a. You know, your currency has obviously improved here. Cost of capital is going down, as your shares near rise. Does that change the way you guys think about, capital allocation?
Is it possible that you could go after a bigger fish and possibly use some equity, or do you still feel like it's kind of tuck in situation that you guys have been doing for years is still the status quo? Just some updates. That would be great.
Yeah. What we see in the market as we speak is is more tuck in acquisition. So if if there's a a larger cat, larger fish to catch, and it's aligned with our long term value creation, we'll go after it, that's for sure. But for now, what we have in the pipeline are more tuck in acquisition that fit perfectly with our with our long term strategy.
And our line remains in the water. Our line remains in the water just in case that big fisher is interested to that line.
Sounds good. Alright. Thanks. I'll turn it over.
Thank you. And at this time, Mr. Lal, we have no other questions registered. Please proceed.
Okay. If there's no more questions, thanks again. It's always a pleasure to talk to you. Do not hesitate to contact us if needed. Bye bye.
Have a good afternoon.
Thank you. Merci. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.