Good afternoon, ladies and gentlemen, welcome to Richelieu Hardware third 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. 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 today, October 8, 2020. [Non-English content] Richard Lord, President and Chef de la direction.
[Non-English content]. Thank you. Good afternoon, ladies and gentlemen, and welcome to this conference call for the third quarter and nine-month period ended August 31st, 2020. With me is Antoine Auclair, 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. The third quarter was a period of strong growth and high profitability. We achieved these results thanks to our successful business strategy, notably the one-stop shop approach, our manufacturer's market in various segments such as kitchen cabinet, architectural woodworking, furniture, closet, glass, door and window hardware, just to name a few. Our hardware retailers and renovation superstore market, our web strategy that stands out with richelieu.com, our competent team, and operational agility that allowed us to react quickly to the current environment.
I would like to highlight the strong sales growth of 82.5% in the hardware retailers and renovation superstore market, stemming from the contribution of Mibro, acquired at the beginning of the year, which accounts for 36%, and from a substantial increase in demand and higher cyclical sales in the quarter. As we speak, sales to hardware retailers represent 18% so far this year compared to 14.5% last year. I also want to point out the improvement in the EBITDA margin to 15.8% compared to 12.6% last year, and the 56.3% increase in diluted net earnings per share standing at CAD 0.50 compared to CAD 0.32 last year. In addition, during the quarter, we concluded two new acquisitions for a total of five this year. Those acquisitions altogether will result in additional sales of over CAD 70 million on an annual basis.
As announced last July, we acquired Central Wholesale Supply in Richmond, Virginia, which gave us access to this new geographic market. On August 4th, we acquired Lion Hardware in New Brunswick, specializing in window and door hardware products and serving all of Eastern Canada. In addition to expanding our offering and customer base in this market segment, where we have already acquired two specialized distributors in 2019, Lion Hardware completes our Canadian coverage of this market segment. Regarding the current pandemic situation, we continue to rigorously apply the measures required by the relevant authorities. In addition, we still have some 600 people, 600 of our employees still working from home. We adjust our cost structure as the situation evolves. Approximately 5% of our workforce is still impacted by layoffs or reduced hours, and we are still limiting business travel by using technology such as video conferencing.
I'll now go to Antoine for the financial review.
Thanks, Richard. Third quarter sales reached CAD 311.2 million, up by 15.6%, of which 6.9% from internal growth and 8.7% from acquisitions. In Canada, sales amounted to CAD 203 million, up by 12.8%, of which 8.2% from internal growth and 4.6% from acquisitions. Our sale to manufacturers reached CAD 154.3 million, up by 4.2%. As for the hardware retailers and renovation superstores market, sales stood at CAD 48.7 million, up CAD 16.8 million or 52.7%, of which 40.7% from internal growth and 12% from acquisitions. This significant increase is the result of major growth in the renovation market in Canada, as well as higher cyclical sales than last year. In the U.S., sales grew to $80.6 million, up $13.1 million or 19.3%. Sales to manufacturers reached $68.7 million, an increase of 6% over the third quarter of 2019, of which 7.1% growth from acquisition and 1.1% from internal decrease.
Sales in US dollar to hardware retailers and renovation superstores were up 240.7% compared to last year, including 247.4% growth from our Mibro acquisition and 93.3% from internal growth. As in Canada, the renovation market in the United States has been growing strongly, resulting in a major increase in sales in this market. The company also benefited in the third quarter from higher cyclical sales. Total sales in the U.S. reached CAD 108.2 million in Canadian dollar, an increase of 21.2% and representing 34.8% of total sales. For the first nine months of 2020, sales totaled CAD 808.8 million, up 4.1%, of which 7.4% growth from acquisition and 3.3% from internal decrease. In Canada, sales reached CAD 514.9 million, up by CAD 8.2 million or 1.6%, of which 4.8% from acquisition and 3.2% from internal decrease.
Sales to manufacturers reached CAD 406.4 million, down CAD 11.5 million or 2.8%, of which 4.1% growth from acquisition and 6.9% from internal decrease. Sales to hardware retailers and renovation superstores reached CAD 108.5 million compared to CAD 88.8 million, up 22.2%. In the U.S., sales amounted to $217.4 million, up 7.2%, of which 11.9% growth from acquisition and 4.7% from internal decrease. They reached CAD 293.9 million in Canadian dollar, up by 8.8%, accounting for 36.3% of our total sales. Sales to manufacturers totaled CAD 190.4 million, an increase of CAD 5.3 million or 2.9% over the same period last year, of which 5.2% growth from acquisition and 2.2% from internal decrease. Sales to hardware retailers and renovation superstores were up 53% compared to last year.
Third quarter EBITDA reached CAD 49.1 million, up CAD 15.2 million or 44.8% over last year, resulting from significant increase in sales in the retailers market, together with action to reduce cost and government subsidies. Gross margin remained stable and the EBITDA margin stood at 15.8% compared to 12.6% last year. For the first nine months, EBITDA reached CAD 107.7 million, up 20.8%. The gross margin remained stable. As for the EBITDA margin, it stood at 13.3% compared to 11.5% last year. Third quarter net earnings attributable to shareholders totalled CAD 28.7 million, up 56.6%. Net earnings per share were CAD 0.51 basic and CAD 0.50 diluted compared to CAD 0.32 basic and diluted last year, an increase of 59.4%. For the first nine months, net earnings attributable to shareholders reached CAD 58.1 million, up 22.8%. Diluted net earnings per share stood at CAD 1.03 compared to CAD 0.83, up 24.1%.
Third quarter cash flow from operating activities before net change in working capital balances amounted to CAD 38.1 million or CAD 0.67 per share, an increase of 43.8% compared to last year, resulting primarily from the net earnings growth. For the first nine months, they were up 21.2%, totalling CAD 85 million or CAD 1.50 per share. For the third quarter of 2020, financing activities used cash flow of CAD 9.2 million compared to CAD 11.6 million last year. Dividends paid to shareholder of the corporation amounted to CAD 3.8 million, up 4.2%. For the first nine months, financing activities used cash flow of CAD 19.9 million, compared to CAD 29.1 in 2019. During the third quarter, we invested CAD 12.9 million, including CAD 9.7 million for the two business acquisitions.
During the first nine months, we invested CAD 42.3 million, of which CAD 33.1 million for the five business acquisitions and CAD 9.2 million primarily for the purchase of equipment to maintain and improve operational efficiency. We continue to benefit from a healthy and solid financial position. Cash balance of CAD 74.5 million, almost no debt, a working capital of CAD 376.2 million for a current ratio of 3.6 : 1. I now turn it over to Richard.
Thank you, Antoine. We remain quite confident but still watchful. Looking back at September, we can see an upward trend in the manufacturer's market and still very strong in the hardware retailers and renovation superstore market. We understand this is due to exceptional circumstances. We continue to build on our strengths and value-added concept in order to provide distinctive and outstanding service to our customers. With a business model well adapted to customer needs and a sound financial position, Richelieu is well-positioned to pursue its innovation, market penetration, and acquisition strategy, which are our main growth drivers. We also announced that this morning, the board of directors approved the payment of a quarterly dividend of CAD 0.0667 per share, payable on November 5th. In conclusion, I would like to thank our team and business partners for their support in this challenging period. Thanks, everyone.
We'll now be happy to answer your questions.
[Non-English content]. Thank you. Ladies and gentlemen, if you do have a question, please press star followed by one. Also be reminded that questions will be limited to analysts today. Once you've pressed star one, you will hear a three-tone prompt acknowledging your request. Should you decide to withdraw your question, simply press star followed by one. If you're using a speakerphone, we ask that you please lift the handset before pressing any keys. Please go ahead and press star one now if you have a question. Your first question will be from Hamir Patel at CIBC Capital Markets. Please go ahead.
Hi, good afternoon, and congratulations on the strong Q3 results.
Thank you.
Richard, you gave some comments on how September was faring qualitatively. Could you quantify how your sales fared in the month of September?
Yeah, I could say that I think our sales to manufacturers are, I would say around 5% increase. I guess this trend should continue at least until, I would say Christmas, which we don't know after Christmas, though. As far as for the hardware retailers, the market remains very strong, maybe not as strong as it was in the last quarter, but still very strong. We expect a very good growth in this market as well.
Okay, great. Thanks. That's helpful. Antoine, you had I think it was just over CAD 3 million of government grants in Q2. How much did you get in Q3, and would you expect to get anything in Q4?
3.5 in Q3 and nothing in Q4.
Great. That's helpful. Richard, when we look at the EBITDA margins, clearly a step change over the last two quarters. The 15.8%, do you think you could sustain that into Q4 and, as the hardware retailers market maybe normalizes next year, what's your objective for long-term margins?
I think the EBITDA margins should still be very good in the fourth quarter. I would say when the situation come back to normal, I think the better comparison that we can have is with 2019. For the time being on the short-term, yes, the margin will continue to be strong. It's just our gross margin is rather stable. I think the increase in EBITDA margin is the result of reduced expenses and the additional sales mainly in the retailers market that brings without increasing our expenses much. Still, we have to mention also that we spend more because I think all the distribution centers available to the hardware retailers are working seven days a week since two months. So it does increase, the expenses to a certain extent, but it's minimal compared to the positive effect of those additional sales on the EBITDA margin.
Okay, great. Thanks. That's all I had for now. I'll get back in the queue.
Thank you. Once again, as a reminder, ladies and gentlemen, if you are an analyst and would like to ask a question, please press star followed by one on your touch-tone phone. Your next question will be from Zachary Evershed at National Bank Financial. Please go ahead.
Thank you. Morning, everyone. Congratulations on the quarter.
Thanks.
For retailer sales, you mentioned that the current quarter will be a little less strong than last quarter. Can you help us understand the performance throughout Q3, perhaps when the peak in retailer sales was?
Yeah, maybe we can say it's a peak. It's been a very strong period. The cyclical sales were quite high. We don't expect that in the fourth quarter. For the regular sales, I think the type of growth that we had in the third quarter should continue on, maybe not to be as high, but still be quite, I would say very high in the circumstances. It's much over 25%.
Thank you. With Lion Hardware, you've completed your Canadian coverage for windows and doors. Do you have a next area of interest that you'll be looking to flush out your coverage in?
Yes, we still have other targets to improve our market presence in Canada, and now maybe we'll be open to make that type of acquisition in the U.S. as well.
Okay, that's interesting. In terms of the pace that you're on, you've been doing exceedingly well this year compared to your historical average. Do you see yourself maybe expanding the range of targets, looking for larger acquisitions in the future?
Anything that is moving that would be interesting for us, we will target. Actually, we still work within the same range because this is what is available in the market, but we keep our eyes open. If eventually something bigger comes to our attention, you can be sure of one thing, we're gonna make all the necessary analyses to justify a possible acquisition.
Thank you. That's helpful. One last one for me. In terms of your negotiations with acquisition targets, has COVID brought in any changes to the structure of the deal? Maybe a difference in the earn-outs or just a different caliber of negotiations, I guess.
So far, it has not changed anything. We expect maybe after the COVID that there will be more company for sales because the people that have been in business for 30 or 40 years, maybe they have enough of the various crises that we have to get through in the financial and the business market in North America.
It's exciting times. Thank you for taking my questions. I'll turn it over.
Thank you. Next is a follow-up from Hamir Patel. Please go ahead.
Richard, this year a lot of the growth looks like it's been fuelled by volumes. As you look out to 2021, do you see room for price to be a lever to pull for sales growth?
No. So far this year, the pricing has been rather stable. You're talking about the pricing of the products?
Correct.
The acquisitions? Okay, the product.
No, no. Product pricing.
Yeah. It's been rather stable. We see now that the steel price has started to increase, that could be one of the reason why our suppliers might increase their selling price. As a result of that, if it does happen, and it will certainly happen, I would think that in the course of the next three to four months, we will have to increase our pricing accordingly as well. That should not affect the gross margin of Richelieu, if not maybe temporarily for a few weeks.
Right. I guess higher prices would be a positive.
Yeah.
Would it be-
That's a weird answer. Yes.
Would it be mid single digits or something?
We don't know. We don't know yet. I think it could be between 4% and 7%. We don't know yet.
Okay.
Not for all the products. For certain products, mainly the product coming from Asia.
Okay. No, that's helpful. Just digging into on the retailer side, the 46% organic growth. How much of that was underlying demand, and how much of that was just the timing of the large cyclical customer?
Don't have it with me, the exact figures. It's mainly with the regular customers that we.
Yeah. The cyclical sales represent 5% of the 40%.
So it's-
So the rest is the-
Basically the demand for the regular product that we have in store.
That's it.
Okay. No, that's helpful. Richard, I was just wondering if you could give us an overview of where you think your market share stands today across the different categories in Canada and the U.S., because it seems like you must be picking up market share this year, and I don't know if you would agree with that.
Actually, I think also that we're capturing more market share because our sales force kept working over the phone, contacting customers, and we would keep innovating with the product. We are a one-stop shop. I think we made the right decision in last March. That decision was to make sure that we don't decrease our purchasing inventory, even though as a result of those strong sales, you see a decrease in our inventory and a higher turnover of our inventory, because we were not expecting such an increase with our retailers. Basically, our market share with the retailers for the product that we sell in Canada is probably 70%. For the manufacturers, I would say 70%-72%, same thing in Canada. In the U.S., we're still small.
I think in the area where we have been for more than five years, our market share is probably 20%, and the new area, it's about 5%. That's good news because we can do nothing but increase those sales in the future. Regarding the retailer in the U.S., we're not even touching the market yet. We're gonna sell how much this year, Antoine? $30 million? Mainly thanks to the Mibro acquisition. Mibro give us a good way to increase our sales in the U.S. because they have more representatives. They service more customers. The end result of that acquisition in the U.S. regarding the retailer should be very good.
Great. Thanks for that. That's all I had. I'll turn it over.
Thank you. Ladies and gentlemen, as a reminder, if you do have a question at this time, please press star followed by one on your touchtone phone. At this time, [Non-English content] Lord, we have no other questions registered, sir.
It was a real pleasure to talk to you. You're welcome to call us on the phone if you have any more questions. We are at your disposition. Thank you very much.
Thank you, sir. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.