Good afternoon, ladies and gentlemen, welcome to Richelieu Hardware second 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 an operator. Also note that this call is being recorded on July 9, 2020.
Merci. Thank you. Good afternoon, ladies and gentlemen, and welcome to this Richelieu conference call for the second quarter and six months period ended May 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 second quarter was marked by a never before experienced business environment. In such context, Richelieu has nevertheless realized an appreciable financial performance and maintained a solid and healthy financial position. We owe this performance to our one-stop shop product approach, as well as the diversification of our market segments, our customer service, the contribution of our acquisitions, and the measures we rapidly and effectively implemented to mitigate the impact of the situation, such as temporary layoffs, reduced working hours and salaries, and suspension of all travel.
Up to approximately 60% of our workforce has been impacted by those measures, and about 20% are still affected as we speak. In addition, some 600 employees are also working from home, thanks to our IT department that diligently provided the proper infrastructure and support, including compliance with the [CBEST security] . Aligned with the pre-COVID trend, March started very strong, but April was impacted by the pandemic. Overall, all our distribution centers in Canada and in the U.S., with the exception of three in Quebec that closed temporarily for only a few days, all the others remain operating as essential services with resources adapted to the current business volume. We saw substantial improvement in May, which continued in June in the manufacturer's market, but especially in the retailers and renovation superstores market. Our priority is to serve our customers.
We therefore decided to maintain our inventory level, which proves appropriate considering the higher-than-expected demand we are currently experiencing, namely in the retailers and renovation superstores market. I should also point out that we have not slowed down our acquisition strategy. During the quarter, we continued to identify new acquisition targets that meet our value creation criteria. On June 29, we completed the acquisition of the asset of Central Wholesale Supply, which is a specialty hardware distributor operating in one location in Richmond, Virginia. We are pleased to set our presence in this strategic market for Richelieu. In addition, we recently signed an agreement in principle for a new strategic acquisition in Canada. Together, they will generate annual sales of approximately CAD 10 million. I'll now go to Antoine for the financial review.
Thanks, Richard. Second quarter sales reached CAD 248.3 million, down by 11.7%, of which 6.6% growth from acquisition and 18.3% from internal decrease. In Canada, sales amounted to CAD 155.2 million, down by 15.2%, of which 4.1% growth from acquisition and 19.3% from internal decrease. Our sales to manufacturers reached CAD 124.5 million, down by 18.2%. As for the hardware retailers and renovation superstores market, sales stood at CAD 30.8 million, down 0.6% of which 7.2% growth from acquisition and 7.8% from internal decrease, largely impacted by the month of April with improvement in May. In the U.S., sales totaled $66.5 million in US dollar, down 9%. Sales to manufacturers reached $59 million US, a decrease of 8.2% over the second quarter of 2019, of which 5.9% growth from acquisition and 14.1% from internal decrease.
Sales in U.S. dollar to hardware retailers and renovation superstores were down 14.8% compared to last year, including 45% growth from acquisition and 59.8% from internal decrease, resulting from higher cyclical sales last year. Excluding this effect, the internal growth in this market would have been 34%. Total sales in the U.S. reached CAD 93 million, a decrease of 5%, representing 37.5% of the total sales. For the first half of 2020, sales total CAD 497.7 million, down 1.9%, of which 6.6% growth from acquisition and 8.5% from internal decrease. In Canada, sales reached CAD 312 million, down by CAD 14.9 million or 4.6%, of which 5% resulted from acquisition and 9.6% from internal decrease. Sales to manufacturers reached CAD 252.2 million, down by CAD 17.8 million or 6.6%, of which 4.7% growth from acquisition and 11.2% from internal decrease.
Sales to hardware retailers and renovation superstores reached CAD 59.8 million, compared to CAD 56.9 million, up 5.1%. In the U.S., sales amounted to $136.8 million, up by 1.2%, of which 9.6% growth from acquisition and 8.3% from internal decrease. They reached CAD 185.7 million, up by 2.9%, accounting for 37.2% of total sales. Sales to manufacturers total CAD 121.8 million, an increase of CAD 1.6 million or 1.3% over the same period last year, of which 4.3% growth from acquisition and 2% from internal decrease. Sales to hardware retailers and renovation superstores were up 1% compared to last year. Second quarter EBITDA reached CAD 33.8 million, down by CAD 0.6 million or 1.7% over last year, resulting from lower sales, partially offset by cost reduction measures and government grants. Gross margin remained stable and the EBITDA margin stood at 13.6% compared to 12.2% last year. First half EBITDA reached CAD 58.7 million, up 6%.
The gross margin remained stable. As for the EBITDA margin, it stood at 11.8% compared to 10.9% last year, thanks to our cost control measures. Second quarter net earnings attributable to shareholders totaled CAD 17.7 million, down 7.2%. Net earnings per share were CAD 0.31 basic and diluted, compared to CAD 0.33 basic and diluted last year, a decrease of 6.1%. First half net earnings attributable to shareholders reached CAD 29.5 million, up 1.5%. Diluted net earnings per share stood at CAD 0.52 compared to CAD 0.50, up 4%. Second quarter cash flow from operating activities before net change in working capital balances amounted to CAD 26.7 million, or CAD 0.47 per share, same level as last year. Including the change in working capital balances, our operating activities generated CAD 49.4 million during the quarter. For the first half, they were up 7.4%, totaling CAD 47 million or CAD 0.83 per share.
For the second quarter of 2020, financing activities used cash flow of CAD 3.8 million compared to CAD 10.9 million last year. This change mainly reflects the shares repurchase of CAD 4.5 million and dividend paid to shareholders of CAD 3.6 million in the second quarter of 2019. No dividends were declared for the second quarter of 2020. First half financing activities used cash flow of CAD 10.6 million compared to CAD 17.5 million in 2019. During the first six months, we invested CAD 29.4 million, including CAD 23.4 million for the three business acquisitions and CAD 6 million primarily for the purchase of equipment to maintain and improve operational efficiency and software licenses. We continue to benefit from a healthy and solid financial position. Cash balance of CAD 42.6 million, almost no debt, a working capital of CAD 358 million for a current ratio of 3.7 to 1. I now turn it over to Richard.
Thank you, Antoine. The recovery trend that we have seen in May and June, both in the manufacturers and especially in the retailers and renovation superstore market, is encouraging. We obviously remain very mindful on how the situation evolves in order to take appropriate action and address effectively when and as needed. We will remain focused on keeping our business model well adapted to the need of our customers, both in Canada and the U.S., in order to meet their needs and anticipate their expectations. We will ensure that the Richelieu value-added concept based on our diversified and unique long-tail approach for products of distinctive multi-access service, our outstanding online service with richelieu.com, and the strong experience of our team, supports effectively our customers in Canada and the U.S.
With a strong financial position, we are pursuing our innovation and acquisition strategies, which are the two key growth and long-term value creation drivers for Richelieu. We are also happy to announce that this morning, the board of directors approved the payment of a quarterly dividend of CAD 0.0667 per share, payable on August 7th. In conclusion, I would like to warmly thank our team and business partners for their support in this challenging period. Thank you, everyone. Now I'll be happy to answer your questions.
Thank you. Ladies and gentlemen, if you do have a question, please press star followed by one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. If you would like to withdraw your question, simply press star followed by two. If you're using a speakerphone, please lift the handset before pressing any keys. As a reminder, note that questions are restricted to analysts. Your first question will be from Hamir Patel at CIBC Capital Markets. Please go ahead.
Hi, good afternoon.
Good afternoon.
Richard, can you comment on how the year-over-year sales comps changed over the course of Q2, and also what was the June sales comps?
The June sales. year-over-year, I think we see the result this quarter compared to last year. In the month of June, we see a huge improvement. First of all, the year started very strong. Richelieu was in a good start to have an excellent year for an excellent performance regarding the percentage of EBITDA, the increase in sales, and everything. Unfortunately, the COVID situation took our sales down for the last quarter. It started with down by 46% in the month of April, and it went back down to 20% in May compared to 46% in April. A big improvement, and we've seen the retailers market basically booming since the month of May, and this is continuing in June. Just to give you an example, for the month of June, because we had two more days in June than we had last year.
If we compare for the same number of days, sales in June are higher by 4% overall with the manufacturer's market, both in Canada, both markets being down by 10%. The retailer market before the, what we call the cycle sales in Canada is up by 55%, while the same comparable sales in the U.S. are up by 80%. We see a very encouraging trend. What's going to happen in the next few months, we don't know. I think actually we're quite happy with the actual situation. We have to keep our eyes open about what will happen in the future.
Okay. Richard, that's very helpful. Sorry, what you're saying was, for Q2 of this year, the whole quarter, is the sales day going to be similar to a year ago?
Antoine, would it be same thing? The actual quarter would be same number of day for the whole quarter, the third quarter?
The third quarter, it's one additional day.
One additional day.
Okay, great. Thanks. That's helpful. Richard, could you guys disclose what was the price you're paying for Central Wholesale Supply and the other transaction that you have under agreement?
Hamir, the other transaction is, it's only a letter of intent that should be in a position to close a transaction in the next few weeks. I'm not in a position to disclose anything on this one, but for Central Wholesale, we paid CAD 2 million.
2 million. Okay. Just the last one I had. In the last conference call, you had indicated that you'd reduced senior management compensation in Q1 and some other headcount reductions. Have you started to maybe reverse some of those initiatives? Clearly the business is performing a lot better than you expected.
Like we said a few minutes ago, actually, 60% of our employees were touched when we made the first move in early April. Now, about 20% of our people are still touched, all the people that had reduced salary. When we've seen two weeks ago the type of results that we're going to have for the second quarter, I think it's been a wise decision to reestablish the salary with 100% for those that were working five days a week and had a reduced salary of about 20%. That's what we've done the last couple of weeks. As we speak, actually, we still have 300 people actually on furloughs, and we've got 225 employees that still work four days a week instead of five and are being paid accordingly as a result of that.
Right. Okay. That's all I had. I'll turn it over. Thank you.
Thank you.
Thank you. Next question will be from Zachary Evershed at National Bank Financial. Please go ahead.
Thank you. Good afternoon. Congrats on the quarter.
Thank you.
Thank you.
First question for you is on your EBITDA in the quarter, the strong margins. How much of that can you attribute to the government grants and how much goes to cost-saving initiatives?
The government grants is CAD 3.2 million. If you exclude the CAD 3.2 million, the EBITDA % will still be slightly higher than last year.
That's helpful. Thanks. Do you have visibility on how much of that CAD 3.2 will stick around in Q3 and beyond?
Yeah, we're currently evaluating the amount relating to the eligibility period ending June 6th. It should be in the same ballpark.
Excellent. Thank you. You also made a reference to some postponed payments which provided a lift to cash from operations. Is that specifically the swing in accounts payable, and that's what accounts for it?
Yeah, you are correct. Yeah, it's close to CAD 15 million. Some of these delays were up for payment in June 30th. Those are done, but we're benefiting from everything we can. That's one of the reason why you've seen the payables increase.
Absolutely. June 30th, you've already caught up on that?
Yes.
Perfect.
Yes.
Then we covered the inflections Q3. Beautiful. How's your pipeline looking going forward on M&A after the two most recent ones close?
Yeah, it's still strong. It's still strong in both Canada and U.S. We're keeping our eyes open. This situation might also create some more opportunities. As we speak, we still have nice files open, and we are not slowing down.
Perfect. One last one from me. There's some real infection hotspots developing in the U.S. Are you making any specific preparations for shutting down operations if they have closures there, or are you going to take it as it comes?
We are prepared for everything. We know how actually to operate in those circumstances. If things get worse in certain area, we certainly will react as rapidly as we did in the past. We've talked to our U.S. management people last week. So far, things are rather stable. We keep our eyes open on that, and if necessary, we take the necessary action very quickly. Hopefully, that will not result in closing some DCs.
Fantastic. That's helpful. I'll leave it there.
Okay. Thank you.
Thank you.
Thank you. Once again, ladies and gentlemen, if you do have a question at this time, please press star followed by one on your touch-tone phone. At this time, Monsieur Lord, we have no other questions. I'd like to turn the call back over to you, sir.
It's always a pleasure to talk to you guys. Do not hesitate to call us if you have any more questions. Have a beautiful day. Bye-bye.
Thank you. 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.