Good afternoon, ladies and gentlemen, and welcome to this Richelieu conference call for the third quarter and nine-month period ended August 31st, 2019. With me is Antoine Auclair, CFO. As usual, note that some of today's issue includes forward-looking information, which is provided with the usual disclaimer as reported in our financial filings. Richelieu performed well in the third quarter, as shown by increases in sales, EBITDA, net earnings and cash flows compared to last year. Note that the third quarter had one less business day than last year, negatively impacting sales by 1.5%. Despite a softer market in Canada, our growth was fueled by the contribution of our five acquisitions made over the past 12 months. Namely, Euro Architectural Components, Lion Industries, Blackstone Building Products, Truform Building Products, and Chair City Supply. Together, they fostered a good performance in our manufacturer's market, both in Canada and in the U.S.
The manufacturer's market softness is felt across Canada, but more importantly in Alberta and the Atlantic provinces. As for the retailer's market in Canada, as mentioned in previous quarters, the store closures, the inventory realignment of our retail customers, combined with a softer market, had a negative impact on our sales. Cyclical sales were also lower this quarter. However, we are particularly pleased with our U.S. performance, where our sales increased by 8.2%, including acquisition, and also by the continued improvement in our margins in this market. Our consolidated EBITDA margin as a percentage slightly increased as a result of rigorous control and gross margins, as well as operational costs. I will come back with additional information and comments, but I will now ask Antoine to go through the financial highlights. Antoine?
Thanks, Richard. Third quarter sales reached CAD 269 million, up by 3.4%, of which 5% from acquisition and 1.6% from internal decrease. In Canada, sales amounted to CAD 180 million, up by 0.7%, of which 4.7% from acquisition and 4% from internal decrease. Our sales to manufacturers reached CAD 147.9 million, up by 3%. As for the hardware retailers and renovation superstore market, sales stood at CAD 32 million, down 8.8%. In the U.S., sales totaled $67.5 million, an increase of 8.2%. Sales to manufacturers reached $64.9 million, an increase of 8.9%, of which 3.1% resulted from internal growth and 5.8% from acquisition. Sales to hardware retailers and renovation superstore were down 10.3%. However, are showing year-to-date growth of 10.8%. Total sales in the U.S. reached CAD 89.3 million, an increase of 9.2% and represented 33% of total sales.
For the first nine months of 2019, sales totaled CAD 777 million, up 4.2%, 0.4% from internal growth and 3.8% from acquisitions. In Canada, sales reached CAD 507 million, up by CAD 3.3 million or 0.7%, of which 2.7% resulted from acquisition and internal decrease of 2.1%. Sales to manufacturers rose to CAD 417.6 million, up by CAD 12.9 million, or 3.2%, mostly resulting from acquisitions. Sales to hardware retailers and renovation superstores reached CAD 89.1 million compared to CAD 98.7 million, down 9.7%. In the US, sales amounted to $203 million, up by 7.5%, 1.6% from internal growth and 5.9% from acquisitions. They reached CAD 270 million in Canadian dollar, up by 11.5%, accounting for 34.8% of total sales. Sales to manufacturers totaled CAD 185.3 million, an increase of CAD 12.5 million or 7.2% over the same period last year, of which 0.8% resulted from internal growth and 6.4% resulted from acquisitions.
As reported in previous quarters, the internal growth in the manufacturer's market was affected by the termination of a supply agreement with a major customer. Note that at comparable sales level, internal growth in the U.S. manufacturer's market would have been 3.4%. Sales to hardware retailers and renovation superstores were up 10.8% versus 2018. Third quarter EBITDA reached CAD 30.2 million, up by CAD 1.3 million or 4.3% over last year. Gross margin and EBITDA margin improved slightly. The EBITDA margin stood at 11.2% compared to 11.1% last year. For the first nine months, EBITDA reached CAD 78.3 million, up 2%. The gross margin remains stable. As for the EBITDA margin, it stood at 10.1% compared to 10.3% last year.
The EBITDA was impacted by the slowdown in the hardware retailer market in Canada and market development costs incurred to increase our offering and our presence in the retailers market in the U.S. Third quarter net earnings attributable to shareholders totaled CAD 18.6 million, up 1.3%. Net earnings per share were CAD 0.33 basic and diluted, an increase of 3.1%. For the first nine months, net earning attributable to shareholders reached CAD 48 million, down 2.6%. Diluted net earnings per share stood at CAD 0.84. Third quarter cash flow from operating activities before net change in working capital balance amounted to CAD 23.4 million or CAD 0.41 per share, an increase of 4.3%. For the first nine months, they were up 0.6%, totaling CAD 61 million or CAD 1.06 per share. For the third quarter of 2019, dividend paid amounted to CAD 3.6 million, up by 4.4%.
Since the beginning of fiscal year, we repurchased common share for CAD 9.4 million, including CAD 4.9 million during the third quarter. During the first nine months, we paid dividends of CAD 10.8 million, up by 4.3%. We also invested CAD 28.4 million for business acquisition and CAD 7.6 million primarily for equipment to maintain and improve our operational efficiency. We continue to benefit from a healthy and solid financial position, cash balance of CAD 14.8 million, almost no debt, a working capital of CAD 346.8 million for a current ratio of 4.5 to 1. I now turn it over to Richard.
Thank you, Antoine. Our ongoing innovation and market penetration strategies enabled us to grow in various market segments. Our development efforts in specialized markets such as door and window hardware, closet, glass hardware, architectural hardware, and stainless steel components for stairs, banisters, and railings were reinforced by our recent acquisition, resulting in a 20% sales growth in these markets. We continue to improve our operational efficiency and customer service. Our AutoStore system, implemented last year, continues to deliver as per expectation. This robotic system is highly effective, reliable, and provides Richelieu with a significant competitive advantage. We just launched a new project to expand the current AutoStore footprint to add up to 5,000 product locations. This will require an investment of about CAD 500,000.
Speaking about competitive advantage, we also are constantly investing in our unique website, which is largely used by our customers and the website is a very important contributor to our success. We are also proud to increase our presence and seize new market and possibility in the important New York market, where we are moving our Long Island City location to a larger one in the same area. It will be a key location that will include a state-of-the-art and welcoming showroom available for our customers and New York architects and designers. Turning to our outlook, we will remain focused on outstanding customer service, market share gain in Canada and the U.S., the new synergies, operational efficiencies, and profitability, and new acquisition opportunity compatible with our growth objectives.
We remain confident that our strategies of ongoing innovation, market development, and acquisition will continue to bring good results and end the year with a strong and stable financial position. We have grown this company to CAD 1 billion of sales, over CAD 100 million of EBITDA with no debt. Our priority is to continue on the path of growth by ensuring that we always have the strategies, human resources, and system in place in order to keep our leadership and remain a strong, innovative, and customer-driven company. Thanks, everyone. We'll now 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 touchtone phone. You will then hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. If you should wish to withdraw your request, simply press star followed by two. We do ask that if you're using a speakerphone, to please lift the handset before pressing any keys. Your first question will be from Zachary Evershed at National Bank Financial. Please go ahead.
Good afternoon. Thank you for taking my questions.
Good afternoon.
I was hoping you could speak more about the AutoStore expansion. What is being added?
We just add locations. We're gonna add about the possibility of storing between five and 7,000 more products into the AutoStore. The result of that will be to increase our operational efficiency as well as to shorten order worthy time, which is the fastest way to deliver the type of product that we're selling at Richelieu. That will add to our competitive advantage as well to expedite our deliveries and save cost.
Thank you. That's helpful. This actually might tie into that. U.S. sales made up a larger portion of consolidated sales versus the same quarter last year, and you have indicated in the past that your U.S. margins are generally lower than your margins in Canada. Yet this quarter, despite softening markets and growing exposure in the U.S., margins increased 10 basis points year-over-year on EBITDA. Could you provide us with some insight into where that's coming from?
I think that's a result of a rigorous control of our margins, and not to name our selling prices, as well as the operational costs, as they also are working hard in order to save on the cost of freight, which is actually quite expensive in North America, I mean, all over the world. Basically, I think we have a good team in the U.S. They have a good plan, and they drive the business the way it should be driven.
Do you think that there's more you can extract there?
There will always be more to extract.
Moving on to the activity in Canada, which has been poor year to date. Have you seen any signs of end markets turning a corner?
No, the softness in the third quarter was felt pretty much all across Canada. Like we said, it's more importantly in the Atlantic provinces and also in Alberta. Yeah. Alberta is down by something like 10%. Quebec will still be up compared to last year, and as well as BC. The rest of the markets are slightly negative, including Ontario, which is down by 4%. I don't want to confuse you with some other information, but I can tell you, though, that including acquisition in these, sales increased by 6%. Ontario increased by 9.7%. As a result, mainly of the latest acquisition, Western Canada will be decreasing by only 0.3% compared to 3.5% without acquisitions. Overall in Canada, as mentioned in the report, sales increased by 3.1%. Basically, we're quite happy with the results, including our acquisitions.
Thank you for the extra information there. That's very helpful. Any sign of things turning around in the months since the quarter ended?
I would say it's hard to tell for the manufacturer's market. I think regarding the retailer market in the first quarter of the following fiscal, I think we're going to see improvement. It cannot be worse. We know the percentage of sales or the sale performance per POS for our big returning customers, and actually, we see there is a big difference between their purchases and their POS performance. That means that they keep reducing and realigning their inventory. That cannot last forever. We expect that to be improving in the future quarters.
So then-
Eventually, we'll be back to normal.
Okay, thank you.
Except for the store closure, though. For those that are closed, we don't expect them to reopen.
That's fair. Of the impact that we're seeing on the retailer front, how much do you think is attributable to the inventory rightsizing and how much is end market slowness?
I would say it's 80% in inventory realignment. The rest is in soft market, yeah.
Excellent, thank you. We have brought this up in the past, but The Home Depot new self-pickup lockers are seeing positive reactions. Are you seeing any impact on your sales, or have any customers mentioned it?
No. No, that doesn't have any impact with us.
That's clear. Moving on to the M&A pipeline, always an important topic. How's it looking these days?
Exciting. We're busy, we keep working hard, if the business becomes more difficult, that will be just, I think, more possibility of acquisition. For the time being, I think this is a very healthy pipeline list of acquisitions that we have on our tables, we will probably make other moves very soon.
In the context of a weaker market in Canada, do you think that may cause an acceleration of the pace of M&A?
Yep. That will certainly be favorable to that.
Excellent. One last one from me then. How did the various end markets perform? Any weak spots in your manufacturer end markets?
No, it was pretty steady in all of our markets, Zach.
Excellent. Thank you very much for the extra color. I'll turn it over.
Thank you. Ladies and gentlemen, once again, if you do have any questions at this time, please press star followed by one on your touchtone phone. Your next question will be from John Novak at CC&L. Please go ahead.
Antoine, can you just talk to the working capital? It looks like you've taken a lot out of both inventory and receivables. How do you see the rest of the year playing out from a working capital perspective?
Yeah. Usually, the fourth quarter is pretty neutral. The third quarter is usually favorable. Also, if you remember, in the second quarter, we had very large cyclical sales. Basically, we got the receivables in during the third quarter, and we're also working very hard to reduce the inventory. I'm not expecting a major reversal in the fourth quarter. The major reversal, we got it in the third quarter, so it should be neutral in the fourth quarter. Usually, the first quarter is where you invest in your inventory in order to capture the busier market in the spring.
Okay. Lastly, should we expect the same pace of use on the Normal Course Issuer Bid in the next quarter?
Yes.
Okay. Thank you very much.
Thank you. Ladies and gentlemen, as a reminder, if you do have a question, please press star followed by one on your touchtone phone. At this time, we have no other questions, so I would like to turn the conference back over to Richard Lord. Please go ahead, sir.
Thank you very much. It's always a pleasure to talk to you. We'll be in our office if you have further questions. It was a pleasure to talk to you. Have a good afternoon.
Thank you. 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. Enjoy the rest of your day.