(Montreal) Richelieu Hardware’s margins are under relatively “modest” pressure even though the company continues to dispose of excess items accumulated in its warehouses at a time when demand for renovation products is moderating.
“We haven’t had a price reduction per se, but sometimes, for certain in-stock items, we do temporary promotions,” comments the president and CEO of the specialty hardware manufacturer and distributor, Richard Lord, during a conference call on Thursday to discuss results for the second quarter ended May 31.
The Montreal-based company said its profit margin before interest, taxes and amortization was 13%, compared to 16% for the same period last year. She adds that the gross margin would be “stable”.
“It suggests that the company is under minimal pressure, even if the supply chain recovers and it sells its inventory,” said analyst Zachary Evershed of National Bank Financial in a note.
During the pandemic renovation craze, Richelieu stocked its warehouses to avoid shortages amid supply chain disruption.
Company inventory was 620 million as of May 31; this compares to a threshold of 505 million at the same time last year, but is lower than the 660 million reached in November.
In the retail sector, many merchants have accumulated too much inventory while the resumption of outside activities, such as going out and traveling, and rising interest rates have led to changes in habits on the part of consumers.
The renovation industry has not escaped this trend, Lord said. “If you look at the sales of US home improvement retailers like Home Depot or Lowe’s, sales are down about 5%, which isn’t that bad, but they’re used to generating more growth. »
The trend is similar in Canada where the pace of inventory flow is “slow”, but Mr. Lord says Richelieu Hardware has taken advantage of competitors’ difficulties to gain market share.
In the second quarter, the company recorded a net profit of 31.2 million, a decrease of 33.9% compared to the same period. Sales, for their part, fell by 3.2% to 472.1 million.
Diluted earnings per share at 55 cents is in line with analyst consensus, according to data from the firm Refinitiv.
“You have to remember that the first half of 2022 was particularly favorable [for the renovation industry], underlines Mr. Lord. If we compare to 2019, before the pandemic, sales increased by 68% and earnings per share by 67%. »
In the second quarter, the company completed two acquisitions in the United States. Four other acquisitions were completed in the first quarter. Its six acquisitions will generate annual sales of 26 million, the company estimates.
The stock ended Thursday’s session down $1.14, or 2.74%, at $40.54 on the Toronto Stock Exchange.