The North West Company Inc. Announces Third Quarter Earnings and a Quarterly Dividend

Press Release

Winnipeg, Manitoba, December 9, 2024 (TSX: NWC): The North West Company Inc. (the “Company” or “North West”) today reported its unaudited financial results for the third quarter ended October 31, 2024. It also announced that the Board of Directors has declared a quarterly dividend of $0.40 to shareholders of record on December 31, 2024, to be paid on January 15, 2025.

“Our Canadian and International Operations delivered solid same-store sales growth and an increase in EBITDA this quarter. However, we saw a decline in net earnings compared to last year’s impressive results, primarily due to higher expenses and increased income taxes,” stated President & CEO Dan McConnell. “We are encouraged by the advancements in our Next 100 operational excellence work, including the planned refinement of our merchandise assortments, which we believe will help mitigate the challenging economic conditions impacting our International Operations.”

Financial Highlights

Sales Third quarter consolidated sales increased 3.3% to $637.5 million compared to $616.9 million last year driven by same store sales gains and the impact of new stores. These factors were partially offset by lower wholesale sales and airline revenues compared to last year. Excluding the foreign exchange impact, consolidated sales increased 3.4%, with food sales increasing 3.3% and general merchandise and other sales increasing 3.6% compared to last year. On a same store basis, sales increased 4.0%¹ compared to the third quarter last year led by a 4.9% increase in same store sales in Canadian Operations and a 2.7%¹ increase in same store sales in International Operations.

Gross Profit Gross profit increased 4.3% to $214.1 million compared to $205.4 million last year due to sales gains and a 30 basis point increase in gross profit rate compared to last year. The increase in gross profit rate was largely due to changes in sales blend, including a lower blend of wholesale food sales.

Selling, Operating and Administrative Expenses Selling, operating and administrative expenses (“Expenses”) increased $10.4 million or 7.0% compared to last year and were up 86 basis points as a percentage to sales. The increase in Expenses is largely due to higher staff costs related to inflationary and minimum wage increases and additional staff resources required to execute our Next 100 operational excellence work. The investment in additional resources is required to unlock the future growth and incremental earnings expected from the Next 100 initiatives. An increase in depreciation, the impact of new stores and higher share-based compensation costs primarily due to adjustments from changes in the Company’s share price were also factors.

Earnings From Operations Earnings from operations (“EBIT”) decreased 2.9% to $54.1 million compared to very strong earnings gains last year which were up 24.0% to $55.7 million, as an increase in EBIT in Canadian Operations was more than offset by lower EBIT in International Operations. Earnings before interest, income taxes, depreciation and amortization (“EBITDA²“) increased 0.6% to $83.4 million on top of an 18.8% increase in EBITDA² to $83.0 million last year due to the sales, gross profit and Expense factors previously noted. Adjusted EBITDA², which excludes the impact of share-based compensation costs, increased 1.4% to $88.4 million compared to $87.2 million last year and as a percentage to sales was 13.9% compared to 14.1% last year.

Income Tax Expense Income tax expense increased to $12.8 million compared to $12.7 million last year as the impact of lower earnings was more than offset by an increase in the effective tax rate to 26.0% compared to 25.0% last year. The increase in the effective tax rate is substantially due to the impact of The Global Minimum Tax Act (“GMTA”) – Pillar Two legislation included in Bill C-69 that was enacted in Canada on June 20, 2024. This legislation implements the Pillar Two global minimum tax regime developed by the Organisation for Economic Co-operation and Development (“OECD”) which applies a minimum effective tax rate of 15% on income earned in each jurisdiction in which the Company operates. The Company operates retail stores in the Cayman Islands, Barbados and British Virgin Islands jurisdictions which are impacted by the GMTA – Pillar Two legislation.

Net Earnings Net earnings decreased 4.3% to $36.4 million compared to a 26.1% increase in net earnings to $38.0 million last year. Net earnings attributable to shareholders were $35.4 million and diluted earnings per share were $0.72 per share compared to $0.77 per share last year. Adjusted net earnings², which excludes the after-tax impact of share-based compensation, decreased 3.1% to $40.1 million compared to $41.4 million last year due to the sales, gross profit, Expense and GMTA – Pillar Two income tax expense factors previously noted.

Non-GAAP Financial Measures

The Company uses the following non-GAAP financial measures: earnings before interest, income taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA and adjusted net earnings. The Company believes these non-GAAP financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the Company for the reasons outlined below.

Earnings Before Interest, Income Taxes, Depreciation and Amortization (EBITDA) is not a recognized measure under IFRS. Management believes that in addition to net earnings, EBITDA is a useful supplemental measure as it provides investors with an indication of the Company’s operational performance before allocating the cost of interest, income taxes and capital investments. Investors should be cautioned however, that EBITDA should not be construed as an alternative to net earnings determined in accordance with IFRS as an indicator of the Company’s performance. The Company’s method of calculating EBITDA may differ from other companies and may not be comparable to measures used by other companies.

Adjusted EBITDA and Adjusted Net Earnings are not recognized measures under IFRS. Management uses these non-GAAP financial measures to exclude the impact of certain income and expenses that must be recognized under IFRS. The excluded amounts are either subject to volatility in the Company’s share price or may not necessarily be reflective of the Company’s underlying operating performance. These factors can make comparisons of the Company’s financial performance between periods more difficult. The Company may exclude additional items if it believes that doing so will result in a more effective analysis and explanation of the underlying financial performance. The exclusion of these items does not imply that they are non-recurring.

These measures do not have a standardized meaning prescribed by GAAP and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to the other financial measures determined in accordance with IFRS.

Reconciliation of consolidated earnings from operations (EBIT) to EBITDA and adjusted EBITDA:

Earnings from operations (EBIT)	$	54,102	$	55,746
Add:  Amortization		29,343		27,231
EBITDA	$	83,445	$	82,977
Adjusted for:
Share-based compensation expense		4,974		4,246
Adjusted EBITDA	$	88,419	$	87,223

Reconciliation of consolidated net earnings to adjusted net earnings:

Net earnings	$	36,395	$	38,038
Adjusted for:
Share-based compensation expense, net of tax		3,705		3,353
Adjusted net earnings	$	40,100	$	41,391

Certain share-based compensation costs are presented as liabilities on the Company’s consolidated balance sheets. The Company is exposed to market price fluctuations in its share price through these share-based compensation costs. These liabilities are recorded at fair value at each reporting date based on the market price of the Company’s shares at the end of each reporting period with the changes in fair value recorded in selling, operating and administrative expenses.

Further information on the financial results is available in the Company’s 2024 third quarter Report to Shareholders, Management’s Discussion and Analysis and unaudited interim period condensed consolidated financial statements which can be found in the investor section of the Company’s website at www.northwest.ca.

Third Quarter Conference Call

North West will host a conference call for its third quarter results on December 10, 2024 at 8:00 a.m. (Central Time). To access the call, please dial 416-340-2217 or 1-800-898-3989 with a pass code of 7763559#. The conference call will be archived and can be accessed by dialing 905-694-9451 or 1-800-408-3053 with a pass code of 4329009# on or before January 10, 2025.

Company Profile

The North West Company Inc., through its subsidiaries, is a leading retailer of food and everyday products and services to rural communities and urban neighbourhoods in Canada, Alaska, the South Pacific and the Caribbean. North West operates 230 stores under the trading names Northern, NorthMart, Giant Tiger, Alaska Commercial Company, Cost-U-Less and RiteWay Food Markets and has annualized sales of approximately CDN$2.5 billion.

The common shares of North West trade on the Toronto Stock Exchange under the symbol NWC.

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For more information contact:

Dan McConnell, President and Chief Executive Officer, The North West Company Inc.

Phone 204-934-1482; fax 204-934-1317; email dmcconnell@northwest.ca

John King, Executive Vice-President and Chief Financial Officer, The North West Company Inc.

Phone 204-934-1397; fax 204-934-1317; email jking@northwest.ca

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