U.S. Markets open in 2 hrs 1 min

Edited Transcript of BCI.TO earnings conference call or presentation 9-Aug-19 5:00pm GMT

Q2 2019 New Look Vision Group Inc Earnings Call

MONTREAL Aug 12, 2019 (Thomson StreetEvents) -- Edited Transcript of New Look Vision Group Inc earnings conference call or presentation Friday, August 9, 2019 at 5:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Antoine Amiel

New Look Vision Group Inc. - Vice Chairman, President & CEO

* Tania Melanie Clarke

New Look Vision Group Inc. - Senior VP & CFO

================================================================================

Conference Call Participants

================================================================================

* Zachary Evershed

National Bank Financial, Inc., Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing. Welcome to New Look Vision Group's Second Quarter 2019 Results Conference call. (foreign language) (Operator Instructions)

Before we begin, let me remind you that certain statements during this conference call may constitute forward-looking information within the meaning of securities laws.

For reference, please read the forward-looking statement included in the SEDAR filing. It applies to this conference call as well.

I will now turn the conference over to Antoine Amiel, New Look Vision Group's President and Chief Executive Officer, who will review the Q2 2019 financial results. We will then open up for questions. Thank you.

--------------------------------------------------------------------------------

Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [2]

--------------------------------------------------------------------------------

Good afternoon, ladies and gentlemen. Thank you for joining our quarterly call. I'm here with Tania Clarke, our CFO. Together, we are going to take you through a review of our second quarter 2019 results, after which we will take your questions. First, some highlights for the quarter.

New Look Vision Group delivered its 20th consecutive quarter of comparable store growth. This was achieved in spite of poor spring weather across Canada, which dampens sales of sun wear, which are a staple of optical's second quarters. This did not affect our operating margin, which remains high at 19.9%, and our earnings and cash flow were strong, up 9.4% and 22.2%, respectively.

We further delivered on our single store consolidation strategy, adding 1 store in Ontario and 2 in Atlantic Canada for a total of 10 since the beginning of the year.

We invested in Topology's business and technology, which, we believe, will significantly differentiate our omnichannel mobile.

Lastly, the hearing care pilot stores are operating as planned.

I will now turn the call over to Tania, who is going to take you through our reported financials.

--------------------------------------------------------------------------------

Tania Melanie Clarke, New Look Vision Group Inc. - Senior VP & CFO [3]

--------------------------------------------------------------------------------

Thank you, Antoine. Good morning, or afternoon, depending on where you're located.

Before I begin, please note that our complete financial statements and MD&A for the second quarter 2019 have been filed with SEDAR, and they are also available on our website.

Revenues increased 1% in the second quarter as the result of the following 2 factors: comparable store sales growth of 1.6% in the quarter and 2.1% for the week -- 26-week period ending; and sales from 1 new store opened in 2018 from the acquisition of 8 independent stores since the beginning of the year, offset by revenues lost from scheduled closures of underperforming stores.

Total operating expenses decreased 280 basis points to 80.4% of revenue in the second quarter and 160 basis points to 82.7% for the year-to-date period, and is explained as follows: as a percentage of revenue, materials consumed decreased by 70 basis points to 21.9% in the quarter and decreased 20 basis points also to 21.9% for the 26-week period.

Purchasing and manufacturing synergies continue to be achieved, however, these were offset by increased outsourcing costs that we reported in the first quarter of the year.

Employee remuneration expenses excluding equity-based compensation and other noncomparable items as a percentage of revenue increased by 100 basis points in the second quarter to 33%, and 20 basis points for the year-to-date period. The savings gained from the centralization of support functions were offset by a few factors: the first being the investment made in human capital since 2018; second, the impact of full employment along with rising minimum wage felt particularly in Québec, Ontario and British Columbia; and finally, the impact of newly acquired banners.

Other noncomparable items include one-time expenses and gains connected with personnel costs related to acquisition, restructuring and transition matters.

Other operating expenses excluding acquisition-related and other noncomparable items decreased 40 basis points in the second quarter to 26.1% of revenue and also decreased 10 basis points to 27% on a year-to-date basis due to ongoing cost control measures.

As discussed on previous calls, EBITDA, together with cash flow, is the primary valuation metric in our industry, therefore, we are reporting on adjusted EBITDA attributed to shareholders in order to isolate the impact of nonrecurring expenses or gains, specifically, acquisition-related costs and other noncomparable items, and noncash expenses which are equity-based compensations, and gains, losses from changes in fair value of foreign exchange contracts. As a result of the factors just covered, Q2 2019 adjusted EBITDA attributed to shareholders was flat to last year at $15.3 million, representing a decrease of 20 basis points to reach 19.6% of revenue.

On a year-to-date basis, adjusted EBITDA attributed to shareholders rose 1.5% to $27.2 million, flat at 18.2% as a percentage of revenue.

On a diluted per share basis, the second quarter adjusted EBITDA attributed to shareholders was flat to last year at $0.98, and rose 1.8% to reach $1.74 for the 26-week period.

Adjusted net earnings attributed to shareholders increased by 9.4% to $7.4 million in the quarter and also increased 2.4% to $11.3 million for the year-to-date period.

The increase in the quarter is primarily explained by higher EBITDA, adjusted for changes in other noncomparable items and acquisition-related cost, lower depreciation and interest cost. For the 26-week period, the increase is as explained for the quarter and offset by higher financial expenses, driven by an unfavorable change in the fair value of the interest rate swap.

On a per share diluted basis, the quarter increased by 9.3% to $0.47, along with an increase of 1.4% to $0.72 for the year-to-date period.

Net earnings attributed to shareholders increased by 70.4% for the quarter to $6.8 million, and also increased 42.7% to $8.9 million for the year-to-date period.

In both cases -- for the both periods just discussed, the increase is driven by increased EBITDA.

For the company's liquidity, cash at quarter end was $7.1 million versus $10.6 million at the end of 2018, primarily as a result of acquisitions and investments completed since the beginning of the year.

Cash flows related to operating activities in the second quarter were $10.2 million, an increase of $1.1 million over last year and on a year-to-date basis, it increased $4.9 million to $22.8 million.

The increases are fueled by the higher EBITDA and lower income taxes paid, partially offset by fluctuations in the use of working capital items, which is mainly as a result of timing.

Free cash flow, defined as operating cash flows after acquisitions of property, plant and equipment, increased in the quarter and year-to-date period, primarily due to the higher cash flows from operations.

Investing cash flows decreased in the second quarter and year-to-date period as a result of the acquisitions and investments made during the year.

Financing cash flows increased in the second quarter compared to the same period last year as a result of the company drawing on its revolver to fund acquisitions and the investment. On a year-to-date basis, financing cash flows also -- sorry, financing cash flows decreased as a result of the voluntary debt repayments made and higher interest and financing fees paid, offset by borrowings to fund the acquisitions and the investment.

Adjusted cash flows from operating activities are also trending positively, with an increase of 1.3% over last year in the second quarter and 2.6% for the 26-week period ended June 29.

This increase is driven, once again, by the higher EBITDA.

The company continues to generate higher operating cash flows fueled by synergies and streamlined operations. These factors solidify the platform needed to achieve future growth. The balance sheet remains strong with the company benefiting from significant deleveraging undertaken over the last 18 months and which laid the foundation for the resumption of consolidation activity.

Net debt to adjusted EBITDA attributed to shareholders decreased from 3.12 as of June 2018 to 2.69 at Q2 quarter end. As a result of -- sorry, as of June 29, 2019, $26.8 million was available for use from the company's revolving credit facility.

As discussed, the revolver was drawn to fund investment and external growth.

The quarterly dividend of $0.15 per share was declared on August 8, 2019, unchanged from prior periods for shareholders of record on September 23, 2019.

The company's dividend reinvestment program is maintained and 18.6% of the dividends declared in May were reinvested in shares.

Shares are issued from treasury at 95% of the weighted average trading price for the 5 days preceding the payment date.

Thank you for your time this morning, this afternoon.

--------------------------------------------------------------------------------

Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [4]

--------------------------------------------------------------------------------

We are ready to take your questions now.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from the line of Zachary Evershed from National Bank Financial.

--------------------------------------------------------------------------------

Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [2]

--------------------------------------------------------------------------------

Congrats on the quarter. So a very interesting investment in Topology Eyewear. Does this open you up to the possibility of selling glasses online?

--------------------------------------------------------------------------------

Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [3]

--------------------------------------------------------------------------------

It will eventually, when we feel working with Topology and with their very impressive technology team that we can deliver the right vision and the right comfort. Yes, it will pave the way for that. We would -- it's not the case yet.

--------------------------------------------------------------------------------

Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [4]

--------------------------------------------------------------------------------

Understood. And the rollout to the 15 locations in the fall across the 4 provinces, do you expect that to have a meaningful contribution to same-store sales growth? Or is it more of a pilot phase?

--------------------------------------------------------------------------------

Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [5]

--------------------------------------------------------------------------------

I'd say it's not a pilot phase. And although the high-value ticket, it might, depending on the take up. But the expectation is that we will learn together, in those pilots, how to retail bespoke. It is -- will also be the testing grounds for a number for other components in that technology that will have a wider application going forward, such as face scanning, digital trial and the likes.

--------------------------------------------------------------------------------

Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [6]

--------------------------------------------------------------------------------

That's excellent color. And of the same-store sales growth that you generated this quarter, how much was traffic? And how much was pricing?

--------------------------------------------------------------------------------

Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [7]

--------------------------------------------------------------------------------

It was entirely traffic.

--------------------------------------------------------------------------------

Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [8]

--------------------------------------------------------------------------------

And then one last one from me. Are there additional benefits from the cost-control initiatives in other operating expenses that we can look forward to in coming quarters?

--------------------------------------------------------------------------------

Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [9]

--------------------------------------------------------------------------------

I will not to commit to anything, but yes. We pretty much deliver some every quarter. That's the strategy of the company. So there is more to come. I'm not committing how much or when. But yes, that is the trend and that is the spirit.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

(Operator Instructions)

--------------------------------------------------------------------------------

Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [11]

--------------------------------------------------------------------------------

If there are no more questions, just a short closing remark on behalf of all of us at New Look Vision Group to say that we are where we wanted to be at the middle point of the seventh year of our development plan. After successfully deleveraging our balance sheet, we have resumed our disciplined consolidation of the fragmented Canadian retail optical market. We have made a strategic investment in technology and a business model that will underpin a differentiated omnichannel expanse in the future. And we continue to pursue both external and organic growth aggressively.

I thank you for dialing in, and I am looking forward to reconnecting with you in the autumn to discuss our third quarter results. Have a great afternoon.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

Thank you, ladies and gentlemen. This concludes the conference call for today. We thank you all for your participation, and ask that you please disconnect. Have a great day.