Reitmans Ord Shs V.RET

RET - not generating as much cash flow as thought?

[Mephistopheles3]

Hey guys, I was getting the info ready to do a proper DCF analysis on Reitman's when I noticed that unless I made some typos or errors, but free cash flow from ongoing operations is not as good as I was originally thinking or as they were disclosing as adjusted earnings.  I was trying to ignore all restructuring costs / recoveries and just do the basic gross profit, SG&A, capex and pmt lease liabilities.

One thing to keep in mind is that there is $22.7 million of CEWS grants in the year which are non-recurring so I pulled that out, which includes a heavy amount in Q4-21.  I am showing that they actually had negative cash flow in the last quarter when you normalize it.

Analysis shown in the picture below - let me know what you think.  

FCF by quarter

[tomperns]

You are correct that the $22M skewed 2022 profit and cashflow, but even with that carved out, they are still trading at PE of 2 and half of book value. The real estate alone is worth more than all of RET right now. If they have a couple of more profitable quarters, the market will eventually wake up

[savyinvestor333]

 You need to read the Seventh Monitor's Report. They clearly state they expected negative cash flow of around $20 million  for the 20 weeks ending Jan 29 and explain why. January is always a slow month plus they pay for all the spring clothes.

[tomperns]

All I know is anonymous keeps dumping to bring price down and I'll keep scooping them. Just picked up another 10,00 shares at average of 1.55. Keep selling jackasses and i'll keep scooping

[Mephistopheles3]

Any reason why you're buying the voting shares as opposed to Class A?  

[tomperns]

No real reason other than not having to deal with as many sellers of 100 shares. The Reitmans family have a good chunck of the voting shares, so I rather own those.

[savyinvestor333]

So you prefer the RET shares over the A shares I guess.

[TheCount11]

Yeah I have been saying that for a while.  Using your numbers look at depreciation $47.6 vs capital expenditures $15.2 Hard to know what proper CapEx number should be but you could drive a truck through the difference. Calculating a meaningful FCF is almost impossible due to one time costs and benefits in 2021.  I believe investors need a model of the business and how working capital

[Mephistopheles3]

Part of it is due to the weird way that lease accounting works.  RET has to capitalize their leases on their stores, depreciates them and shows on the cash flow statement the fake interest expense on the leases along with the lease payments as a financing activity. When you add in the financing side of the lease payments, it actually all balances out.  For 2022, RET gave guidance that

[TheCount11]

We are all rich if WE let management know that we expect the business to be managed for shareholders.  We all think of tech companies diluting shareholders but I didn't see Apple, Microsoft, Amazon, etc diluting shareholders by over 4% in 2022. Manage the business for profit vs revenue.  I don't care if sales this year are $600 million as long as gross margin is 58% or above

[Mephistopheles3]

The one thing i'll say about the 2 million options is that it should focus management to focus on the share price a bit more and focus on things that can increase the price.  Random thought is to do a sale and leaseback of the head office land.  That would instantly double the share price by unlocking the value of the real estate and lease it back from the REIT or whoever at a 10

[tomperns]

I shared these exact thoughts with the CFO. I told him that now that the ship has been saved and profitability seems to be re-established, now is the time to address shareholder value! (Uplisting to TSX, analyst coverage, buy-backs, insider buying...). Don't know if they are there yet, or still focusing only on operations.

[savyinvestor333]

What was thier response if any? TIA

[tomperns]

That they are focused on generating profits to create shareholder value. In other words, he dismissed my suggestions.

[Mephistopheles3]

Even something like better investor relations will just boost the stock which would cost little to nothing.  You can't get institutions buying in or any analyst coverage when your financials / MD&A are the legal bare minimum.  There's little guidance, little extra stats or tables that would help us analyze results better.. and there's more a feeling that as shareholders