After filling its warehouses in a context of supply chain disruption, Richelieu Hardware wants to sell off its inventory, which could put downward pressure on prices.
“There will be deflation for certain products,” warned Thursday, the president and CEO of the manufacturer and distributor of specialized hardware Richard Lord, during a conference call to discuss the results of the fourth quarter. There’s no doubt about it, because of our excess inventory. »
The stocks of the Montreal company reached 660 million as of November 30, against 395 million at the same period last year. This represents the value of sales for 124 days, illustrated analyst Zachary Evershed, of National Bank Financial, in a note. This indicator was 106 days three months earlier and 84 days last year.
Chief Financial Officer Antoine Auclair said the increase in hardware prices accounted for $45 million to $60 million of the increase in inventory value. Another tranche of nearly 30 million is related to acquisitions.
Inventories increased further in December and January. It will stabilize in February. Thereafter, it will drop substantially in 2023.
Antoine Auclair, Chief Financial Officer, Richelieu Hardware
The company should be able to achieve profit margins before interest, taxes, depreciation and amortization (EBITDA margin) of between 14% and 15%, despite the drop in prices, assured Mr. Lord. “We are not expecting a disaster. It won’t be dramatic. »
The leader had previously identified a 14% to 15% EBITDA margin range as a realistic target in a post-pandemic return to normal.
For the full year 2022 (ended November 30), the EBITDA margin was 15.9%, compared to 16.3% in 2021.
Mr Lord acknowledged that conditions would not be as favorable in 2023 as in 2022, but added that demand remained strong. “I don’t think we can top what we did last year, but the market is still good. […] When we talk to our sales people, they think our customers will still be busy for at least the next six months. »
Results above expectations
Richelieu Hardware unveiled earnings above expectations earlier Thursday, despite rising interest rates putting pressure on the real estate market and increasing the cost of loans to finance renovations.
In the fourth quarter (ended November 30), net income attributable to shareholders remained relatively stable, up 0.8% to 44.9 million.
Diluted earnings per share were 80 cents. Prior to the earnings release, analysts had expected earnings per share of 75 cents, according to Refinitiv.
Sales, for their part, amounted to 457.5 million, an increase of 14.9% compared to the same period last year. Of this 14.9% growth, the company said 6.7 percentage points were related to its existing operations and 8.2 percentage points were attributable to acquisitions. Excluding the currency effect, the total increase would have been 11.7%.
Richelieu said the EBITDA margin went from 17.9% to 16.8% in the fourth quarter. This decline is explained by “the slightly lower margins of certain acquisitions”.
In fiscal 2022, the company completed four acquisitions, three in the United States and one in Canada. Together, these four deals generate $125 million in annual sales.
After Nov. 30, the company made four smaller acquisitions in Canada for annual sales of about $18 million. Mr. Lord mentioned that the recent acquisitions made it possible to diversify the company’s offer and clientele.
The stock ended the day up 28 cents, or 0.8%, at $37.25 at the close of the Toronto Stock Exchange.