Thursday, June 11, 2015

Reitmans (Canada) Ltd.

Sound bite for Twitter and StockTwits is: Recovering Retail stock. I still think that this stock will recover and then I may keep it for the longer term. I find it interesting that Prem Watsa of Fairfax has bought some of this stock. I bought this stock for my TFSA. Since the price is again down, I bought another 100 shares with dividends from my TFSA. See my spreadsheet at ret.htm.

I own this stock of Reitmans (Canada) Ltd. (TSX-RET.A, OTC-RTMAF). I was following this stock as it was a stock on Mike Higgs' dividend growth stocks list. I bought this company in September 2013. It was in financial difficulties and so was quite cheap. I believe it will recover. I could, of course, be wrong about this.

I bought this stock in 2013 when I knew it was going to cut its dividend. This is a stock I followed for a long time. A lot of retail stocks have had a hard time since 2008. When I bought this stock, I had faith that it would recover and I still do. This stock has an end of January reporting date, so I am reporting on the financial year ending in January 2015 in my report.

I have dividend information going back to 1988. Dividends were level between 1988 and 2000. In 2000 they started to increase the dividends and increased them every year until 2013 when they decreased them by 75%.

Until 2010 they were paying out in dividends a median of 33% of the EPS. In 2010 this payout ratio started to climb to 73 % in 2010 and ended up in 2014 at 382%. A climbing EPS Payout Ratio is a bad sign always. In 2015 this Payout Ratio is 95% and it is expected to be around 56% in 2016. So now the EPS Payout Ratio is going in the right direction.

I did not invest much money in this stock as what I did was really bottom fishing. I have lost 8.96% per year or 13.4% in absolute terms. Shareholders over the past 5 and 10 years have lost 15.61% and 4.13% per year with capital losses of 19.60% and 9.56% per year. The dividend portion of this total return is 3.99% and 5.43% over the past 5 and 10 years. In absolute terms shareholders holding this stock for 10 years would have had 63.40% capital loss or if you include dividends a 28.9% loss.

The outstanding shares have really not changed over the past 5 and 10 years. They have been increased because of Stock Options and have decreased because of Buy Backs. Of course Revenues, Earnings and Cash Flows are all down over the past 5 and 10 years.

Analysts seem to expect Revenue to start to recover in 2017, Earnings to continue to recover in 2016 and 2017 and do not see any soon recovery on Cash Flow.

The Return on Equity used to be good, but it has been below 10% for the past 4 years. The ROE for 2015 is 3.2% and it has a 5 year median value of 5.9%. The comprehensive income is lower for 2015 at 2.3% and it 5 year median is 5.6%. I prefer that the comprehensive ROE be the same or higher than the Net Income ROE.

This company has always had a rather strong Balance Sheet. The Liquidity Ratio for 2015 is 2.99 and it has a 5 year median of 3.47. The Debt Ratio is 3.58 and it has a 5 year median of 4.26. Leverage and Debt/Equity Ratios for 2016 are 1.39 and 0.39. The 5 year median values are 1.30 and 0.30, respectively.

This is the first of two parts. The second part will be posted on Friday, June 12, 2015 and will be available here. The first part talks about the stock and the second part talks about the stock price.

Reitmans (Canada) Limited operates a network of clothing stores specializing in women's & men's fashions and accessories. The company operates stores under the names Reitmans, Smart Set, Pennington, RW & Co., Thyme Maternity and Addition-Elle. Its web site is here Reitmans.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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