"Our third-quarter performance demonstrates the underlying strength of our business model, even within a softer sales environment from less money in market, with results driven by margin improvements unlocked through our Next 100 initiative and lower expenses which contributed to delivering double-digit earnings growth," said Dan McConnell, President & CEO. "We are encouraged by the contributions from our Next 100 work and the continuing value it is delivering to customers and shareholders".
Financial Highlights
Sales Third quarter consolidated sales decreased 0.5% to $634.3 million compared to $637.5 million last year due to a decrease in Canadian Operations same store sales which were partially offset by the impact of foreign exchange on the translation of International Operations sales and sales from new stores. Same store sales decreased 1.7%1 compared to a 4.0% sales gain in the third quarter last year due to a 2.8% decrease in same store sales in Canadian Operations which were negatively impacted by a decrease in funding to individuals from Inuit Child First and Jordan's Principle programs. International Operations same store sales were flat to last year as an increase in food sales offset lower general merchandise sales.
Gross Profit Gross profit increased 1.4% to $217.1 million compared to $214.1 million last year due to a 64 basis point increase in gross profit rate. The increase in the gross profit rate is due to changes in sales blend and the positive impact from our Next 100 work, including refinements of our merchandise assortment and procurement.
Selling, Operating and Administrative Expenses Selling, operating and administrative expenses ("Expenses") decreased $1.6 million or 1.0% compared to last year and were down 13 basis points as a percentage to sales. The decrease in Expenses is largely due to a $3.3 million decrease in share-based compensation costs primarily related to changes in the Company's share price in the quarter compared to last year and a decrease in vessel repairs incurred through our investment in Transport Nanuk Inc. ("TNI") compared to last year. The impact of $1.3 million in one-time costs for professional fees related to the execution of the Next 100 strategy were offset by Next 100 gross profit factors, store labour productivity gains and other cost savings initiatives. Excluding the impact of share-based compensation and Next 100-related one-time costs, Expenses increased $0.3 million or 0.2% compared to last year and were up 17 basis points as a percentage to sales.
Earnings From Operations Earnings from operations ("EBIT") increased 8.5% to $58.7 million compared to $54.1 million last year, and earnings before interest, income taxes, depreciation and amortization ("EBITDA2") increased 6.5% to $88.9 million compared to $83.4 million last year due to the sales, gross profit and Expense factors previously noted. Adjusted EBITDA2, which excludes the impact of share-based compensation and Next 100-related one-time costs, increased $3.5 million or 3.9% to $91.9 million compared to $88.4 million last year and as a percentage to sales was 14.5% compared to 13.9% last year.
Interest Expense Interest expense decreased 7.4% to $4.6 million due to changes in interest rates and average debt compared to last year.
Income Tax Expense Income tax expense increased to $13.1 million compared to $12.8 million last year as the impact of higher earnings was partially offset by a decrease in the effective tax rate to 24.2% compared to 26.0% last year. The decrease in the effective tax rate is due to changes in tax estimates, the blend of earnings across the various tax rate jurisdictions and the taxation of share-based compensation.
Net Earnings Net earnings increased 12.9% to $41.1 million compared to net earnings of $36.4 million last year. Net earnings attributable to shareholders were $40.1 million and diluted earnings per share were $0.82 per share compared to $0.72 per share last year. Adjusted net earnings2, which excludes the after-tax impact of share-based compensation and Next 100-related one-time costs, increased $3.2 million or 8.1% to $43.3 million due to the sales, gross profit, Expense, interest and 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 ...
