Reitmans (Canada) Ltd. (A) (RET.A.TO)

This used to be a “go to” company in terms of dividend sustainability, and a favourite in the retail segment. Retailing has changed remarkably, particularly if you are distributed in multiple malls. The Internet is having a big impact on retailing. Companies like this are having problems.

They are sound financially and always have been. They are hurting from foreign competition. Same store sales are down and they are trying to manage the decline. He would not step in here. Even a good management team is struggling.

(Market Call Minute) Struggled. It is a turnaround. He would follow it to see some good quarters.

Lost $16.5 million last quarter. A big part of that was that they source a lot of their goods in the US, and have to sell them in Canada. When the Cdn$ got killed, that cost them a lot of money. The Cdn$ is coming back to some degree which will help. This past quarter their revenues were about even, but that is on 56 fewer stores. Same-store sales went up a couple of points. Internet sales went up 69%. A clean balance sheet. Dividend yield of 4.54%.

His VP has this in his portfolio, but Benj has never bought into it. They’ve had difficulties. Had to cut back their dividends. They have a clean balance sheet. They are doing better now. Same-store sales, a key metric in this industry, were going down, down, down. They seem to have stemmed that tied. It potentially has a good upside from here. If he were going to buy it, it would be at a cheaper price. It is a company that also has to deal with the Internet marketplace. However, in the last quarter their Internet sales skyrocketed.

(A Top Pick Sept 18/13. Up 12.23%.) Short. He got out at about $6 in January.

Used to be a leading retailer but competition grew significantly. There was a suggestion they could get hooked up with someone but doesn’t look like it will happen. Don’t hang your hat on it. You could see a dividend cut.

In a difficult industry. A lot of traffic in malls is taken by Wal-Marts and Targets. It is hard to adjust. They have to rethink their business plan. Staples just announced the closure of 200 stores. Traditional retailing is changing. RET.A is having a difficult time making that change.

Very difficult. A well held family company. Fairfax has bought a large slug of the stock. He does not know what that means. They are astute investors but they sometimes get things wrong. He sold out last September.

Leases are probably worth more than the value of their stores. No one wants to buy this for the stores. They are still generating free cash but the revenues have been dropping for years. Too speculative for him but if you want to take a flyer, there is potential there.

(A Top Pick Sept 18/13. Up 21.8%.) A Short. Has been a rough summer for all Canadian retailers. Just cut their dividend by about 75%. Payout ratio was well in excess of 100% for the last couple of years. Cash has gone from about $400 million, down to about $130 million. Just kicked out of the 3 indexes they belonged to. Has been one of his biggest Shorts for the last 4 months and he sees further downside in the tax loss selling season.

(Market Call Minute) Just went on his watch list. Great balance sheet. Same store sales went down. Could be a tax loss situation and so he might pick it up next year.

(Market call minute.) Not a great retailer and the value is not there. Expect they will be taken off the index, which will create a lot of selling, giving you a better opportunity to buy later.

On the macro side, we are seeing a lot of Americans coming in to Canada and there is only a finite amount of business to be done here. With the Cdn$ at $0.97-$0.98, there is still a lot of cross-border shopping. This one is trading at about 1.2X Book, but 1.3X Tangible Book. Have been paying out a dividend of around 10%, but a lot of that is used in the war chest they have. Also, their top line along with their bottom line has been declining.

Nice dividend. They are in a bit of a spot. Invasion of US retailers and more people fighting over a shrinking pie. A lot of cash on the balance sheet so can fund dividend off balance sheet if they want to but would be smarter to cut dividend. Doesn’t know if they will actually do that. Not one he holds and he would wait for a bounce or get out of it. Are going to fall out of an index fund and that will create a headwind. At a nine year low.