Richelieu Hardware Ltd. (RCH) Earnings Call Transcript
October 8, 2026
Earnings Call Speaker Segments
Good morning, ladies and gentlemen, and welcome to the Richelieu Hardware Third Quarter Results Conference Call. [Operator Instructions] Also note that this call is being recorded on October 8, 2026. [Foreign Language]
Thank you. Good morning, ladies and gentlemen, and welcome to Richelieu Conference Call for the third quarter and first 9 months ended August 31, 2026. With me is Antoine Auclair, CFO and COO as usual, note that some of today's issue include forward-looking information, which is provided with the usual disclaimer as reported in our financial filings. Our third quarter was marked by strong growth and strategic expansion, once again, demonstrating the strength of our business model and our ability to capitalize on new opportunities. We are particularly proud of the acquisition of Panera, the largest in our history, which we completed on September 1. Following the acquisition of Sutkus and Wine in Canada during the third quarter. So far this year, our acquisition strategy has positioned us for some future growth with a total of 5 acquisitions, adding $145 million in annual sales, expanding our market expertise diversifying our specialized customer base and providing significant additional network coverage in strategic markets. Of sustained investment in innovation, our various private label brands, our diversified market segment and our distinctive service offering, including distribute.com, provide us with competitive advantages that airports remain competitive in an uncertain economy. During the quarter, sales reached $562 million with growth across all market segments in Canada and in the U.S., including initial shipments to a major U.S. retail customers. Our U.S. operation continued to be a key driver in our growth. In Canadian dollars, our U.S. sales accounted for 46.6% of total sales for the quarter sales to manufacturers in the U.S. now represent 49% of our total sales to manufacturers, highlighting the strength of our presence in this market. EBITDA was up 15% to $65 million, supported by sales growth and favorable impact of a $3 million refund of U.S. tariff representing about 60 basis points to our EBITDA margin of 11.7%. Now let's take a look at our most recent acquisitions. Completed in the third quarter, Solutions based in the mortal area is renowned for its standard decorative and high-performance acoustic solutions. A growing market and Wine, which operates 3 distribution centers or specialized hardware in the Greater Toronto area. On September 1, we completed the acquisition of the Penrod companies Adwell division, adding annual sales of USD 60 million and 7 distribution centers across the U.S. For us, this is understanding opportunity to strengthen our position with our diversified customer base of door manufacturers architects, residential and commercial contractors and specialty distributor. I will now ask Antoine to review the financial highlights for the quarter and the first 9 months.
Thanks, Richard. In the third quarter, sales reached $562 million, up 12.6% or $62.8 million, driven by 10% internal growth and a 2.6% contribution from acquisitions. At comparable exchange rates, sales growth would have been 11.3%. In Canada, sales totaled $300 million, up 10.2%, with strong growth from all regions. Sales to manufacturers amounted to $252 million, up 11.4%, while sales to the hardware retailers totaled $48 million, up 4.6%. In the U.S. sales reached USD 187 million, up 12.9%. Sales to manufacturers reached USD 172 million, up 9.3% with 7% from internal growth. In the hardware retailers and renovation superstores market, sales reached $14.7 million, up 86.1%, mainly reflecting initial deliveries to a major customer in the U.S. In Canadian dollars, total sales in the U.S. reached $262 million, up 15.4% over last year and accounting for 46.6% of total sales. For the first 9 months, total sales reached nearly $1.6 billion, up 7.2%, of which 4.6% resulted from internal growth and 2.6% from acquisition. Comparable exchange rate, sales growth would have been 7.9%. In Canada, sales reached $841 million, up 6.5%, including 4.5% internal growth and 2% from acquisitions. Sales to manufacturers totaled $704 million, up $47.7 million or 7.3%. Sales to hardware retailers and renovation superstores were $136.8 million compared to $132.9 million, up 2.9%. In the U.S., sales amounted to USD 580 million, up 9.4%, with 2.3% from internal growth and 6.1% from acquisitions. They reached CAD 717 million, up 8%, accounting for 46% of total sales. In U.S. dollars, sales to manufacturers totaled $485 million, an increase of $37.5 million or 8.4%, driven by 5.3% internal growth and 3.1% from acquisitions. Sales to hardware retailers and renovation superstores amounted to $33 million, which represents an increase of $6.9 million or 26.4% with 20.1% coming from internal growth and 6.2% from acquisitions. Third quarter EBITDA reached $65.5 million, up $8.5 million or 14.8% from last year. EBITDA margin was 11.7% compared to 11.4% last year. The slight increase reflects the impact of the reimbursement of tariffs, which represent $3 million and was recorded as a reduction of cost of goods sold. Excluding this reimbursement, EBITDA margin would have been 11.1%. For the first 9 months, EBITDA totaled $164.8 million, up 6.5% with the EBITDA margin at 10.6%. Third quarter net earnings attributable to shareholders reached $29.2 million, up 22.4%, while diluted net earnings per share increased 23.3% to $0.53 from $0.43 last year. Excluding the reimbursement of tariffs, EPS would have been $0.49, representing a 14.1% increase from last year. For the first 9 months, net earnings attributable to shareholders reached $66.9 million, up 11%. Diluted net earnings per share increased to $1.21 compared to $1.08 last year, up 12%. Third quarter cash flow from operating activities before net change in noncash working capital reached $54.5 million, up 13.5% from $48.1 million last year. The change in noncash working capital represented a cash inflow of $4.8 million primarily driven by a $24.7 million change in accounts payable, while accounts receivable, inventories and other items used $19.9 million in cash. As a result, operating activities generated a cash inflow of $59.4 million for the quarter. For the first 9 months, cash flow from operating activities represented a cash inflow of $95.9 million compared to $133.6 million last year when cash flows benefited from a significant reduction in inventory levels. For the third quarter, financing activities represented a cash inflow of $36.9 million in cash compared to a cash outflow of $25.4 million last year, primarily reflecting the addition of a long-term debt of $62.4 million. For the first 9 months, Financing activities used cash flow of $21.7 million compared to $70.1 million in 2025. In the first 9 months, we invested $45.8 million, including $31.7 million for 4 business acquisitions and $14.1 million primarily for equipment required to maintain and improve operational efficiency including IT equipment. We continue to maintain a strong balance sheet with working capital of $702 million and a working capital ratio of 3.21%. I now turn it over to Richard.
Thank you, Antoine. In conclusion, I want to highlight the $50 million strategic investment we announced in September at our Dromanville facility. This project, which is already underway, will more than cut the warehouse footprint, increasing it from 40,000 to 180,000 square feet by spring 2027. It will support our future growth in the center of Quebec region and beyond. The economic outlook remains uncertain, but we continue to move forward with confidence. Throughout our history, we have used periods like these to strengthen retool and prepare for market recovery. We are taking the same approach today, investing in innovation, expanding our market presence and pursuing acquisition. This environment also creates opportunity for us to bring strong businesses into reshore network. We have the financial strength, the team and the experience to act on these opportunities. We intend to keep moving forward and build on the momentum we have created. Thanks, everyone. We'll now be happy to answer your questions.
[Operator Instructions] Your first question will be from Hamir Patel at CIBC.
Congrats on the strong quarter. Richard, you pointed to in the prepared remarks, pricing driving the majority of the double-digit organic -- how much was pricing to the organic growth percentage? And would you expect that tailwind to persist for the next 3 quarters?
The pricing represent about 40% of the organic growth -- and that will be -- I don't see that for the quarters to come. I think the pricing adjustment that has to be made because of the tariff, that's already behind us. There could be more pricing in the future, but that would be because of price increases from our suppliers, which we try to control at our best. But basically, we -- in the near future, we see the pricing situation to be stable.
Okay. Great. And Richard, are you able to share how your sales comps in September fared for both manufacturers and retailers.
Yes, because -- so I think it's interesting to mention that a different market segment by product segment, let's say, the kitchen cabinet industry, our sales in Canada increased by 5.3%, and in the U.S., 4.8%. The Kitron cabinet industry. So that means that the consumers continue to do some innovation because that market is related maybe to the residential market. So -- and we know that the construction is down. So I guess the -- what we see is that the sales increase is mainly due to the people doing some renovation, which is a very good market for it. The commercial innovation is also very strong in Canada with an increase of 11% while it is an increase of 5.5% in the U.S. Other specialized market in closing the closet industry, our sales in Canada increased by 10.5%, while it has increased by 21% in the U.S. very encouraging to see that. Again, the car set industry is mainly related to the residential innovation. The door in mid market, we increased by 5% in Canada, 8% in the U.S. It isn't as tour and interesting to mention that we see that this is a difficult market, but we see the customer of those market segment buying more from initial instead of importing their own goods from overseas because the tariff affect their sales, they buy less. So they don't import directly from Asia anymore. So that brings our business to ensure you. So -- and office furniture is also encouraging in Canada, with our sales increased by 10%, while it's flat in the U.S. So basically, all our market segment by different industry that we serve it's very positive to realize that there is some business there. I think if you keep moving by adding salespeople in the U.S., we try to keep the market moving. We don't stand still because we -- the market is uncertain.
And Hamir, if we look at the business as we speak since the beginning -- the ending of the of the quarter, we're seeing internal growth of around 3% to 4% as we speak.
Okay. Great. just clarify, I guess, the breakdown Richard provided was for the third quarter.
Yes, yes, exactly.
Okay. And then Anton, just thinking about EBITDA margins look like if you exclude the tariff refunds that came in around 11.1% and in Q3. What are you expecting to round out the year for Q4? And given the macro backdrop, how do you see the setup for 2020?
I'm seeing pretty much the same thing as a similar quarter in Q4 regarding the EBITDA margin. So we're around 11%. And -- we're working also to maintain this 11% over the course of '27.
Okay. So to drive margin expansion next year, what did do you really need the macro backdrop to improve?
Yes. We would need a more rigorous market. So sales growth is good, but it's nothing -- real volume will definitely help to improve this EBITDA margin.
Okay. Great. And just the last question I had. With respect to the Penrod deal, I guess the closing date was in Q4. Can you speak to the valuation multiple that you paid there and how the EBITDA margins of that particular target would compare to the base business maybe relative to historical acquisitions.
Yes, the Penrod EBITDA margin is similar to Richelieu we've paid a bit more than what we usually do. But we're confident that it's a strategic acquisition for us, and we've paid around 7x EBITDA.
Okay. Great. That's all I had. I'll turn it over.
[Operator Instructions] Next will be Nathan Po at National Bank. Please go ahead, Nathan.
My first question is about the EBITDA margins. So without the $3 million tariff refund margins compressed year-over-year. What was driving the operating expenses line because normally with strong organic growth, like what you've posted this quarter, we'd expect pricing on products and freight to be more margin accretive?
Yes, you have to consider that we're passing the tariff as as a dollar. So we're not taking any margin on those tariffs. So even though the price increase is there, we're not gaining any additional margin there. So in total, this has a dilutive impact on the margin, not in dollars, but in percentage. So -- but I think that after Q3, this should be behind us. So now the higher cost products are are in the tariffs impact are included in our average costing as well. So that should be behind us starting Q4 and moving forward.
Okay. And on the major U.S. initial shipments, how much of that rollout was completed in Q3 and perhaps how much is left for Q4?
Okay. So basically, the initial sales to this major customer, it's been -- it's around USD 7 million in the third quarter. And on a yearly basis, we're talking about approximately USD 10 million on on a yearly basis. So now the recurring sales will start in the course of the fourth quarter and after it's going to be business as usual for this major customer, and we're talking about $10 million annually. So approximately $2.5 million per quarter.
Okay. for that color. Regarding the manufacturers organic growth, notably strong. Can you break down the drivers of that, perhaps were there any nonrecurring benefits to that quarter and then perhaps yes, no, that's just manufacture the organic growth.
Yes, not necessarily nonrecurring. I think that it's been a strong quarter in all regions. And if we look at the industrial business in the different region in Canada, so growth in the -- on the East Ontario, it was plus 7.8%. So this is encouraging and Western around 8% growth in the industrial business. Like Richard said, the -- around 40% of this is price around the rest is volume. So that's -- we're encouraged by this performance. But as I said earlier, so if we look at September and the beginning of October, we're seeing like 3% to 4% growth today.
And basically, what it is doing we create the movement in the market. We are adding salespeople or sales website is second to none. It is contributing largely to our sales increase as well. So basically, we -- all the means that we can find to reach the customers, to be close to the customer service the portion well and communicate well with the customers we're investing in those segments in order to be close to our customers and getting the orders.
And for the comment on early September, October internal growth, does that still match up with the commentary on 4% price and rest of those volumes? Or how does that break out?
Yes, pretty much.
And last one for me. With U.S. mortgage rates at a 3-year high. Can you tell us how customers and their order books are looking right now?
Well, costs are still busy because as I mentioned earlier in this meeting, I think the renovation market remains healthy, not strong, but healthy. People that need to -- a new kitchen comminate a new clause whatsoever. I think people that have money, they do not hesitate to make those projects. And what we -- if you remember during the Pandemipeople could not find a contractor to do their work. now it's easier to find the contractors to find a kitchen cabinet manufacturers and fine furniture as well. So basically, the market is also favorable for the people that have money to spend in order to maintain their houses. That does apply to the commercial renovation market as well. When we see a growth in Canada, this is very strong. It's because of the commercial projects, the airports, restaurants and hotels outdoing renovation, they were late to it, they have to keep their place clean. And we see the tourist in Montreal and in Toronto and other area of Canada as well. So the hotel keep, I think, are doing a very good business and they keep it in waiting.
Great to hear. And sorry, one last one. I noticed that last quarter, we were talking about how the Eastern market in Canada was a bit challenging specific callout to Ontario, but you pointed out some pretty strong growth, seems like an inflection this quarter. What was driving that?
In Ontario increased by 7.8%. But we have to admit that the quarter of last year was the good -- so basically, it's a jump of something that was not very good last year, but what we are happy to see, though, is that the hotel market seems to have reached the bottom of the barrel, so thing cannot be worse than I see in the months to come that the business is going to pick up. Hopefully, this is a trend. So that's a good quarter.
We'll see if this continues. But like Richard said, we're comparing ourselves with low comparable. So -- but we'll see. Hopefully, this will continue, but we don't know yet.
We have no other questions registered. Please proceed.
There's no more question. Thanks again. It's always a pleasure for us to talk to you. You can inform us at your convenience. Thank you, and have a good day.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.
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