Richelieu Hardware (TSX:RCH) Q3 2026 Earnings Call

0:00 Good morning, ladies and gentlemen, and welcome to the Richelieu Hardware third quarter results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session, which will be restricted to analysts only. If at any time during this call you require immediate assistance, please press star zero for the operator. Also know that this call is being recorded on October 8, 2026. Bonjour Mesdames et Messieurs et bienvenue au résultat du troisième trimestre 2026 de Quinquairie Richelieu. Présentement, vos lignes sont en mode d'écoute seulement. Suite à la présentation, nous allons procéder à une période de questions et réponses qui sera restreinte aux analystes seulement. Si vous avez besoin d'assistance au cours de l'appel, veuillez appuyer sur l'étoile et zéro. Veuillez aussi prendre note que cet appel est enregistré le 8 octobre 2026.

0:51 J'aimerais maintenant céder la parole à M. Richard Lord, président et chef de la direction. La parole est à vous.

0:57 Merci. Thank you. Good morning, ladies and gentlemen, and welcome to Richard Lord's conference call for the third quarter and first nine months ended August 31, 2026. With me is Antoine Auclair, CFO and COO. As usual, note that some of today's issues 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 Penrod, the largest in our history, which we completed on September 1, following The acquisition of Solutions Acoustiques and Winnec in Canada during the third quarter.

1:55 So far this year, our acquisition strategy has positioned us for sound future growth with a total of five 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. Our sustained investment in innovation, our various private label brands, our diversified market segment and our distinctive service offering, including richelieu.com, provide us with competitive advantages that help us remain competitive in an uncertain economy.

2:41 During the quarter, sales reach and a total of 562 million with growth across all market segments in Canada and in the U.S., including initial shipments to our major U.S. retail customers. Our U.S. operations continue 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% 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 basic points to our EBITDA margin of 11.7%.

3:43 Now let's take a look at our most recent acquisitions. Completed in the third quarter, Solutions Acoustiques based in the Montreal area is renowned for its standard decorative and high-performance acoustic solutions, a growing market, and WINEQ, which operates three distribution centers of specialized hardware in the Greater Toronto area. On September 1, we completed the acquisition of the Penrod Company's hardware division, adding annual sales of $60 million in U.S. dollars and seven distribution centers across the U.S. For us, this is an outstanding opportunity to strengthen our position with a diversified customer base of door manufacturers, architects, residential and commercial contractors, and specialty distributors.

4:38 I will now ask Antoine to review the financial highlights for the quarter and the first nine months.

4:44 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 rate, 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 $187 million in U.S. dollars, up 12.9%.

5:32 Sales to manufacturers reached $172 million in U.S. dollar, 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 nine months, total sales reached nearly $1.6 billion, up 7.2%, of which 4.6% resulted from internal growth and 2.6% from acquisition.

6:20 In 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 acquisition. 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 $518 million in USD, up 9.4%, with 3.3% from internal growth and 6.1% from acquisitions. They reached $717 million in CAD, up 8%, accounting for 46% of total sales. In USD, 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.

7:29 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 6.3% 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%.

8:14 For the first nine 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 tariff, EPS would have been $0.49, representing a 14.1% increase from last year. For the first nine 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 non-cash working capital reached $54.5 million, up 13.5% from $48.1 million last year.

9:16 The change in non-cash 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 nine months, cash flow from operating activities represented a cash inflow of $95.9 million, For the first 9 months, Financing activities use cash flow of $21.7 million compared to $70.1 million in 2025.

10:18 In the first nine months, we invested $45.8 million, including $31.7 million for four 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 3.2 to 1. I now turn it over to Richard.

10:47 Thank you, Antoine. In conclusion, I want to highlight the $15 million strategic investment we announced in September at our Drummondville facility. This project, which is already underway, will more than quadruple the warehouse footprint, increasing it from 40,000 to 180,000 square feet by Spring 2027. It will support our future growth in the Centre 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 Richelieu and prepare for market recovery. We are taking the same approach today, investing in innovation, expanding our market presence, and pursuing acquisition.

11:38 This environment also creates opportunities for us to bring strong businesses into Richelieu's 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. Thank you. Ladies and gentlemen, if you do have any questions at this time, please press star followed by one on your touch-tone phone. You will then hear a prompt that your hand has been raised. And if you should wish to decline from the polling process, please press star followed by two. And if you're using a speakerphone, you will need to lift the handset first before pressing any keys. And your first question will be from Amir Patel at CIBC.

12:23 Please go ahead. Hi, good morning.

12:33 Congrats on the strong quarter. Richard, you pointed to, in the prepared remarks, pricing driving the majority of the double-digit organic comps. How much was pricing to the organic growth percentage, and would you expect that tailwind to persist for the next three quarters?

12:56 I think the pricing... represent about 40% of the organic growth. 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, in the near future, we see the pricing situation to be stable.

13:27 Okay, great. And Richard, are you able to share how your sales comps in September fared for both manufacturers and retailers?

13:36 Oh, yes, because I think it's interesting to mention the 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%. That's the kitchen cabinet industry. So that means that the consumers continue to do some renovation because that market is related maybe to the residential market. And we know that the construction is down. So I guess what we see is that the sales increase is mainly due to the people doing some renovation, which is a very good market for Le Cherieux. The commercial renovation is also very strong in Canada with an increase of 11% while it is an increase of 5.5% in the U.S.

14:22 All those specialized markets, including the closet industry, sales in Canada increased by 10.5%, while it has increased by 21% in the U.S. It's very encouraging to see that. Again, the closet industry is mainly related to the residential innovation. The door-and-window markets were increased by 5% in Canada, 8% in the U.S. The residential furniture is interesting to mention. We see that this is a difficult market, but we see the customer of those market segments, buying more from Richelieu instead of importing their own goods from overseas because, you know, the tariff affects their sales, so they buy less, so they don't import directly from Asia anymore. So that brings some business to Richelieu. And office furniture is also encouraging. In Canada, our sales increased by 10% while it's flat in the U.S. So basically, all our market segments by different industries that we serve It's very positive to realize that there is some business there.

15:21 Adricheux keeps moving by adding salespeople in the U.S. We try to keep the market moving. We don't stand still because the market is uncertain.

15:31 And Amir, if we look at the business as we speak since the beginning, the ending of the quarter, we're seeing internal growth of around 3-4% as we speak.

15:48 Okay, great. Thanks, Antoine. Just to clarify, I guess all the breakdown Richard provided was for the third quarter.

15:56 Yeah, exactly.

15:58 Okay, and then Antoine, just thinking about EBITDA margins, it looks like if you exclude the tariff refunds that came in around 11.1% 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 2027?

16:16 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.

16:31 Okay, so to drive margin expansion next year, did you really need the macro backdrop to improve?

16:42 Yeah, we would need a more rigorous market. Sales growth is good, but real volume will definitely help to improve this EBITDA margin.

16:57 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 space Thank you. Once again, ladies and gentlemen, please press star one if you have any questions.

17:48 Thank you. Next will be Nathan Poe at National Bank. Please go ahead, Nathan.

17:56 Good morning, everyone. Thank you for taking my question. My first question is about the EBITDA margins. So without the 3 million tariff refund Q3 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.

18:30 Yeah, you have to consider that we're passing the tariff as a dollar. So we're not taking any margin on those tariffs. So even though the The price increases there. We're not gaining any additional margin there. So in total, this has a diluting impact on the margin, not in dollars, but in percentage. But I think that after Q3, this should be behind us. So now the higher cost products are in, the tariffs impact are included in our average costing as well. So that should be behind us starting Q4 and moving forward.

19:13 Okay, thank you for the clarification there. 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?

19:29 Okay, so basically the initial sales to this major customer, it's been around $7 million U.S. in the third quarter and a On a yearly basis, we're talking about approximately $10 million U.S. 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.

20:07 Okay, thank you very much for that caller. Regarding the manufacturer's organic growth, notably strong, can you break down the drivers of that? Perhaps were there any non-recurring benefits to that quarter? And then perhaps, yeah, no, that's it, just manufacturing organic growth.

20:34 Yeah, not necessarily non-recurring. I think that it's been a It's been a strong quarter in all regions, and if we look at the industrial business in the different regions in Canada, so 9% growth 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, around 40% of this is price, the rest is We're encouraged by this performance, but as I said earlier, if we look at September and the beginning of October, we're seeing like 3-4% growth today.

21:18 And basically what Trichaud is doing, we create the movement in the market, we are adding salespeople, our website is second to none, it's contributing largely to our sales increase as well. All the means that we can find to reach the customers, to be close to the customers, service the customers, and communicate well with the customers. We're investing in those segments in order to be close to our customers and getting the orders.

21:46 Thank you. And for the comment on early September, October internal growth, does that still match up with the commentary on 40% price and rest of those volumes, or how does that break out?

22:01 Pretty much.

22:06 And last one for me, with U.S. mortgage rates at a three-year high, can you tell us how customers and their order books are looking right now?

22:16 Well, customers 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 a new kitchen cabinet, a new closet whatsoever, I think people that have money, they do not hesitate to make those projects. And what we, if you remember during the pandemic, people could not find a contractor to do their work. So now it's easier to find a contractor, to find a kitchen cabinet manufacturer and find 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 of 11% In Canada, this is very strong because of the commercial projects, the airports, the restaurants and hotels are doing renovation.

23:05 They're obliged to. They have to keep their place clean. And we see the tourists in Montreal and in Toronto and other areas of Canada as well. So the hotels keep, you know, I think are doing very good business and they keep renovating.

23:20 Great to hear. Oh, and sorry, one last one. I noticed that last quarter we were talking about how the eastern Thank you very much.

23:56 The Ontario market seems to have reached the bottom of the barrel, so the thing cannot be worse. I see in the months to come that the business is going to pick up.

24:06 Hopefully this is a trend. That's a good quarter, so we'll see if this continues. But like Richard said, we're comparing ourselves with low comparables. But we'll see. Hopefully this will continue, but we don't know yet.

24:25 Okay, thank you very much. I will turn it over. Thank you. At this time, Mr. Law, we have no other questions registered. Please proceed.

24:35 There's no more questions. Thanks again. It's always a pleasure for us to talk to you. You can phone us at your convenience. Thank you. 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 line.