The TSX Index for the one month ended May 5th, 2023, was up 1.9% and over 4% YTD with the Materials and Information Technology Sectors leading the way. The rate of inflation dipped to 4.3% annually in Canada and to 5.0% in the US, both down significantly from prior period. The Federal Reserve raised their policy rate by 0.25% to 5% on May 3rd, but the BOC maintained their rate at 4.5%. The failure of Silicon Valley Bank and the forced takeover of First Republic provided some fireworks but were fairly quickly contained. Employment remained strong in both countries, but GNP in both countries showed signs of weakness and March is expected to be negative. With this background, the following table presents the best and worst performers for the monthly period ended May 5, 2023.
Leon’s Furniture Limited
The best performer for the period was Leon’s Furniture (LNF)which was up some 38.7%, much of it in the latter half. LNF is the largest retailer of furniture, appliances, and electronics in Canada and it is the country's largest commercial retailer of appliances to builders, developers, hotels, and property management companies. It has 304 retail stores from coast to coast in Canada under various banners and operates six websites. Annual results, announced on February 22nd were essentially flat with earnings per share at $2.66. The big announcement was on May 4th when LNF announced it intended to create a Real Estate Investment Trust which is expected to unlock significant shareholder value. LNF has some 5.2 million square feet of wholly owned real estate from which it will vend in a significant portion to the REIT. Management is exploring various strategic alternatives for this transaction. Perhaps more will be said about this proposal when the results for the first quarter of 2023 are announced on May 11th.
Shopify Inc
The 2nd best performer was Shopify Inc (SHOP) whose stock was up 36.37% for the monthly period and 76.64% YTD. The stock price has bounced around from the no 1 position in July 2022 to an interim low on October 10th, to 2nd best in November 2022 and January 2023.
Shop is a leading provider of essential internet infrastructure for commerce, offering tools to start, grow, market, and manage a retail business of any size. It is particularly attractive to small businesses and occupies a nascent software niche that is growing rapidly. Black Friday sales were a record: 52 million customers (up 12%) bought more than $3.5 million per minute at 12:01 PM EST on November 25.
Results for the first quarter of 2023 were quite strong: Revenues at $1.508 billion were up 25.3%; net income was $68 million ( $0.05 per share) compared to a loss of $1.5 billion in the prior comparable period. Other income at $269 million, due to a net unrealized gain on investments, versus a loss of $1.6 billion contributed to this result. On May 4, 2023, SHOP announced a reduction in workforce of approximately 23%. Management estimates that it will incur approximately a $140 to $150 million charge in the second quarter of 2023 in connection with this reduction. This reduction also encompasses Shopify’s planned exit from its logistics offerings.
SHOP has a strong balance sheet with more than $1.7 billion in cash and added $89 million in the first quarter. Management expects to grow its top line strongly and gradually bring its expenses in line.
NFI Group
The No 3 performer was NFI Group (NFI) whose stock price was up 34.95% on the monthly period and 8.3% YTD. This company has had a mixed past: It ranked No 1 in April 2022, worst in October 2022, and No 2 in December 2022. NFI is primarily a bus manufacturer with an offering that includes zero-emission vehicles (ZMB), charging infrastructure installations, telematics, and full parts and service aftermarket support
From a price of $11.77 at the beginning of February 2023, the stock fell to a low of $7.06 on April 26th only to then rise to a close of $10.31. The publication of results for 1st quarter of 2023 appears to have been the proximate cause of this rise. Quarterly revenues at $524.4 million were up 14.2%; new orders were up 33%; loss on operations was $21.7 million, an improvement of almost $20 million, but overall net loss grew by some $18 million to $50 million; adjusted EBITDA came in at $7.4 million. NFI remains constrained by supply chain problems, but these do seem to be abating. Demand is strong; supply chain issues are resolving and new credit arrangements have been negotiated.
The 3rd worst performer was Telus International (TIXT) whose stock was down 12.3% on the monthly period and 13.5% YTD. The stock peaked at $40.15 in early August 202, and fell to an intermediate low of $26.13 in mid-November {3rd worst performer that month) from which it lifted to $31.22 at the end of January 29, to close the period at $23.11.
TIXT is a leading digital customer experience innovator that designs, builds, and delivers next-generation solutions, including artificial intelligence (AI) and content moderation, for global and disruptive brands.
Management believes TIXT delivered solid results for the first quarter of 2023: Revenues at $686 million were up 15% over the prior comparable period; net income at $14 million ($0.05 per share) compared to $34million ($0.13 per share); adjusted EBITDA at $155 million was up 9%. Management has reiterated its outlook for the year including double-digit profitable growth.
Aritzia Inc
The 2nd worst performer was Aritzia Inc (ATZ) whose stock price was off 12.7% for the monthly period and $23.34% YTD. The stock reached a year-long high of $54.08 in early November 2022, fell to an intermediate low in mid-March 2023, and subsequently fell to a close of $36.30.
ATZ is a vertically integrated design house, home to an extensive portfolio of exclusive brands for every function and individual aesthetic operating from an innovative global platform offering Everyday Luxury online and in its 110-odd boutiques in Canada and the USA.
Results for the fiscal year ended February 26th, 2023 and for the included 4th quarter were strong; Net Revenue at $637.6 million for the quarter and $2.2 billion for the fiscal year were up 43.5% and 46.9% respectively; net income at $37.3 million, and $187.6 million was up 9.1% and 19.5% respectively; adjusted EBITDA was up 19.7% and 21.4% respectively. Management notes the first quarter of fiscal 2024 was off to a healthy start; fiscal year 2024 is forecast to show growth of 10 to 14% supported by continuing strength in the US where 8 new boutiques are planned.
Altus Group Ltd
The worst performer was Altus Group (AIF) whose stock was off 21.48% for the monthly period and 18.21% YTD. The stock price bumped between $52.20 and $60 for most of this year and then fell off precipitously in early May 2023. AIF is a leading independent provider of real estate consulting services, real estate software applications, and data solutions. With operations in four key geographies (Canada, the U.S., the UK, and the Asia Pacific), its products and services are used by banks, pension funds, insurance companies, accounting firms, real estate-oriented organizations, industrial companies, and investors to evaluate real property assets.
The results for the first quarter of 2023 were published May 4th and were mixed which may account for the drop in the stock price. While Revenues at $190.8 million were up 13.9% and the net loss was reduced to $2.4 million, analytic new bookings were down 23.7% due to challenges in the banking sector, according to management. It should also be noted that Finance costs were up almost $5 million due to higher interest rates and Office and Other expenses were up almost $10 million reflecting increased advisory and software maintenance spend. An ambitious plan to go forward was outlined on April 26, 2023, but it is too early to tell if it will be effective.
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Take Care,
Disclosure: The analyst(s) responsible for this report do not have a financial or other interest in the securities mentioned.
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