Reitmans (Canada) Limited announces its results for the six months ended August 1, 2009


    MONTREAL, Sept. 3 /CNW Telbec/ - Sales for the six months ended August 1,
2009 were virtually unchanged at $517,723,000 as compared with $517,820,000
for the six months ended August 2, 2008. Same store sales remained relatively
stable, decreasing slightly by 1.6%. The continuing recession resulted in
weaker sales due to consumers cutting back on discretionary spending. Rising
unemployment rates in a number of key markets, most notably southern Ontario
and Alberta and a cool summer throughout most of Canada, negatively impacted
sales.
    Operating earnings before depreciation and amortization (EBITDA(1)) for
the period decreased 23.5% to $79,073,000 as compared with $103,319,000 last
year. The Company's gross margin decreased in the first six months of fiscal
2010 primarily due to the impact of the decline of the Canadian dollar
vis-à-vis the US dollar. The average rate for a US dollar in the first six
months of fiscal 2010 was $1.19 Canadian as compared to $1.01 Canadian in
fiscal 2009.
    Net earnings decreased 36.4% to $34,227,000 or $0.49 per share (diluted),
as compared with $53,821,000 or $0.76 earnings per share (diluted) last year.
    Sales for the second quarter ended August 1, 2009 decreased 1.2% to
$286,071,000, as compared with $289,502,000 for the second quarter ended
August 2, 2008. Same store sales for the comparable 13 weeks decreased 2.2%.
Operating earnings before depreciation and amortization (EBITDA(1)) for the
period decreased 16.2% to $53,613,000 as compared with $63,982,000 last year.
Net earnings and diluted earnings per share decreased to $26,426,000 or $0.38
per share as compared to $35,385,000 or $0.50 per share for the same period
last year.
    Sales for the month of August (four weeks ended August 29, 2009), as a
result of the continuing difficult retail environment, decreased 3.8% with
same store sales decreasing 5.8%.
    During the second quarter, the Company opened 2 new stores comprised of 1
RW & CO. and 1 Thyme Maternity; 5 stores were closed. Accordingly, at August
1, 2009, there were 971 stores in operation, consisting of 368 Reitmans, 164
Smart Set, 62 RW & CO., 76 Thyme Maternity, 16 Cassis, 162 Penningtons and 123
Addition Elle. We plan to open 14 new stores, close 12 stores and remodel 14
stores during the last half of the year.
    At the Board of Directors meeting held on September 3, 2009, a quarterly
cash dividend (constituting eligible dividends) of $0.18 per share on all
outstanding Class A non-voting and Common shares of the Company was declared,
payable October 29, 2009 to shareholders of record on October 15, 2009.

    Financial statements are attached.Montreal, September 3, 2009

    Jeremy H. Reitman, President

    Tel: (514) 385-2630
    Corporate Website: www.reitmans.caAll of the statements contained herein, other than statements of fact
that are independently verifiable at the date hereof, are forward-looking
statements. Such statements, based as they are on the current expectations of
management, inherently involve numerous risks and uncertainties, known and
unknown, many of which are beyond the Company's control. Such risks include
but are not limited to: the impact of general economic conditions, general
conditions in the retail industry, seasonality, weather and other risks
included in public filings of the Company. Consequently, actual future results
may differ materially from the anticipated results expressed in
forward-looking statements. The reader should not place undue reliance on the
forward-looking statements included herein. These statements speak only as of
the date made and the Company is under no obligation and disavows any
intention to update or revise such statements as a result of any event,
circumstances or otherwise, except to the extent required under applicable
securities law.(1) This release includes reference to certain Non-GAAP Financial
        Measures such as operating earnings before depreciation and
        amortization and EBITDA, which are defined as earnings before
        interest, taxes, depreciation and amortization and investment income.
        The Company believes such measures provide meaningful information on
        the Company's performance and operating results. However, readers
        should know that such Non-GAAP financial measures have no
        standardized meaning as prescribed by GAAP and may not be comparable
        to similar measures presented by other companies. Accordingly, these
        should not be considered in isolation.


    STATEMENTS OF EARNINGS (Unaudited)

                                    For the six            For the three
                                    months ended            months ended
    (in thousands except per    August 1,   August 2,   August 1,   August 2,
     share amounts)                 2009        2008        2009        2008

    Sales                     $  517,723  $  517,820  $  286,071  $  289,502
    Cost of goods sold and
     selling, general and
     administrative expenses
     (note 4)                    438,650     414,501     232,458     225,520
                              ----------- ----------- ----------- -----------
                                  79,073     103,319      53,613      63,982
    Depreciation and
     amortization                 30,159      28,782      15,513      14,817
                              ----------- ----------- ----------- -----------
    Operating earnings before
     the undernoted               48,914      74,537      38,100      49,165

    Investment income (note 9)     1,407       4,257         680       2,066
    Interest on long-term debt       433         469         214         232
                              ----------- ----------- ----------- -----------
    Earnings before income
     taxes                        49,888      78,325      38,566      50,999

    Income taxes:
      Current                     16,714      25,859      11,868      16,862
      Future                      (1,053)     (1,355)        272      (1,248)
                              ----------- ----------- ----------- -----------
                                  15,661      24,504      12,140      15,614
                              ----------  ----------  ----------  -----------
    Net earnings              $   34,227  $   53,821  $   26,426  $   35,385
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Earnings per share
     (note 8):
      Basic                   $     0.49  $     0.76  $     0.38  $     0.50
      Diluted                       0.49        0.76        0.38        0.50


    The accompanying notes are an integral part of these financial
    statements.


    STATEMENTS OF CASH FLOWS (Unaudited)

                                    For the six            For the three
                                    months ended            months ended
                                August 1,   August 2,   August 1,   August 2,
    (in thousands)                  2009        2008        2009        2008

    CASH FLOWS (USED IN) FROM
     OPERATING ACTIVITIES
      Net earnings            $   34,227  $   53,821  $   26,426  $   35,385
      Adjustments for:
        Depreciation and
         amortization             30,159      28,782      15,513      14,817
        Future income taxes       (1,053)     (1,355)        272      (1,248)
        Stock-based
         compensation                299         369         202         195
        Amortization of
         deferred lease
         credits                  (2,537)     (2,562)     (1,259)     (1,283)
        Deferred lease credits     1,015       3,636         283       1,742
        Pension contribution        (300)       (179)       (172)        (89)
        Pension expense              900         820         450         410
        Loss (gain) on sale of
         marketable securities        61           -          (8)          -
        Foreign exchange loss        857         225         839         480
      Changes in non-cash
       working capital items
       relating to operations    (24,236)    (40,466)     27,006       4,447
                              ----------- ----------- ----------- -----------
                                  39,392      43,091      69,552      54,856

    CASH FLOWS (USED IN) FROM
     INVESTING ACTIVITIES
      Purchases of marketable
       securities                 (1,773)          -      (1,773)          -
      Proceeds on sale of
       marketable securities       1,390           -         265           -
      Additions to capital
       assets                    (16,698)    (26,883)     (6,914)    (13,809)
                              ----------- ----------- ----------- -----------
                                 (17,081)    (26,883)     (8,422)    (13,809)

    CASH FLOWS (USED IN) FROM
     FINANCING ACTIVITIES
      Dividends paid             (24,857)    (25,485)    (12,307)    (12,720)
      Purchase of Class A
       non-voting shares for
       cancellation              (25,435)     (4,073)    (13,261)     (4,073)
      Repayment of long-term
       debt                         (600)       (564)       (302)       (284)
      Proceeds from issue of
       share capital                 852         178         652          54
                              ----------- ----------- ----------- -----------
                                 (50,040)    (29,944)    (25,218)    (17,023)

    FOREIGN EXCHANGE LOSS ON
     CASH HELD IN FOREIGN
     CURRENCY                       (857)       (225)       (839)       (480)
                              ----------- ----------- ----------- -----------

    NET (DECREASE) INCREASE IN
     CASH AND CASH EQUIVALENTS   (28,586)    (13,961)     35,073      23,544

    CASH AND CASH EQUIVALENTS,
     BEGINNING OF THE PERIOD     214,054     214,301     150,395     176,796
                              ----------- ----------- ----------- -----------

    CASH AND CASH EQUIVALENTS,
     END OF THE PERIOD        $  185,468  $  200,340  $  185,468  $  200,340
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Supplemental disclosure of cash flow information (note 9)

    Cash and cash equivalents consist of cash balances with banks and
    investments in short-term deposits.

    The accompanying notes are an integral part of these financial
    statements.


    BALANCE SHEETS (Unaudited)
                                                                     Audited
                                                                     January
                                            August 1,   August 2,         31,
    (in thousands)                              2009        2008        2009

    ASSETS
    CURRENT ASSETS
      Cash and cash equivalents (note 9)  $  185,468  $  200,340  $  214,054
      Marketable securities (note 9)          37,648      30,543      32,818
      Accounts receivable                      2,742       3,536       2,689
      Income taxes recoverable                 7,647          45       3,826
      Merchandise inventories                 76,822      73,512      64,061
      Prepaid expenses                        13,459      26,812      11,402
      Future income taxes                      2,604         420       3,598
                                          ----------- ----------- -----------
        Total Current Assets                 326,390     335,208     332,448

    CAPITAL ASSETS                           234,113     246,297     249,891

    GOODWILL                                  42,426      42,426      42,426

    FUTURE INCOME TAXES                       10,314       7,230       8,474
                                          ----------- ----------- -----------
                                          $  613,243  $  631,161  $  633,239
                                          ----------- ----------- -----------
                                          ----------- ----------- -----------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    CURRENT LIABILITIES
      Accounts payable and accrued items  $   62,771  $   63,848  $   70,632
      Current portion of long-term debt
       (note 7)                                1,259       1,182       1,220
                                          ----------- ----------- -----------
        Total Current Liabilities             64,030      65,030      71,852

    DEFERRED LEASE CREDITS                    20,603      22,540      22,125

    LONG-TERM DEBT (note 7)                   12,092      13,351      12,731

    FUTURE INCOME TAXES                            -           -          74

    ACCRUED PENSION LIABILITY                  4,518       3,162       3,918

    SHAREHOLDERS' EQUITY
      Share capital                           24,430      23,892      23,830
      Contributed surplus                      4,275       4,326       4,538

      Retained earnings                      487,110     499,469     502,361
      Accumulated other comprehensive loss    (3,815)       (609)     (8,190)
                                          ----------- ----------- -----------
                                             483,295     498,860     494,171
                                          ----------- ----------- -----------
        Total Shareholders' Equity           512,000     527,078     522,539
                                          ----------- ----------- -----------
                                          $  613,243  $  631,161  $  633,239
                                          ----------- ----------- -----------
                                          ----------- ----------- -----------

    The accompanying notes are an integral part of these financial
    statements.


    STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)

                                    For the six            For the three
                                    months ended            months ended
                                August 1,   August 2,   August 1,   August 2,
    (in thousands)                  2009        2008        2009        2008

    SHARE CAPITAL

    Balance, beginning of the
     period                   $   23,830  $   23,777  $   23,807  $   23,932
      Cash consideration on
       exercise of stock
       options                       852         178         652          54
      Ascribed value credited
       to share capital from
       exercise of stock options     562          44         353          13
      Cancellation of shares
       pursuant to stock
       repurchase program
       (note 5)                     (814)       (107)       (382)       (107)
                              ----------- ----------- ----------- -----------
    Balance, end of the period    24,430      23,892      24,430      23,892
                              ----------- ----------- ----------- -----------

    CONTRIBUTED SURPLUS
    Balance, beginning of the
     period                        4,538       4,001       4,426       4,144
      Stock-based compensation       299         369         202         195
      Ascribed value credited
       to share capital from
       exercise of stock
       options                      (562)        (44)       (353)        (13)
                              ----------- ----------- ----------- -----------
    Balance, end of the period     4,275       4,326       4,275       4,326
                              ----------- ----------- ----------- -----------

    RETAINED EARNINGS
    Balance, beginning of the
     period                      502,361     468,374     485,870     480,770
      Adjustment to opening
       retained earnings due
       to adoption of new
       accounting standard
       (net of tax of $3,121)          -       6,725           -           -
      Net earnings                34,227      53,821      26,426      35,385
      Dividends                  (24,857)    (25,485)    (12,307)    (12,720)
      Premium on repurchase
       of Class A non-voting
       (note 5)                  (24,621)     (3,966)    (12,879)     (3,966)
                              ----------- ----------- ----------- -----------
    Balance, end of the period   487,110     499,469     487,110     499,469
                              ----------- ----------- ----------- -----------

    ACCUMULATED OTHER
     COMPREHENSIVE INCOME
     (LOSS)
    Balance, beginning of
     the period                   (8,190)     (1,033)     (7,683)       (597)
      Net unrealized gain
       (loss) on available-
       for-sale financial
       assets arising during
       the period (net of tax
       of $125 for the six
       months and $49 for the
       three months ended
       August 1, 2009; $66
       for the six months
       and $(4) for the three
       months ended August 2,
       2008)                       4,322       424         3,875         (12)
      Reclassification of
       losses (gains) on
       available-for-sale
       financial assets to net
       earnings (net of tax of
       $8 for the six months
       and $(1) for the three
       months ended August 1,
       2009)                          53         -            (7)          -
                              ----------- ----------- ----------- -----------
    Balance, end of the
     period(1)                    (3,815)     (609)       (3,815)       (609)
                              ----------- ----------- ----------- -----------

    Total Shareholders'
     Equity                   $  512,000  $  527,078  $  512,000  $  527,078
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    (1) Available-for-sale financial investments constitute the sole item in
        accumulated other comprehensive income (loss).

    The accompanying notes are an integral part of these financial
    statements.


    STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

                                    For the six            For the three
                                    months ended            months ended
                                August 1,   August 2,   August 1,   August 2,
    (in thousands)                  2009        2008        2009        2008


    Net earnings              $   34,227  $   53,821  $   26,426  $   35,385
    Other comprehensive
     income:
      Net unrealized gain
       (loss) on available-
       for-sale financial
       assets arising during
       the period (net of tax
       of $125 for the six
       months and $49 for the
       three months ended
       August 1, 2009; $66
       for the six months and
       $(4) for the three
       months ended August 2,
       2008)                       4,322         424       3,875         (12)
      Reclassification of
       losses (gains) on
       available-for-sale
       financial assets to net
       earnings (net of tax
       of $8 for the six
       months and $(1) for
       the three months
       ended August 1, 2009)          53           -          (7)          -
                              ----------- ----------- ----------- -----------
                                   4,375         424       3,868         (12)
                              ----------- ----------- ----------- -----------
    Comprehensive income      $   38,602  $   54,245  $   30,294  $   35,373
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    The accompanying notes are an integral part of these financial
    statements.


    NOTES TO THE INTERIM FINANCIAL STATEMENTS (Unaudited)
    (all amounts in thousands except per share amounts)

    1. BASIS OF PRESENTATIONThese unaudited interim financial statements (the "financial statements")
have been prepared in accordance with Canadian generally accepted accounting
principles for interim financial information and include all normal and
recurring entries that are necessary for a fair presentation of the
statements. Accordingly, they do not include all of the information and
footnotes required by Canadian generally accepted accounting principles for
annual financial statements. These financial statements should be read in
conjunction with the most recently prepared annual financial statements for
the 52 week period ended January 31, 2009. The Company applied the same
accounting policies in the preparation of the financial statements as
disclosed in note 4 of its annual financial statements in the Company's fiscal
2009 Annual Report except as described below in note 2 - Adoption of New
Accounting Standard.
    The Company has wound up its wholly-owned subsidiaries effectively
eliminating the preparation of consolidated financial statements. There was no
impact in the comparative financial statements as at and for the periods ended
August 2, 2008 and January 31, 2009.
    The Company's business is seasonal and due to the geographical spread of
the Company's stores and range of products it offers, the Company has
experienced quarterly fluctuations in operating results. The business
seasonality results in performance for the 26 weeks ended August 1, 2009,
which is not necessarily indicative of performance for the balance of the
year.
    All amounts in the attached footnotes are unaudited unless specifically
identified.

    2. ADOPTION OF NEW ACCOUNTING STANDARD

    In February 2008, the Canadian Institute of Chartered Accountants
("CICA") issued Handbook Section 3064, Goodwill and Intangible Assets, which
replaces Section 3062, Goodwill and Other Intangible Assets, and amends
Section 1000, Financial Statement Concepts. The new section establishes
standards for the recognition, measurement, presentation and disclosure of
goodwill and other intangible assets. Standards concerning goodwill are
unchanged from the standards included in the previous Section 3062. This new
standard is applicable to fiscal years beginning on or after October 1, 2008.
The Company has determined that there is no impact of its adoption on its
financial statements.

    3. RECENT ACCOUNTING PRONOUNCEMENTS

    The Canadian Accounting Standards Board has confirmed that the use of
International Financial Reporting Standards ("IFRS") will be required for
publicly accountable profit-oriented enterprises. IFRS will replace Canada's
current GAAP for those enterprises. These new standards are applicable to
fiscal years beginning on or after January 1, 2011. Companies will be required
to provide comparative IFRS information for the previous fiscal year. The
Company will implement this standard in its first quarter of fiscal year
ending January 28, 2012 and is currently evaluating the impact of the
transition to IFRS and will continue to invest in training and resources
throughout the transition to facilitate a timely conversion.

    4. INVENTORY

    The cost of inventory recognized as an expense and included in cost of
goods sold and selling, general and administrative expenses for the six months
ended August 1, 2009 was $190,250 (August 2, 2008 - $164,948). During the
quarter, the Company recorded $3,111 (August 2, 2008 - $3,170) of write-downs
of inventory as a result of net realizable value being lower than cost and no
inventory write-downs recognized in previous periods were reversed.

    5. SHARE CAPITAL

    The Company has authorized an unlimited number of Class A non-voting
shares.
    The following table summarizes Class A non-voting shares issued for each
of the quarters listed:For the six          For the three
                            months ended          months ended       Audited
                        August 1,  August 2,  August 1,  August 2,   January
                            2009       2008       2009       2008   31, 2009

    Balance at
     beginning of the
     period               56,864     57,473     55,813     57,491     57,473
    Shares issued
     pursuant to
     exercise of stock
     options                 108         30         61         12         46
    Shares purchased
     under issuer bid     (2,038)      (275)      (940)      (275)      (655)
                       ---------- ---------- ---------- ---------- ----------
    Balance at end of
     the period           54,934     57,228     54,934     57,228     56,864
                       ---------- ---------- ---------- ---------- ----------
                       ---------- ---------- ---------- ---------- ----------The Company has authorized an unlimited number of Common shares. At
August 1, 2009, there were 13,440 common shares issued (August 2, 2008 -
13,440; January 31, 2009 - 13,440) with a value of $482 (August 2, 2008 -
$482; January 31, 2009 - $482).
    The Company received, in November 2008, approval from the Toronto Stock
Exchange to proceed with a normal course issuer bid. Under the bid, the
Company may purchase up to 2,861 Class A non-voting shares of the Company,
representing 5% of the issued and outstanding Class A non-voting shares as at
November 1, 2008. The bid commenced on November 28, 2008 and may continue to
November 27, 2009. For the six months ended August 1, 2009, 2,038 Class A
non-voting shares having a book value of $814 have been purchased for a total
cash consideration of $25,435. The excess of the purchase price over book
value of the shares in the amount of $24,621 was charged to retained earnings.

    6. STOCK-BASED COMPENSATION

    The Company has a share option plan as described in note 10 c) to the
financial statements contained in the 2009 Annual Report. During the quarter
ended August 1, 2009, a total of 1,920 options were granted and 12 options
were cancelled. Following approval by the shareholders and the Toronto Stock
Exchange in June 2009, the Company amended its stock option plan to provide
that up to 10% of the Class A non-voting shares outstanding from time to time
may be issued pursuant to the exercise of options granted under the plan.
    Compensation cost related to stock option awards granted during the
quarter under the fair value based approach was calculated using the following
assumptions:Expected option life                                  5.9 years
      Risk-free interest rate                              3.12%
      Expected stock price volatility                     35.09%
      Average dividend yield                               4.97%
      Weighted average fair value of options granted      $3.17


    7. LONG-TERM DEBT
                                                                     Audited
                                            August 1,   August 2, January 31,
                                                2009        2008        2009
    Mortgage bearing interest at 6.40%,
     payable in monthly instalments of
     principal and interest of $172,
     due November 2017 and secured by
     the Company's distribution centre    $   13,351  $   14,533  $   13,951
    Less current portion                       1,259       1,182       1,220
                                          ----------- ----------- -----------
                                          $   12,092  $   13,351  $   12,731
                                          ----------- ----------- -----------
                                          ----------- ----------- -----------


    8. EARNINGS PER SHARE

    The number of shares used in the earnings per share calculation is as
    follows:

                                    For the six            For the three
                                    months ended            months ended
                                August 1,   August 2,   August 1,   August 2,
                                    2009        2008        2009        2008

    Weighted average number
     of shares per basic
     earnings per share
     calculations                 69,492      70,871      68,860       70,825
    Effect of dilutive options
     outstanding                      89         376         145          353
                              ----------- ----------- ----------- -----------
    Weighted average number
     of shares per diluted
     earnings per share
     calculations                 69,581      71,247      69,005      71,178
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


    As at August 1, 2009, a total of 2,193 stock options were excluded from
the calculation of diluted earnings per share as these were deemed to be
anti-dilutive, because the exercise prices were greater than the average
market price of the shares during the quarter.

    9. OTHER INFORMATION

    a) Included in the determination of the Company's net earnings for the
       three months and six months ended August 1, 2009 are foreign exchange
       losses of $1,141 and $1,366 respectively (gains of $134 and $413 for
       the three months and six months ended August 2, 2008 respectively).

    b) Supplementary cash flow information:

                                               Audited
                        August 1,  August 2,   January
                            2009       2008   31, 2009
    Balance with banks
     (overdraft)       $   1,350  $  (3,851) $   1,069
    Short-term deposits,
     bearing interest
     at 0.3% (August 2,
     2008 - 3.0%;
     January 31, 2009 -
     1.0%)               184,118    204,191    212,985
                       ---------- ---------- ----------
    Cash and cash
     equivalents       $ 185,468  $ 200,340  $ 214,054
                       ---------- ---------- ----------
                       ---------- ---------- ----------
    Marketable
     securities:
      Fair value       $  37,648  $  30,543  $  32,818
      Cost                41,982     31,249     41,660

    Non-cash
     transactions:
      Capital asset
       additions
       included in
       accounts
       payable and
       accrued items   $     972  $   1,562  $   3,289
      Ascribed value
       credited to
       share capital
       from exercise
       of stock options      562         44         63


                            For the six          For the three
                            months ended          months ended       Audited
                        August 1,  August 2,  August 1,  August 2,   January
                            2009       2008       2009       2008   31, 2009
    Cash paid during
     the period for:
      Income taxes     $  20,926  $  45,584  $  10,019  $  15,217  $  70,886
      Interest               433        475        214        236        975

    Investment income:
      Available-for-
       sale financial
       assets:
        Interest
         income        $       -  $      22  $       -  $      11  $      42
        Dividends          1,072        823        562        404      1,719
        Realized (loss)
         gain on
         disposal            (61)         -          8          -     (2,350)
      Held-for-trading
       financial
       assets:
        Interest income      396      3,412        110      1,651      5,940
                       ---------- ---------- ---------- ---------- ----------
                       $   1,407  $   4,257  $     680  $   2,066  $   5,351
                       ---------- ---------- ---------- ---------- ----------
                       ---------- ---------- ---------- ---------- ----------


    10. FINANCIAL INSTRUMENTS

    a) Fair Value DisclosureFair value estimates are made at a specific point in time, using
available information about the financial instrument. These estimates are
subjective in nature and often cannot be determined with precision.
    The Company has determined that the carrying value of its short-term
financial assets and liabilities approximates fair value at the period-end
dates due to the short-term maturity of these instruments. The fair values of
the marketable securities are based on published market prices at period-end.
    The fair value of long-term debt is $12,258 (August 2, 2008 - $14,583;
January 31, 2009 - $12,751) compared to its carrying value of $13,351 (August
2, 2008 - $14,533; January 31, 2009 - $13,951).
    The fair value of the Company's long-term debt bearing interest at a
fixed rate was calculated using the present value of future payments of
principal and interest discounted at the current market rates of interest
available to the Company for the same or similar debt instruments with the
same remaining maturities.

    b) Risk Management

    Disclosures relating to exposure to risks, in particular credit risk,
liquidity risk, foreign currency risk, interest rate risk and equity price
risk were provided at January 31, 2009 and there have been no significant
changes in the Company's risk exposures in the first six months of fiscal 2010
with the exception of foreign currency risk as described below.

    Foreign Currency Risk

    The Company purchases a significant amount of its merchandise with US
dollars. The Company uses a combination of foreign exchange option contracts
and spot purchases to manage its foreign exchange exposure on cash flows
related to these purchases. These option contracts generally do not exceed
three months. A foreign exchange option contract represents an option to buy a
foreign currency from a counterparty to meet its obligations. Credit risks
exist in the event of failure by a counterparty to fulfill its obligations.
The Company reduces this risk by dealing only with highly-rated
counterparties, normally major Canadian financial institutions.
    As at August 1, 2009, August 2, 2008 and January 31, 2009, there were no
outstanding foreign exchange option contracts.
    The Company has performed a sensitivity analysis on its US dollar
denominated financial instruments, which consist principally of cash and cash
equivalents of $14,650 and accounts payable of $1,741 to determine how a
change in the US dollar exchange rate would impact net earnings. On August 1,
2009, a 10% rise or fall in the Canadian dollar against the US dollar,
assuming that all other variables, in particular interest rates, had remained
the same, would have resulted in a $954 decrease or increase, respectively, in
the Company's net earnings for the six months ended August 1, 2009.MANAGEMENT'S DISCUSSION AND ANALYSIS
    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    FOR THE PERIODS ENDED AUGUST 1, 2009The following Management's Discussion and Analysis of Financial Condition
and Results of Operations ("MD&A") of Reitmans (Canada) Limited ("Reitmans" or
the "Company") should be read in conjunction with the unaudited financial
statements for the periods ended August 1, 2009 and the audited financial
statements of Reitmans for the fiscal year ended January 31, 2009 and the
notes thereto which are available at www.sedar.com. This MD&A is dated
September 3, 2009.
    All financial information contained in this MD&A and Reitmans' financial
statements have been prepared in accordance with Canadian generally accepted
accounting principles ("GAAP"), except for certain information referred to as
Non-GAAP financial measures discussed below. All amounts in this report are in
Canadian dollars, unless otherwise noted. The financial statements and this
MD&A were reviewed by Reitmans' Audit Committee and were approved by its Board
of Directors on September 3, 2009.
    The Company has wound up its wholly-owned subsidiaries, eliminating the
preparation of consolidated financial statements. There was no impact on the
comparative financial statements as at and for the periods ended August 2,
2008 and January 31, 2009.
    Additional information about Reitmans, including the Company's 2009
Annual Information Form, is available on the Company's website at
www.reitmans.ca or on the SEDAR website at www.sedar.com.

    FORWARD-LOOKING STATEMENTS

    All of the statements contained herein, other than statements of fact
that are independently verifiable at the date hereof, are forward-looking
statements. Such statements, based as they are on the current expectations of
management, inherently involve numerous risks and uncertainties, known and
unknown, many of which are beyond the Company's control. Such risks include
but are not limited to: the impact of general economic conditions, general
conditions in the retail industry, seasonality, weather and other risks
included in public filings of the Company. Consequently, actual future results
may differ materially from the anticipated results expressed in
forward-looking statements. The reader should not place undue reliance on the
forward-looking statements included herein. These statements speak only as of
the date made and the Company is under no obligation and disavows any
intention to update or revise such statements as a result of any event,
circumstances or otherwise, except to the extent required under applicable
securities law.

    NON-GAAP FINANCIAL MEASURES

    This MD&A includes references to certain Non-GAAP financial measures such
as operating earnings before depreciation and amortization ("EBITDA"), which
is defined as earnings before interest, taxes, depreciation and amortization
and investment income and adjusted net earnings and adjusted earnings per
share, which are defined in the section entitled 'Summary of Quarterly
Results'. The Company believes such measures provide meaningful information on
the Company's performance and operating results. However, readers should know
that such Non-GAAP financial measures have no standardized meaning as
prescribed by GAAP and may not be comparable to similar measures presented by
other companies. Accordingly, these should not be considered in isolation.

    CORPORATE OVERVIEW

    Reitmans is a Canadian ladies' wear specialty apparel retailer. The
Company has seven banners: Reitmans, Smart Set, RW & CO., Thyme Maternity,
Cassis, Penningtons and Addition Elle. Each banner is focused on a particular
niche in the retail marketplace. Each banner has a distinct marketing program
as well as a specific website thereby allowing the Company to continue to
enhance its brands and strengthen customer loyalty. The Company has several
competitors in each niche, including local, regional and national chains of
specialty stores and department stores as well as foreign-based competitors.
The Company's stores are located in malls, strip plazas, retail power centres
and on major shopping streets across Canada. The Company continues to grow all
areas of its business by investing in stores, technology and people. The
Company's growth has been driven by continuing to offer Canadian consumers
affordable fashions and accessories at the best value reflecting price and
quality.
    The Company offers e-commerce website shopping in its plus-size banners
(Penningtons and Addition Elle). This online channel offers customers
convenience, selection and ease of purchase, while enhancing customer loyalty
and continuing to build the brands.OPERATING RESULTS FOR THE SIX MONTHS ENDED AUGUST 1, 2009 ("year to
    date") AND COMPARISON TO OPERATING RESULTS FOR SIX MONTHS ENDED AUGUST 2,
    2008 ("year to date fiscal 2009")Sales for the year to date remained virtually unchanged at $517,723,000
as compared with $517,820,000 for the year to date fiscal 2009. Same store
sales decreased by 1.6%. Reduced consumer spending continued to impact sales
as consumers cut back on discretionary spending. Statistics Canada reported in
their July 2009 labour force survey that from October 2008 through to July
2009 total employment fell by 2.4% and during the same period the unemployment
rate increased 2.3 percentage points to 8.6% nationally, the highest in 11
years. Rising unemployment rates in a number of key markets, most notably
southern Ontario and Alberta, impacted sales as households reduced spending on
apparel due to credit and personal liquidity constraints. Additionally,
Environment Canada reported that the national average temperature for the
spring of 2009 was below normal, ranking it as the eighteenth coolest since
nationwide records began in 1948. Although British Columbia experienced record
heat, the rest of Canada had less than favourable conditions resulting in
consumers delaying and in some cases foregoing purchases of summer merchandise
thereby further negatively impacting sales.
    For the year to date, EBITDA decreased by $24,246,000 or 23.5% to
$79,073,000 as compared with $103,319,000 for the year to date fiscal 2009.
The Company's gross margin of 63.0% for the year to date decreased as compared
to 68.0% in the year to date fiscal 2009 primarily due to the impact of the
Canadian dollar vis-à-vis the US dollar. As the Company purchases the majority
of its merchandise with US dollars, a significant fluctuation of the Canadian
dollar vis-à-vis the US dollar impacts earnings. The decrease in gross margin
was primarily attributable to the impact of higher cost of merchandise sold
due to the weakening of the Canadian dollar during the fourth quarter of
fiscal 2009 and into fiscal 2010. The average rate for a US dollar in the year
to date was $1.19 Canadian as compared to $1.01 Canadian in the year to date
fiscal 2009. Spot prices for $1.00 US for the year to date ranged between a
high of $1.30 and a low of $1.08 Canadian ($1.03 and $0.97 respectively for
the year to date fiscal 2009). Significant components of store operating costs
that impacted EBITDA included rent and occupancy costs, which increased by 54
basis points as a percentage of sales, while store wage costs were unchanged
as a percentage of sales.
    Depreciation and amortization expense for the year to date was
$30,159,000 compared to $28,782,000 for the year to date fiscal 2009. This
increase reflects the increased new store construction and store renovation
activities of the Company. As well, it includes $1,090,000 of write-offs as a
result of closed and renovated stores, compared to $2,074,000 in the year to
date fiscal 2009.
    Investment income for the year to date decreased 66.9% to $1,407,000 as
compared to $4,257,000 in the year to date fiscal 2009. Dividend income for
the year to date was $1,072,000 as compared to $823,000 for the year to date
fiscal 2009. There was $61,000 of net capital losses for the year to date,
while there were no net capital gains or losses in the year to date fiscal
2009. Interest income decreased for the year to date to $396,000 as compared
to $3,434,000 for the year to date fiscal 2009 due to lower cash balances and
significantly lower rates of interest.
    Interest expense on long-term debt decreased to $433,000 for the year to
date from $469,000 in the year to date fiscal 2009. This decrease reflects the
continued repayment of the mortgage on the Company's distribution centre.
    Income tax expense for the year to date amounted to $15,661,000, for an
effective tax rate of 31.4% as compared to $24,504,000 for the year to date
fiscal 2009, for an effective tax rate of 31.3%.
    Net earnings for the year to date decreased 36.4% to $34,227,000 ($0.49
diluted earnings per share) as compared with $53,821,000 ($0.76 diluted
earnings per share) for the year to date fiscal 2009. The decrease was
primarily attributable to the impact of higher cost of merchandise sold due to
the weakening of the Canadian dollar during the fourth quarter of fiscal 2009
and into fiscal 2010.
    The Company in its normal course of business makes long lead time
commitments for a significant portion of its merchandise purchases, in some
cases as long as eight months. In the year to date, these merchandise
purchases, which are payable in US dollars, exceeded $104,000,000 US (August
2, 2008 - $103,000,000 US). The Canadian dollar continued to experience
volatility against the US dollar in the year to date. The Company considers a
variety of strategies designed to fix the cost of its continuing US dollar
long-term commitments, including foreign exchange option contracts with
maturities not exceeding three months.
    During the year to date, the Company opened 9 stores comprised of 2
Reitmans, 3 RW & CO., 1 Thyme Maternity, 1 Cassis and 2 Penningtons; 11 stores
were closed. Accordingly, at August 1, 2009, there were 971 stores in
operation, consisting of 368 Reitmans, 164 Smart Set, 62 RW & CO., 76 Thyme
Maternity, 16 Cassis, 162 Penningtons and 123 Addition Elle, as compared with
a total of 970 stores as at August 2, 2008.
    Store closings take place for a variety of reasons as the viability of
each store and its location is constantly monitored and assessed for
continuing profitability. In most cases when a store is closed, merchandise at
that location is sold off in the normal course of business and any unsold
merchandise remaining at the closing date is generally transferred to other
stores operating under the same banner for sale in the normal course of
business.OPERATING RESULTS FOR THE THREE MONTHS ENDED AUGUST 1, 2009 ("second
    quarter") AND COMPARISON TO OPERATING RESULTS FOR THREE MONTHS ENDED
    AUGUST 2, 2008 ("second quarter of fiscal 2009")Sales for the second quarter decreased 1.2% to $286,071,000 as compared
with $289,502,000 for the second quarter of fiscal 2009. Same store sales
decreased by 2.2%. In the second quarter the Company continued to experience
softer sales due to consumers cutting back on discretionary spending. Rising
unemployment rates in a number of key markets, most notably southern Ontario
and Alberta, impacted sales as households reduced spending on apparel due to
credit and personal liquidity constraints.
    For the second quarter, EBITDA decreased by $10,369,000 or 16.2% to
$53,613,000 as compared with $63,982,000 for the second quarter of fiscal
2009. The Company's gross margin of 63.0% for the second quarter decreased as
compared to 66.0% in the second quarter of fiscal 2009 primarily due to the
impact of the Canadian dollar vis-à-vis the US dollar. As the Company
purchases the majority of its merchandise with US dollars, a significant
fluctuation of the Canadian dollar vis-à-vis the US dollar impacts earnings.
The average rate for a US dollar in the second quarter was $1.13 Canadian as
compared to $1.01 Canadian in the second quarter of fiscal 2009. Spot prices
for $1.00 US for the second quarter ranged between a high of $1.18 and a low
of $1.08 Canadian ($1.03 and $0.98 respectively for the second quarter of
fiscal 2009). Significant components of store operating costs that impacted
EBITDA included rent and occupancy costs, which increased by 61 basis points
as a percentage of sales, while store wage costs were unchanged as a
percentage of sales.
    Depreciation and amortization expense for the second quarter was
$15,513,000 compared to $14,817,000 for the second quarter of fiscal 2009.
This increase reflects the increased new store construction and store
renovation activities of the Company. As well, it includes $936,000 of
write-offs as a result of closed and renovated stores, compared to $1,278,000
in the second quarter of fiscal 2009.
    Investment income for the second quarter decreased 67.1% to $680,000 as
compared to $2,066,000 in the second quarter of fiscal 2009. Dividend income
for the second quarter was $562,000 as compared to $404,000 for the second
quarter of fiscal 2009. There was $8,000 of net capital gains for the second
quarter, while there were no net capital gains or losses in the second quarter
of fiscal 2009. Interest income decreased for the second quarter to $110,000
as compared to $1,662,000 for the second quarter of fiscal 2009 due to lower
cash balances and significantly lower rates of interest.
    Interest expense on long-term debt decreased to $214,000 for the second
quarter from $232,000 in the second quarter of fiscal 2009. This decrease
reflects the continued repayment of the mortgage on the Company's distribution
centre.
    Income tax expense for the second quarter amounted to $12,140,000, for an
effective tax rate of 31.5% as compared to $15,614,000 for the second quarter
of fiscal 2009, for an effective tax rate of 30.6%.
    Net earnings for the second quarter decreased 25.3% to $26,426,000 ($0.38
diluted earnings per share) as compared with $35,385,000 ($0.50 diluted
earnings per share) for the second quarter of fiscal 2009. The decrease was
primarily attributable to the impact of higher cost of merchandise sold due to
the weakening of the Canadian dollar during the year to date.
    The Company in its normal course of business makes long lead time
commitments for a significant portion of its merchandise purchases, in some
cases as long as eight months. In the second quarter, these merchandise
purchases, which are payable in US dollars, exceeded $42,000,000 US (August 2,
2008 - $44,000,000 US). The Canadian dollar continued to experience volatility
against the US dollar into the second quarter. The Company considers a variety
of strategies designed to fix the cost of its continuing US dollar long-term
commitments, including foreign exchange option contracts with maturities not
exceeding three months.
    During the second quarter, the Company opened 2 stores comprised of 1 RW
& CO. and 1 Thyme Maternity; 5 stores were closed.

    SUMMARY OF QUARTERLY RESULTS

    The table below sets forth selected financial data for the eight most
recently completed quarters. This unaudited quarterly information has been
prepared on the same basis as the annual financial statements. The operating
results for any quarter are not necessarily indicative of the results to be
expected for any future period.
    To measure the Company's performance from one period to the next without
the variations caused by the impact of retroactive Québec income tax
reassessments for the fiscal year ended February 2, 2008, the Company uses
adjusted net earnings and adjusted earnings per share (basic and diluted),
which are calculated as net earnings and earnings per share (basic and
diluted) excluding this item. While the inclusion of this item is required by
Canadian GAAP, the Company believes that the exclusion of this item allows for
better comparability of its financial results and understanding of trends in
business performance.-------------------------------------------------------------------------
    (in thousands,
     except per                                                 Adjusted
     share                          Earnings per              Earnings per
     amounts)                       Share ("EPS")             Share ("EPS")
                                                   Adjusted
                             Net                        Net
                 Sales  Earnings   Basic  Diluted  Earnings   Basic  Diluted
             ----------------------------------------------------------------
    August 1,
     2009    $ 286,071  $ 26,426  $ 0.38  $  0.38  $ 26,426  $ 0.38  $  0.38

    May 2,
     2009      231,652     7,801    0.11     0.11     7,801    0.11     0.11

    January
     31, 2009  261,801     8,981    0.13     0.13     8,981    0.13     0.13

    November
     1, 2008   271,240    23,004    0.33     0.32    23,004    0.33     0.32

    August 2,
     2008      289,502    35,385    0.50     0.50    35,385    0.50     0.50

    May 3,
     2008      228,318    18,436    0.26     0.26    18,436    0.26     0.26

    February
     2, 2008   269,618    37,047    0.52     0.52    28,506    0.40     0.40

    November
     3, 2007   265,465    27,394    0.39     0.38    27,869    0.40     0.39
    -------------------------------------------------------------------------The retail business is seasonal and results of operations for any interim
period are not necessarily indicative of the results of operations for the
full fiscal year.

    BALANCE SHEET

    Cash and cash equivalents amounted to $185,468,000 or 7.4% lower than
$200,340,000 last year. Marketable securities held by the Company consist
primarily of preferred shares of Canadian public companies. At August 1, 2009,
marketable securities (reported at fair value) amounted to $37,648,000 as
compared with $30,543,000 last year, $7,105,000 higher. The Company's
investment portfolio is subject to stock market volatility. The Company is
highly liquid with its cash and cash equivalents being invested on a
short-term basis in bank bearer deposit notes and bank term deposits with
major Canadian chartered banks and commercial paper rated not less than R1.
    Accounts receivable are $2,742,000 or $794,000 lower than last year. The
Company's accounts receivable are essentially the credit card sales from the
last few days of the fiscal quarter. Income taxes recoverable are $7,647,000
as compared to $45,000 last year, primarily due to instalments paid in excess
of the estimated current tax liability. Merchandise inventories this year were
$76,822,000 or $3,310,000 higher than last year, due to the weakened Canadian
dollar, vis-à-vis the US dollar, for purchases remaining in inventory at the
end of the quarter. Prepaid expenses are $13,353,000 lower than last year,
principally due to the timing of August 2009 rent payments.
    The Company invested $16,698,000 in additions to capital assets in the
year to date compared to $26,883,000 last year. This included $15,817,000
(August 2, 2008 - $23,520,000) in new store construction and existing store
renovation costs and $881,000 (August 2, 2008 - $3,363,000) to the Sauvé
Street office and Henri-Bourassa Boulevard distribution centre. In the fiscal
year ending January 30, 2010, the Company plans to invest approximately
$30,000,000 in capital expenditures related to new stores and renovations.
    Accounts payable and accrued items are $62,771,000, or $1,077,000 lower
than last year. The Company's accounts payable consist largely of trade
payables and liabilities for unredeemed gift cards.
    The Company maintains a defined benefit pension plan ("plan"). An
actuarial valuation was performed as at December 31, 2007 and was updated to
January 31, 2009 to determine the estimated liability the Company incurred
with respect to the provisions of the plan. The Company also sponsors a
Supplemental Executive Retirement Plan ("SERP") for certain senior executives.
The SERP is unfunded and when the obligation arises to make any payment called
for under the SERP (e.g. when an eligible plan member retires and begins
receiving payments under the SERP), the payments reduce the accrual amount as
the payments are actually made. An amount of $900,000 (August 2, 2008 -
$820,000) was expensed in the year to date with respect to both plans.COMPARISON OF FINANCIAL POSITION AS AT AUGUST 1, 2009 WITH THE FINANCIAL
    POSITION AS AT JANUARY 31, 2009Cash and cash equivalents amounted to $185,468,000 or 13.4% lower than
$214,054,000 as at January 31, 2009. The reduction in cash of $28,586,000 was
mainly attributable to $25,435,000 of cash that was used to purchase Class A
non-voting shares for cancellation in the first six months of fiscal 2010.
Marketable securities held by the Company consist primarily of preferred
shares of Canadian public companies. At August 1, 2009, marketable securities
(reported at fair value) amounted to $37,648,000 as compared with $32,818,000
as at January 31, 2009. The Company's investment portfolio is subject to stock
market volatility. However, due to market improvement since January 31, 2009,
the Company's investment portfolio has recovered by approximately 14%. The
Company is highly liquid with its cash and cash equivalents being invested on
a short-term basis in bank bearer deposit notes and bank term deposits with
major Canadian chartered banks and commercial paper rated not less than R1.
Accounts receivable are $2,742,000 or $53,000 higher than as at January 31,
2009. The Company's accounts receivable are essentially the credit card sales
from the last few days of the fiscal quarter. Income taxes recoverable are
$7,647,000 as compared to $3,826,000 as at January 31, 2009, primarily due to
instalments paid in excess of the estimated current tax liability. Merchandise
inventories are $76,822,000 or $12,761,000 higher than as at January 31, 2009.
This increase is primarily due to the build-up of inventory for the fall
selling season in the second quarter coupled with the increased cost of
merchandise purchases due to the weakened Canadian dollar.
    Accounts payable and accrued items are $62,771,000, or $7,861,000 lower
than as at January 31, 2009. The Company's accounts payable consist largely of
trade payables and liabilities for unredeemed gift cards.

    OPERATING RISK MANAGEMENT

    Economic Environment

    The prolonged economic recession continues to negatively impact the
retail environment. Rising unemployment levels and consumer concern over
erosion of their wealth due to declines in equity markets and house prices has
impacted consumer discretionary spending, most notably apparel. Reduced access
to credit, interest rates, personal debt levels and unemployment rates impact
consumer spending and ultimately have a financial impact on the Company. The
Company closely monitors economic conditions in order to react to consumer
spending habits and constraints in developing both its short-term and
long-term operating decisions. Additionally, despite the impact of reduced
access to credit for many businesses, the Company is in a strong financial
position with significant liquidity available and ample financial credit
resources to draw upon as deemed necessary.

    Competitive Environment

    The apparel business in Canada is highly competitive with competitors
including department stores, specialty apparel chains and independent
retailers. There is no effective barrier to entry into the Canadian apparel
retailing marketplace by any potential competitor, foreign or domestic, and in
fact the Company has witnessed the arrival over the past few years of a number
of foreign-based competitors now operating in virtually all of the Company's
Canadian retail sectors. The Company believes that it is well positioned to
compete with any competitors. The Company operates under seven banners and our
product offerings are diversified as each banner is directed to and focused on
a different niche in the Canadian women's apparel market. Our stores, located
throughout Canada, offer affordable fashions to consumers. Additionally,
Canadian women have a significant number of e-commerce shopping alternatives
available to them on a global basis.

    Seasonality

    The Company is principally engaged in the sale of women's apparel through
971 leased retail outlets operating under seven banners located across Canada.
The Company's business is seasonal and is also subject to a number of factors,
which directly impact retail sales of apparel over which it has no control,
namely fluctuations in weather patterns, swings in consumer confidence and
buying habits and the potential of rapid changes in fashion preferences.

    Distribution and Supply Chain

    The Company depends on the efficient operation of its sole distribution
centre, such that any significant disruption in the operation thereof (e.g.
natural disaster, system failures, destruction or major damage by fire), could
materially delay or impair its ability to replenish its stores on a timely
basis causing a loss of future sales, which could have a significant effect on
the Company's results of operations.

    Information Technology

    The Company depends on information systems to manage its operations,
including a full range of retail, financial, merchandising and inventory
control, planning, forecasting, reporting and distribution systems. The
Company regularly invests to upgrade, enhance, maintain and replace these
systems. Any significant disruptions in the performance of these systems could
have a material adverse impact on the Company's operations and financial
results.

    Government Regulation

    The Company is structured in a manner that management considers to be
most effective to conduct its business in every Canadian province and
territory. The Company is therefore subject to all manner of material and
adverse changes that can take place in any one or more of these jurisdictions
as they might impact income and sales, taxation, duties, quota impositions or
re-impositions and other legislated or government regulated matters.

    Merchandise Sourcing

    Virtually all of the Company's merchandise is private label. In the first
six months of fiscal 2010, no supplier represented more than 11% of the
Company's purchases (in dollars and/or units) and there are a variety of
alternative sources (both domestic and offshore) for virtually all of the
Company's merchandise. The Company has good relationships with its suppliers
and has no reason to believe that it is exposed to any material risk that
would operate to prevent the Company from acquiring, distributing and/or
selling merchandise on an ongoing basis.

    FINANCIAL RISK MANAGEMENT

    Disclosures relating to exposure to risks, in particular credit risk,
liquidity risk, foreign currency risk, interest rate risk and equity price
risk were provided at January 31, 2009 and there have been no significant
changes in the Company's risk exposures in the six months ended August 1, 2009
with the exception of foreign currency risk as described below.

    Foreign Currency Risk

    The Company purchases a significant amount of its merchandise with US
dollars. The Company uses a combination of foreign exchange option contracts
and spot purchases to manage its foreign exchange exposure on cash flows
related to these purchases. These option contracts generally do not exceed
three months. A foreign exchange option contract represents an option to buy a
foreign currency from a counterparty to meet its obligations. Credit risks
exist in the event of failure by a counterparty to fulfill its obligations.
The Company reduces this risk by dealing only with highly-rated
counterparties, normally major Canadian financial institutions. For the second
quarter of fiscal 2010, the Company satisfied its US dollar requirements
through spot rate purchases.
    As at August 1, 2009, August 2, 2008 and January 31, 2009, there were no
outstanding foreign exchange option contracts.
    The Company has performed a sensitivity analysis on its US dollar
denominated financial instruments, which consist principally of cash and cash
equivalents of $14,650,000 and accounts payable of $1,741,000 to determine how
a change in the US dollar exchange rate would impact net earnings. On August
1, 2009, a 10% rise or fall in the Canadian dollar against the US dollar,
assuming that all other variables, in particular interest rates, had remained
the same, would have resulted in a $954,000 decrease or increase,
respectively, in the Company's net earnings for the six months ended August 1,
2009.

    LIQUIDITY, CASH FLOWS AND CAPITAL RESOURCES

    During the year to date, a total of 2,037,400 Class A non-voting shares
were purchased in the market under a normal course issuer bid for $25,435,000
and dividends of $24,857,000 were paid, both of which reduced shareholders'
equity. Shareholders' equity at August 1, 2009 amounted to $512,000,000 or
$7.49 per share as compared to $527,078,000 or $7.46 per share last year
(January 31, 2009 - $522,539,000 or $7.43 per share). Despite the impact of
the recession on the Canadian equity markets which resulted in a significant
drop in the Toronto Stock Exchange composite index, the Company, by virtue of
its holdings in cash and cash equivalents, has sustained minimal loss in value
in its liquid assets. The Company continues to be in a strong financial
position. The Company's principal sources of liquidity are its cash, cash
equivalents and investments in marketable securities (reported at fair value)
of $223,116,000 as compared with $230,883,000 last year (January 31, 2009 -
$246,872,000). Cash is conservatively invested on a short-term basis in bank
bearer deposit notes and bank term deposits with major Canadian chartered
banks and commercial paper rated not less than R1. The Company closely
monitors its risk with respect to short-term cash investments. The Company has
borrowing and working capital credit facilities (unsecured) available of
$125,000,000. As at August 1, 2009, $55,742,000 (August 2, 2008 - $62,018,000;
January 31, 2009 - $61,759,000) of the operating line of credit was committed
for documentary and standby letters of credit. These credit facilities are
used principally for US dollar letters of credit to satisfy offshore
third-party vendors, which require such backing before confirming purchase
orders issued by the Company. The Company rarely uses such credit facilities
for other purposes.
    The Company has granted standby letters of credit, issued by highly-rated
financial institutions, to third parties to indemnify them in the event the
Company does not perform its contractual obligations. As at August 1, 2009,
the maximum potential liability under these guarantees was $7,809,000. The
standby letters of credit mature at various dates during fiscal 2010. The
Company has recorded no liability with respect to these guarantees, as the
Company does not expect to make any payments for these items.
    The Company is self-insured on a limited basis with respect to certain
property risks and also purchases excess insurance coverage from financially
stable third-party insurance companies. The Company maintains comprehensive
internal security and loss prevention programs aimed at mitigating the
financial impact of operational risks.
    The Company continued repayment on its long-term debt, relating to the
mortgage on the distribution centre, paying down $600,000 in the year to date.
The Company paid dividends amounting to $24,857,000 in the year to date
compared to $25,485,000 in the year to date fiscal 2009.
    In the year to date, the Company invested $16,698,000 on new and
renovated stores, the Sauvé Street office and Henri-Bourassa Boulevard
distribution centre. In the fiscal year ending January 30, 2010, the Company
plans to invest approximately $30,000,000 in capital expenditures related to
new stores and renovations. These expenditures, together with the payment of
cash dividends and the repayments related to the Company's bank credit
facility and long-term debt obligations, are expected to be funded by the
Company's existing financial resources and funds derived from its operations.

    FINANCIAL COMMITMENTS

    The following table sets forth the Company's financial commitments as at
August 1, 2009:Payments Due by Period
                 ------------------------------------------------------------
    Contractual                         Within         2 to 4        5 years
     Obligations          Total         1 year          years       and over
                 ------------------------------------------------------------
    Operating
     leases(1)    $ 445,640,000  $  97,174,000  $ 206,513,000  $ 141,953,000
    Long-term debt   13,351,000      1,259,000      4,291,000      7,801,000
    Interest on
     long-term
     debt             3,849,000        807,000      1,908,000      1,134,000
    Other            18,407,000      4,341,000      9,176,000      4,890,000
                 ------------------------------------------------------------
    Total
     contractual
     obligations  $ 481,247,000  $ 103,581,000  $ 221,888,000  $ 155,778,000
                 ------------------------------------------------------------
                 ------------------------------------------------------------

    (1) Represents the minimum lease payments under long-term leases for
        store locations and office space as at August 1, 2009.OFF-BALANCE SHEET ARRANGEMENTS

    Derivative Financial Instruments

    The Company in its normal course of business must make long lead time
commitments for a significant portion of its merchandise purchases, in some
cases as long as eight months. Most of these purchases must be paid for in US
dollars. The Company uses a variety of strategies, such as foreign exchange
option contracts, designed to fix the cost of its continuing US dollar
commitments. For the year to date, the Company satisfied its US dollar
requirements through spot rate purchases.
    A foreign exchange option contract represents an option to buy a foreign
currency from a counterparty at a predetermined date and amount. Credit risks
exist in the event of failure by a counterparty to fulfill its obligations.
The Company reduces this risk by dealing only with highly-rated
counterparties, normally Canadian chartered banks.
    The Company does not use derivative financial instruments for speculative
purposes. Foreign exchange option contracts are entered into with maturities
not exceeding three months. As at August 1, 2009, August 2, 2008 and January
31, 2009, the Company had no outstanding foreign exchange option contracts.
    Included in the determination of the Company's net earnings for the three
months and six months ended August 1, 2009 are foreign exchange losses of
$1,141,000 and $1,366,000 respectively (gains of $134,000 and $413,000 for the
three months and six months ended August 2, 2008 respectively).

    RELATED PARTY TRANSACTIONS

    The Company leases two retail locations which are owned by a related
party. The leases for such premises were entered into on commercial terms
similar to those for leases entered into with third parties for similar
premises. In the year to date, the rent expense under these leases was, in the
aggregate, approximately $95,000 (August 2, 2008 - $95,000).
    The Company incurred $232,000 in the year to date (August 2, 2008 -
$162,000) with a firm connected to outside directors of the Company for fees
in conjunction with general legal advice. The Company believes that such
remuneration was based on normal terms for business transactions between
unrelated parties.
    These transactions are recorded at the amount of consideration paid, as
established and agreed to by the related parties.

    FINANCIAL INSTRUMENTS

    The Company's significant financial instruments consist of cash and cash
equivalents along with marketable securities. The Company uses its cash
resources to fund ongoing store construction and renovations along with
working capital needs. Financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and cash equivalents.
The Company reduces its credit risks by investing available cash in bank
bearer deposit notes and bank term deposits with major Canadian chartered
banks. The Company closely monitors its risk with respect to short-term cash
investments. Marketable securities consist primarily of preferred shares of
Canadian public companies. The Company's investment portfolio is subject to
stock market volatility and widespread declines in the stock market due to the
economic recession resulted in reduction in the market value of these
securities. However, due to market improvement since January 31, 2009, the
Company's investment portfolio has recovered by approximately 14%. The Company
is highly liquid with its cash and cash equivalents being invested on a
short-term basis in bank bearer deposit notes and bank term deposits with
major Canadian chartered banks and commercial paper rated not less than R1.
    The volatility of the Canadian dollar impacts earnings and while the
Company considers a variety of strategies, such as foreign exchange option
contracts, designed to fix the cost of its continuing US dollar commitments,
this unpredictability can result in exposure to risk.

    CRITICAL ACCOUNTING ESTIMATES

    Inventory Valuation

    The Company uses the retail inventory method in arriving at cost.
Merchandise inventories are valued at the lower of cost and net realizable
value. Excess or slow moving items are identified and a provision is taken
using management's best estimate. In addition, a provision for shrinkage and
sales returns are also recorded using historical rates experienced. Given that
inventory and cost of sales are significant components of the financial
statements, any changes in assumptions and estimates could have a material
impact on the Company's financial position and results of operations.

    Stock-Based Compensation

    The Company accounts for stock-based compensation and other stock-based
payments using the fair value method. Stock options granted result in an
expense over their vesting period based on their estimated fair values on the
date of grant, determined using the Black-Scholes option pricing model. In
computing the compensation cost related to stock option awards granted during
the year under the fair value approach, various assumptions are used to
determine the expected option life, risk-free interest rate, expected stock
price volatility and average dividend yield. The use of different assumptions
could result in a stock compensation expense that differs from that which the
Company has recorded.

    Pension

    The Company maintains a contributory, defined benefit plan and sponsors a
SERP. The costs of the defined benefit plan and SERP are determined
periodically by independent actuaries. Pension expense is included in
operations. Assumptions used in developing the net pension expense and
projected benefit obligation include a discount rate, rate of increase in
salary levels and expected long-term rate of return on plan assets. Given the
recent performance in the equity markets in North America, the Company reduced
the expected long-term rate of return on plan assets from 7.5% to 7.0%. The
use of different assumptions could result in a pension expense that differs
from that which the Company has recorded. The defined benefit plan is fully
funded and solvent and the SERP is an unfunded pay as you go plan.

    Goodwill

    Goodwill is not amortized but rather is tested for impairment annually or
more frequently if events or changes in circumstances indicate that the asset
might be impaired. If the Company determines in the future that impairment has
occurred, the Company would be required to write off the impaired portion of
goodwill.

    Gift Cards

    Gift cards sold are recorded as a liability and revenue is recognized
when the gift card is redeemed. The Company, for each reporting period,
reviews the gift card liability and assesses its adequacy. In its review, the
Company estimates expected usages and evaluates specific trends and patterns,
which can result in an adjustment to the liability for unredeemed gift cards.

    ADOPTION OF NEW ACCOUNTING STANDARD

    In February 2008, the Canadian Institute of Chartered Accountants
("CICA") issued Handbook Section 3064, Goodwill and Intangible Assets, which
replaces Section 3062, Goodwill and Other Intangible Assets, and amends
Section 1000, Financial Statement Concepts. The new section establishes
standards for the recognition, measurement, presentation and disclosure of
goodwill and other intangible assets. Standards concerning goodwill are
unchanged from the standards included in the previous Section 3062. This new
standard is applicable to fiscal years beginning on or after October 1, 2008.
The Company has evaluated the new section and determined that there is no
impact of its adoption on its financial statements.

    CONVERGENCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS

    In February 2008, the Canadian Accounting Standards Board confirmed that
publicly accountable enterprises will be required to adopt International
Financial Reporting Standards ("IFRS") for interim and annual reporting
purposes, beginning on or after January 1, 2011. The Company will be required
to begin reporting under IFRS for the quarter ending April 30, 2011 and will
be required to prepare an opening balance sheet and provide information that
conforms to IFRS for comparative periods presented.
    The Company began planning the transition from current Canadian GAAP to
IFRS in 2008 by establishing a project plan and a project team. The project
team is led by senior finance executives that provide overall project
governance, management and support. Members also include representatives from
various areas of the organization as necessary and external advisors that have
been engaged to assist in the IFRS conversion project. The project team
reports quarterly to the Audit Committee of the Company.
    The project plan consists of three phases: the initial assessment,
detailed assessment and design, and implementation. The Company has completed
the initial assessment phase, which included the completion of a high level
review of the major differences between current Canadian GAAP and IFRS, and an
initial evaluation of IFRS 1 transition exemptions. The initial assessment
also included training sessions for project team members and discussions with
the Company's external auditors and advisors.
    The Company is now engaged in the detailed assessment and design phase.
The detailed assessment and design phase involves completing a comprehensive
analysis of the impact of the IFRS differences identified in the initial
assessment phase. The design of solutions to resolve these IFRS differences is
progressing according to plan and set out below are the main areas where
changes to accounting policies are expected at this time:- Presentation of Financial Statements (IAS 1)
    - Income Taxes (IAS 12)
    - Property, Plant and Equipment (IAS 16)
    - Impairment of Assets (IAS 36)During the implementation phase, the Company will implement the
identified changes to business processes, financial systems, accounting
policies, disclosure controls and internal controls over financial reporting.
    The Company continues to assess the financial reporting impacts of
converting to IFRS and, at this time, the impact on future financial position
and results of operations is not reasonably determinable or estimable.

    OUTSTANDING SHARE DATA

    At September 3, 2009, 13,440,000 Common shares of the Company and
54,934,256 Class A non-voting shares of the Company were issued and
outstanding. Each Common share entitles the holder thereof to one vote at
meetings of shareholders of the Company. Following approval by the
shareholders and the Toronto Stock Exchange in June 2009, the Company amended
its stock option plan to provide that up to 10% of the Class A non-voting
shares outstanding from time to time may be issued pursuant to the exercise of
options granted under the plan. The Company has 3,376,250 options outstanding
at an average exercise price of $13.95. Each stock option entitles the holder
to purchase one Class A non-voting share of the Company at an exercise price
established based on the market price of the shares at the date the option was
granted.
    In November 2008, the Company received approval from the Toronto Stock
Exchange to proceed with a normal course issuer bid. Under the bid, the
Company may purchase up to 2,861,390 Class A non-voting shares of the Company,
representing 5% of the issued and outstanding Class A non-voting shares as at
November 1, 2008. The average daily trading volume for the six-month period
preceding November 1, 2008 was 111,325 shares. In accordance with Toronto
Stock Exchange requirements, until March 31, 2009, a maximum daily repurchase
of 50% of this average could have been made, representing 55,662 shares.
Thereafter, the maximum daily repurchase is 25% of the average, representing
27,831 shares. The bid commenced on November 28, 2008 and may continue to
November 27, 2009. The shares will be purchased on behalf of the Company by a
registered broker through the facilities of the Toronto Stock Exchange. The
price paid for the shares will be the market price at the time of acquisition,
and the number of shares purchased and the timing of any such purchases will
be determined by the Company's management. All shares purchased by the Company
will be cancelled. In the year to date, the Company purchased for cancellation
2,037,400 Class A non-voting shares, having a book value of $814,000, for a
total cash consideration of $25,435,000. The excess of the purchase price over
book value of the shares in the amount of $24,621,000 was charged to retained
earnings.

    INTERNAL CONTROLS OVER FINANCIAL REPORTING

    The Company has designed disclosure controls and procedures to provide
reasonable assurance that material information related to the Company is
included in the annual and quarterly filings. In addition, the Company
evaluated the effectiveness of the disclosure controls and procedures as of
January 31, 2009 and concluded that these controls were effective.
    The Company, under the supervision of the Chief Executive Officer and
Chief Financial Officer, has designed internal controls over financial
reporting, as defined by National Instrument 52-109, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. The Company evaluated the effectiveness of the
internal controls over financial reporting as of January 31, 2009 and
concluded that these controls were effective.
    There have been no changes in the Company's internal controls over
financial reporting during the six months ended August 1, 2009 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.

    OUTLOOK

    The prolonged economic recession continues to negatively impact the
retail environment. Rising unemployment levels and consumer concern over
erosion of their wealth due to declines in equity markets and house prices has
impacted consumer discretionary spending. The Company believes that it is well
positioned for the future despite current economic conditions, offering a
broad assortment of quality merchandise at affordable prices. Current
projections by the Bank of Canada indicates that economic growth in Canada is
expected to turn positive in the third quarter of calendar 2009. However, the
Company believes that consumer demand will remain weak throughout much of the
remainder of the Company's fiscal 2010 year with lower household spending due
to labour market conditions and reduced disposable income. We are being guided
by these expectations in conducting all facets of our business. On the
positive side, we believe that we remain poised to strengthen the Company's
market position in all of our market niches. The Company has virtually no debt
and has liquid cash reserves which provide us with the ability to act when
opportunities present themselves in whatever format including merchandising,
store acquisition/construction, system replacements/upgrading or expansion by
acquisition.
    The Company's Hong Kong office continues to serve the Company well, with
over 110 full-time employees dedicated to seeking out the highest quality,
affordable and fashionable apparel for all our banners. On an annual basis,
the Company directly imports approximately 80% of its merchandise, largely
from China.
    We believe that, in general, our merchandise offerings will continue to
remain attractive values to the consumer, even in these difficult times. The
Company has a strong balance sheet, with excellent liquidity and borrowing
capacity. Its systems, including merchandise procurement, inventory control,
planning, allocation and distribution, distribution centre management,
point-of-sale, financial management and information technology are fully
integrated. The Company is committed to continue to invest in training for all
levels of its employees.
    %SEDAR: 00002316EF



For further information: Jeremy H. Reitman, President, (514) 385-2630;
Corporate Website: www.reitmans.ca