Reitmans (Canada) Limited announces its results for the nine months ended
October 31, 2009

MONTREAL, Dec. 8 /CNW Telbec/ - Sales for the nine months ended October 31, 2009 were virtually unchanged at $788,407,000 as compared with $789,060,000 for the nine months ended November 1, 2008. In a challenging retail environment, same store sales decreased 1.8%. Operating earnings before depreciation and amortization (EBITDA(1)) for the period decreased 19.9% to $121,171,000 as compared with $151,192,000 last year. Net earnings and diluted earnings per share decreased to $53,148,000 or $0.77 per share as compared to $76,825,000 or $1.08 per share for the same period last year. The Company had 981 stores in operation at the end of this period compared to 978 stores at the same time last year.

Sales for the third quarter ended October 31, 2009 decreased 0.2% to $270,684,000, as compared with $271,240,000 for the third quarter ended November 1, 2008. Same store sales for the comparable 13 weeks decreased 2.2%. EBITDA for the period decreased 12.1% to $42,098,000 as compared with $47,873,000 last year. Net earnings and diluted earnings per share decreased to $18,921,000 or $0.28 per share as compared to $23,004,000 or $0.32 per share for the same period last year.

Sales for the month of November (four weeks ended November 28, 2009), as a result of the continuing difficult retail environment, decreased 2.6% with same store sales decreasing 4.0%.

During the third quarter, the Company opened 12 new stores comprised of 3 Reitmans, 3 Smart Set, 3 RW & CO., 1 Cassis, 1 Penningtons and 1 Addition Elle; 2 stores were closed. Accordingly, at October 31, 2009, there were 981 stores in operation, consisting of 370 Reitmans, 167 Smart Set, 65 RW & CO., 76 Thyme Maternity, 17 Cassis, 163 Penningtons and 123 Addition Elle. An additional 3 stores are scheduled to open this year and 9 stores will be closed.

At the Board of Directors meeting held on December 8, 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 January 28, 2010 to shareholders of record on January 8, 2010.

As reported in the November 25, 2009 press release, the Company received approval from the Toronto Stock Exchange to proceed with a normal course issuer bid, under which the Corporation may purchase up to 2,728,972 Class A non-voting shares, representing 5% of the issued and outstanding Class A non-voting shares as at November 23, 2009. The bid commenced on November 28, 2009 and may continue to November 27, 2010.

    
    Financial statements are attached.

    Montreal, December 8, 2009

    Jeremy H. Reitman, President

    Tel: (514) 385-2630
    Corporate Website: www.reitmans.ca
    

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.

    
    (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)

    (in thousands      For the nine months ended  For the three months ended
     except per share   October 31,   November 1,   October 31,   November 1,
     amounts)                 2009          2008          2009          2008

    Sales             $    788,407  $    789,060  $    270,684  $    271,240
    Cost of goods
     sold and selling,
     general and
     administrative
     expenses (note 4)     667,236       637,868       228,586       223,367
                      ------------- ------------- ------------- -------------
                           121,171       151,192        42,098        47,873
    Depreciation and
     amortization           45,181        43,297        15,022        14,515
                      ------------- ------------- ------------- -------------
    Operating earnings
     before the
     undernoted             75,990       107,895        27,076        33,358

    Investment income
     (note 9)                2,020         5,879           613         1,622
    Interest on long-
     term debt                 642           697           209           228
                      ------------- ------------- ------------- -------------
    Earnings before
     income taxes           77,368       113,077        27,480        34,752

    Income taxes:
      Current               26,643        38,569         9,929        12,710
      Future                (2,423)       (2,317)       (1,370)         (962)
                      ------------- ------------- ------------- -------------
                            24,220        36,252         8,559        11,748
                      ------------- ------------- ------------- -------------
    Net earnings      $     53,148  $     76,825  $     18,921  $     23,004
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Earnings per
     share (note 8):
      Basic           $       0.77  $       1.09  $       0.28  $       0.33
      Diluted                 0.77          1.08          0.28          0.32

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


    STATEMENTS OF CASH FLOWS (Unaudited)

                       For the nine months ended  For the three months ended
                        October 31,   November 1,   October 31,   November 1,
    (in thousands)            2009          2008          2009          2008

    CASH FLOWS (USED
     IN) FROM
     OPERATING
     ACTIVITIES
      Net earnings    $     53,148  $     76,825  $     18,921  $     23,004
      Adjustments for:
        Depreciation
         and
         amortization       45,181        43,297        15,022        14,515
        Future income
         taxes              (2,423)       (2,317)       (1,370)         (962)
        Stock-based
         compensation          810           519           511           150
        Amortization
         of deferred
         lease credits      (3,870)       (3,930)       (1,333)       (1,368)
        Deferred lease
         credits             3,312         5,287         2,297         1,651
        Pension
         contribution         (454)       (1,280)         (154)       (1,101)
        Pension expense      1,350         2,147           450         1,327
        Loss on sale of
         marketable
         securities             61             -             -             -
        Foreign
         exchange
         loss (gain)           722        (1,290)         (135)       (1,515)
      Changes in non-
       cash working
       capital items
       relating to
       operations          (16,035)      (37,095)        8,201         3,371
                      ------------- ------------- ------------- -------------
                            81,802        82,163        42,410        39,072

    CASH FLOWS (USED
     IN) FROM
     INVESTING
     ACTIVITIES
      Purchases of
       marketable
       securities           (1,843)            -           (70)            -
      Proceeds on sale
       of marketable
       securities            1,390             -             -             -
      Additions to
       capital assets      (27,811)      (45,507)      (11,113)      (18,624)
                      ------------- ------------- ------------- -------------
                           (28,264)      (45,507)      (11,183)      (18,624)

    CASH FLOWS (USED
     IN) FROM
     FINANCING
     ACTIVITIES
      Dividends paid       (37,101)      (38,205)      (12,244)      (12,720)
      Purchase of
       Class A non-
       voting shares
       for cancellation    (32,485)       (4,073)       (7,050)            -
      Repayment of long-
       term debt              (907)         (852)         (307)         (288)
      Proceeds from
       issue of share
       capital               1,904           178         1,052             -
                      ------------- ------------- ------------- -------------
                           (68,589)      (42,952)      (18,549)      (13,008)

    FOREIGN EXCHANGE
     (LOSS) GAIN ON
     CASH HELD IN
     FOREIGN CURRENCY         (722)        1,290           135         1,515
                      ------------- ------------- ------------- -------------

    NET (DECREASE)
     INCREASE IN CASH
     AND CASH
     EQUIVALENTS           (15,773)       (5,006)       12,813         8,955

    CASH AND CASH
     EQUIVALENTS,
     BEGINNING OF THE
     PERIOD                214,054       214,301       185,468       200,340
                      ------------- ------------- ------------- -------------

    CASH AND CASH
     EQUIVALENTS, END
     OF THE PERIOD    $    198,281  $    209,295  $    198,281  $    209,295
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    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
                                      October 31,   November 1,   January 31,
    (in thousands)                          2009          2008          2009

    ASSETS
    CURRENT ASSETS

      Cash and cash equivalents
       (note 9)                     $    198,281  $    209,295  $    214,054
      Marketable securities (note 9)      37,254        26,455        32,818
      Accounts receivable                  3,311         4,389         2,689
      Income taxes recoverable             5,429         1,233         3,826
      Merchandise inventories             91,791        96,839        64,061
      Prepaid expenses                    11,083        25,410        11,402
      Future income taxes                  2,735         1,239         3,598
                                    ------------- ------------- -------------
        Total Current Assets             349,884       364,860       332,448

    CAPITAL ASSETS                       230,102       251,752       249,891

    GOODWILL                              42,426        42,426        42,426

    FUTURE INCOME TAXES                   11,129         7,930         8,474
                                    ------------- ------------- -------------
                                    $    633,541  $    666,968  $    633,239
                                    ------------- ------------- -------------
                                    ------------- ------------- -------------

    LIABILITIES AND SHAREHOLDERS'
     EQUITY
    CURRENT LIABILITIES
      Accounts payable and accrued
       items                        $     81,814  $     92,531  $     70,632
      Current portion of long-term
       debt (note 7)                       1,279         1,201         1,220
                                    ------------- ------------- -------------
        Total Current Liabilities         83,093        93,732        71,852

    DEFERRED LEASE CREDITS                21,567        22,823        22,125

    LONG-TERM DEBT (note 7)               11,765        13,044        12,731

    FUTURE INCOME TAXES                        -             -            74

    ACCRUED PENSION LIABILITY              4,814         3,388         3,918

    SHAREHOLDERS' EQUITY
      Share capital                       25,370        23,892        23,830
      Contributed surplus                  4,715         4,476         4,538

      Retained earnings                  486,920       509,753       502,361
      Accumulated other
       comprehensive loss                 (4,703)       (4,140)       (8,190)
                                    ------------- ------------- -------------
                                         482,217       505,613       494,171
                                    ------------- ------------- -------------
        Total Shareholders' Equity       512,302       533,981       522,539
                                    ------------- ------------- -------------
                                    $    633,541  $    666,968  $    633,239
                                    ------------- ------------- -------------
                                    ------------- ------------- -------------

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


    STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)

                       For the nine months ended  For the three months ended
                        October 31,   November 1,   October 31,   November 1,
    (in thousands)            2009          2008          2009          2008

    SHARE CAPITAL
    Balance, beginning
     of the period    $     23,830  $     23,777  $     24,430  $     23,892
      Cash considera-
       tion on
       exercise of
       stock options         1,904           178         1,052             -
      Ascribed value
       credited to
       share capital
       from exercise
       of stock
       options                 633            44            71             -
      Cancellation of
       shares pursuant
       to stock
       repurchase
       program
       (note 5)               (997)         (107)         (183)            -
                      ------------- ------------- ------------- -------------
    Balance, end of
     the period             25,370        23,892        25,370        23,892
                      ------------- ------------- ------------- -------------

    CONTRIBUTED SURPLUS
    Balance, beginning
     of the period           4,538         4,001         4,275         4,326
      Stock-based
       compensation            810           519           511           150
      Ascribed value
       credited to
       share capital
       from exercise
       of stock
       options                (633)          (44)          (71)            -
                      ------------- ------------- ------------- -------------
    Balance, end of
     the period              4,715         4,476         4,715         4,476
                      ------------- ------------- ------------- -------------

    RETAINED EARNINGS
    Balance, beginning
     of the period         502,361       468,374       487,110       499,469
      Adjustment to
      opening retained
      earnings due to
      adoption of new
      accounting
      standard (net of
       tax of $3,121)            -         6,725             -             -
      Net earnings          53,148        76,825        18,921        23,004
      Dividends            (37,101)      (38,205)      (12,244)      (12,720)
      Premium on
       repurchase of
       Class A non-
       voting (note 5)     (31,488)       (3,966)       (6,867)            -
                      ------------- ------------- ------------- -------------
    Balance, end of
     the period            486,920       509,753       486,920       509,753
                      ------------- ------------- ------------- -------------

    ACCUMULATED OTHER
     COMPREHENSIVE
     INCOME (LOSS)
    Balance, beginning
     of the period          (8,190)       (1,033)       (3,815)         (609)
      Net unrealized
       gain (loss) on
       available-for-
       sale financial
       assets arising
       during the
       period (net of
       tax of $549 for
       the nine months
       and $424 for
       the three
       months ended
       October 31,
       2009; $491 for
       the nine months
       and $425 for
       the three
       months ended
       November 1,
       2008)                 3,434        (3,107)         (888)       (3,531)
      Reclassification
       of losses on
       available-for-
       sale financial
       assets to net
       earnings (net
       of tax of $8
       for the nine
       months ended
       October 31,
       2009)                    53             -             -             -
                      ------------- ------------- ------------- -------------
    Balance, end of
     the period(1)          (4,703)       (4,140)       (4,703)       (4,140)
                      ------------- ------------- ------------- -------------

    Total Share-
    holders' Equity   $    512,302  $    533,981  $    512,302  $    533,981
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    (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 nine months ended  For the three months ended
                        October 31,   November 1,   October 31,   November 1,
    (in thousands)            2009          2008          2009          2008

    Net earnings      $     53,148  $     76,825  $     18,921  $     23,004
    Other comprehen-
     sive income:
      Net unrealized
       gain (loss) on
       available-for-
       sale financial
       assets arising
       during the
       period (net of
       tax of $549 for
       the nine months
       and $424 for
       the three
       months ended
       October 31,
       2009; $491 for
       the nine months
       and $425 for
       the three
       months ended
       November 1,
       2008)                 3,434        (3,107)         (888)       (3,531)
      Reclassification
       of losses on
       available-for-
       sale financial
       assets to net
       earnings (net
       of tax of $8
       for the nine
       months ended
       October 31,
       2009)                    53             -             -             -
                      ------------- ------------- ------------- -------------
                             3,487        (3,107)         (888)       (3,531)
                      ------------- ------------- ------------- -------------
    Comprehensive
     income           $     56,635  $     73,718  $     18,033  $     19,473
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    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 PRESENTATION
    

These 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 November 1, 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 39 weeks ended October 31, 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 nine months ended October 31, 2009 was $284,442 (November 1, 2008 - $260,065). During the quarter, the Company recorded $3,912 (November 1, 2008 - $4,359) 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               For the
                          nine months ended    three months ended    Audited
                         October   November    October   November    January
                        31, 2009    1, 2008   31, 2009    1, 2008   31, 2009

    Balance at
     beginning of the
     period               56,864     57,473     54,934     57,228     57,473
    Shares issued
     pursuant to
     exercise of stock
     options                 197         30         89          -         46
    Shares purchased
     under issuer bid     (2,481)      (275)      (443)         -       (655)
                       ---------- ---------- ---------- ---------- ----------
    Balance at end of
     the period           54,580     57,228     54,580     57,228     56,864
                       ---------- ---------- ---------- ---------- ----------
                       ---------- ---------- ---------- ---------- ----------
    

The Company has authorized an unlimited number of Common shares. At October 31, 2009, there were 13,440 common shares issued (November 1, 2008 - 13,440; January 31, 2009 - 13,440) with a value of $482 (November 1, 2008 - $482; January 31, 2009 - $482).

The Company received, in November 2009, approval from the Toronto Stock Exchange to proceed with a normal course issuer bid. Under the bid, the Company may purchase up to 2,729 Class A non-voting shares of the Company, representing 5% of the issued and outstanding Class A non-voting shares as at November 23, 2009. The bid commenced on November 28, 2009 and may continue to November 27, 2010. For the nine months ended October 31, 2009, 2,481 Class A non-voting shares having a book value of $997 have been purchased for a total cash consideration of $32,485. The excess of the purchase price over book value of the shares in the amount of $31,488 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. 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. There were no options granted or cancelled in the three months ended October 31, 2009, while for the nine months ended October 31, 2009, 1,920 options were granted and 12 options were cancelled.

7. LONG-TERM DEBT

    
                                                                     Audited
                                      October 31,   November 1,   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  $     13,044  $     14,245  $     13,951
    Less current portion                   1,279         1,201         1,220
                                    ------------- ------------- -------------
                                    $     11,765  $     13,044  $     12,731
                                    ------------- ------------- -------------
                                    ------------- ------------- -------------


    8. EARNINGS PER SHARE

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

                       For the nine months ended  For the three months ended
                        October 31,   November 1,   October 31,   November 1,
                              2009          2008          2009          2008

    Weighted average
     number of shares
     per basic
     earnings per
     share calculations     69,061        70,803        68,200        70,668
    Effect of dilutive
     options out-
     standing                  148           356           265           314
                      ------------- ------------- ------------- -------------
    Weighted average
     number of shares
     per diluted
     earnings per
     share calcula-
     tions                  69,209        71,159        68,465        70,982
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------


    As at October 31, 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 nine months ended October 31, 2009 are foreign
       exchange gains and losses of $1,073 and $293 respectively (gains of
       $1,323 and $1,736 for the three months and nine months ended November
       1, 2008 respectively).

    b) Supplementary cash flow information:


                                               Audited
                         October   November    January
                        31, 2009    1, 2008   31, 2009


    Balance with
     banks             $   3,909  $    4,923  $   1,069
    Short-term
     deposits, bearing
     interest at 0.3%
     (November 1, 2008
      - 3.2%; January
     31, 2009 - 1.0%)     194,372    204,372    212,985
                       ---------- ---------- ----------
    Cash and cash
     equivalents       $ 198,281  $ 209,295  $  214,054
                       ---------- ---------- ----------
                       ---------- ---------- ----------
    Marketable
     securities:
      Fair value       $  37,254  $  26,455  $   32,818
      Cost                42,052     31,249      41,660

    Non-cash
     transactions:
      Capital asset
       additions
       included
       in accounts
       payable and
       accrued items   $     870  $   2,908  $   3,289
      Ascribed value
       credited to
       share capital
       from exercise
       of stock
       options               633         44         63


                               For the               For the
                          nine months ended    three months ended    Audited
                         October   November    October   November    January
                        31, 2009    1, 2008   31, 2009    1, 2008   31, 2009

    Cash paid during
     the period for:
      Income taxes     $  28,663  $  59,504  $   7,737  $  13,920  $  70,886
      Interest               642        705        209        230        975

    Investment income:
      Available-for-
       sale financial
       assets:
        Interest
         income        $       -  $      36  $       -  $      14  $      42
        Dividends          1,562      1,224        490        401      1,719
        Realized loss
         on disposal         (61)         -          -          -     (2,350)
      Held-for-trading
       financial assets:
        Interest income      519      4,619        123      1,207      5,940
                       ---------- ---------- ---------- ---------- ----------
                       $   2,020  $   5,879  $     613  $   1,622  $   5,351
                       ---------- ---------- ---------- ---------- ----------
                       ---------- ---------- ---------- ---------- ----------
    

10. FINANCIAL INSTRUMENTS

a) Fair Value Disclosure

Fair 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 $12,003 (November 1, 2008 - $14,293; January 31, 2009 - $12,751) compared to its carrying value of $13,044 (November 1, 2008 - $14,245; 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 nine 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 October 31, 2009, November 1, 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 $23,995 and accounts payable of $5,942 to determine how a change in the US dollar exchange rate would impact net earnings. On October 31, 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 $1,375 decrease or increase, respectively, in the Company's net earnings for the nine months ended October 31, 2009.

    
    MANAGEMENT'S DISCUSSION AND ANALYSIS
    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    FOR THE PERIODS ENDED OCTOBER 31, 2009
    

The 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 October 31, 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 December 8, 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 December 8, 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 November 1, 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 NINE MONTHS ENDED OCTOBER 31, 2009 ("year to
    date") AND COMPARISON TO OPERATING RESULTS FOR NINE MONTHS ENDED NOVEMBER
    1, 2008 ("year to date fiscal 2009")
    

Sales for the year to date remained virtually unchanged at $788,407,000 as compared with $789,060,000 for the year to date fiscal 2009. Same store sales decreased by 1.8%. Reduced consumer spending continued to impact sales as consumers cut back on discretionary spending. Statistics Canada reported in their October 2009 labour force survey that from October 2008 through to October 2009 total employment declined by 2.3%, while the unemployment rate rose from 6.3% to 8.6% nationally, with the steepest declines in employment being in the manufacturing, natural resources and construction industries. These industries impact a number of key retail markets where sales continued to be soft due to the economic downturn. Unseasonable weather conditions continued to impact certain areas of the country 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 $30,021,000 or 19.9% to $121,171,000 as compared with $151,192,000 for the year to date fiscal 2009. The Company's gross margin of 64.0% for the year to date decreased as compared to 67.0% 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 the higher cost of merchandise sold due to the weak Canadian dollar, with respect to related purchases, during the fourth quarter of fiscal 2009 and into fiscal 2010. The average rate for a US dollar in the year to date was $1.15 Canadian as compared to $1.04 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 $1.03 Canadian ($1.29 and $0.97 respectively for the year to date fiscal 2009). Significant components of store operating costs that impacted EBITDA included advertising costs which increased by 17 basis points as a percentage of sales due to increased promotional activity, rent and occupancy costs, which increased by 43 basis points as a percentage of sales, while store wage costs were unchanged as a percentage of sales. Additionally, the Company has an employee performance incentive plan that is based on operating performance targets and the related expense is recorded in relation to the attainment of such targets. The related expense for the year to date has increased by $3,000,000 as compared with the year to date fiscal 2009.

Depreciation and amortization expense for the year to date was $45,181,000 compared to $43,297,000 for the year to date fiscal 2009. This increase reflects the increased new store construction and store renovation activities of the Company in prior years. As well, it includes $1,197,000 of write-offs as a result of closed and renovated stores, compared to $2,386,000 in the year to date fiscal 2009.

Investment income for the year to date decreased 65.6% to $2,020,000 as compared to $5,879,000 in the year to date fiscal 2009. Dividend income for the year to date was $1,562,000 as compared to $1,224,000 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 $519,000 as compared to $4,655,000 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 $642,000 for the year to date from $697,000 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 $24,220,000, for an effective tax rate of 31.3% as compared to $36,252,000 for the year to date fiscal 2009, for an effective tax rate of 32.0%.

Net earnings for the year to date decreased 30.8% to $53,148,000 ($0.77 diluted earnings per share) as compared with $76,825,000 ($1.08 diluted earnings per share) for the year to date fiscal 2009. The decrease was primarily attributable to the impact of the higher cost of merchandise sold due to the weak Canadian dollar, with respect to related purchases, 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 $169,000,000 US (November 1, 2008 - $170,000,000 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 21 stores comprised of 5 Reitmans, 3 Smart Set, 6 RW & CO., 1 Thyme Maternity, 2 Cassis, 3 Penningtons and 1 Addition Elle; 13 stores were closed. Accordingly, at October 31, 2009, there were 981 stores in operation, consisting of 370 Reitmans, 167 Smart Set, 65 RW & CO., 76 Thyme Maternity, 17 Cassis, 163 Penningtons and 123 Addition Elle, as compared with a total of 978 stores as at November 1, 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 OCTOBER 31, 2009 ("third
    quarter") AND COMPARISON TO OPERATING RESULTS FOR THREE MONTHS ENDED
    NOVEMBER 1, 2008 ("third quarter of fiscal 2009")
    

Sales for the third quarter decreased 0.2% to $270,684,000 as compared with $271,240,000 for the third quarter of fiscal 2009. Same store sales decreased by 2.2%. In the third quarter, the Company continued to experience softer sales due to consumers cutting back on discretionary spending. High 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 third quarter, EBITDA decreased by $5,775,000 or 12.1% to $42,098,000 as compared with $47,873,000 for the third quarter of fiscal 2009. The Company's gross margin of 65.0% for the third quarter remained flat as compared to the third quarter of fiscal 2009. 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 third quarter was $1.07 Canadian as compared to $1.10 Canadian in the third quarter of fiscal 2009. Spot prices for $1.00 US for the third quarter ranged between a high of $1.11 and a low of $1.03 Canadian ($1.29 and $1.03 respectively for the third quarter of fiscal 2009). Significant components of store operating costs that impacted EBITDA included advertising costs which increased by 100 basis points as a percentage of sales due to increased promotional activity, rent and occupancy costs, which increased by 45 basis points as a percentage of sales, while store wage costs were unchanged as a percentage of sales. Additionally, the Company has an employee performance incentive plan that is based on operating performance targets and the related expense is recorded in relation to the attainment of such targets. The related expense for the third quarter has increased by $2,250,000 as compared with the third quarter of fiscal 2009.

Depreciation and amortization expense for the third quarter was $15,022,000 compared to $14,515,000 for the third quarter of fiscal 2009. This increase reflects the increased new store construction and store renovation activities of the Company in prior years. As well, it includes $107,000 of write-offs as a result of closed and renovated stores, compared to $312,000 in the third quarter of fiscal 2009.

Investment income for the third quarter decreased 62.2% to $613,000 as compared to $1,622,000 in the third quarter of fiscal 2009. Dividend income for the third quarter was $490,000 as compared to $401,000 for the third quarter of fiscal 2009. There were no net capital gains or losses for the third quarter or the third quarter of fiscal 2009. Interest income decreased for the third quarter to $123,000 as compared to $1,221,000 for the third quarter of fiscal 2009 due to lower cash balances and significantly lower rates of interest.

Interest expense on long-term debt decreased to $209,000 for the third quarter from $228,000 in the third quarter of fiscal 2009. This decrease reflects the continued repayment of the mortgage on the Company's distribution centre.

Income tax expense for the third quarter amounted to $8,559,000, for an effective tax rate of 31.1% as compared to $11,748,000 for the third quarter of fiscal 2009, for an effective tax rate of 33.8%.

Net earnings for the third quarter decreased 17.7% to $18,921,000 ($0.28 diluted earnings per share) as compared with $23,004,000 ($0.32 diluted earnings per share) for the third quarter of fiscal 2009.

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 third quarter, these merchandise purchases, which are payable in US dollars, exceeded $65,000,000 US (November 1, 2008 - $68,000,000 US). The Canadian dollar continued to experience volatility against the US dollar into the third 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 third quarter, the Company opened 12 stores comprised of 3 Reitmans, 3 Smart Set, 3 RW & CO., 1 Cassis, 1 Penningtons and 1 Addition Elle; 2 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,                                               Adjusted
     except per                      Earnings per              Earnings per
     share                           Share ("EPS")             Share ("EPS")
     amounts)                                       Adjusted
                              Net                        Net
                  Sales  Earnings   Basic  Diluted  Earnings   Basic Diluted
              ---------------------------------------------------------------
    October 31,
     2009     $ 270,684  $ 18,921  $ 0.28  $  0.28  $ 18,921  $ 0.28  $ 0.28

    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
    -------------------------------------------------------------------------
    

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 $198,281,000 or 5.3% lower than $209,295,000 last year. The reduction in cash of $11,014,000 was mainly attributable to the use of cash to purchase Class A non-voting shares for cancellation, offset by reduced capital asset additions. Marketable securities held by the Company consist primarily of preferred shares of Canadian public companies. At October 31, 2009, marketable securities (reported at fair value) amounted to $37,254,000 as compared with $26,455,000 last year. The increase in marketable securities was primarily a result of purchases that occurred in the fourth quarter of the fiscal year ended January 31, 2009 of $17,403,000. In the nine months ended October 31, 2009 the Company purchased marketable securities at a cost of $1,843,000 and received proceeds on the sale of marketable securities of $1,390,000. The Company's investment portfolio is subject to stock market volatility. Due to market improvement since January 31, 2009, the market value of the Company's investment portfolio has recovered by approximately 13%. 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 $3,311,000 or $1,078,000 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 $5,429,000 as compared to $1,233,000 last year, primarily due to instalments paid in excess of the estimated current tax liability. Merchandise inventories this year were $91,791,000 or $5,048,000 lower than last year, due mainly to the strengthened Canadian dollar, vis-à-vis the US dollar, for purchases remaining in inventory at the end of the quarter. Prepaid expenses are $14,327,000 lower than last year, principally due to the timing of November 2008 rent payments.

The Company invested $27,811,000 in additions to capital assets in the year to date compared to $45,507,000 last year. This included $26,453,000 (November 1, 2008 - $41,736,000) in new store construction and existing store renovation costs and $1,358,000 (November 1, 2008 - $3,771,000) 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 $81,814,000, or $10,717,000 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 $1,350,000 (November 1, 2008 - $2,147,000) was expensed in the year to date with respect to both plans.

COMPARISON OF FINANCIAL POSITION AS AT OCTOBER 31, 2009 WITH THE FINANCIAL POSITION AS AT JANUARY 31, 2009

Cash and cash equivalents amounted to $198,281,000 or 7.4% lower than $214,054,000 as at January 31, 2009. The reduction in cash of $15,773,000 was mainly attributable to $32,485,000 of cash that was used to purchase Class A non-voting shares for cancellation in the first nine months of fiscal 2010, offset by reduced capital asset additions. Marketable securities held by the Company consist primarily of preferred shares of Canadian public companies. At October 31, 2009, marketable securities (reported at fair value) amounted to $37,254,000 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 market value of the Company's investment portfolio has recovered by approximately 13%. 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 $3,311,000 or $622,000 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 $5,429,000 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 $91,791,000 or $27,730,000 higher than at January 31, 2009 which is primarily due to the normal build-up of inventory for the holiday selling season. Traditionally, the highest levels of inventory on a quarterly basis occur at the end of the first quarter and the third quarter of any given fiscal year in preparation for the summer and the holiday selling seasons, respectively.

Accounts payable and accrued items are $81,814,000, or $11,182,000 higher 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 have 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 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 981 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 nine months of fiscal 2010, no supplier represented more than 10% 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 nine months ended October 31, 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. 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 third quarter of fiscal 2010, the Company satisfied its US dollar requirements through spot rate purchases.

As at October 31, 2009, November 1, 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 $23,995,000 and accounts payable of $5,942,000 to determine how a change in the US dollar exchange rate would impact net earnings. On October 31, 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 $1,375,000 decrease or increase, respectively, in the Company's net earnings for the nine months ended October 31, 2009.

LIQUIDITY, CASH FLOWS AND CAPITAL RESOURCES

During the year to date, a total of 2,481,000 Class A non-voting shares were purchased in the market under a normal course issuer bid for $32,485,000 and dividends of $37,101,000 were paid, both of which reduced shareholders' equity. The Company has concluded that the purchase of issued and outstanding Class A non-voting shares is an appropriate and desirable use of the Company's available funds given the current investment yields. Shareholders' equity at October 31, 2009 amounted to $512,302,000 or $7.53 per share as compared to $533,981,000 or $7.56 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 $235,535,000 as compared with $235,750,000 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 October 31, 2009, $35,928,000 (November 1, 2008 - $37,375,000; 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 October 31, 2009, the maximum potential liability under these guarantees was $5,154,000. 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 $907,000 in the year to date. The Company paid dividends amounting to $37,101,000 in the year to date compared to $38,205,000 in the year to date fiscal 2009.

In the year to date, the Company invested $27,811,000 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 October 31, 2009:

    
                                       Payments Due by Period
                      -------------------------------------------------------
    Contractual                           Within        2 to 4       5 years
     Obligations             Total        1 year         years      and over
                      -------------------------------------------------------
    Operating
     leases(1)        $447,153,000  $ 97,634,000  $206,763,000  $142,756,000
    Long-term debt      13,044,000     1,279,000     4,359,000     7,406,000
    Interest on
     long-term debt      3,640,000       787,000     1,840,000     1,013,000
    Other               17,106,000     3,794,000     8,913,000     4,399,000
                      -------------------------------------------------------
    Total contractual
     obligations      $480,943,000  $103,494,000  $221,875,000  $155,574,000
                      -------------------------------------------------------
                      -------------------------------------------------------

    (1) Represents the minimum lease payments under long-term leases for
        store locations and office space as at October 31, 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 October 31, 2009, November 1, 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 nine months ended October 31, 2009 are foreign exchange gains of $1,073,000 and losses of $293,000 respectively (gains of $1,323,000 and $1,736,000 for the three months and nine months ended November 1, 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 $149,000 (November 1, 2008 - $142,000).

The Company incurred $360,000 in the year to date (November 1, 2008 - $277,000) 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 a 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 13%. 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 pension plan and sponsors a SERP. The costs of the defined benefit pension 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. Effective the beginning of the fiscal year ending 2010, due to 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 pension 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 December 8, 2009, 13,440,000 Common shares of the Company and 54,579,456 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 3,287,250 options outstanding at an average exercise price of $14.01. 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 2009, 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 2,728,972 Class A non-voting shares of the Company, representing 5% of the issued and outstanding Class A non-voting shares as at November 23, 2009. The average daily trading volume for the six-month period preceding November 1, 2009 was 84,048 shares. In accordance with the Toronto Stock Exchange rules, a maximum daily repurchase of 25% of this average may be made, representing 21,012 shares. The bid commenced on November 28, 2009 and may continue to November 27, 2010. 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 2,481,000 Class A non-voting shares, having a book value of $997,000, for a total cash consideration of $32,485,000. The excess of the purchase price over book value of the shares in the amount of $31,488,000 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 nine months ended October 31, 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 despite some evidence of a slow recovery. High unemployment levels and consumer concern over erosion of their wealth due to declines in equity markets and house prices have impacted consumer discretionary spending. The Bank of Canada October 2009 Monetary Policy Report indicated that household spending began to recover in the second quarter of calendar 2009 in response to substantial monetary and fiscal stimulus and improved consumer confidence and projections are that the Canadian economy will return to full capacity in the third quarter of 2011. 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 by offering a broad assortment of quality merchandise at affordable prices. 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: For further information: Jeremy H. Reitman, President, (514) 385-2630, Corporate Website: www.reitmans.ca


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