Reitmans (Canada) Limited announces its results for the three months ended May 2, 2009



    MONTREAL, June 3 /CNW Telbec/ - Sales for the first quarter ended May 2,
2009 increased 1.5% to $231,652,000 as compared with $228,318,000 for the
first quarter ended May 3, 2008. Same store sales remained relatively stable,
decreasing slightly by 0.8%. The continuing recession resulted in softer sales
due to consumers cutting back on discretionary spending. High unemployment
rates in a number of key markets, most notably Ontario, B.C. and Alberta,
impacted sales as households reduced spending on apparel due to credit and
personal liquidity constraints.
    Operating earnings before depreciation and amortization (EBITDA(1)) for
the period decreased 35.3% to $25,460,000 as compared with $39,337,000 last
year. The Company's gross margin decreased in the first quarter of fiscal 2010
primarily due to the decline of the Canadian dollar vis-à-vis the US dollar.
The average rate for a US dollar in the first quarter of fiscal 2010 was $1.24
Canadian as compared to $1.01 Canadian in the first quarter of fiscal 2009.
    Net earnings decreased 57.7% to $7,801,000 or $0.11 diluted earnings per
share, as compared with $18,436,000 or $0.26 diluted earnings per share last
year.
    During the first quarter, the Company opened 7 new stores comprised of 2
Reitmans, 2 RW & CO., 1 Cassis and 2 Penningtons; 6 stores were closed.
Accordingly, at May 2, 2009, there were 974 stores in operation, consisting of
370 Reitmans, 165 Smart Set, 61 RW & CO., 76 Thyme Maternity, 17 Cassis, 162
Penningtons and 123 Addition Elle, as compared with a total of 964 stores last
year. During the year, we plan to open 30 new stores, close 17 stores and
remodel 32 stores.
    Sales for the month of May increased 3.9% with same store sales
increasing 2.5% despite the continuing difficult economic environment.
    At the Board of Directors meeting held on June 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 July 30, 2009 to shareholders of record on July 16, 2009.
    Financial statements are attached. For management's commentary on the
first quarter results, please refer to the attached Management's Discussion
and Analysis of Financial Conditions and Results of Operations for the three
months ended May 2, 2009.

    Montreal, June 3, 2009

    Jeremy H. Reitman, President
    Telephone: (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, they
        should not be considered in isolation.


    STATEMENTS OF EARNINGS (Unaudited)
    (in thousands except per share amounts)

                                                  For the three months ended
                                                   May 2, 2009   May 3, 2008

    Sales                                         $    231,652  $    228,318
    Cost of goods sold and selling, general and
     administrative expenses (note 4)                  206,192       188,981
                                                  ------------- -------------
                                                        25,460        39,337
    Depreciation and amortization                       14,646        13,965
                                                  ------------- -------------
    Operating earnings before the undernoted            10,814        25,372

    Investment income (note 9)                             727         2,191
    Interest on long-term debt                             219           237
                                                  ------------- -------------
    Earnings before income taxes                        11,322        27,326

    Income taxes:
      Current                                            4,846         8,997
      Future                                            (1,325)         (107)
                                                  ------------- -------------
                                                         3,521         8,890
                                                  ------------- -------------

    Net earnings                                  $      7,801  $     18,436
                                                  ------------- -------------
                                                  ------------- -------------

    Earnings per share: (note 8)
      Basic                                       $       0.11  $       0.26
      Diluted                                             0.11          0.26


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


    STATEMENTS OF CASH FLOWS (Unaudited)
    (in thousands)

                                                  For the three months ended
                                                   May 2, 2009   May 3, 2008

    CASH FLOWS (USED IN) FROM OPERATING
     ACTIVITIES
      Net earnings                                $      7,801  $     18,436
      Adjustments for:
        Depreciation and amortization                   14,646        13,965
        Future income taxes                             (1,325)         (107)
        Stock-based compensation                            97           174
        Amortization of deferred lease credits          (1,278)       (1,279)
        Deferred lease credits                             732         1,894
        Pension contribution                              (128)          (90)
        Pension expense                                    450           410
        Loss on sale of marketable securities               69             -
        Foreign exchange loss (gain)                        18          (255)
      Changes in non-cash working capital
       relating to operations                          (51,242)      (44,913)
                                                  ------------- -------------
                                                       (30,160)      (11,765)

    CASH FLOWS (USED IN) FROM INVESTING
     ACTIVITIES
      Proceeds on sale of marketable securities          1,125             -
      Additions to capital assets                       (9,784)      (13,074)
                                                  ------------- -------------
                                                        (8,659)      (13,074)

    CASH FLOWS (USED IN) FROM FINANCING
     ACTIVITIES
      Dividends paid                                   (12,550)      (12,765)
      Purchase of Class A non-voting shares
       for cancellation                                (12,174)            -
      Repayment of long-term debt                         (298)         (280)
      Proceeds from issue of share capital                 200           124
                                                  ------------- -------------
                                                       (24,822)      (12,921)

    FOREIGN EXCHANGE (LOSS) GAIN ON CASH HELD
     IN FOREIGN CURRENCY                                   (18)          255
                                                  ------------- -------------

    NET DECREASE IN CASH AND CASH EQUIVALENTS          (63,659)      (37,505)

    CASH AND CASH EQUIVALENTS, BEGINNING OF THE
     PERIOD                                            214,054       214,301
                                                  ------------- -------------

    CASH AND CASH EQUIVALENTS, END OF THE PERIOD  $    150,395  $    176,796
                                                  ------------- -------------
                                                  ------------- -------------

    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)
    (in thousands)
                                                                     Audited
                                           May 2,         May 3,  January 31,
                                            2009           2008         2009
    ASSETS
    CURRENT ASSETS
      Cash and cash equivalents
       (note 9)                     $    150,395  $    176,796  $    214,054
      Marketable securities
       (note 9)                           32,216        30,559        32,818
      Accounts receivable                  4,561         4,187         2,689
      Income taxes recoverable             9,495         2,041         3,826
      Merchandise inventories             99,751        90,514        64,061
      Prepaid expenses                    25,572        24,516        11,402
      Future income taxes                  3,810           185         3,598
                                    ------------- ------------- -------------
        Total Current Assets             325,800       328,798       332,448

    CAPITAL ASSETS                       242,620       247,560       249,891

    GOODWILL                              42,426        42,426        42,426

    FUTURE INCOME TAXES                    9,428         6,213         8,474
                                    ------------- ------------- -------------

                                    $    620,274  $    624,997  $    633,239
                                    ------------- ------------- -------------
                                    ------------- ------------- -------------

    LIABILITIES AND SHAREHOLDERS'
     EQUITY
    CURRENT LIABILITIES
      Accounts payable and accrued
       items                        $     74,382  $     77,009  $     70,632
      Current portion of long-term
       debt (note 7)                       1,240         1,164         1,220
                                    ------------- ------------- -------------
        Total Current Liabilities         75,622        78,173        71,852

    DEFERRED LEASE CREDITS                21,579        22,081        22,125

    LONG-TERM DEBT (note 7)               12,413        13,653        12,731

    FUTURE INCOME TAXES                        -             -            74

    ACCRUED PENSION LIABILITY              4,240         2,841         3,918

    SHAREHOLDERS' EQUITY
      Share capital                       23,807        23,932        23,830
      Contributed surplus                  4,426         4,144         4,538

      Retained earnings                  485,870       480,770       502,361
      Accumulated other
       comprehensive loss                 (7,683)         (597)       (8,190)
                                    ------------- ------------- -------------
                                         478,187       480,173       494,171
                                    ------------- ------------- -------------
        Total Shareholders' Equity       506,420       508,249       522,539
                                    ------------- ------------- -------------

                                    $    620,274  $    624,997  $    633,239
                                    ------------- ------------- -------------
                                    ------------- ------------- -------------

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


    STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
    (in thousands)

                                                  For the three months ended
                                                   May 2, 2009   May 3, 2008

    SHARE CAPITAL
    Balance, beginning of the period              $     23,830  $     23,777
      Cash consideration on exercise of
       stock options                                       200           124
      Ascribed value credited to share capital
       from exercise of stock options                      209            31
      Cancellation of shares pursuant to stock
       repurchase program (note 5)                        (432)            -
                                                  ------------- -------------
    Balance, end of the period                          23,807        23,932
                                                  ------------- -------------

    CONTRIBUTED SURPLUS
    Balance, beginning of the period                     4,538         4,001
      Stock option compensation costs                       97           174
      Ascribed value credited to share capital
       from exercise of stock options                     (209)          (31)
                                                  ------------- -------------
    Balance, end of the period                           4,426         4,144
                                                  ------------- -------------

    RETAINED EARNINGS
    Balance, beginning of the period                   502,361       468,374
      Adjustment to opening retained earnings
       due to adoption of new accounting standard
       (net of tax of $3,121)                                -         6,725
      Net earnings                                       7,801        18,436
      Dividends                                        (12,550)      (12,765)
      Premium on repurchase of Class A non-voting
       shares (note 5)                                 (11,742)            -
                                                  ------------- -------------
    Balance, end of the period                         485,870       480,770
                                                  ------------- -------------

    ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
    Balance, beginning of the period                    (8,190)       (1,033)
      Net unrealized gain on available-for-sale
       financial assets arising during the period
       (net of tax of $76; for the three months
       ended May 3, 2008 - $70)                            447           436
      Reclassification of losses on
       available-for-sale financial assets to net
       earnings (net of tax of $9)                          60             -
                                                  ------------- -------------
    Balance, end of the period(1)                       (7,683)         (597)
                                                  ------------- -------------

    Total Shareholders' Equity                    $    506,420  $    508,249
                                                  ------------- -------------
                                                  ------------- -------------

    (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)
    (in thousands)

                                                  For the three months ended
                                                   May 2, 2009   May 3, 2008

    Net earnings                                  $      7,801  $     18,436
    Other comprehensive income:
      Net unrealized gain on available-for-sale
       financial assets arising during the period
       (net of tax of $76; for the three months
       ended May 3, 2008 - $70)                            447           436
      Reclassification of losses on
       available-for-sale financial assets to net
       earnings (net of tax of $9)                          60             -
                                                  ------------- -------------
                                                           507           436
                                                  ------------- -------------

    Comprehensive income                          $      8,308  $     18,872
                                                  ------------- -------------
                                                  ------------- -------------

    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
May 3, 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 13 weeks ended May 2, 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 evaluated the new section and 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 three
months ended May 2, 2009 was $84,042 (May 3, 2008 - $66,145). During the
quarter, the Company recorded $1,626 (May 3, 2008 - $1,267) 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:
                                                                     Audited
                                           May 2,        May 3,   January 31,
                                            2009          2008          2009

    Balance at beginning of period        56,864        57,473        57,473
    Shares issued pursuant to
     exercise of stock options                47            18            46
    Shares purchased under issuer
     bid                                  (1,098)            -          (655)
                                    ------------- ------------- -------------
    Balance at end of period              55,813        57,491        56,864
                                    ------------- ------------- -------------
                                    ------------- ------------- -------------

    The Company has authorized an unlimited number of Common shares. At May 2,
2009, there were 13,440 common shares issued (May 3, 2008 - 13,440; January
31, 2009 - 13,440) with a value of $482 (May 3, 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 three months ended May 2, 2009, 1,098 Class A
non-voting shares having a book value of $432 have been purchased for a total
cash consideration of $12,174. The excess of the purchase price over book
value of the shares in the amount of $11,742 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 May 2, 2009, no options were granted and 18 options were cancelled.

    7. LONG-TERM DEBT
                                                                     Audited
                                           May 2,        May 3,   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                         $     13,653  $     14,817  $     13,951
    Less current portion                   1,240         1,164         1,220
                                    ------------- ------------- -------------
                                    $     12,413  $     13,653  $     12,731
                                    ------------- ------------- -------------
                                    ------------- ------------- -------------

    8. EARNINGS PER SHARE

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

                                                   May 2, 2009   May 3, 2008

    Weighted average number of shares for basic
     earnings per share calculations                    70,124        70,931
    Effect of dilutive options outstanding                  33           388
                                                  ------------- -------------

    Weighted average number of shares for diluted
     earnings per share calculations                    70,157        71,319
                                                  ------------- -------------
                                                  ------------- -------------

    As at May 2, 2009, 1,477 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. SUPPLEMENTARY INFORMATION
                                                                     Audited
                                                                  January 31,
                                     May 2, 2009   May 3, 2008          2009

    Balance with banks              $      5,119  $      6,147  $      1,069
    Short-term deposits, bearing
     interest at 0.3% (May 3, 2008
     - 3.4%; January 31, 2009 -
     1.0%)                               145,276       170,649       212,985
                                    ------------- ------------- -------------
                                    $    150,395  $    176,796  $    214,054
                                    ------------- ------------- -------------
                                    ------------- ------------- -------------

    Marketable securities:
      Fair value                    $     32,216  $     30,559  $     32,818
      Cost                                40,466        31,249        41,660

    Non-cash transactions:
      Capital asset additions
       included in accounts
       payable                      $        880  $      1,817  $      3,289
      Ascribed value credited to
       share capital from exercise
       of stock options                      209            31            63

    Cash paid during the period for:
      Income taxes                  $     10,907  $     30,367  $     70,886
      Interest                               219           239           975

    Investment income:
      Available-for-sale financial
       assets:
        Interest income             $          -  $         11  $         42
        Dividends                            510           419         1,719
        Realized loss on disposal            (69)            -        (2,350)
      Held-for-trading financial
       assets:
        Interest income                      286         1,761         5,940
                                    ------------- ------------- -------------
                                    $        727  $      2,191  $      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 $12,507 (May 3, 2008 - $14,869;
January 31, 2009 - $12,751) compared to its carrying value of $13,653 (May 3,
2008 - $14,817; 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 quarter 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 May 2, 2009, May 3, 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 $398 and accounts payable of $3,584 to determine how a change
in the US dollar exchange rate would impact net earnings. On May 2, 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 $261 increase or decrease, respectively, in the
Company's net earnings for the three months ended May 2, 2009.


    MANAGEMENT'S DISCUSSION AND ANALYSIS
    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    FOR THE PERIOD ENDED MAY 2, 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 period ended May 2, 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 June 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 June 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 May 3, 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 below 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 boosting customer loyalty
and continuing to build the brands.

    OPERATING RESULTS FOR THE THREE MONTHS ENDED MAY 2, 2009 ("first quarter
    of fiscal 2010") AND COMPARISON TO OPERATING RESULTS FOR THREE MONTHS
    ENDED MAY 3, 2008 ("first quarter of fiscal 2009")

    Sales for the first quarter of fiscal 2010 increased 1.5% to $231,652,000
as compared with $228,318,000 for the first quarter of fiscal 2009. Same store
sales remained relatively stable, decreasing slightly by 0.8%. The continuing
recession resulted in 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 first quarter of fiscal 2010, EBITDA decreased by $13,877,000 or
35.3% to $25,460,000 as compared with $39,337,000 for the first quarter of
fiscal 2009. The Company's gross margin of 64.0% for the first quarter of
fiscal 2010 decreased as compared to 71.0% in the first 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 first quarter of fiscal 2010
was $1.24 Canadian as compared to $1.01 Canadian in the first quarter of
fiscal 2009. Spot prices for $1.00 US for the first quarter of fiscal 2010
ranged between a high of $1.30 and a low of $1.19 Canadian ($1.03 and $0.97
respectively for the first quarter of fiscal 2009). Significant components of
store operating costs that impacted EBITDA included rent and occupancy costs,
which increased by 36 basis points as a percentage of sales, while store wage
costs were unchanged as a percentage of sales.
    Depreciation and amortization expense for the first quarter of fiscal 2010
was $14,646,000 compared to $13,965,000 for the first quarter of fiscal 2009.
This increase reflects the increased new store construction and store
renovation activities of the Company. As well, it includes $154,000 of
write-offs as a result of closed and renovated stores, compared to $796,000 in
the first quarter of fiscal 2009.
    Investment income for the first quarter of fiscal 2010 decreased 66.8% to
$727,000 as compared to $2,191,000 in the first quarter of fiscal 2009.
Dividend income for the first quarter of fiscal 2010 was $510,000 as compared
to $419,000 for the first quarter of fiscal 2009. There was $69,000 of net
capital losses for the first quarter of fiscal 2010, while there were no net
capital gains or losses in the first quarter of fiscal 2009. Interest income
decreased for the first quarter of fiscal 2010 to $286,000 as compared to
$1,772,000 for the first quarter of fiscal 2009 due to lower cash balances and
significantly lower rates of interest.
    Interest expense on long-term debt decreased to $219,000 for the first
quarter of fiscal 2010 from $237,000 in the first quarter of fiscal 2009. This
decrease reflects the continued repayment of the mortgage on the Company's
distribution centre.
    Income tax expense for the first quarter of fiscal 2010 amounted to
$3,521,000, for an effective tax rate of 31.1% as compared to $8,890,000 the
first quarter of fiscal 2009, for an effective tax rate of 32.5%.
    Net earnings for the first quarter of fiscal 2010 decreased 57.7% to
$7,801,000 ($0.11 diluted earnings per share) as compared with $18,436,000
($0.26 diluted earnings per share) for the first 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 fourth
quarter of fiscal 2009 and the first quarter of 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 first quarter of fiscal 2010, these
merchandise purchases, which are payable in US dollars, exceeded $60,000,000
US. The Canadian dollar continued to experience volatility against the US
dollar in the first quarter of fiscal 2010. 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 first quarter of fiscal 2010, the Company opened 7 stores
comprised of 2 Reitmans, 2 RW & CO., 1 Cassis and 2 Penningtons; 6 stores were
closed. Accordingly, at May 2, 2009, there were 974 stores in operation,
consisting of 370 Reitmans, 165 Smart Set, 61 RW & CO., 76 Thyme Maternity, 17
Cassis, 162 Penningtons and 123 Addition Elle, as compared with a total of 964
stores as at May 3, 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.

    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                                     Earnings
     per share amounts)                                   per Share ("EPS")
                                             Net
                             Sales      Earnings         Basic       Diluted
                        -----------------------------------------------------

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

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

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

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

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

    February 2, 2008       269,618        37,047          0.52          0.52

    November 3, 2007       265,465        27,394          0.39          0.38

    August 4, 2007         291,942        32,077          0.45          0.44
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (in thousands, except                                  Adjusted Earnings
     per share amounts)                                    per Share ("EPS")
                                        Adjusted
                                             Net
                                        Earnings         Basic       Diluted
                        -----------------------------------------------------

    May 2, 2009                     $      7,801  $       0.11  $       0.11

    January 31, 2009                       8,981          0.13          0.13

    November 1, 2008                      23,004          0.33          0.32

    August 2, 2008                        35,385          0.50          0.50

    May 3, 2008                           18,436          0.26          0.26

    February 2, 2008                      28,506          0.40          0.40

    November 3, 2007                      27,869          0.40          0.39

    August 4, 2007                        32,540          0.46          0.45
    -------------------------------------------------------------------------

    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 $150,395,000 or 14.9% lower than
$176,796,000 last year. In the first quarter of fiscal 2010, $12,174,000 of
cash was used to purchase Class A non-voting shares for cancellation while
non-cash working capital items, in particular inventory, contributed to a
further use of cash. Marketable securities held by the Company consist
primarily of preferred shares of Canadian public companies. At May 2, 2009,
marketable securities (reported at fair value) amounted to $32,216,000 as
compared with $30,559,000 last year, $1,657,000 higher. The Company's
investment portfolio is subject to stock market volatility. The Company is
highly liquid with over 80% of its cash, cash equivalents and marketable
securities being invested in bank bearer deposit notes and bank term deposits
of short duration with major Canadian chartered banks.
    Accounts receivable are $4,561,000 or $374,000 higher 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 $9,495,000
as compared to $2,041,000 last year, primarily due to instalments paid in
excess of the estimated current tax liability. Merchandise inventories this
year were $99,751,000 or $9,237,000 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 $25,572,000 or $1,056,000
higher than last year, principally due to increased rent resulting from the
net increase of 10 additional stores along with an increase in prepaid
insurance premiums.
    Future income taxes are attributable to differences between the carrying
values of assets and liabilities and their respective income tax bases and are
recognized at enacted or substantively enacted tax rates for the future income
tax consequences. The Company has recorded a future income tax valuation
allowance of $554,000 (May 3, 2008 - nil) on its net unrealized losses on
available-for-sale financial assets as realization of these future tax assets
did not meet the recognition criteria. This valuation allowance reduces the
future income tax assets on these unrealized losses with the offsetting amount
to accumulated other comprehensive loss. The recording of this valuation
allowance does not have any impact on cash, nor does such an allowance
preclude the Company from using its unrealized tax loss carry forwards in the
future when results demonstrate a pattern of profitability.
    The Company invested $9,784,000 in additions to capital assets in the
first quarter of fiscal 2010 compared to $13,074,000 last year. This included
$9,377,000 (May 3, 2008 - $11,413,000) in new store construction and existing
store renovation costs and $407,000 (May 3, 2008 - $1,661,000) to the Sauvé
Street office and Henri-Bourassa Boulevard distribution centre. The Company
has planned capital expenditures for new stores and existing store renovations
in fiscal 2010 of approximately $30,000,000.
    Accounts payable and accrued items are $74,382,000, or $2,627,000 lower
than last year. The Company's accounts payable consist largely of trade
payables and liabilities for unredeemed gift cards/certificates.
    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 $450,000 (May 3, 2008 - $410,000)
was expensed in the first quarter of fiscal 2010 with respect to both plans.

    COMPARISON OF FINANCIAL POSITION AS AT MAY 2, 2009 WITH THE FINANCIAL
    POSITION AS AT JANUARY 31, 2009.

    Cash and cash equivalents amounted to $150,395,000 or 29.7% lower than
$214,054,000 as at January 31, 2009. In the first quarter of fiscal 2010,
$12,174,000 of cash was used to purchase Class A non-voting shares for
cancellation while non-cash working capital items, in particular inventory,
contributed to a further use of cash. Marketable securities held by the
Company consist primarily of preferred shares of Canadian public companies. At
May 2, 2009, marketable securities (reported at fair value) amounted to
$32,216,000 as compared with $32,818,000 as at January 31, 2009. The Company's
investment portfolio is subject to stock market volatility and volatility in
the stock market resulted in reductions in the market value of these
securities. The Company is highly liquid with over 80% of its cash, cash
equivalents and marketable securities being invested in bank bearer deposit
notes and bank term deposits of short duration with major Canadian chartered
banks. Accounts receivable are $4,561,000 or $1,872,000 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 $9,495,000 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 $99,751,000 or $35,690,000 higher than
as at January 31, 2009. This increase is primarily due to the build-up of
inventory for the spring and summer selling seasons in the first quarter
coupled with the increase cost of merchandise purchases due to the weakened
Canadian dollar. Prepaid expenses are $25,572,000 or $14,170,000 higher than
as at January 31, 2009, principally due to May 2009 rent that was paid and
classified as a prepaid item in the first quarter of fiscal 2010.
    Future income taxes are attributable to differences between the carrying
values of assets and liabilities and their respective income tax bases and are
recognized at enacted or substantively enacted tax rates for the future income
tax consequences. The Company has recorded a future income tax valuation
allowance of $554,000 (January 31, 2009 - $554,000) on its net unrealized
losses on available-for-sale financial assets as realization of these future
tax assets did not meet the recognition criteria. This valuation allowance
reduces the future income tax assets on these unrealized losses with the
offsetting amount to accumulated other comprehensive loss. The recording of
this valuation allowance does not have any impact on cash, nor does such an
allowance preclude the Company from using its unrealized tax loss carry
forwards in the future when results demonstrate a pattern of profitability.
    Accounts payable and accrued items are $74,382,000, or $3,750,000 higher
than as at January 31, 2009. The Company's accounts payable consist largely of
trade payables and liabilities for unredeemed gift cards/certificates.

    OPERATING RISK MANAGEMENT

    Economic Environment

    The current economic recession has deepened, despite government
intervention, with high unemployment levels and consumer concern over erosion
of their wealth due to declines in equity and house prices. This has impacted
consumer discretionary spending on many consumables, 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
974 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
quarter of fiscal 2010, no supplier represented more than 12% 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 first quarter 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. For the first
quarter of fiscal 2010, the Company satisfied its US dollar requirements
through spot rate purchases.
    As at May 2, 2009, May 3, 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 $398,000 and accounts payable of $3,584,000 to determine how a
change in the US dollar exchange rate would impact net earnings. On May 2,
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 $261,000 increase or decrease,
respectively, in the Company's net earnings for the three months ended May 2,
2009.

    LIQUIDITY, CASH FLOWS AND CAPITAL RE

SOURCES During the first quarter of fiscal 2010, a total of 1,098,300 Class A non-voting shares were purchased in the market under a normal course issuer bid for $12,174,000 and dividends of $12,550,000 were paid, both of which reduced shareholders' equity. Shareholders' equity at May 2, 2009 amounted to $506,420,000 or $7.31 per share as compared to $508,249,000 or $7.17 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 $182,611,000 as compared with $207,355,000 last year (January 31, 2009 - $246,872,000). Short-term cash is conservatively invested 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. The Company has borrowing and working capital credit facilities (unsecured) available of $125,000,000. As at May 2, 2009, $42,034,000 (May 3, 2008 - $59,762,000; 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 May 2, 2009, the maximum potential liability under these guarantees was $8,524,000. 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 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 $298,000 in the first quarter of fiscal 2010. The Company paid dividends amounting to $12,550,000 in the first quarter of fiscal 2010 compared to $12,765,000 in the first quarter of fiscal 2009. In the first quarter of fiscal 2010, the Company invested $9,784,000 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 ongoing store construction and renovation programs, 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 May 2, 2009: Payments Due by Period ----------------------------------------------------------- Contractual Within 2 to 4 5 years Obligations Total 1 year years and over ----------------------------------------------------------- Long-term debt $ 13,653,000 $ 1,240,000 $ 4,223,000 $ 8,190,000 Interest on long-term debt 4,063,000 827,000 1,975,000 1,261,000 Store leases and equipment 447,060,000 100,480,000 207,092,000 139,488,000 ----------------------------------------------------------- Total contractual obligations $ 464,776,000 $ 102,547,000 $ 213,290,000 $ 148,939,000 ----------------------------------------------------------- ----------------------------------------------------------- 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 first quarter of fiscal 2010, 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 May 2, 2009, May 3, 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 first quarter of fiscal 2010 is a foreign exchange loss of $225,000 (2009 - gain of $279,000). 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 first quarter of fiscal 2010, the rent expense under these leases was, in the aggregate, approximately $48,000 (2009 - $45,000). The Company incurred $135,000 in the first quarter of fiscal 2010 (2009 - $72,000) 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 recent widespread declines in the stock market have resulted in reduction in the market value of these securities. The Company is highly liquid with over 80% of its cash, cash equivalents and marketable securities being invested in bank bearer deposit notes and bank term deposits of short duration with major Canadian chartered banks. 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/Certificates Gift cards/certificates sold are recorded as a liability and revenue is recognized when the gift card/certificate is redeemed. The Company, for each reporting period, reviews the gift card/certificate 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/certificates. ADOPTION OF NEW ACCOUNTING STANDARDS 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. RECENT ACCOUNTING PRONOUNCEMENTS 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. 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 June 3, 2009, 13,440,000 Common shares of the Company and 55,860,356 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. The Company has proposed to amend 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 amendment is subject to approval by the shareholders of the Company at its annual meeting on June 3, 2009 and, if such approval is obtained, the Company shall keep the requisite number of shares approved for issuance upon the exercise of options under the plan from time to time. The Company has 1,469,250 options outstanding at an average exercise price of $13.15. 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 is 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 first quarter of fiscal 2010, the Company purchased for cancellation 1,098,300 Class A non-voting shares, having a book value of $432,000, for a total cash consideration of $12,174,000. The excess of the purchase price over book value of the shares in the amount of $11,742,000 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 the end of the fiscal year 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 the end of the fiscal year 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 first quarter ended May 2, 2009 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. OUTLOOK The current economic recession has deepened, despite government intervention, with high unemployment levels and consumer concern over erosion of their wealth due to declines in equity and house prices. This has impacted consumer discretionary spending on many consumables, most notably apparel. Nonetheless, financial conditions in Canada remain more favorable than many other global economies. 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 predict the Canadian economy contracting through to the third quarter of calendar 2009. Consumer demand is anticipated to remain weak throughout much of the remainder of the Company's fiscal 2010 year with lower household spending due to deteriorating 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:

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


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