Reitmans (Canada) Limited Announces Year-End Results

MONTREAL, March 29 /CNW Telbec/ - Sales for the year ended January 30, 2010 increased to $1,056,527,000 or 0.5% as compared with $1,050,861,000 for the year ended January 31, 2009. Same store sales decreased 1.0%. Operating earnings before depreciation and amortization (EBITDA(1)) decreased 12.4% to $158,488,000 as compared with $180,931,000 last year. Net earnings and diluted earnings per share (EPS) decreased to $67,236,000 or $0.98 per share as compared to $85,806,000 or $1.21 per share last year. The Company had 977 stores in operation compared to 973 stores at the same time last year.

Sales for the fourth quarter ended January 30, 2010 increased 2.4% to $268,120,000 as compared with $261,801,000 for the fourth quarter ended January 31, 2009. Same store sales for the thirteen weeks increased 1.5% in the period. Operating earnings before depreciation and amortization (EBITDA(1)) for the quarter increased 25.5% to $37,317,000 as compared with $29,739,000 last year. Net earnings for the quarter increased 56.9% to $14,088,000 and diluted EPS amounted to $0.21 per share as compared to $8,981,000 and diluted EPS of $0.13 per share for the same period last year.

During the year, the Company opened 24 new stores and closed 20. Accordingly, at year-end, there were 977 stores in operation, consisting of 369 Reitmans, 164 Smart Set, 66 RW & CO., 76 Thyme Maternity, 17 Cassis, 162 Penningtons and 123 Addition Elle.

At the Board of Directors meeting held on March 29, 2010, 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 April 29, 2010 to shareholders of record on April 16, 2010.

Financial statements are attached. For management's commentary on the full year and fourth quarter results, please refer to the attached Management's Discussion and Analysis of Financial Conditions and Results of Operations for the fiscal year ended January 30, 2010.

    
    Montreal, March 29, 2010

    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                   For the
                              twelve months ended        three months ended
                          January 30,  January 31,  January 30,  January 31,
                                2010         2009         2010         2009

    Sales                $ 1,056,527  $ 1,050,861    $ 268,120    $ 261,801
    Cost of goods sold
     and selling, general
     and administrative
     expenses (note 5)       898,039      869,930      230,803      232,062
                        ------------- ------------ ------------ -------------
                             158,488      180,931       37,317       29,739
    Depreciation and
     amortization             60,619       58,184       15,438       14,887
                        ------------- ------------ ------------ -------------
    Operating earnings
     before the undernoted    97,869      122,747       21,879       14,852
                        ------------- ------------ ------------ -------------

    Investment income
     (note 16)                 1,992        5,351          (28)        (528)
    Interest on
     long-term debt              846          921          204          224
                        ------------- ------------ ------------ -------------
    Earnings before
     income taxes             99,015      127,177       21,647       14,100

    Income taxes
     (note 10):
      Current                 34,705       46,519        8,062        7,950
      Future                  (2,926)      (5,148)        (503)      (2,831)
                        ------------- ------------ ------------ -------------
                              31,779       41,371        7,559        5,119
                        ------------- ------------ ------------ -------------

    Net earnings         $    67,236  $    85,806    $  14,088    $   8,981
                        ------------- ------------ ------------ -------------
                        ------------- ------------ ------------ -------------

    Earnings per share
     (note 12):
      Basic              $      0.98  $      1.21    $    0.21    $    0.13
      Diluted                   0.98         1.21         0.21         0.13

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



    STATEMENTS OF CASH FLOWS (Unaudited)
    (in thousands)

                                          For the                   For the
                              twelve months ended        three months ended
                          January 30,  January 31,  January 30,  January 31,
                                2010         2009         2010         2009

    CASH FLOWS (USED IN)
     FROM OPERATING
     ACTIVITIES
      Net earnings         $  67,236     $ 85,806    $  14,088    $   8,981
      Adjustments for:
        Depreciation and
         amortization         60,619       58,184       15,438       14,887
        Future income taxes   (2,926)      (5,148)        (503)      (2,831)
        Stock-based
         compensation          1,281          600          471           81
        Amortization of
         deferred lease
         credits              (5,254)      (5,200)      (1,384)      (1,270)
        Deferred lease
         credits               3,738        5,859          426          572
        Pension contribution    (612)      (1,428)        (158)        (148)
        Pension expense        2,137        2,825          787          678
        Loss on sale of
         marketable
         securities              794        2,350          733        2,350
        Foreign exchange
         loss (gain)           1,382       (1,371)         660          (81)
      Changes in non-cash
       working capital
       relating to
       operations             17,744      (13,482)      33,779       23,613
                        ------------- ------------ ------------ -------------
                             146,139      128,995       64,337       46,832

    CASH FLOWS (USED IN)
     FROM INVESTING
     ACTIVITIES
      Purchases of
       marketable
       securities            (12,951)     (17,403)     (11,108)     (17,403)
      Proceeds on sale
       of marketable
       securities              4,694        4,642        3,304        4,642
      Additions to
       capital assets
       and intangible
       assets                (33,185)     (58,152)      (5,374)     (12,645)
                        ------------- ------------ ------------ -------------
                             (41,442)     (70,913)     (13,178)     (25,406)

    CASH FLOWS (USED IN)
     FROM FINANCING
     ACTIVITIES
      Dividends paid         (49,351)     (50,885)     (12,250)     (12,680)
      Purchase of Class A
       non-voting shares
       for cancellation      (40,835)      (7,915)      (8,350)      (3,842)
      Repayment of
       long-term debt         (1,220)      (1,146)        (313)        (294)
      Proceeds from issue
       of share capital        2,614          246          710           68
                        ------------- ------------ ------------ -------------
                             (88,792)     (59,700)     (20,203)     (16,748)

    FOREIGN EXCHANGE (LOSS)
     GAIN ON CASH HELD IN
     FOREIGN CURRENCY         (1,382)       1,371         (660)          81
                        ------------- ------------ ------------ -------------

    NET INCREASE (DECREASE)
     IN CASH AND CASH
     EQUIVALENTS              14,523         (247)      30,296        4,759

    CASH AND CASH
     EQUIVALENTS,
     BEGINNING OF PERIOD     214,054      214,301      198,281      209,295
                        ------------- ------------ ------------ -------------

    CASH AND CASH
     EQUIVALENTS,
     END OF PERIOD         $ 228,577    $ 214,054    $ 228,577    $ 214,054
                        ------------- ------------ ------------ -------------
                        ------------- ------------ ------------ -------------

    Supplemental disclosure of cash flow information (note 16)

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



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

                                          For the                   For the
                              twelve months ended        three months ended
                          January 30,  January 31,  January 30,  January 31,
                                2010         2009         2010         2009

    SHARE CAPITAL
    Balance, beginning
     of period             $  23,830    $  23,777    $  25,370    $  23,892
      Cash consideration
       on exercise of
       stock options           2,614          246          710           68
      Ascribed value
       credited to share
       capital from
       exercise of stock
       options                   655           63           22           19
      Cancellation of
       shares pursuant to
       stock repurchase
       program (note 11)      (1,211)        (256)        (214)        (149)
                        ------------- ------------ ------------ -------------
    Balance, end of period    25,888       23,830       25,888       23,830
                        ------------- ------------ ------------ -------------

    CONTRIBUTED SURPLUS
    Balance, beginning
     of period                 4,538        4,001        4,715        4,476
      Stock option
       compensation costs      1,281          600          471           81
      Ascribed value
       credited to share
       capital from
       exercise of
       stock options            (655)         (63)         (22)         (19)
                        ------------- ------------ ------------ -------------
    Balance, end of period     5,164        4,538        5,164        4,538
                        ------------- ------------ ------------ -------------

    RETAINED EARNINGS
    Balance, beginning of
     period                  502,361      468,374      486,920      509,753
      Adjustment to opening
       retained earnings due
       to adoption of a new
       accounting standard
       for inventory (net
       of tax of $3,121)           -        6,725            -            -
      Net earnings            67,236       85,806       14,088        8,981
      Dividends              (49,351)     (50,885)     (12,250)     (12,680)
      Premium on repurchase
       of Class A
       non-voting
       shares (note 11)      (39,624)      (7,659)      (8,136)      (3,693)
                        ------------- ------------ ------------ -------------
    Balance, end of period   480,622      502,361      480,622      502,361
                        ------------- ------------ ------------ -------------

    ACCUMULATED OTHER
     COMPREHENSIVE INCOME
     (LOSS)
    Balance, beginning of
     period                   (8,190)      (1,033)      (4,703)      (4,140)
      Net unrealized gain
       (loss) on available-
       for-sale financial
       assets arising
       during the period
       (net of tax of $960
       for the year ended
       and $411 for the
       three months ended
       January 30, 2010;
       net of tax of $811
       for the year ended
       and $122 for the
       three months ended
       January 31, 2009)       5,991       (9,185)       2,557       (6,078)
      Reclassification
       of losses on
       available-for-sale
       financial assets to
       net earnings (net
       of tax of $103 for
       the year ended and
       $95 for the three
       months ended
       January 30, 2010;
       net of tax of $322
       for the year ended
       and the three months
       ended January 31,
       2009)                     691        2,028          638        2,028
                        ------------- ------------ ------------ -------------
    Balance, end of
     period(1)                (1,508)      (8,190)      (1,508)      (8,190)
                        ------------- ------------ ------------ -------------

    Total Shareholders'
     Equity                $ 510,166    $ 522,539    $ 510,166    $ 522,539
                        ------------- ------------ ------------ -------------
                        ------------- ------------ ------------ -------------

    (1) Available-for-sale financial investments constitute the sole item
        affecting 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                   For the
                              twelve months ended        three months ended
                          January 30,  January 31,  January 30,  January 31,
                                2010         2009         2010         2009

    Net earnings            $ 67,236     $ 85,806     $ 14,088      $ 8,981
    Other comprehensive
     income (loss):
      Net unrealized gain
       (loss) on available-
       for-sale financial
       assets arising during
       the period (net of
       tax of $960 for the
       year ended and $411
       for the three months
       ended January 30,
       2010; net of tax of
       $811 for the year
       ended and $122 for
       the three months
       ended January 31,
       2009)                   5,991       (9,185)       2,557       (6,078)
      Reclassification
       of losses on
       available-for-sale
       financial assets to
       net earnings (net
       of tax of $103 for
       the year ended and
       $95 for the three
       months ended
       January 30, 2010; net
       of tax of $322 for
       the year ended and
       the three months
       ended January 31,
       2009)                     691        2,028          638        2,028
                        ------------- ------------ ------------ -------------
                               6,682       (7,157)       3,195       (4,050)
                        ------------- ------------ ------------ -------------

    Comprehensive income    $ 73,918     $ 78,649     $ 17,283      $ 4,931
                        ------------- ------------ ------------ -------------
                        ------------- ------------ ------------ -------------

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



    BALANCE SHEETS (Unaudited)
    (in thousands)

                                                          2010         2009
                                      ASSETS
    CURRENT ASSETS
      Cash and cash equivalents (note 16)            $ 228,577    $ 214,054
      Marketable securities (note 16)                   48,026       32,818
      Accounts receivable                                2,926        2,689
      Income taxes recoverable                               -        3,826
      Merchandise inventories (note 5)                  63,127       64,061
      Prepaid expenses                                  11,873       11,402
      Future income taxes (note 10)                      2,395        3,598
                                                   ------------ -------------
        Total Current Assets                           356,924      332,448

    CAPITAL ASSETS
      Property and equipment (note 6)                  210,612      237,314
      Intangibles (note 7)                               9,964       12,577
                                                   ------------ -------------
        Total Capital Assets                           220,576      249,891

    GOODWILL                                            42,426       42,426

    FUTURE INCOME TAXES (note 10)                       11,466        8,400
                                                   ------------ -------------

                                                     $ 631,392    $ 633,165
                                                   ------------ -------------
                                                   ------------ -------------

                     LIABILITIES AND SHAREHOLDERS' EQUITY

    CURRENT LIABILITIES
      Accounts payable and accrued items             $  77,766    $  70,632
      Income taxes payable                               4,677            -
      Current portion of long-term debt (note 9)         1,300        1,220
                                                   ------------ -------------
        Total Current Liabilities                       83,743       71,852

    DEFERRED LEASE CREDITS                              20,609       22,125

    LONG-TERM DEBT (note 9)                             11,431       12,731

    ACCRUED PENSION LIABILITY (note 8)                   5,443        3,918

    SHAREHOLDERS' EQUITY
      Share capital (note 11)                           25,888       23,830
      Contributed surplus                                5,164        4,538

      Retained earnings                                480,622      502,361
      Accumulated other comprehensive loss              (1,508)      (8,190)
                                                   ------------ -------------
                                                       479,114      494,171
                                                   ------------ -------------
        Total Shareholders' Equity                     510,166      522,539
                                                   ------------ -------------
    Commitments (note 13)
                                                     $ 631,392    $ 633,165
                                                   ------------ -------------
                                                   ------------ -------------

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



                          REITMANS (CANADA) LIMITED
                        NOTES TO FINANCIAL STATEMENTS
          For the years ended January 30, 2010 and January 31, 2009
             (all amounts in thousands except per share amounts)
    

Reitmans (Canada) Limited ("the Company") is incorporated under the Canada Business Corporations Act and its principal business activity is the sale of women's wear at retail.

1. BASIS OF PRESENTATION

The Company's fiscal year ends on the Saturday closest to the end of January. All references to 2010 and 2009 represent the fiscal years ended January 30, 2010 and January 31, 2009, respectively.

At the beginning of the year, the Company wound up its wholly-owned subsidiaries, effectively eliminating the preparation of consolidated financial statements for 2010. There was no impact on the comparative financial statements as at and for the year ended January 31, 2009.

2. ADOPTION OF NEW ACCOUNTING STANDARDS

a) Goodwill and Intangible Assets

In February 2008, the Canadian Institute of Chartered Accountants ("CICA") issued Handbook Section 3064, Goodwill and Intangible Assets, which replaced Section 3062, Goodwill and Other Intangible Assets, and amended 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 impact of adopting this standard was to reclassify the net book value of software of $9,964 as at January 30, 2010 (2009- $12,577) from property and equipment to intangible assets on the balance sheet. The adoption of this new standard had no impact on the Company's financial results.

b) Credit Risk and the Fair Value of Financial Assets and Financial Liabilities

In January 2009, the CICA issued Emerging Issue Committee Abstract 173 ("EIC 173") Credit Risk and the Fair Value of Financial Assets and Financial Liabilities. EIC 173 requires that a company take into account its own credit risk and the credit risk of its counterparty in determining the fair value of financial assets and financial liabilities. This abstract must be applied retrospectively without restatement of prior periods to all financial assets and liabilities measured at fair value in interim and annual financial statements for periods ending on or after January 20, 2009. The adoption of these new recommendations had no significant impact on the Company's financial results.

c) Financial Instruments - Disclosures

In June 2009, the CICA amended Handbook Section 3862, Financial Instruments - Disclosures, to enhance disclosures about fair value measurements and liquidity risk of financial instruments. The amendment is to be applied to annual financial statements with fiscal years ending after September 30, 2009. The purpose of this amendment is to provide further convergence with IFRS. Financial instruments recognized at fair value on the balance sheet must be classified in fair value hierarchy levels as follows:

Level 1 - valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - valuation techniques based on inputs that are other than quoted prices included in Level 1 that are observable for the asset or liability , either directly (prices) or indirectly (derived from prices);

Level 3 - valuation techniques with unobservable market inputs (involves assumptions and estimates by management of how market participants would price the assets or liabilities).

The amended section relates to disclosure only and did not impact the financial results of the Company. As at January 30, 2010, the Company held no significant assets or liabilities required to be measured at fair value, except for cash and cash equivalents and marketable securities, which were measured using Level 1 inputs in the fair value hierarchy.

d) Impairment of Financial Assets - Recognition and Measurement

In August 2009, the CICA issued various amendments to Section 3855, Financial Instruments - Recognition and Measurement and Section 3025, Impaired Loans to change the categories into which certain debt investments are required or permitted to be classified and to require the reversal of previously recognized impairment losses on available-for-sale financial assets in specified circumstances. These amendments had no significant effect on the Company's current operating results or financial position.

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. SIGNIFICANT ACCOUNTING POLICIES

a) Revenue Recognition

Sales are recognized when a customer purchases and takes delivery of the product. Reported sales are net of returns and an estimated allowance for returns and excludes sales taxes. Gift cards sold are recorded as a liability and revenue is recognized when the gift cards are redeemed. An estimate is made of gift cards not expected to be redeemed based on the terms of the gift cards and historical redemption patterns.

b) Cash and Cash Equivalents

Cash and cash equivalents consist of cash and short-term deposits with original maturities of three months or less.

c) Marketable Securities

Marketable securities consist primarily of preferred shares of Canadian public companies.

d) Inventories

Merchandise inventories are valued at the lower of cost, determined on an average basis using the retail inventory method and net realizable value. Costs include the cost of purchase, transportation costs that are directly incurred to bring inventories to their present location and condition and certain distribution centre costs related to inventories. The Company estimates net realizable value as the amount that inventories are expected to be sold taking into consideration fluctuations of retail prices due to seasonality. Inventories are written down to net realizable value when the cost of inventories is not estimated to be recoverable due to declining selling prices.

e) Capital Assets

Capital assets are recorded at cost and are depreciated on a straight-line basis at the following annual rates applied to their cost, commencing with the year of acquisition:

    
           Buildings and improvements                4% to 15%
           Fixtures and equipment                    10% to 33 1/3%
           Software                                  20% to 33 1/3%
    

Leasehold improvements are depreciated at the lesser of the estimated useful life of the asset and the lease term. Tenant allowances are recorded as deferred lease credits and amortized as a reduction of rent expense over the term of the related leases.

Expenditures associated with the opening of new stores, other than fixtures, equipment and leasehold improvements, are expensed as incurred.

The Company carries on its operations in premises under leases of varying terms, which are accounted for as operating leases.

Depreciation and amortization expense includes the write-off of assets associated with store closings and renovations.

Long-lived assets, including intangibles, are reviewed for recoverability whenever events indicate an impairment may exist. An impairment loss is measured as the amount by which the carrying value of an asset or a group of assets exceeds its fair value. If such assets or group of assets are considered impaired, an impairment loss is recognized and the carrying value of the long-lived asset is adjusted.

f) Goodwill

Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test is carried out in two steps. In the first step the carrying amount of the reporting unit is compared with its fair value. When the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not to be impaired and the second step of the impairment test is unnecessary. The second step is carried out when the carrying amount of a reporting unit exceeds its fair value, in which case the implied fair value of the reporting unit's goodwill is compared with its carrying amount to measure the amount of the impairment loss, if any.

g) Income Taxes

The Company uses the asset and liability method when accounting for income taxes. Under this method, future income taxes are recognized for the future income tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis (temporary differences). Future income tax assets and liabilities are measured using enacted or substantively enacted income tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on future income tax assets and liabilities of a change in tax rates is included in income in the period that includes the enactment date. Future income tax assets are evaluated and if realization is not considered to be more likely than not, a valuation allowance is provided.

The Company's income tax provision is based on tax rules and regulations that are subject to interpretation and require estimates and assumptions that may be challenged by taxation authorities. The Company's estimates of income tax assets and liabilities are periodically reviewed and adjusted as circumstances warrant, such as changes to tax laws and administrative guidance, and the resolution of uncertainties through either the conclusion of tax audits or expiration of prescribed time limits within the relevant statutes. The final results of government tax audits and other events may vary materially compared to estimates and assumptions used by management in determining the provision for income taxes and in valuing income tax assets and liabilities.

h) Pension

The Company maintains a contributory defined benefit plan that provides for pensions based on length of service and average earnings in the best five consecutive years. The Company also sponsors a Supplemental Executive Retirement Plan ("SERP"), which is neither registered nor pre-funded. The costs of these retirement plans are determined periodically by independent actuaries. Pension expense/income is included annually in operations.

The Company records its pension costs according to the following policies:

    
    - The cost of pensions is actuarially determined using the projected
      benefit method prorated on service.
    - For the purpose of calculating expected return on plan assets, the
      valuation of those assets are based on quoted market values.
    - Past service costs from plan amendments are amortized on a straight-
      line basis over the average remaining service period of employees
      active at the date of the amendment.
    - Experience gains or losses arising on accrued benefit obligations and
      plan assets are recognized in the period in which they occur.
    

The difference between the cumulative amounts expensed and the funding contributions is recorded on the balance sheet as an accrued pension asset or an accrued pension liability, as the case may be.

i) Stock-Based Compensation

The Company accounts for stock-based compensation and other stock-based payments using the fair value based method. Compensation cost is measured at the fair value at the date of grant and is expensed over the vesting period, which is normally five years. The Company accounts for forfeitures as they occur.

j) Earnings per Share

Basic earnings per share is determined using the weighted average number of Class A non-voting and Common shares outstanding during the year. The treasury stock method is used for calculating diluted earnings per share. In calculating diluted earnings per share, the weighted average number of shares outstanding is increased to include additional shares issued from the assumed exercise of options, if dilutive. The number of additional shares is calculated by assuming that the proceeds from such exercises, as well as the amount of unrecognized stock-based compensation, are used to purchase Class A non-voting shares at the average market share price during the reporting period.

k) Foreign Currency Translation

Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the year-end exchange rate. Other balance sheet items denominated in foreign currencies are translated into Canadian dollars at the exchange rates prevailing at the respective transaction date. Revenues and expenses denominated in foreign currencies are translated into Canadian dollars at average rates of exchange prevailing during the year. The resulting gains or losses on translation are included in the determination of net earnings.

l) Financial Instruments

Cash and cash equivalents are classified as "financial assets held-for-trading" and are measured at fair value. These financial assets are marked-to-market through net earnings and recorded as investment income at each period end.

Accounts receivable are classified as "loans and receivables" and are recorded at cost, which at initial measurement corresponds to fair value. After their initial fair value measurement, they are measured at amortized cost using the effective interest rate method.

Marketable securities are classified as "available-for-sale securities". These financial assets are marked-to-market through other comprehensive income at each period end.

Accounts payable and accrued items and long-term debt are classified as "other financial liabilities". They are initially measured at fair value and subsequent revaluations are recorded at amortized cost using the effective interest rate method.

The Company makes use of foreign exchange option contracts to manage its US dollar exposure. These derivative financial instruments are not used for trading or speculative purposes and are reported on a mark-to-market basis. The related gains and losses are included in the determination of net earnings.

The Company does not separately account for embedded US dollar foreign exchange derivatives in its purchase contracts of merchandise from suppliers in China because the US dollar has been determined to be commonly used in that country's economic environment.

m) Use of Estimates

In preparing the Company's financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the year. Financial results as determined by actual events may differ from these estimates.

Significant areas requiring the use of management estimates and assumptions include the key assumptions used in determining the useful life and recoverability of capital assets, stock-based compensation costs, future income tax assets and liabilities, inventory valuation, sales returns provision and gift card liabilities.

5. INVENTORY

The cost of inventory recognized as an expense and included in cost of goods sold and selling, general and administrative expenses for the year ended January 30, 2010 was $378,292 (2009 - $363,523). During the year, the Company recorded $1,873 (2009 - $2,275) 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.

6. PROPERTY AND EQUIPMENT

    
                           2010                             2009
           -------------------------------  ---------------------------------
                         Accumu-                          Accumu-
                          lated                            lated
                          Depre-                           Depre-
                        ciation                          ciation
                            and        Net                   and        Net
                         Amorti-      Book                Amorti-      Book
                Cost     zation      Value       Cost     zation      Value
           -------------------------------  ---------------------------------

    Land   $   5,935  $       -  $   5,935  $   5,860  $       -  $   5,860
    Buildings
     and
     improve-
     ments    52,336     19,499     32,837     52,153     15,517     36,636
    Fixtures
     and
     equip-
     ment    177,874     97,398     80,476    181,524     87,728     93,796
    Lease-
     hold
     improve-
     ments   194,782    103,418     91,364    192,281     91,259    101,022
           -------------------------------  ---------------------------------
           $ 430,927  $ 220,315  $ 210,612  $ 431,818  $ 194,504  $ 237,314
           -------------------------------  ---------------------------------
           -------------------------------  ---------------------------------
    

During the year, due to various store closings and renovations, the Company wrote off assets with a net book value of $1,670 (2009 - $2,577). The write-offs are included in depreciation and amortization expense.

7. INTANGIBLES

    
                           2010                             2009
           -------------------------------  ---------------------------------
                         Accumu-                          Accumu-
                          lated        Net                 lated        Net
                         Amorti-      Book                Amorti-      Book
                Cost     zation      Value       Cost     zation      Value
           -------------------------------  ---------------------------------

    Soft-
     ware  $  17,072  $   7,108  $   9,964  $  17,468  $   4,891  $  12,577
           -------------------------------  ---------------------------------
           -------------------------------  ---------------------------------
    

As at January 30, 2010, the impact of retroactively adopting CICA Handbook Section 3064, Goodwill and Intangible Assets, was a reclassification of $9,964 (2009- $12,577) of net book value related to software not directly attributable to the operation of property and equipment.

8. PENSION

The Company's contributory defined benefit plan ("Plan") was actuarially valued as at December 31, 2007 and the obligation was projected to January 30, 2010.

Actuarial assumptions, based upon data as of December 31, 2009, used in calculating the Company's accrued benefit plan obligations and the net pension cost were as follows:

    
                                                          2010         2009
                                                   ------------ -------------

    Accrued benefit obligation
      Discount rate                                       5.80%        6.30%
      Rate of increase in salary levels                   3.00%        3.00%

    Net pension cost
      Discount rate                                       6.30%        5.17%
      Expected long-term rate of return on plan assets    7.00%        7.50%
      Rate of increase in salary levels                   3.00%        3.00%
    

In addition, the Company sponsors a Supplemental Executive Retirement Plan ("SERP") covering certain pension plan members. This special plan is subject to the same actuarial assumptions and methods as the Plan.

The following tables present reconciliations of the pension obligations, the plan assets and the funded status of the benefit plans:

    
                           2010                             2009
           -------------------------------  ---------------------------------
    Pension
     obli-
     gation     Plan       SERP      Total       Plan       SERP      Total
           -------------------------------  ---------------------------------
    Pension
     obli-
     gation,
     begin-
     ning
     of
     year  $   9,676  $   9,635  $  19,311  $  11,180  $  10,114  $  21,294
    Em-
     ployee
     contri-
     butions     135          -        135        140          -        140
    Current
     service
     cost        380        223        603        521        284        805
    Interest
     cost        624        618      1,242        594        537      1,131
    Benefits
     paid       (576)      (102)      (678)    (1,920)       (44)    (1,964)
    Actua-
     rial
     losses
     (gains)     701        401      1,102       (839)    (1,256)    (2,095)
           ---------- ---------- ---------- ---------- ---------- ----------
    Pension
     obli-
     gation,
     end of
     year  $  10,940  $  10,775  $  21,715  $   9,676  $   9,635  $  19,311
           ---------- ---------- ---------- ---------- ---------- ----------
           ---------- ---------- ---------- ---------- ---------- ----------

    Plan
     assets
    Fair
     value
     of
     plan
     assets,
     begin-
     ning
     of
     year  $   8,976  $       -  $   8,976  $  11,683  $       -  $  11,683
    Employer
     contri-
     butions     510        102        612      1,384         44      1,428
    Employee
     contri-
     butions     135          -        135        140          -        140
    Actual
     return
     on plan
     assets    1,484          -      1,484     (2,311)         -     (2,311)
    Benefits
     paid       (576)      (102)      (678)    (1,920)       (44)    (1,964)
           ---------- ---------- ---------- ---------- ---------- ----------
    Fair
     value
     of plan
     assets,
     end of
     year  $  10,529  $       -  $  10,529  $   8,976  $       -  $   8,976
           ---------- ---------- ---------- ---------- ---------- ----------
           ---------- ---------- ---------- ---------- ---------- ----------

    Funded
     status
    Accrued
     benefit
     obliga-
     tion  $  10,940  $  10,775  $  21,715  $   9,676  $   9,635  $  19,311
    Fair
     value
     of plan
     assets   10,529          -     10,529      8,976          -      8,976
           ---------- ---------- ---------- ---------- ---------- ----------
    Funded
     status     (411)   (10,775)   (11,186)      (700)    (9,635)   (10,335)
    Unamor-
     tized
     past
     service
     cost          -      5,743      5,743          -      6,417      6,417
           ---------- ---------- ---------- ---------- ---------- ----------
    Accrued
     pension
     liabi-
     lity  $    (411) $  (5,032) $  (5,443) $    (700) $  (3,218) $  (3,918)
           ---------- ---------- ---------- ---------- ---------- ----------
           ---------- ---------- ---------- ---------- ---------- ----------

    The Company's net annual benefit plans costs consist of the following:

                           2010                             2009
           -------------------------------  ---------------------------------
                Plan       SERP      Total       Plan       SERP      Total
           -------------------------------  ---------------------------------
    Pension
     costs
    Current
     service
     cost  $     380  $     223  $     603  $     521  $     284  $     805
    Interest
     cost        624        618      1,242        594        537      1,131
    Actual
     return
     on plan
     assets   (1,484)         -     (1,484)     2,311          -      2,311
    Actuarial
     losses
     (gains)     701        401      1,102       (839)    (1,256)    (2,095)
           ---------- ---------- ---------- ---------- ---------- ----------

     Elements
     of em-
     ployee
     future
     benefits
     costs
     before
     adjust-
     ments to
     recognize
     the long-
     term
     nature
     of em-
     ployee
     future
     benefit
     costs       221      1,242      1,463      2,587       (435)     2,152

    Difference
     between
     expected
     return
     and
     actual
     return
     on plan
     assets
     for
     year        856          -        856     (3,189)         -     (3,189)

    Difference
     between
     actua-
     rial
     (gains)/
     losses
     recog-
     nized
     for year
     and
     actual
     actua-
     rial
     (gains)/
     losses on
     accrued
     benefit
     obli-
     gation
     for
     year       (856)         -       (856)     3,189          -      3,189

    Difference
     between
     amorti-
     zation
     of past
     service
     costs
     and
     actual
     plan
     amend-
     ments
     for
     year          -        674        674          -        673        673
           ---------- ---------- ---------- ---------- ---------- ----------

    Net
     pension
     costs
     recog-
     nized $     221  $   1,916  $   2,137  $   2,587  $     238  $   2,825
           ---------- ---------- ---------- ---------- ---------- ----------
           ---------- ---------- ---------- ---------- ---------- ----------
    

The asset allocation of the major asset categories for each of the years was as follows:

    
                                                          2010         2009
                                                   ------------ -------------

    Equity securities                                       61%          60%
    Debt securities                                         37%          37%
    Cash and cash equivalents                                2%           3%
                                                   ------------ -------------
                                                           100%         100%
                                                   ------------ -------------
                                                   ------------ -------------
    

9. LONG-TERM DEBT

    

                                                          2010         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    $  12,731    $  13,951

    Less current portion                                 1,300        1,220
                                                   ------------ -------------
                                                     $  11,431    $  12,731
                                                   ------------ -------------
                                                   ------------ -------------

    Principal repayments on long-term debt are as follows:

          Fiscal years ending
          2011                                       $   1,300
          2012                                           1,384
          2013                                           1,474
          2014                                           1,570
          2015                                           1,672
          Subsequent years                               5,331
                                                   ------------
                                                     $  12,731
                                                   ------------
                                                   ------------
    

10. INCOME TAXES

a) Future income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's future tax assets (liabilities) are as follows:

    
                                                          2010         2009
                                                   ------------ -------------
    Current assets
      Marketable securities                          $     142    $   1,205
      Inventory                                              -          280
      Accrued liabilities                                3,313        2,667
                                                   ------------ -------------
                                                         3,455        4,152
      Valuation allowance                                  (21)        (554)
                                                   ------------ -------------
                                                     $   3,434    $   3,598
                                                   ------------ -------------
                                                   ------------ -------------
    Long-term assets
      Capital assets                                 $  10,043    $   7,351
      Pension liability                                  1,411        1,068
      Other                                                 50           55
                                                   ------------ -------------
                                                     $  11,504    $   8,474
                                                   ------------ -------------
                                                   ------------ -------------
    Current liabilities
      Inventory                                      $  (1,039)   $       -
                                                   ------------ -------------
                                                     $  (1,039)   $       -
                                                   ------------ -------------
                                                   ------------ -------------
    Long-term liabilities
      Marketable securities                          $     (38)   $     (33)
      Capital assets                                         -          (41)
                                                   ------------ -------------
                                                     $     (38)   $     (74)
                                                   ------------ -------------
                                                   ------------ -------------

    Presented on the balance sheet as follows:
                                                          2010         2009
                                                   ------------ -------------

    Short-term asset                                 $   2,395    $   3,598
    Long-term asset                                     11,466        8,400
    

b) The Company's provision for income taxes is comprised as follows:

    
                                                          2010         2009
                                                   ------------ -------------
    Provision for income taxes based on combined
     statutory rate of 31.72% (2009 - 32.22%)        $  31,408    $  40,976
    Changes in provision resulting from:
      Difference in tax rates of subsidiaries                -         (621)
      Tax recovery due to net capital loss carryback       134          402
      Tax exempt investment income                        (589)        (412)
      Permanent and other differences                      565          496
      Adjustment to prior years' taxes                    (145)         337
      Stock-based compensation                             406          193
                                                   ------------ -------------
    Income taxes                                     $  31,779    $  41,371
                                                   ------------ -------------
                                                   ------------ -------------

    Represented by:
      Current                                        $  34,705    $  46,519
      Future                                            (2,926)      (5,148)
                                                   ------------ -------------
                                                     $  31,779    $  41,371
                                                   ------------ -------------
                                                   ------------ -------------
    

11. SHARE CAPITAL

a) The Class A non-voting shares and the Common shares of the Company rank equally and pari passu with respect to the right to receive dividends and upon any distribution of the assets of the Company. However, in the case of stock dividends, the holders of Class A non-voting shares shall have the right to receive Class A non-voting shares and the holders of Common shares shall have the right to receive Common shares.

b) 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 years listed:

    
                                                   --------------------------
                                                        Number         Book
                                                     of Shares        Value
                                                   ------------ -------------
    Balance February 2, 2008                            57,473    $  23,295
    Shares issued pursuant to exercise of stock
     options                                                46          309
    Shares purchased under issuer bid                     (655)        (256)
                                                   ------------ -------------
    Balance January 31, 2009                            56,864       23,348
    Shares issued pursuant to exercise of stock
     options                                               277        3,269
    Shares purchased under issuer bid                   (2,981)      (1,211)
                                                   ------------ -------------
    Balance January 30, 2010                            54,160    $  25,406
                                                   ------------ -------------
                                                   ------------ -------------
    

The amounts credited to share capital from the exercise of stock options include a cash consideration of $2,614 (2009 - $246), as well as an ascribed value from contributed surplus of $655 (2009 - $63).

The Company has authorized an unlimited number of Common shares. At January 30, 2010, there were 13,440 Common shares issued (2009 - 13,440) with a book value of $482 (2009 - $482).

c) The Company's stock option plan provides 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 granting of options and the related vesting period are at the discretion of the Board of Directors and have a maximum term of 10 years. The exercise price payable for each Class A non-voting share covered by a stock option is determined by the Board of Directors at the date of grant, but may not be less than the closing price of the Company's shares on the trading day immediately preceding the effective date of the grant.

The Company granted 1,920 stock options during 2010 (2009 - 50), the cost of which will be expensed over their vesting period based on their estimated fair values on the date of grant, determined using the Black-Scholes option-pricing model, while 30 (2009 - 27) stock options were cancelled.

Compensation cost related to stock option awards granted during the year under the fair value based approach was calculated using the following assumptions:

    
    Expected option life                                          5.9 years
    Risk-free interest rate                                           3.12%
    Expected stock price volatility                                  35.09%
    Average dividend yield                                            4.97%
    Weighted average fair value of options granted                    $3.17
    

Changes in outstanding stock options were as follows:

    
                                          2010                      2009
                        -----------------------------------------------------
                                         Weighted                  Weighted
                                          Average                   Average
                                         Exercise                  Exercise
                             Options        Price      Options        Price
                        -----------------------------------------------------
    Outstanding, at
     beginning of year         1,594     $  12.84        1,617     $  12.49
    Granted                    1,920        14.50           50        17.14
    Exercised                   (277)        9.43          (46)        5.41
    Forfeited                    (30)       12.23          (27)       12.23
                        -----------------------------------------------------

    Outstanding, at
     end of year               3,207     $  14.14        1,594     $  12.84
                        -----------------------------------------------------
                        -----------------------------------------------------

    Options exercisable,
     at end of year            1,171     $  13.13        1,145     $  12.17
                        -----------------------------------------------------
                        -----------------------------------------------------
    

The following table summarizes information about share options outstanding at January 30, 2010:

    
                             Options Outstanding        Options Exercisable
                      -------------------------------------------------------
                                   Weighted
                                    Average   Weighted             Weighted
    Range of           Number     Remaining    Average   Number     Average
    Exercise          Outstan-      Contrac-  Exercise   Exerci-   Exercise
    Prices               ding     tual Life      Price    sable       Price
    -------------------------------------------------------------------------
    $12.23 - $14.50     2,934    5.27 years   $  13.71    1,014    $  12.23
    $15.90 - $18.26       100    4.00            16.52       40       16.52
    $19.23 - $22.02       173    2.61            19.92      117       19.85
                      -------------------------------------------------------
                        3,207    5.09 years   $  14.14    1,171    $  13.13
                      -------------------------------------------------------
                      -------------------------------------------------------
    

For the year ended January 30, 2010, the Company recognized compensation cost of $1,281 (2009 - $600) with an offsetting credit to contributed surplus.

d) The Company purchased, under the prior year's normal course issuer bid, 2,481 Class A non-voting shares having a book value of $997 under its stock repurchase program 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.

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. To date 500 Class A non-voting shares having a book value of $214 have been purchased for a total cash consideration of $8,350. The excess of the purchase price over book value of the shares in the amount of $8,136 was charged to retained earnings.

12. EARNINGS PER SHARE

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

    
                                                          2010         2009
                                                   ------------ -------------
    Weighted average number of shares per basic
     earnings per share calculations                    68,780       70,731
    Effect of dilutive options outstanding                 183          273
                                                   ------------ -------------

    Weighted average number of shares per diluted
     earnings per share calculations                    68,963       71,004
                                                   ------------ -------------
                                                   ------------ -------------
    

As at January 30, 2010, there were 2,193 (2009 - 1,495) stock options that were excluded from the calculation of diluted earnings per share as these options were deemed to be anti-dilutive.

13. COMMITMENTS

Minimum lease payments under operating leases for retail stores, offices, automobiles and equipment, exclusive of additional amounts based on sales, taxes and other costs are payable as follows:

    
    Fiscal years ending
    2011                                                          $ 102,211
    2012                                                             88,218
    2013                                                             73,544
    2014                                                             60,605
    2015                                                             49,239
    Subsequent years                                                105,000
                                                                -------------
                                                                  $ 478,817
                                                                -------------
                                                                -------------
    

14. CREDIT FACILITY

At January 30, 2010, the Company had unsecured operating lines of credit available with Canadian chartered banks to a maximum of $125,000 or its US dollar equivalent. As at January 30, 2010, $53,624 (2009 - $61,759) of the operating lines of credit was committed for documentary and standby letters of credit.

15. GUARANTEES

The Company has granted irrevocable 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 January 30, 2010, the maximum potential liability under these guarantees was $5,139. The standby letters of credit mature at various dates during fiscal 2011. The Company has recorded no liability with respect to these guarantees, as the Company does not expect to make any payments for these items. Management believes that the fair value of the non-contingent obligations requiring performance under the guarantees in the event that specified triggering events or conditions occur approximates the cost of obtaining the standby letters of credit.

16. OTHER INFORMATION

    
    a) Included in determination of the Company's net earnings is a foreign
       exchange loss of $231 (2009 - gain of $1,998).

    b) Supplementary cash flow information:

                                                          2010         2009
                                                   ------------ -------------

    Balance with banks                               $   4,677    $   1,069
    Short-term deposits, bearing interest at 0.29%
     (January 31, 2009 - 1.0%)                         223,900      212,985
                                                   ------------ -------------
    Cash and cash equivalents                        $ 228,577    $ 214,054
                                                   ------------ -------------
                                                   ------------ -------------

    Marketable securities:
      Fair value                                     $  48,026    $  32,818
      Cost                                              49,123       41,660

    Non-cash transactions:
      Capital asset additions included in
       accounts payable and accrued items            $   1,408    $   3,289
      Ascribed value credited to share capital
       from exercise of stock options                      655           63

    Cash paid during the year for:
      Income taxes                                   $  31,164    $  70,886
      Interest                                             850          975

    Investment income:
      Available-for-sale financial assets:
      Interest income                                $       -    $      42
      Dividends                                          2,109        1,719
      Realized loss on disposal                           (794)      (2,350)
      Held-for-trading financial assets:
      Interest income                                      677        5,940
                                                   ------------ -------------
                                                     $   1,992    $   5,351
                                                   ------------ -------------
                                                   ------------ -------------
    

17. 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. The annual rent payable under these leases is, in the aggregate, approximately $197 (2009 - $184).

The Company incurred $474 in fiscal 2010 (2009 - $395) 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.

18. 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 year-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 year-end, which are considered Level 1 inputs in the fair value hierarchy.

The fair value of long-term debt is $13,045 compared to its carrying value of $12,731.

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 are provided below.

Credit Risk

Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company's financial instruments that are exposed to concentrations of credit risk are primarily cash and cash equivalents, marketable securities, accounts receivable and foreign exchange option contracts. The Company limits its exposure to credit risk with respect to cash and cash equivalents by investing available cash in short-term deposits with Canadian financial institutions and commercial paper with a rating not less than R1. Marketable securities consist primarily of preferred shares of highly-rated Canadian public companies. The Company's receivables consist primarily of credit card receivables from the last few days of the fiscal year, which are settled within the first days of the new fiscal year.

As at January 30, 2010, the Company's maximum exposure to credit risk for these financial instruments was as follows:

    
    Cash and cash equivalents                                     $ 228,577
    Marketable securities                                            48,026
    Accounts receivable                                               2,926
                                                                -------------
                                                                  $ 279,529
                                                                -------------
                                                                -------------
    

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet liabilities when due. The contractual maturity of the majority of accounts payable is within six months. As at January 30, 2010, the Company had a high degree of liquidity with $276,603 in cash and cash equivalents and marketable securities. In addition, the Company has unsecured credit facilities of $125,000, subject to annual renewals. The Company has financed its store expansion through internally-generated funds and its unsecured credit facilities are used to finance seasonal working capital requirements for US dollar merchandise purchases. The Company's long-term debt consists of a mortgage bearing interest at 6.40%, due November 2017, which is secured by the Company's distribution centre.

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 January 30, 2010 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 $2,884 and accounts payable of $2,123 to determine how a change in the US dollar exchange rate would impact net earnings. On January 30, 2010, 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 not have a material impact on the financial statements.

Interest Rate Risk

The Company's exposure to interest rate fluctuations is primarily related to any overdraft denominated in Canadian or US dollars drawn on its bank accounts and interest earned on its cash and cash equivalents. The Company has unsecured borrowing and working capital credit facilities up to an amount of $125,000 available that it utilizes for documentary and standby letters of credit, and the Company funds the drawings on these facilities as the payments are due.

The Company has performed a sensitivity analysis on interest rate risk at January 30, 2010 to determine how a change in interest rates would impact equity and net earnings. During fiscal 2010, the company earned interest income of $677 on its cash and cash equivalents. An increase or decrease of 25 basis points in the average interest rate earned during the year would have increased equity and net earnings by $318 or decreased equity and net earnings by $293. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.

Equity Price Risk

Equity price risk arises from available-for-sale equity securities. The Company monitors the mix of equity securities in its investment portfolio based on market expectations. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by the Chief Executive Officer.

The Company has performed a sensitivity analysis on equity price risk at January 30, 2010, to determine how a change in the market price of the Company's marketable securities would impact equity and other comprehensive income. The Company's equity investments consist principally of preferred shares of Canadian public companies. The Company believes that changes in interest rates influence the market price of these securities. A 5% increase or decrease in the market price of the securities at January 30, 2010, would result in a $2,015 increase or decrease in equity and other comprehensive income. The Company's equity securities are subject to market risk and, as a result, the impact on equity and other comprehensive income may ultimately be greater than that indicated above.

19. CAPITAL DISCLOSURES

The Company's objectives in managing capital are:

    
    - to ensure sufficient liquidity to enable the internal financing of
      capital projects thereby facilitating its expansion;

    - to maintain a strong capital base so as to maintain investor, creditor
      and market confidence;

    - to provide an adequate return to shareholders.
    

The Company's capital is composed of long-term debt, including the current portion and shareholders' equity. The Company's primary uses of capital are to finance increases in non-cash working capital along with capital expenditures for new store additions, existing store renovation projects and office and distribution centre improvements. The Company currently funds these requirements out of its internally-generated cash flows. The Company's long-term debt constitutes a mortgage on the distribution centre facility. The Company maintains an unsecured operating line of credit that it uses to satisfy commitments for US dollar denominated merchandise purchases. The Company does not have any long-term debt, other than the mortgage related to the distribution centre, and therefore net earnings generated from operations are available for reinvestment in the Company or distribution to the Company's shareholders. The Board of Directors does not establish quantitative return on capital criteria for management, but rather promotes year over year sustainable profitable growth. On a quarterly basis, the Board of Directors also reviews the level of dividends paid to the Company's shareholders and monitors the share repurchase program activities. The Company does not have a defined share repurchase plan and buy and sell decisions are made on a specific transaction basis and depend on market prices and regulatory restrictions. The Company is not subject to any externally imposed capital requirements.

20. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform to the current year's presentation.

    
    MANAGEMENT'S DISCUSSION AND ANALYSIS
    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    FOR THE FISCAL YEAR ENDED JANUARY 30, 2010
    

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 audited financial statements of Reitmans for the fiscal year ended January 30, 2010 and the notes thereto which are available at www.sedar.com. This MD&A is dated March 29, 2010.

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 March 29, 2010.

At the beginning of the year, the Company wound up its wholly-owned subsidiaries, effectively eliminating the preparation of consolidated financial statements for the fiscal year ended January 30, 2010. There was no impact on the comparative financial statements as at and for the year ended January 31, 2009.

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 a Non-GAAP financial measure such as operating earnings before depreciation and amortization ("EBITDA"), which is defined as earnings before interest, taxes, depreciation and amortization and investment income. The Company believes this measure provides meaningful information on the Company's performance and operating results. However, readers should know that such a Non-GAAP financial measure has no standardized meaning as prescribed by GAAP and may not be comparable to a similar measure presented by other companies. Accordingly, this financial measure 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.

    
    SELECTED FINANCIAL INFORMATION
    (in thousands, except per share amounts)

                                            For the fiscal years ended
                                      January 30,  January 31,  February 2,
                                            2010         2009         2008

    Sales                            $ 1,056,527  $ 1,050,861  $ 1,057,720
    Earnings before income taxes          99,015      127,177      159,216
    Net earnings                          67,236       85,806      114,902(1)
    Earnings per share ("EPS")
      Basic                                 0.98         1.21         1.61(1)
      Diluted                               0.98         1.21         1.60(1)

    Total assets                         631,392      633,165      620,960
    Long-term debt(2)                     11,431       12,731       13,951
    Dividends per share                     0.72         0.72         0.66

    (1) Excluding the impact of retroactive Québec income tax reassessments,
        net earnings for the year would have been $107,753, Basic EPS $1.53
        and Diluted EPS $1.50.

    (2) Excluding current portion of long-term debt, deferred lease credits
        and accrued pension liability.
    

OPERATING RESULTS FOR THE 52 WEEK FISCAL YEAR ENDED JANUARY 30, 2010 ("FISCAL 2010") AND COMPARISON TO OPERATING RESULTS FOR THE 52 WEEK FISCAL YEAR ENDED JANUARY 31, 2009 ("FISCAL 2009")

Sales for fiscal 2010 increased 0.5% to $1,056,527,000 as compared with $1,050,861,000 for fiscal 2009. Same store sales decreased 1.0%. This reflects reduced consumer spending as households felt the impact of the recession throughout much of fiscal 2010. Modest sales increases did materialize in the fourth quarter as the economic conditions improved and consumer confidence in a recovery appeared to grow. This was further evidenced as seasonally adjusted sales in the clothing sector showed a 1.2% increase from November to December 2009 and a 1.5% increase for December 2009 as compared to December 2008, as reported by Statistics Canada. Regionally, sales were most impacted in the west with Alberta continuing to show a slower rate of recovery as compared to elsewhere in Canada. Sales can be heavily influenced by weather conditions that, on a Canada-wide basis, were temperate with most provinces experiencing near normal temperatures during most of 2009 despite a cooler spring across the country. Precipitation levels were more than 20% below normal in western Canada while Eastern Canada experienced precipitation levels more than 20% wetter than normal. With a high concentration of stores in Ontario and Quebec, this contributed to softer sales in the summer months.

For fiscal 2010, EBITDA decreased by $22,443,000 or 12.4% to $158,488,000 as compared with $180,931,000 for fiscal 2009. The Company's gross margin of 64.2% for fiscal 2010 decreased as compared to 65.4% for fiscal 2009, or $8,973,000. Despite sales remaining virtually unchanged from the prior year, the reduction in gross margin was primarily attributable to the negative impact of the Canadian dollar vis-à-vis the US dollar. The average rate for a US dollar in fiscal 2010 was $1.13 Canadian as compared to $1.08 Canadian in fiscal 2009. The Canadian dollar remained weak against the US dollar throughout the first quarter of fiscal 2010, strengthening throughout the remainder of fiscal 2010. Spot prices for $1.00 US during fiscal 2010 ranged between a high of $1.30 and a low of $1.03 Canadian ($1.30 and $0.97 respectively during fiscal 2009). For fiscal 2010 as compared to fiscal 2009, the fluctuation of the US dollar negatively impacted gross margin by approximately $10,000,000. Significant components of operating costs that contributed to the decrease in EBITDA included a $10,000,000 increase in the expense related to the Company's performance incentive plan along with rent and occupancy costs, which increased by approximately $4,000,000.

Depreciation and amortization expense for fiscal 2010 was $60,619,000 compared to $58,184,000 for the prior year. This increase reflects the increased new store construction and store renovation activities of the Company. As well, it includes $1,670,000 of write-offs as a result of closed and renovated stores, compared to $2,577,000 in the prior year.

Investment income for fiscal 2010 decreased 62.8% to $1,992,000 as compared to $5,351,000 in the prior year. Interest income decreased for fiscal 2010 to $677,000 as compared to $5,982,000 for fiscal 2009 due to lower amounts invested at significantly reduced rates of interest. Dividend income for fiscal 2010 was $2,109,000 as compared to $1,719,000 for fiscal 2009. The disposal of marketable securities in the fourth quarter of fiscal 2010 resulted in net capital losses of $794,000 for fiscal 2010, which allowed net capital losses to be carried back for income tax purposes to recover previous years' taxes, as compared to net capital losses of $2,350,000 for fiscal 2009.

Interest expense on long-term debt decreased to $846,000 for fiscal 2010 from $921,000 in fiscal 2009. This decrease reflects the continued repayment of the mortgage on the Company's distribution centre.

Income tax expense for fiscal 2010 amounted to $31,779,000, for an effective tax rate of 32.1% as compared to $41,371,000, for an effective tax rate of 32.5%, for fiscal 2009. The reduction in the effective tax rate reflects the impact of changes in substantively enacted tax rates in various tax jurisdictions.

Net earnings for fiscal 2010 decreased 21.6% to $67,236,000 ($0.98 diluted earnings per share) as compared with $85,806,000 ($1.21 diluted earnings per share) for 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 fiscal 2010, these merchandise purchases, which are payable in US dollars, approximated $200,000,000 US. The Company considers a variety of strategies, such as foreign exchange option contracts, designed to fix the cost of its continuing US dollar commitments. Due to the strengthening of the Canadian dollar throughout most of fiscal 2010, the Company satisfied its US dollar requirements through spot rate purchases.

During fiscal 2010, the Company opened 24 stores comprised of 7 Reitmans, 3 Smart Set, 7 RW & CO., 1 Thyme Maternity, 2 Cassis, 3 Penningtons and 1 Addition Elle; 20 stores were closed. Accordingly, at January 30, 2010, there were 977 stores in operation, consisting of 369 Reitmans, 164 Smart Set, 66 RW & CO., 76 Thyme Maternity, 17 Cassis, 162 Penningtons and 123 Addition Elle, as compared with a total of 973 stores last year.

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 52 WEEK FISCAL YEAR ENDED JANUARY 31, 2009 ("FISCAL 2009") AND COMPARISON TO OPERATING RESULTS FOR THE 52 WEEK FISCAL YEAR ENDED FEBRUARY 2, 2008 ("FISCAL 2008")

Sales for fiscal 2009 decreased 0.6% to $1,050,861,000 as compared with $1,057,720,000 for fiscal 2008. Same store sales decreased 4.0%. In the first and second quarters of fiscal 2009, weakness in the US economy and sharp increases in the price of certain commodities in Canada, most notably oil and gas, negatively impacted consumer confidence, which led to reduced traffic in all venues as consumers cut back on spending for apparel. Particularly unfavorable weather conditions yielded close to historical records for snowfall, which persisted into the spring in Central and Eastern Canada, contributing to a softening in the demand for spring merchandise as customers delayed their purchases. Unseasonable weather continued throughout Canada during the months of May, June and July with higher than average levels of rainfall and below normal temperatures. This impacted traditional buying patterns as consumers delayed purchases resulting in the Company's merchandise being more heavily promoted to manage inventory levels. In the third quarter of fiscal 2009, global economic conditions deteriorated significantly. Despite a relatively positive outlook in Canada, consumer confidence continued to weaken over financial markets concerns and the fear of recession. This resulted in downward pressure on retail prices for apparel as concern over inventory levels rose. In the fourth quarter of fiscal 2009, economic conditions deteriorated further as the impact of the US financial crisis moved into Canada and consumer spending patterns reflected increased concern over the recession. Statistics Canada reported sales in the clothing and accessories stores sector fell 3.7% in December 2008, continuing several months of declines. With a continued weakening of consumer confidence and facing rising unemployment, consumers reduced their spending in all areas and particularly on apparel.

For fiscal 2009, EBITDA decreased by $18,245,000 or 9.2% to $180,931,000 as compared with $199,176,000 for fiscal 2008. The Company's gross margin of 65.4% for fiscal 2009 remained unchanged from fiscal 2008 after adjusting for transportation costs and certain distribution centre costs, which were excluded from the computation of gross margin in fiscal 2008 and included in fiscal 2009 as a result of the adoption of a new accounting standard. The decline in sales of $6,859,000 in fiscal 2009 as compared to fiscal 2008 resulted in a reduction of approximately $4,500,000 in gross margin (and EBITDA). 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 can impact earnings. Despite the effect of a weaker Canadian dollar vis-à-vis the US dollar in fiscal 2009 as compared to fiscal 2008, EBITDA was not significantly impacted. This was largely the result of a relatively comparable average rate for a US dollar for fiscal 2009 as compared to fiscal 2008. The average rate for a US dollar in fiscal 2009 was $1.08 Canadian as compared to $1.06 Canadian in fiscal 2008. The Canadian dollar was close to par with the US dollar throughout the first six months of fiscal 2009, weakening somewhat in the third quarter and more significantly in the fourth quarter of fiscal 2009. Spot prices for $1.00 US during fiscal 2009 ranged between a high of $1.30 and a low of $0.97 Canadian ($1.19 and $0.91 respectively during fiscal 2008). Significant components of store operating costs that negatively impacted EBITDA included wages, which increased by 48 basis points as a percentage of sales and rent and occupancy costs, which increased by 97 basis points as a percentage of sales. The combined increase of 145 basis points as a percentage of sales negatively impacted EBITDA by approximately $15,000,000, offset by modest improvements in other store expenses.

Depreciation and amortization expense for fiscal 2009 was $58,184,000 compared to $50,098,000 for the prior year. This increase reflects the increased new store construction and store renovation activities of the Company. As well, it includes $2,577,000 of write-offs as a result of closed and renovated stores, compared to $1,793,000 in the prior year.

Investment income for fiscal 2009 decreased 51.9% to $5,351,000 as compared to $11,128,000 in the prior year. The disposal of marketable securities in the fourth quarter of fiscal 2008 contributed to a reduction in dividend income for fiscal 2009 to $1,719,000 as compared to $2,398,000 for fiscal 2008. The disposal of marketable securities in the fourth quarter of fiscal 2009 resulted in net capital losses of $2,350,000 for fiscal 2009, which allowed for net capital losses to be carried back for income tax purposes to recover previous years' taxes, as compared to net capital gains of $474,000 for fiscal 2008. Interest income decreased for fiscal 2009 to $5,982,000 as compared to $8,256,000 for fiscal 2008 due to significantly lower rates of interest.

Interest expense on long-term debt decreased to $921,000 for fiscal 2009 from $990,000 in fiscal 2008. This decrease reflects the continued repayment of the mortgage on the Company's distribution centre.

Income tax expense for fiscal 2009 amounted to $41,371,000, for an effective tax rate of 32.5%. For fiscal 2008, income tax expense was $44,314,000, for an effective tax rate of 27.8% (32.3% prior to a Québec tax reassessments recovery). The variation in the effective tax rate is primarily due to a reduction in the Company's income tax expense in fiscal 2008 of $7,149,000 related to settlement of the retroactive income tax reassessments issued in connection with Bill 15 enacted by the Québec National Assembly.

Net earnings for fiscal 2009 decreased 25.3% to $85,806,000 ($1.21 diluted earnings per share) as compared with $114,902,000 ($1.60 diluted earnings per share) for fiscal 2008.

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 fiscal 2009, these merchandise purchases, which are payable in US dollars, exceeded $200,000,000 US. The Canadian dollar remained strong through September 2008. Due to the strengthening Canadian dollar throughout most of fiscal 2009, the Company satisfied its US dollar requirements through spot rate purchases. 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 fiscal 2009, the Company opened 47 stores comprised of 17 Reitmans, 5 Smart Set, 7 RW & CO., 4 Thyme Maternity, 2 Cassis, 4 Penningtons and 8 Addition Elle; 32 stores were closed. Accordingly, at January 31, 2009, there were 973 stores in operation, consisting of 372 Reitmans, 166 Smart Set, 59 RW & CO., 76 Thyme Maternity, 16 Cassis, 161 Penningtons and 123 Addition Elle, as compared with a total of 958 stores in the prior year.

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.

FOURTH QUARTER RESULTS FOR THE 13 WEEKS ENDED JANUARY 30, 2010 AND COMPARISON TO THE 13 WEEKS ENDED JANUARY 31, 2009

Sales for the fourth quarter of fiscal 2010 increased 2.4% to $268,120,000 as compared with $261,801,000 for the fourth quarter of fiscal 2009. Same store sales increased 1.5% for the comparable 13 weeks. Modest sales increases materialized in the fourth quarter as economic conditions improved and consumer confidence in a recovery appeared to grow. This was further evidenced as seasonally adjusted sales in the clothing sector showed a 1.2% increase from November to December 2009 and a 1.5% increase for December 2009 as compared to December 2008, as reported by Statistics Canada.

In the fourth quarter of fiscal 2010, EBITDA increased by $7,578,000 or 25.5% to $37,317,000 as compared with $29,739,000 for the fourth quarter of fiscal 2009. The Company's gross margin for the fourth quarter of fiscal 2010 increased to 65.0% from 60.8% for the fourth quarter of fiscal 2009, or $15,103,000. The significant improvement in the gross margin was primarily attributable to the strength of the Canadian dollar in the fourth quarter of fiscal 2010. The average rate for a US dollar for the fourth quarter of fiscal 2010 was $1.05 Canadian as compared to $1.23 for the fourth quarter of fiscal 2009. Spot prices for $1.00 US during the fourth quarter of fiscal 2010 ranged between a high of $1.07 and a low of $1.03 Canadian ($1.30 and $1.15 respectively during the fourth quarter of fiscal 2009). For the fourth quarter of fiscal 2010 as compared to the fourth quarter of fiscal 2009, the fluctuation of the US dollar positively impacted gross margin by approximately $7,000,000. Significant components of operating costs that reduced EBITDA included a $7,000,000 increase in the expense related to the Company's performance incentive plan.

Depreciation and amortization expense for the fourth quarter was $15,438,000 compared to $14,887,000 for the fourth quarter of fiscal 2009. This increase reflects the increased new store construction and store renovation activities of the Company. As well, it includes $473,000 of write-offs as a result of closed and renovated stores, compared to $191,000 in the fourth quarter of fiscal 2009.

Investment income for the fourth quarter was a loss of $28,000 as compared to a loss of $528,000 in fiscal 2009. Interest income decreased for the fourth quarter to $158,000 as compared to $1,327,000 for the fourth quarter of fiscal 2009 due to lower amounts invested at significantly reduced rates of interest. Dividend income in the fourth quarter of fiscal 2010 was $547,000 as compared to $495,000 for the fourth quarter of fiscal 2009. There were net capital losses of $733,000 for the fourth quarter as compared to net capital losses of $2,350,000 for the fourth quarter of fiscal 2009.

Interest expense on long-term debt decreased to $204,000 in the fourth quarter of fiscal 2010 from $224,000 in the fourth quarter of fiscal 2009. This decrease reflects the continued repayment of the mortgage on the Company's distribution centre.

Income tax expense for the fourth quarter of fiscal 2010 amounted to $7,559,000, for an effective tax rate of 34.9%. For the fourth quarter of fiscal 2009, income tax expense was $5,119,000, for an effective tax rate of 36.3%.

Net earnings for the fourth quarter of fiscal 2010 increased 56.9% to $14,088,000 ($0.21 diluted earnings per share) as compared with $8,981,000 ($0.13 diluted earnings per share) for the fourth 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 fourth quarter, these merchandise purchases, which are payable in US dollars, approximated $36,000,000 US. The Company considers a variety of strategies, such as foreign exchange option contracts, designed to fix the cost of its continuing US dollar commitments. Due to the strengthening of the Canadian dollar in the fourth quarter, the Company satisfied its US dollar requirements through spot rate purchases. The Company did not enter into any foreign exchange option contracts during the fourth quarter.

During the fourth quarter, the Company opened 3 stores comprised of 2 Reitmans and 1 RW & CO.; 7 stores were closed. Accordingly, at January 30, 2010, there were 977 stores in operation, consisting of 369 Reitmans, 164 Smart Set, 66 RW & CO., 76 Thyme Maternity, 17 Cassis, 162 Penningtons and 123 Addition Elle, as compared with a total of 973 stores last year.

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.

    
    -------------------------------------------------------------------------
    (in thousands, except per share amounts)             Earnings per Share
                                                              ("EPS")

                                              Net
                               Sales     Earnings        Basic      Diluted
                         ----------------------------------------------------
    January 31, 2010     $   268,120  $    14,088  $      0.21  $      0.21

    October 31, 2009         270,684       18,921         0.28         0.28

    August 1, 2009           286,071       26,426         0.38         0.38

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

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 $228,577,000 or 6.8% higher than $214,054,000 last year. Marketable securities held by the Company consist primarily of preferred shares of Canadian public companies. At January 30, 2010, marketable securities (reported at fair value) amounted to $48,026,000 as compared with $32,818,000 last year, $15,208,000 higher. Marketable securities increased by $12,951,000 as a result of purchases during the year. The Company's investment portfolio is subject to stock market volatility. The impact of the recession resulted in declines in the stock market and consequently to reductions in the market value of the Company's marketable securities. Recent improvement in market conditions has resulted in excess of a 20% increase in the market value of the marketable securities over the prior year. 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 $2,926,000 or $237,000 higher than last year. The Company's accounts receivable are essentially the credit card sales from the last few days of the fiscal quarter. Merchandise inventories this year were $63,127,000 or $934,000 lower than last year, despite an increase in the number of stores, reflecting the increased focus on inventory levels. Prepaid expenses are $11,873,000 or $471,000 higher than last year.

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 invested $33,185,000 in additions to capital assets and intangible assets in fiscal 2010 compared to $58,152,000 last year. This included $31,642,000 (2009 - $52,430,000) in new store construction and existing store renovation costs and $1,543,000 (2009 - $5,722,000) to the Sauvé Street office and Henri-Bourassa Boulevard distribution centre. The Company's planned capital expenditures for new stores and existing store renovations in fiscal 2011 is expected to approximate $30,000,000.

Accounts payable and accrued items are $77,766,000, or $7,134,000 higher than last year, due mainly to an increase in employee performance incentive bonus costs. The Company's accounts payable consist largely of trade payables and liabilities for unredeemed gift cards. Income taxes payable are $4,677,000 as compared to income taxes recoverable of $3,826,000 last year, due to lower instalments in fiscal 2010.

The Company maintains a defined benefit pension plan ("plan"). An actuarial valuation was performed as at December 31, 2007 to determine the estimated liability the Company incurred with respect to the provisions of the plan. The Company's next actuarial valuation is scheduled for December 31, 2010. 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 $2,137,000 (2009 - $2,825,000) was expensed in fiscal 2010 with respect to both plans.

The funded status of the plan fluctuates with market conditions and impacts funding requirements. Based on the latest actuarial valuation conducted as at December 31, 2007, the plan was in a funding deficit, which the Company funded in the fiscal year ended January 31, 2009. Total Company contributions to the plan are expected to be approximately $493,000 in fiscal 2011 based on the plan's current position. For fiscal 2010, the Company paid $510,000 in contributions to the plan (2009 - $1,384,000). The Company will continue to make contributions to the plan that as a minimum meet pension legislative requirements. Adverse changes to the assumptions used such as the discount rate and expected long-term rate of return on plan assets could affect the funded status of the plan and, as such, could have a significant impact on the cash funding requirements of the plan.

To develop its expected long-term rate of return assumption used in the calculation of net periodic benefit costs applicable to the fair value of assets, the Company considers both its past experience and future estimates of long-term investment returns, the expected composition of the plan's assets as well as the expected long-term market returns in the future. For fiscal 2010, the Company reduced the long-term rate of return assumption from 7.5% to 7.0% on the fair value of plan assets to compute net periodic benefit cost.

OPERATING RISK MANAGEMENT

Economic Environment

Retail sales in Canada were weak throughout most of fiscal 2010 with modest signs of improvement in the fourth quarter of fiscal 2010. 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 977 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 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 are provided below.

Credit Risk

Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company's financial instruments that are exposed to concentrations of credit risk are primarily cash and cash equivalents, marketable securities, accounts receivable and foreign exchange option contracts. The Company limits its exposure to credit risk with respect to cash and cash equivalents by investing available cash in bank bearer deposit notes and bank term deposits with Canadian financial institutions with a rating not less than R1. Marketable securities consist primarily of preferred shares of highly-rated Canadian public companies. The Company's receivables consist primarily of credit card receivables from the last few days of the fiscal year, which are settled within the first days of the new fiscal year.

As at January 30, 2010, the Company's maximum exposure to credit risk for these financial instruments was as follows:

    
    Cash and cash equivalents         $ 228,577,000
    Marketable securities                48,026,000
    Accounts receivable                   2,926,000
                                      -------------
                                      $ 279,529,000
                                      -------------
                                      -------------
    

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet liabilities when due. The contractual maturity of the majority of accounts payable is within six months. As at January 30, 2010, the Company had a high degree of liquidity with $276,603,000 in cash and cash equivalents and marketable securities. In addition, the Company has unsecured credit facilities of $125,000,000, subject to annual renewals. The Company has financed its store expansion through internally-generated funds and its unsecured credit facilities are used to finance seasonal working capital requirements for US dollar merchandise purchases. The Company's long-term debt consists of a mortgage bearing interest at 6.40%, due November 2017, which is secured by the Company's distribution centre.

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 January 30, 2010 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 $2,884,000 and accounts payable of $2,123,000 to determine how a change in the US dollar exchange rate would impact net earnings. On January 30, 2010, 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 not have a material impact on the financial statements.

Interest Rate Risk

The Company's exposure to interest rate fluctuations is primarily related to any overdraft denominated in Canadian or US dollars drawn on its bank accounts and interest earned on its cash and cash equivalents. The Company has available unsecured borrowing and working capital credit facilities up to an amount of $125,000,000 available that it utilizes for documentary and standby letters of credit, and the Company funds the drawings on these facilities as the payments are due.

The Company has performed a sensitivity analysis on interest rate risk at January 30, 2010 to determine how a change in interest rates would impact equity and net earnings. During fiscal 2010, the company earned interest income of $677,000 on its cash and cash equivalents. An increase or decrease of 25 basis points in the average interest rate earned during the year would have increased equity and net earnings by $318,000 or decreased equity and net earnings by $293,000. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.

Equity Price Risk

Equity price risk arises from available-for-sale equity securities. The Company monitors the mix of equity securities in its investment portfolio based on market expectations. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by the Chief Executive Officer.

The Company has performed a sensitivity analysis on equity price risk at January 30, 2010 to determine how a change in the market price of the Company's marketable securities would impact equity and other comprehensive income. The Company's equity investments consist principally of preferred shares of Canadian public companies. The Company believes that changes in interest rates influence the market price of these securities. A 5% increase or decrease in the market price of the securities at January 30, 2010 would result in a $2,015,000 increase or decrease in equity and other comprehensive income. The Company's equity securities are subject to market risk and, as a result, the impact on equity and other comprehensive income may ultimately be greater than that indicated above.

LIQUIDITY, CASH FLOWS AND CAPITAL RESOURCES

Shareholders' equity at January 30, 2010 amounted to $510,166,000 or $7.55 per share as compared to $522,539,000 or $7.43 per share last year. Despite the recession that resulted in a significant drop in the Toronto Stock Exchange composite index, the Company, by virtue of its holdings in cash and cash equivalents, 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 $276,603,000 as compared with $246,872,000 last year. 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 and does not hold any asset-backed commercial paper. The Company has borrowing and working capital credit facilities (unsecured) available of $125,000,000. As at January 30, 2010, $53,624,000 (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 January 30, 2010, the maximum potential liability under these guarantees was $5,139,000. The standby letters of credit mature at various dates during fiscal 2011. 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 $1,220,000 in fiscal 2010. Throughout fiscal 2010 and 2009, the Company paid $0.72 dividends per share totalling $49,351,000 in fiscal 2010 compared to $50,885,000 in fiscal 2009, the reduction being attributable to a lower number of shares outstanding due to the normal course issuer bid share purchases.

In fiscal 2010, the Company invested $33,185,000 on new and renovated stores, the Sauvé Street office and Henri-Bourassa Boulevard distribution centre. In the fiscal year ending January 29, 2011, the Company expects 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, pension plan funding 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, excluding accounts payable and accrued items, as at January 30, 2010, the details of which are described in the previous commentary.

    
                  -----------------------------------------------------------
    Contractual                         Within         2 to 4        5 years
     Obligations          Total         1 year          years       and over
                  -----------------------------------------------------------
    Store & office
     operating
     leases(1)    $ 462,710,000  $  98,574,000  $ 213,805,000  $ 150,331,000
    Other
     operating
     leases(2)       16,107,000      3,637,000      8,562,000      3,908,000
    Long-term
     debt            12,731,000      1,300,000      4,428,000      7,003,000
    Interest on
     long-term
     debt             3,435,000        766,000      1,771,000        898,000
                  -----------------------------------------------------------
    Total
     contractual
     obligations  $ 494,983,000  $ 104,277,000  $ 228,566,000  $ 162,140,000
                  -----------------------------------------------------------
                  -----------------------------------------------------------

    (1) Represents the minimum lease payments under long-term leases for
        store locations and office space as at January 30, 2010.

    (2) Includes lease payments for computer equipment, automobiles and
        office equipment.
    

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 considers a variety of strategies, such as foreign exchange option contracts, designed to fix the cost of its continuing US dollar commitments. Due to the strengthening of the Canadian dollar throughout most 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 usually not exceeding three months. As at January 30, 2010, the Company had no outstanding foreign exchange option contracts.

Included in the determination of the Company's net earnings for fiscal 2010 is a foreign exchange loss of $231,000 (2009 - gain of $1,998,000).

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. The annual rent expense under these leases is, in the aggregate, approximately $197,000 (2009 - $184,000).

The Company incurred $474,000 in fiscal 2010 (2009 - $395,000) 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 impact of the recession resulted in declines in the stock market and consequently to reductions in the market value of the Company's marketable securities. Recent improvement in market conditions has resulted in excess of a 20% increase in the market value of the marketable securities over the prior year. 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 annually 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. The Company's expected long-term rate of return on plan assets reflects management's view of long-term investment returns and the effect of a 1% variation in such rate of return would result in a change to the net periodic benefit cost of approximately $90,000. Management's assumption of the expected long-term rate of return is subject to risks and uncertainties that could cause the actual rate of return to differ materially from management's assumption. There can thus be no assurance that the plan assets will be able to earn the expected long-term rate of return on plan assets. The impact of actual return on plan assets versus the expected return on plan assets is reflected annually in the pension plan expense.

The Company's discount rate assumption, which is set annually at the end of each year, is used to determine the projected benefit obligation at the end of the year and the net periodic benefit cost for the following year. The discount rate is used to measure the single amount that, if invested at the measurement date in a portfolio of high-quality debt instruments with a rating of AA or better, would provide the necessary cash flows to pay for pension benefits as they become due. The discount rate is determined by management with the aid of a third-party actuary. A discount rate, based upon data as of December 31, 2009, of 5.8% for the year ended January 30, 2010 (6.3% at January 31, 2009), was considered appropriate by the Company to match the average duration of estimated future benefit payments. The current estimate for the expected average remaining service life of the employee group covered by the plan is approximately 12 years.

For the year ended January 30, 2010, a one-percentage-point decrease in the year-end discount rate would have resulted in an increase of approximately $2,800,000 in the fiscal 2010 net periodic benefit cost, whereas a one-percentage-point increase would have resulted in a decrease of approximately $2,500,000.

The defined benefit plan is fully funded and solvent and the SERP is an unfunded pay as you go plan.

Goodwill

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

Gift Cards

Gift cards sold are recorded as a liability and revenue is recognized when the gift card is redeemed. The Company no longer issues credit vouchers as these have been replaced by gift cards. 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 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 impact of adopting this standard was to reclassify the net book value of software of $9,964,000 as at January 30, 2010 (2009 - $12,577,000) from capital assets to intangible assets on the balance sheet. The adoption of this new standard had no impact on the Company's financial results.

EIC 173 - Credit Risk and the Fair Value of Financial Assets and Financial Liabilities

In January 2009, the CICA issued Emerging Issue Committee Abstract 173 ("EIC 173") Credit Risk and the Fair Value of Financial Assets and Financial Liabilities. EIC 173 requires that a company take into account its own credit risk and the credit risk of its counterparty in determining the fair value of financial assets and financial liabilities. This abstract must be applied retrospectively without restatement of prior periods to all financial assets and liabilities measured at fair value in interim and annual financial statements for periods ending on or after January 20, 2009. The adoption of these new recommendations had no impact on the Company's financial results.

Financial Instruments - Disclosures

In June 2009, the CICA amended Handbook Section 3862, Financial Instruments - Disclosures, to enhance disclosures about fair value measurements and liquidity risk of financial instruments. The amendment is to be applied to annual financial statements with fiscal years ending after September 30, 2009. The purpose of this amendment is to provide further convergence with IFRS. Financial instruments recognized at fair value on the balance sheet must be classified in fair value hierarchy levels as follows:

Level 1 - valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - valuation techniques based on inputs that are other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices);

Level 3 - valuation techniques with unobservable market inputs (involves assumptions and estimates by management of how market participants would price the assets or liabilities).

The amended section relates to disclosure only and did not impact the financial results of the Company. As at January 30, 2010, the Company held no significant assets or liabilities required to be measured at fair value, except for cash and cash equivalents and marketable securities, which were measured using Level 1 inputs in the fair value hierarchy.

TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

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 for which details are outlined below:

    
    -------------------------------------------------------------------------
    Phase 1:
    Initial Assessment Phase
    -------------------------------------------------------------------------
    Actions                     - High-level review of the major differences
                                  between current Canadian GAAP and IFRS.
                                - Initial evaluation of the different IFRS 1
                                  exemptions available at date of transition.
                                - High-level assessment of potential
                                  consequences on financial reporting,
                                  business processes, internal controls and
                                  information systems.
                                - Training sessions on IFRS for the various
                                  members of the IFRS project team.
    -------------------------------------------------------------------------
    Timetable                   Third quarter of Fiscal 2009
    -------------------------------------------------------------------------
    Progress                    Completed
    -------------------------------------------------------------------------
    Phase 2:
    Detailed Assessment and
    Design Phase
    -------------------------------------------------------------------------
    Actions                     - Each area of accounting differences between
                                  Canadian GAAP and IFRS identified in the
                                  initial phase is assessed and an IFRS
                                  project team member dedicated to review
                                  these differences.
                                - This review includes the changes required
                                  to existing accounting policies,
                                  information systems, and business
                                  processes, together with an analysis of
                                  policy alternatives allowed under IFRS and
                                  impacts on drafting of financial statements
                                  under IFRS.
                                - The analysis on these differences are
                                  discussed by the Company's IFRS
                                  project team and decisions made, including
                                  the Company's selection of IFRS 1
                                  exemptions at the date of transition, are
                                  included in IFRS memos and approved by the
                                  external auditors.
                                - Developing draft IFRS financial statements
                                  and notes.
                                - Presentation of major differences and
                                  impact to the Audit Committee on a
                                  quarterly basis.
    -------------------------------------------------------------------------
    Timetable                   Second quarter of Fiscal 2011
    -------------------------------------------------------------------------
    Progress                    - A majority of the differences were analyzed
                                  and concluded on for accounting policy
                                  choices, changes to processes and selection
                                  of one-time transition choices.
                                - The review of the remaining variances will
                                  be completed by the end of July 2010.
                                - The Company is currently working on
                                  preliminary IFRS financial statements in
                                  accordance with IAS 1 Presentation of
                                  Financial Statements.
                                - Periodic project status updates and
                                  information sessions are presented to
                                  Senior management and to the Audit
                                  Committee.
    -------------------------------------------------------------------------
    Phase 3:
    Implementation
    -------------------------------------------------------------------------
    Actions                     - Embedding changes to systems, business
                                  process and internal controls, as required.
                                - Parallel accounting under Canadian GAAP and
                                  IFRS.
                                - Preparation of detailed reconciliations of
                                  Canadian GAAP to IFRS financial statements.
                                - Training programs for the Company's finance
                                  and other staff, as necessary.
                                - Audit Committee approval of IFRS
                                  consolidated financial statements.
    -------------------------------------------------------------------------
    Timetable                   Third and fourth quarters of Fiscal 2011
    -------------------------------------------------------------------------
    Progress                    In process
    -------------------------------------------------------------------------
    

The Company's progress-to-date has resulted in the following conclusions:

First-Time Adoption (IFRS 1)

IFRS 1 provides the framework for the first-time adoption of IFRS and outlines that, in general, an entity shall apply the principles under IFRS retrospectively and that adjustments arising on conversion to IFRS shall be directly recognized in retained earnings. IFRS 1 provides a number of optional and mandatory exemptions. The Company currently expects to apply the following exemptions:

    
    -------------------------------------------------------------------------
    Exemption                   Application of exemption
    -------------------------------------------------------------------------
    Business combinations       The Company will not restate the accounting
                                of past business combinations.
    -------------------------------------------------------------------------
    Employee benefits           The Company will elect to recognize all
                                cumulative actuarial gains and losses arising
                                from its defined benefit plan in opening
                                retained earnings.
    -------------------------------------------------------------------------
    

The remaining elective exemptions have limited or no applicability to the Company.

Accounting Policies

Set out below are selected key areas of accounting differences where changes in accounting policies in conversion to IFRS may impact the Company's financial statements. The list should not be interpreted as a comprehensive list of changes; it highlights those areas of accounting differences the Company currently believes are to be most significant upon conversion to IFRS.

    
    -------------------------------------------------------------------------
    Key accounting area         Differences with potential impact for the
                                Company
    -------------------------------------------------------------------------
    Presentation of Financial   - Classification of the Statement of
    Statements (IAS 1)            operations by function or nature.
                                - Additional disclosures required in the
                                  notes to the financial statements.
    -------------------------------------------------------------------------
    Property, Plant and         - Componentization of buildings for separate
    Equipment (IAS 16)            amortization over different useful lives.
    -------------------------------------------------------------------------
    Impairment of Assets        - Grouping of assets in cash generating units
    (IAS 36)                      (CGU's) on the basis of independent cash
                                  inflows for impairment testing purposes,
                                  using a discounted cash flow method (DCF)
                                  in a single-step approach.
    -------------------------------------------------------------------------
    Customer loyalty            - Recognition of loyalty awards as a separate
    programmes (IFRIC 13)         component of revenue and deferral of this
                                  revenue until the obligation towards the
                                  customer is fulfilled.
    -------------------------------------------------------------------------
    

A number of other areas of IFRS will impact the Company to a lesser extent. The remaining IFRS standards to be analyzed in the first and second quarter of Fiscal 2011 are currently not expected to have a significant impact on the Company's financial statements.

Impact on Information Systems and Technology

At this time, the transition is expected to have minimal impact on information systems used by the organization.

Impact on Internal Controls and Disclosure Controls and Procedures

The Company's internal controls will not be materially affected by the transition to IFRS. The IFRS differences may lead to presentation and process changes to report more detailed information in the notes to the financial statements, but it is not currently expected to lead to many differences in the accounting treatments used by the Company.

Disclosure controls and procedures may change due to the transition to IFRS, but the impact is expected to be minimal as well.

Impact on Financial Reporting Expertise

Training and education has been provided to all members of the finance team who are directly affected by the transition to IFRS. IFRS training to other financial staff will be done as deemed necessary. A review of the Audit Committee charter to reflect the requirements for IFRS financial expertise will be completed in the fourth quarter of fiscal 2011.

General

At this time, the comprehensive impact of the changeover on the Company's future financial position and results of operations is not yet determinable. The Company continues to monitor and assess the impact of evolving differences between Canadian GAAP and IFRS, since the IASB is expected to continue issuing new accounting standards during the transition period.

The Company's IFRS conversion project is progressing according to schedule. As the project advances, the Company could alter its intentions and the milestones communicated at the time of reporting as a result of changes to international standards currently in development, or in light of new information or other external factors that could arise between now and when the changeover is completed.

OUTSTANDING SHARE DATA

At March 29, 2010, 13,440,000 Common shares of the Company and 54,159,706 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 3,207,000 options outstanding at an average exercise price of $14.14. 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 fiscal 2010, the Company purchased for cancellation 2,981,200 Class A non-voting shares, having a book value of $1,211,000, for a total cash consideration of $40,835,000. The excess of the purchase price over book value of the shares in the amount of $39,624,000 was charged to retained earnings.

CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the President and Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), on a timely basis so that appropriate decisions can be made regarding public disclosure.

An evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures was conducted as of January 30, 2010. Based on this evaluation, the CEO and the CFO have concluded that, as of January 30, 2010, the disclosure controls and procedures, as defined by National Instrument 52-109, were appropriately designed and were operating effectively.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Canadian generally accepted accounting principles. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.

An evaluation of the effectiveness of the design and operation of the Company's internal control over financial reporting was conducted as of January 30, 2010. Based on that evaluation, the CEO and the CFO concluded that the internal control over financial reporting, as defined by National Instrument 52-109, was appropriately designed and was operating effectively.

The evaluations were conducted in accordance with the framework and criteria established in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"), a recognized control model, and the requirements of National Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings.

The Company did not make any changes to the design of internal controls over financial reporting during the year ended January 30, 2010 that would have materially affected or would reasonably likely to materially affect the Company's internal controls over financial reporting.

OUTLOOK

The global economic recession continued into fiscal 2010, impacting consumer discretionary spending on many consumables, including apparel. The Canadian economy showed more resilience than many others and recent signs of improvement have emerged as consumer spending has shown slight increases along with more stability in the unemployment figures. The Bank of Canada continues to predict growth for the Canadian economy for calendar 2010 and a return to full capacity in the third quarter of calendar 2011.

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. The Company operates stores in all provinces and territories of Canada and sources its merchandise domestically and in over fifteen different countries around the globe. At the present time retail sales remain challenging, and it is our expectation that the economic recovery will be slow with retail sales continuing to be impacted. In Canada, we expect that general credit and liquidity will remain constrained and that consumer discretionary spending will be curtailed. 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, Corporate Website: www.reitmans.ca


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