The North West Company is a leading retailer serving the needs of underserved rural communities and neighborhoods in northern Canada, western Canada, rural Alaska, the South Pacific Islands, and the Caribbean.

The North West Company offers a wide variety of products and services including groceries, family clothing, housewares, home appliances, outdoor products and services such as post offices, income tax filing, quick-cooked groceries, commercial sales, money transfers, and check cashing. It generates ~ 75% of its sales from grocery sales and the remainder 25% from general goods and others.

The North West Company generates 60% of its sales in Canada and the remaining 40% in international markets. As the leading retailer for rural and remote communities and neighborhoods, the company operates 117 stores in the north, 46 Giant Tiger discount stores, 24 quickstop stores, 5 NorthMart stores, pharmacy and convenience stores, as well as the NSA in Canada and 27 Alaska Commercial Company . 12 Cost-U-Less stores, 4 Quickstop stores, 7 Riteway grocery stores, etc. in the international markets.

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Investment data

Sales growth and market exposure

The North West Company has extensive retail experience with a history dating back to 1668. Due to its long history, the company offers the best shopping experience for everyday household and lifestyle needs. His strong operational focus helps clear critical business hours and tackle low value activities.

The North West Company’s logistical know-how and infrastructure enable it to serve the new markets and complementary business areas. Having his own cargo airline also offers him a logistical advantage. The well-established outbound supply chain helps him reach his remote branches. The company’s ability to serve hard-to-reach locations and lower-income customers are its key competitive advantages. The North West Company signs leases with community development organizations and recruits local employees in leadership positions to operate successfully in these environments.

The company saw a 16% increase in YTD revenue due to market share gains and an ongoing shift towards community spending. Sales of both groceries and general goods increased by nearly 16% each. It has already incurred approximately $ 14 million in COVID-related costs and expects an additional $ 4 million in the next quarter. North West sold 36 of its Giant Tiger stores in the second quarter, causing revenue to decline.

As part of the Giant Tiger transaction, the company and GTSL have entered into a reciprocal product supply agreement designed to improve purchasing efficiency and provide an expanded general range of goods. The sale is expected to result in a drop in sales in the fourth quarter of 2020.

North West has increased its sales to more than 6% CAGR per year over the past five years. The company focuses on store development and management, supply chain strength and community relations for future growth. It was expanded both organically and through acquisitions. Shops in the Northwest began during the pandemic with online and phone ordering with pick-up or delivery service for vulnerable customer groups. Approximately 30% of the NSA’s revenue comes from passengers, which is down 50% due to restrictions on non-essential travel.

Dividends

The North West Company is a Canadian dividend aristocrat. It has an impressive dividend yield of 4% and a payout ratio of 57%. North Wests’ last dividend increase was over 9% and five-year dividend growth was 3% + CAGR per year.

North West generates over 90% of its annual sales in everyday need categories that ensure the resilience of its cash flows. The company is highly diversified in terms of products and regions. With centuries of experience, the North West Company has built a strong retail presence.

The company operates in remote communities with almost zero competition. The company has successfully expanded its market share in existing locations and in new markets as well as in complementary business areas by using its core competencies and know-how in the remote market. North West has had less than 1 in debt since 2000.

Growing demand for food should serve as a tailwind for this dividend aristocrat. A proven business model, extensive infrastructure for business and distribution networks, and a well-known brand name form a deep trench around the North West Company’s business. For its Canadian operations, The North West Company is on track to meet its target annual administrative cost savings of $ 17 million by the end of the year. Investments of USD 75 million are expected for the 2021 fiscal year.

However, the company expects headwinds in tourism-dependent countries like the British Virgin Islands and St. Maarten if cases continue to increase.

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competition

The North West Company faces intense competition from new players both locally and outside the community. The significant growth of e-commerce companies like Amazon.com also poses a major threat to the company. However, it will be difficult for newbies to compete with the operational scale of the company.

The company’s ability to adapt to unique local lifestyles and serve communities that can only be used by local businesses sets it apart from other businesses. The company occupies a leading market position in most of the markets it serves. Alimentation Couche-Tard, George Weston, Loblaw Companies, and Metro Inc. are the main competitors of the North West Company.

Bottom line

Cases are increasing in northern Canada and international markets. The North West Company benefited from higher local retail demand as a result of a sharp drop in travel due to the pandemic and expects future above-average demand for its products and services.

The company is in a good position to benefit from growth in markets and products with high potential. The ability to deliver goods and services in inaccessible and less developed markets is the most important unique selling point. Regular cash flow from a defensive consumer business and ongoing investments should support the company’s dividend growth streak going forward.

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