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I’ve seen many comments making wrong assumptions today regarding Nunavut’s largest retailers so I thought I’d take a look at the industry and the publicly available numbers. Buckle up, you probably won’t like this. Northmart is not ripping you off. https://twitter.com/nunavutnews/status/1353704660968890369
According to Statistics Canada, grocery stores average profit margin for non-chain stores is 2.3%. Profit margin for general retail averages 5.6%. We will consider NWC as non-chain as compared to, say, Loblaws.
In this article, Northwest Company claims a profit of $0.04/dollar of income. Looking at their 2020 financials as pulled from Globe and Mail we see net income of $83 Million on sales of $2.1 billion. This is a profit margin of 3.95%, slightly lower even than what is stated.
If you factor in the sales split of grocery and general merchandise, this average profit margin is likely lower than what retailers would normally hope to achieve. So, as compared to southern “regular” retailers, they make less money per dollar of sales than elsewhere.
Now looking at the Balance Sheet. To earn this $83M in annual profit, they have equity investment comprised of $1.2 Billion in assets and $789 million in liabilities for equity of $414 million (as of 2020). That $83MM profit is about a 20% return on equity. Totally reasonable.
Looking at the cash flow we would add back several items to that $83M profit. There is $89M in depreciation (decrease in the value of their fixed assets like buildings, a non-cash expense) so actual income is around $172 Million.
From that $172MM the company must make all debt payments and investments in their business (growth, new buildings, etc). In 2020 they spent $111 million on properties or buying businesses, etc (investing in their business)
They also paid $64 million in dividends to shareholders. That’s a 4% dividend based on today’s $1.6 billion value of the company. Perfectly reasonable, especially with risks involved. Dividends are an important way of attracting investment and rewarding shareholders.
This company operates in regions that pose considerably higher operating risk than southern locales and are not even rewarded for that additional risk in the way, from an investment standpoint, that you’d expect. Slim profits, huge investments across a massive area.
In the end, costs are extremely high and those are passed on to the consumer, as evidenced in the financials. If anything, costs should actually be higher to justify the increased risk of their operations (from a purely risk/reward financial standpoint).
We can complain about prices all we want, but there is no evidence of price gouging as our retailers are often accused of. Overhead is huge and no one can expect outlay of billions of dollars of equity without a reasonable rate of return on that money. I still love Amazon though.
