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Le Château Reports Third Quarter Results

  • Q3 Comparable Store Sales Increased by 1.3%

MONTREAL, Dec. 21, 2018 (GLOBE NEWSWIRE) -- Le Château Inc. (TSX VENTURE: CTU), today reported that sales for the third quarter ended October 27, 2018 amounted to $45.1 million as compared with $48.7 million for the third quarter ended October 28, 2017, a decrease of 7.3%, with 27 fewer stores in operation. Comparable store sales, which include online sales, increased 1.3% for the third quarter as compared to last year, with comparable regular store sales increasing 1.2% and comparable outlet store sales increasing 2.4% (see non-GAAP measures below).

Adjusted EBITDA (see non-GAAP measures below) for the third quarter of 2018 amounted to $(2.1) million, compared to $(2.5) million for the same period last year. The improvement of $400,000 in adjusted EBITDA for the third quarter was attributable to the reduction of $1.6 million in selling, general and administrative (“SG&A”) expenses, partially offset by the decrease of $1.2 million in gross margin dollars. The decrease in SG&A expenses resulted primarily from the reduction in store operating expenses due mainly to store closures. The decrease of $1.2 million in gross margin dollars was the result of the 7.3% overall sales decline for the third quarter, partially offset by the increase in gross margin percentage to 66.3% from 63.8% in 2017.

Net loss for the third quarter ended October 27, 2018 amounted to $6.7 million or $(0.22) per share compared to a net loss of $7.1 million or $(0.24) per share for the same period last year.

Nine-month Results

Sales for the nine months ended October 27, 2018 amounted to $139.5 million as compared with $148.4 million last year, a decrease of 6.0%, with 27 fewer stores in operation. Comparable store sales, which include online sales, increased 2.2% versus the same period a year ago, with comparable regular store sales increasing 1.8% and comparable outlet store sales increasing 4.6%.

Adjusted EBITDA for the nine months ended October 27, 2018 amounted to $(3.9) million, compared to $(7.1) million last year. The improvement of $3.2 million in adjusted EBITDA for the first nine months of 2018 was attributable to the reduction of $7.5 million in SG&A expenses, offset by the decrease in gross margin dollars of $4.3 million. The decrease in SG&A expenses resulted primarily from the reduction in store operating expenses due mainly to store closures. The decrease of $4.3 million in gross margin dollars was the result of the 6.0% overall sales decline for the first nine months of 2018, partially offset by the increase in the gross margin percentage to 65.9% from 64.9% in 2017.

Net loss for the nine-month period ended October 27, 2018 amounted to $17.7 million or $(0.59) per share compared to a net loss of $21.0 million or $(0.70) per share the previous year.

During the first nine months of 2018, the Company renovated two existing locations and, as planned, closed 17 underperforming stores. As at October 27, 2018, the Company operated 143 stores (including 24 fashion outlet stores) compared to 170 stores (including 47 fashion outlet stores) as at October 28, 2017. Total square footage for the Le Château network as at October 27, 2018 amounted to 807,000 square feet (including 210,000 square feet for fashion outlet stores), compared to 946,000 square feet (including 333,000 square feet for fashion outlet stores) as at October 28, 2017. The Company is planning to close 4 additional stores during the remainder of 2018 thereby mostly completing the store optimization program that started three years ago.

Fourth Quarter of 2018

For the first seven weeks ended December 15, 2018, total retail sales decreased 10.3% compared to the same period last year, with 27 fewer stores in operation. Comparable store sales, which include online sales, decreased 3.6% compared to the same period last year, with comparable regular store sales decreasing 3.1% and comparable outlet store sales decreasing 6.5%. 

Profile

Le Château is a leading Canadian specialty retailer and manufacturer of exclusively designed apparel, footwear and accessories for contemporary and style-conscious women and men, with an extensive network of 143 prime locations across Canada and an e-com platform servicing Canada and the U.S. Le Château, committed to research, design and product development, manufactures approximately 30% of the Company’s apparel in its own Canadian production facilities.  

Non-GAAP Measures

In addition to discussing earnings measures in accordance with IFRS, this press release provides adjusted EBITDA as a supplementary earnings measure, which is defined as earnings (loss) before interest, income taxes, depreciation, amortization, write-off and/or impairment of property and equipment and intangible assets and accretion of First Preferred shares series 1 (“Adjusted EBITDA”). Adjusted EBITDA is provided to assist readers in determining the ability of the Company to generate cash from operations and to cover financial charges. It is also widely used for valuation purposes for public companies in our industry.

The following table reconciles adjusted EBITDA to loss before income taxes disclosed in the unaudited interim condensed consolidated statements of loss for the three and nine-month periods ended October 27, 2018 and October 28, 2017:

     
(Unaudited) For the three months ended   For the nine months ended
(In thousands of Canadian dollars) October 27, 2018
    October 28, 2017   October 27, 2018
  October 28, 2017  
Loss before income taxes $ (6,708 )   $ (7,121 )   $ (17,663 )   $ (20,961 )
Depreciation and amortization   2,039       2,473       6,553       8,123  
Write-offs and net impairment of property and equipment and intangible assets   156       198       272       682  
Finance costs   1,688       1,352       4,873       4,138  
Accretion of First Preferred shares series 1   702       573       2,047       948  
Adjusted EBITDA $ (2,123 )   $ (2,525 )   $ (3,918 )   $ (7,070 )
                               

The Company also discloses comparable store sales which are defined as sales generated by stores that have been open for at least one year on a comparable week basis. Online sales are included in comparable store sales.

The following table reconciles comparable store sales to total sales disclosed in the unaudited interim condensed consolidated statements of loss for the three and nine-month periods ended October 27, 2018 and October 28, 2017:

     
(Unaudited) For the three months ended   For the nine months ended
(In thousands of Canadian dollars) October 27, 2018
  October 28, 2017 October 27, 2018 October 28, 2017
Comparable store sales – Regular stores $ 37,857   $ 37,424   $ 115,698   $ 113,664
Comparable store sales – Outlet stores   6,089     5,949     19,901     19,031
Total comparable store sales   43,946     43,373     135,599     132,695
Non-comparable store sales   1,153     5,303     3,897     15,702
Total sales $ 45,099   $ 48,676   $ 139,496   $ 148,397
                       

The above measures do not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. 

Forward-Looking Statements

This news release may contain forward-looking statements relating to the Company and/or the environment in which it operates that are based on the Company's expectations, estimates and forecasts. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict and/or are beyond the Company's control. A number of factors may cause actual outcomes and results to differ materially from those expressed. These factors also include those set forth in other public filings of the Company. Therefore, readers should not place undue reliance on these forward-looking statements. In addition, these forward-looking statements speak only as of the date made and the Company disavows any intention or obligation to update or revise any such statements as a result of any event, circumstance or otherwise except to the extent required under applicable securities law.

Factors which could cause actual results or events to differ materially from current expectations include, among other things: the ability of the Company to successfully implement its business initiatives and whether such business initiatives will yield the expected benefits; liquidity risks; competitive conditions in the businesses in which the Company participates; changes in consumer spending; general economic conditions and normal business uncertainty; seasonality and weather patterns; changes in the Company's relationship with its suppliers; lease renewals; information technology security and loss of customer data; fluctuations in foreign currency exchange rates; interest rate fluctuations and changes in laws, rules and regulations applicable to the Company. There can be no assurance that borrowings will be available to the Company, or available on acceptable terms, in an amount sufficient to fund the Company's needs or that additional financing will be provided by any of the controlling shareholders of the Company. The foregoing list of risk factors is not exhaustive and other factors could also adversely affect our results.

The Company’s unaudited interim condensed consolidated financial statements and Management’s Discussion and Analysis for the third quarter ended October 27, 2018 are available online at www.sedar.com.

For further information

Emilia Di Raddo, CPA, CA, President (514) 738-7000
Johnny Del Ciancio, CPA, CA, Vice-President, Finance, (514) 738-7000
MaisonBrison:  Pierre Boucher, (514) 731-0000
Source:  Le Château Inc.

   
CONSOLIDATED BALANCE SHEETS  
(Unaudited)
(In thousands of Canadian dollars)
As at
October 27, 2018
  As at
October 28, 2017
  As at
January 27, 2018
 
ASSETS        
Current assets        
Cash $   1,278   $ 677   $ -  
Accounts receivable   1,050     866     957  
Income taxes refundable   389     389     449  
Inventories   93,395     95,377     89,911  
Prepaid expenses   1,976     1,606     1,747  
Total current assets   98,088     98,915     93,064  
Deposits   485     621     485  
Property and equipment   23,374     29,588     27,052  
Intangible assets     1,981       2,555       2,434  
  $ 123,928   $ 131,679   $ 123,035  
             
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)            
Current liabilities            
Bank indebtedness $ -   $ -   $ 261  
Current portion of credit facility     11,418     15,636       6,322  
Trade and other payables     18,447       16,338       17,342  
Deferred revenue     2,549       2,507       2,842  
Current portion of provision for onerous leases     340     703       576  
Total current liabilities   32,754       35,184       27,343  
Credit facility   44,294     30,373     32,221  
Long-term debt     29,484       30,463       30,518  
Provision for onerous leases   20       961       924  
Deferred lease credits   6,791     7,384       7,111  
First Preferred shares series 1   24,884     24,130       24,718  
Total liabilities   138,227       128,495       122,835  
               
Shareholders' equity (deficiency)              
Share capital      47,967       47,967       47,967  
Contributed surplus     14,131       9,572       9,600  
Deficit   (76,397 )   (54,355 )   (57,367 )
Total shareholders' equity (deficiency)   (14,299 )   3,184     200  
  $ 123,928   $ 131,679   $ 123,035  
                   

NOTICE
The Company’s independent auditors have not performed a review of the accompanying interim condensed consolidated financial statements.

 
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(Unaudited)   For the three months ended For the nine months ended
(In thousands of Canadian dollars, except per share information) October 27, 2018
  October 28, 2017   October 27, 2018
  October 28, 2017  
Sales $   45,099   $    48,676   $   139,496   $  148,397  
Cost of sales and expenses        
Cost of sales     15,203       17,621       47,523       52,067  
Selling   27,109     29,024     81,554     89,277  
General and administrative     7,105       7,227       21,162       22,928  
      49,417       53,872     150,239     164,272  

Results from operating activities
    (4,318 )     (5,196 )     (10,743 )     (15,875 )
Finance costs   1,688     1,352       4,873       4,138  
Accretion of First Preferred shares series 1   702       573     2,047       948  
Loss before income taxes     (6,708 )     (7,121 )     (17,663 )     (20,961 )
Income tax recovery     -       -       -       -  
Net loss and comprehensive loss $   (6,708 ) $    (7,121 ) $   (17,663 ) $   (20,961 )
         
Net loss per share        
Basic $   (0.22 ) $   (0.24 ) $   (0.59 ) $   (0.70 )
Diluted     (0.22 )     (0.24 )     (0.59 )     (0.70 )

Weighted average number of shares outstanding ('000)
    29,964       29,964       29,964       29,964  
                         

/EIN News/ --

 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIENCY)
(Unaudited) For the three months ended
For the nine months ended
(In thousands of Canadian dollars) October 27, 2018
  October 28, 2017   October 27, 2018
  October 28, 2017  
         
SHARE CAPITAL $    47,967   $ 47,967   $   47,967   $ 47,967  

CONTRIBUTED SURPLUS
       

Balance, beginning of period
$   14,125   $ 9,529   $   9,600   $ 9,287  
Transitional adjustments on adoption of new accounting standards     -     -       4,502     -  

Adjusted balance, beginning of period
  14,125     9,529       14,102     9,287  
Fair value adjustment of long-term debt     -     -       -     99  
Stock-based compensation expense   6     43       29     186  

Balance, end of period
$   14,131   $ 9,572   $   14,131   $ 9,572  

DEFICIT
       
Balance, beginning of period $   (69,689 ) $ (47,234 ) $   (57,367 ) $ (33,394 )

Transitional adjustments on adoption of new accounting standards
    -     -       (1,367 )   -  
Adjusted balance, beginning of period   (69,689 )   (47,234 )     (58,734 )   (33,394 )
Net loss     (6,708 )   (7,121 )      (17,663 )   (20,961 )
Balance, end of period $   (76,397 ) $ (54,355 ) $   (76,397 ) $ (54,355 )

Total shareholders’ equity (deficiency)
$   (14,299 ) $ 3,184   $     (14,299 ) $ 3,184  
                         



     
CONSOLIDATED STATEMENTS OF CASH FLOWS    
(Unaudited)   For the three months ended For the nine months ended
(In thousands of Canadian dollars) October 27, 2018
  October 28, 2017   October 27, 2018
  October 28, 2017  
OPERATING ACTIVITIES        
Net loss $   (6,708 ) $   (7,121 ) $   (17,663 ) $   (20,961 )
Adjustments to determine net cash from operating activities        
Depreciation and amortization     2,039       2,473        6,553       8,123  
Write-offs and net impairment of property and equipment and  intangible assets      156     198       272     682  
Amortization of deferred lease credits     (430 )     (238 )     (1,165 )     (1,211 )
Deferred lease credits     250     -       845     403  
Stock-based compensation     6       43       29       186  
Provision for onerous leases     (120 )   (235 )     (1,140 )   (546 )
Finance costs   1,688     1,352       4,873       4,138  
Accretion of First Preferred shares series 1     702        573       2,047       948  
Interest paid     (1,069 )     (928 )     (3,121 )     (2,195 )
      (3,486 )     (3,883 )     (8,470 )     (10,433 )
Net change in non-cash working capital items related to operations     (5,074 )     (2,447 )     (4,427 )     963  
Income taxes refunded             240        250  
Cash flows related to operating activities     (8,560 )     (6,330 )     (12,657 )     (9,220 )
         
FINANCING ACTIVITIES        
Increase in credit facility     10,706       6,683       16,890       (7,767 )
Financing costs   -        (17 )   -       (1,023 )
Proceeds from long-term debt   -      -       -       19,500  
Cash flows related to financing activities   10,706     6,666     16,890     10,710  
         
INVESTING ACTIVITIES        
Additions to property and equipment and intangible assets     (697 )   (174 )     (2,694 )   (1,679 )
Proceeds from disposal of property and equipment     -       -     -     600  
Cash flows related to investing activities     (697 )     (174 )     (2,694 )      (1,079 )
         
Increase in cash     1,449       162       1,539       411  
Cash (bank indebtedness), beginning of period     (171 )   515       (261 )     266  
Cash, end of period $   1,278   $    677   $   1,278   $   677  
                         

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