Le Château Inc. (TSX VENTURE: CTU), today reported that sales for
the second quarter ended July 28, 2018 amounted to $53.3 million as
compared with $55.3 million for the second quarter ended July 29,
2017, a decrease of 3.6%, with 30 fewer stores in operation.
Comparable store sales increased 5.0% for the second quarter as
compared to last year, with comparable regular store sales
increasing 4.3% and comparable outlet store sales increasing 8.8%
(see non-GAAP measures below). Included in comparable store sales
are online sales which increased 45.8% for the second quarter.
Adjusted EBITDA (see non-GAAP measures below)
for the second quarter of 2018 amounted to $4.4 million, compared
to $3.8 million for the same period last year. The improvement of
$600,000 in adjusted EBITDA for the second quarter was attributable
to the reduction of $2.5 million in selling, general and
administrative (“SG&A”) expenses, partially offset by the
decrease of $1.9 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
$1.9 million in gross margin dollars was the result of the 3.6%
overall sales decline for the second quarter combined with the
reduction in gross margin percentage to 67.9% from 68.9% in 2017,
reflecting the short-term impact of markdowns related to store
closures.
Net loss for the second quarter ended July 28,
2018 amounted to $178,000 or $(0.01) per share compared to a net
loss of $987,000 or $(0.03) per share for the same period last
year.
Six-month
ResultsSales for the six months ended July 28,
2018 amounted to $94.4 million as compared with $99.7 million last
year, a decrease of 5.3%, with 30 fewer stores in operation.
Comparable store sales increased 2.6% versus the same period a year
ago, with comparable regular store sales increasing 2.1% and
comparable outlet store sales increasing 5.6%. Included in
comparable store sales are online sales which increased 39.1% for
the six months ended July 28, 2018.
Adjusted EBITDA for the six months ended July
28, 2018 amounted to $(1.8) million, compared to $(4.5) million
last year. The improvement of $2.7 million in adjusted EBITDA for
the first six months of 2018 was attributable to the reduction of
$5.9 million in SG&A expenses, offset by the decrease in gross
margin dollars of $3.2 million. The decrease in SG&A expenses
resulted primarily from the reduction in store operating expenses
due mainly to store closures. The decrease of $3.2 million in gross
margin dollars was the result of the 5.3% overall sales decline for
the first half of 2018, offset by the increase in the gross margin
percentage to 65.8% from 65.5% in 2017.
Net loss for the six-month period ended July 28,
2018 amounted to $11.0 million or $(0.37) per share compared to a
net loss of $13.8 million or $(0.46) per share the previous
year.
During the first six months of 2018, the Company
renovated two existing locations and, as planned, closed 12
underperforming stores. As at July 28, 2018, the Company operated
148 stores (including 28 fashion outlet stores) compared to 178
stores (including 53 fashion outlet stores) as at July 29, 2017.
Total square footage for the Le Château network as at July 28, 2018
amounted to 835,000 square feet (including 234,000 square feet for
fashion outlet stores), compared to 985,000 square feet (including
365,000 square feet for fashion outlet stores) as at July 29, 2017.
The Company is planning to close 9 additional stores during the
remainder of 2018 thereby mostly completing the store optimization
program that started three years ago.
Third Quarter of
2018For the first eight weeks ended September 22,
2018, total retail sales decreased 6.1%, with 29 fewer stores in
operation. Comparable store sales increased 3.5% compared to the
same period last year, with comparable regular store sales
increasing 3.8% and comparable outlet store sales increasing 1.6%.
Included in comparable store sales are online sales which increased
36.3%.
ProfileLe
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 144 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
MeasuresIn 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
six-month periods ended July 28, 2018 and July 29, 2017:
(Unaudited) |
For the three months ended |
|
For the six months ended |
|
(In thousands of Canadian dollars) |
July 28, 2018 |
|
July 29, 2017 |
|
July 28, 2018 |
|
July 29, 2017 |
|
Loss before income taxes |
$ |
(178 |
) |
$ |
(987 |
) |
$ |
(10,955 |
) |
$ |
(13,840 |
) |
Depreciation and amortization |
|
2,229 |
|
|
2,777 |
|
|
4,514 |
|
|
5,650 |
|
Write-offs and net impairment of property and equipment and
intangible assets |
|
53 |
|
|
257 |
|
|
116 |
|
|
484 |
|
Finance costs |
|
1,597 |
|
|
1,346 |
|
|
3,185 |
|
|
2,786 |
|
Accretion of First Preferred shares series 1 |
|
682 |
|
|
375 |
|
|
1,345 |
|
|
375 |
|
Adjusted EBITDA |
$ |
4,383 |
|
$ |
3,768 |
|
$ |
(1,795 |
) |
$ |
(4,545 |
) |
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. Comparable
store sales exclude sales from stores converted to outlet or
clearance stores during the year of conversion.
The following table reconciles comparable store
sales to total sales disclosed in the unaudited interim condensed
consolidated statements of loss for the three and six-month periods
ended July 28, 2018 and July 29, 2017:
(Unaudited) |
For the three months ended |
For the six months ended |
(In thousands of Canadian dollars) |
July 28, 2018 |
July 29, 2017 |
July 28, 2018 |
July 29, 2017 |
Comparable store sales – Regular stores |
$ |
44,212 |
$ |
42,375 |
$ |
77,841 |
$ |
76,240 |
Comparable store sales – Outlet stores |
|
7,615 |
|
7,001 |
|
13,812 |
|
13,082 |
Total comparable store sales |
|
51,827 |
|
49,376 |
|
91,653 |
|
89,322 |
Non-comparable store sales |
|
1,486 |
|
5,932 |
|
2,744 |
|
10,399 |
Total sales |
$ |
53,313 |
$ |
55,308 |
$ |
94,397 |
$ |
99,721 |
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
StatementsThis 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 second quarter ended July 28, 2018 are available
online at www.sedar.com.
For further
informationEmilia Di Raddo, CPA, CA, President
(514) 738-7000Johnny Del Ciancio, CPA, CA, Vice-President, Finance,
(514) 738-7000MaisonBrison: Pierre Boucher, (514)
731-0000Source: Le Château Inc.
CONSOLIDATED BALANCE SHEETS |
(Unaudited) (In thousands of Canadian
dollars) |
As at
July 28, 2018 |
As at July 29, 2017 |
As at January 27, 2018 |
ASSETS |
|
|
|
|
Current assets |
|
|
|
|
Cash |
$ |
- |
$ |
515 |
$ |
- |
Accounts receivable |
|
1,069 |
|
975 |
|
957 |
Income taxes refundable |
|
329 |
|
329 |
|
449 |
Inventories |
|
88,775 |
|
95,560 |
|
89,911 |
Prepaid expenses |
|
1,948 |
|
1,737 |
|
1,747 |
Total current assets |
|
92,121 |
|
99,116 |
|
93,064 |
Deposits |
|
485 |
|
621 |
|
485 |
Property and equipment |
|
24,768 |
|
31,998 |
|
27,052 |
Intangible assets |
|
2,085 |
|
2,642 |
|
2,434 |
|
$ |
119,459 |
$ |
134,377 |
$ |
123,035 |
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY) |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Bank indebtedness |
$ |
171 |
$ |
- |
$ |
261 |
Current portion of credit facility |
|
11,911 |
|
13,901 |
|
6,322 |
Trade and other payables |
|
18,115 |
|
18,796 |
|
17,342 |
Deferred revenue |
|
2,935 |
|
2,584 |
|
2,842 |
Current portion of provision for onerous
leases |
|
400 |
|
800 |
|
576 |
Total current
liabilities |
|
33,532 |
|
36,081 |
|
27,343 |
Credit facility |
|
33,002 |
|
25,347 |
|
32,221 |
Long-term debt |
|
29,289 |
|
30,409 |
|
30,518 |
Provision for onerous leases |
|
80 |
|
1,099 |
|
924 |
Deferred lease credits |
|
6,971 |
|
7,622 |
|
7,111 |
First Preferred shares series 1 |
|
24,182 |
|
23,557 |
|
24,718 |
Total liabilities |
|
127,056 |
|
124,115 |
|
122,835 |
|
|
|
|
|
|
|
Shareholders' equity
(deficiency) |
|
|
|
|
|
|
Share capital |
|
47,967 |
|
47,967 |
|
47,967 |
Contributed surplus |
|
14,125 |
|
9,529 |
|
9,600 |
Deficit |
|
(69,689) |
|
(47,234) |
|
(57,367) |
Total shareholders' equity
(deficiency) |
|
(7,597) |
|
10,262 |
|
200 |
|
$ |
119,459 |
$ |
134,377 |
$ |
123,035 |
NOTICEThe 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 six months ended |
|
(In thousands of Canadian dollars, except per share
information) |
July 28, 2018 |
|
July 29, 2017 |
|
July 28, 2018 |
|
July 29, 2017 |
|
Sales |
$ |
53,313 |
|
$ |
55,308 |
|
$ |
94,397 |
|
$ |
99,721 |
|
Cost of sales and expenses |
|
|
|
|
Cost
of sales |
|
17,131 |
|
|
17,188 |
|
|
32,320 |
|
|
34,446 |
|
Selling |
|
26,864 |
|
|
29,975 |
|
|
54,445 |
|
|
60,253 |
|
General and administrative |
|
7,217 |
|
|
7,411 |
|
|
14,057 |
|
|
15,701 |
|
|
|
51,212 |
|
|
54,574 |
|
|
100,822 |
|
|
110,400 |
|
Results from operating activities |
|
2,101 |
|
|
734 |
|
|
(6,425 |
) |
|
(10,679 |
) |
Finance costs |
|
1,597 |
|
|
1,346 |
|
|
3,185 |
|
|
2,786 |
|
Accretion of First Preferred shares series 1 |
|
682 |
|
|
375 |
|
|
1,345 |
|
|
375 |
|
Loss before income taxes |
|
(178 |
) |
|
(987 |
) |
|
(10,955 |
) |
|
(13,840 |
) |
Income tax recovery |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Net loss and comprehensive loss |
$ |
(178 |
) |
$ |
(987 |
) |
$ |
(10,955 |
) |
$ |
(13,840 |
) |
|
|
|
|
|
Net loss per share |
|
|
|
|
Basic |
$ |
(0.01 |
) |
$ |
(0.03 |
) |
$ |
(0.37 |
) |
$ |
(0.46 |
) |
Diluted |
|
(0.01 |
) |
|
(0.03 |
) |
|
(0.37 |
) |
|
(0.46 |
) |
Weighted average number of shares outstanding
('000) |
|
29,964 |
|
|
29,964 |
|
|
29,964 |
|
|
29,964 |
|
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY (DEFICIENCY) |
(Unaudited) |
For the three months ended |
|
For the six months ended |
|
(In thousands of Canadian dollars) |
July 28, 2018 |
|
July 29, 2017 |
|
July 28, 2018 |
|
July 29, 2017 |
|
SHARE CAPITAL |
$ |
47,967 |
|
$ |
47,967 |
|
$ |
47,967 |
|
$ |
47,967 |
|
CONTRIBUTED SURPLUS |
|
|
|
|
Balance, beginning of period |
$ |
14,114 |
|
$ |
9,459 |
|
$ |
9,600 |
|
$ |
9,287 |
|
Transitional adjustments on adoption of new accounting
standards |
|
- |
|
|
- |
|
|
4,502 |
|
|
- |
|
Adjusted balance, beginning of period |
|
14,114 |
|
|
9,459 |
|
|
14,102 |
|
|
9,287 |
|
Fair
value adjustment of long-term debt |
|
- |
|
|
- |
|
|
- |
|
|
99 |
|
Stock-based compensation expense |
|
11 |
|
|
70 |
|
|
23 |
|
|
143 |
|
Balance, end of period |
$ |
14,125 |
|
$ |
9,529 |
|
$ |
14,125 |
|
$ |
9,529 |
|
DEFICIT |
|
|
|
|
Balance, beginning of period |
$ |
(69,511 |
) |
$ |
(46,247 |
) |
$ |
(57,367 |
) |
$ |
(33,394 |
) |
Transitional adjustments on adoption of new accounting
standards |
|
- |
|
|
- |
|
|
(1,367 |
) |
|
- |
|
Adjusted balance, beginning of period |
|
(69,511 |
) |
|
(46,247 |
) |
|
(58,734 |
) |
|
(33,394 |
) |
Net loss |
|
(178 |
) |
|
(987 |
) |
|
(10,955 |
) |
|
(13,840 |
) |
Balance, end of period |
$ |
(69,689 |
) |
$ |
(47,234 |
) |
$ |
(69,689 |
) |
$ |
(47,234 |
) |
Total shareholders’ equity (deficiency) |
$ |
(7,597 |
) |
$ |
10,262 |
|
$ |
(7,597 |
) |
$ |
10,262 |
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS |
(Unaudited) |
For the three months ended |
|
For the six months ended |
|
(In thousands of Canadian dollars) |
July 28, 2018 |
|
July 29, 2017 |
|
July 28, 2018 |
|
July 29, 2017 |
|
OPERATING ACTIVITIES |
|
|
|
|
Net
loss |
$ |
(178 |
) |
$ |
(987 |
) |
$ |
(10,955 |
) |
$ |
(13,840 |
) |
Adjustments to determine net cash from operating activities |
|
|
|
|
Depreciation and amortization |
|
2,229 |
|
|
2,777 |
|
|
4,514 |
|
|
5,650 |
|
Write-offs and net impairment of property and equipment and
intangible assets |
|
53 |
|
|
257 |
|
|
116 |
|
|
484 |
|
Amortization of deferred lease credits |
|
(368 |
) |
|
(292 |
) |
|
(735 |
) |
|
(973 |
) |
Deferred lease credits |
|
526 |
|
|
203 |
|
|
595 |
|
|
403 |
|
Stock-based compensation |
|
11 |
|
|
70 |
|
|
23 |
|
|
143 |
|
Provision for onerous leases |
|
(883 |
) |
|
(147 |
) |
|
(1,020 |
) |
|
(311 |
) |
Finance costs |
|
1,597 |
|
|
1,346 |
|
|
3,185 |
|
|
2,786 |
|
Accretion of First Preferred shares series 1 |
|
682 |
|
|
375 |
|
|
1,345 |
|
|
375 |
|
Interest paid |
|
(1,056 |
) |
|
(736 |
) |
|
(2,052 |
) |
|
(1,267 |
) |
|
|
2,613 |
|
|
2,866 |
|
|
(4,984 |
) |
|
(6,550 |
) |
Net
change in non-cash working capital items related to operations |
|
3,808 |
|
|
6,101 |
|
|
647 |
|
|
3,410 |
|
Income taxes refunded |
|
- |
|
|
250 |
|
|
240 |
|
|
250 |
|
Cash flows related to operating activities |
|
6,421 |
|
|
9,217 |
|
|
(4,097 |
) |
|
(2,890 |
) |
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
Increase (decrease) in credit facility |
|
(7,272 |
) |
|
(23,227 |
) |
|
6,184 |
|
|
(14,450 |
) |
Financing costs |
|
- |
|
|
(1,006 |
) |
|
- |
|
|
(1,006 |
) |
Proceeds from long-term debt |
|
- |
|
|
15,000 |
|
|
- |
|
|
19,500 |
|
Cash flows related to financing activities |
|
(7,272 |
) |
|
(9,233 |
) |
|
6,184 |
|
|
4,044 |
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
Additions to property and equipment and intangible assets |
|
(1,322 |
) |
|
(637 |
) |
|
(1,997 |
) |
|
(1,505 |
) |
Proceeds from disposal of property and equipment |
|
- |
|
|
- |
|
|
- |
|
|
600 |
|
Cash flows related to investing activities |
|
(1,322 |
) |
|
(637 |
) |
|
(1,997 |
) |
|
(905 |
) |
|
|
|
|
|
Increase (decrease) in cash |
|
(2,173 |
) |
|
(653 |
) |
|
90 |
|
|
249 |
|
Cash (bank indebtedness), beginning of period |
|
2,002 |
|
|
1,168 |
|
|
(261 |
) |
|
266 |
|
Cash (bank indebtedness), end of period |
$ |
(171 |
) |
$ |
515 |
|
$ |
(171 |
) |
$ |
515 |
|
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