- Q2 Comparable Stores Sales and Online Sales Increased by 5.0% and 45.8%
- Q2 Adjusted EBITDA of $4.4 million
MONTRÉAL, Sept. 24, 2018 (GLOBE NEWSWIRE) -- 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 Results
Sales 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 2018
For 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%.
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 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 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 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 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 second quarter ended July 28, 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 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 | ||||||
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 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 | |||