MONTRÉAL, QUÉBEC–(Marketwired – Dec. 9, 2016) – Le Château Inc. (TSX:CTU.A), today reported that sales for the third quarter ended October 29, 2016 amounted to $55.4 million as compared with $57.6 million for the third quarter ended October 31, 2015, a decrease of 3.8%, with 22 fewer stores in operation. Comparable store sales increased 1.8% for the third quarter as compared to last year, with comparable regular store sales increasing 4.6% and comparable outlet store sales decreasing 6.7% (see non-GAAP measures below). For the past two quarters, comparable store sales for regular stores have trended positively reflecting the traction of our merchandise selection, marketing and rebranding efforts.
Included in comparable store sales are online sales which increased 55.1% for the third quarter. At the end of September, our new e-commerce warehouse and distribution facility became operational following an initial investment of $1.1 million. This investment has greatly enhanced our ability to service our customers more quickly and more efficiently. The continued success with our online sales is consistent with the shift in consumer shopping habits and supports our strategy of rightsizing our retail network of stores.
Earnings (loss) before interest, income taxes, depreciation, amortization, write-off and/or impairment of property and equipment (“Adjusted EBITDA”) (see non-GAAP measures below) for the third quarter of 2016 amounted to $(3.3) million, compared to $(7.2) million for the same period last year. The improvement of $3.9 million in adjusted EBITDA for the third quarter was primarily attributable to the decrease of $5.5 million in selling, general and administrative expenses (“SG&A”), offset by the decrease of $1.6 million in gross margin dollars. The decrease in SG&A expenses reflects largely the non-recurrence of the advertising campaign conducted across Canada in the third quarter last year, for which we continue to accrue the benefits of the “Le Château de Montréal” rebrand. The decrease of $1.6 million in gross margin dollars was the result of the decline in gross margin percentage to 63.6% from 63.9% in 2015 due to increased promotional activity primarily in outlet stores and in stores scheduled to be closed, combined with the 3.8% overall sales decline for the third quarter. As for the regular stores, they reported a slight increase in gross margin dollars when compared with the same period last year, despite the pressure of the weaker Canadian dollar on the cost of merchandise purchased.
Net loss for the third quarter ended October 29, 2016 amounted to $8.0 million or $(0.27) per share compared to a net loss of $12.5 million or $(0.42) per share for the same period last year.
Nine-month Results
Sales for the nine months ended October 29, 2016 amounted to $164.0 million as compared with $171.7 million last year, a decrease of 4.5%, with 22 fewer stores in operation. Comparable store sales were flat versus the same period a year ago, with comparable regular store sales increasing 2.0% and comparable outlet store sales decreasing 7.0%. Included in comparable store sales are online sales which increased 50.6% for nine months ended October 29, 2016.
Adjusted EBITDA for the nine months ended October 29, 2016 amounted to $(13.4) million, compared to $(12.1) million last year. The decrease of $1.3 million in adjusted EBITDA for the first nine months of 2016 was primarily attributable to the decrease of $7.9 million in gross margin dollars, offset by the reduction in SG&A expenses of $6.6 million due in part to the non-recurrence of the advertising campaign as indicated above. The decrease of $7.9 million in gross margin dollars was the result of the decline in gross margin percentage to 63.3% from 65.0% in 2015 due to increased promotional activity primarily in outlet stores and in stores scheduled to be closed, combined with the 4.5% overall sales decline for the first nine months of 2016.
Net loss for the nine-month period ended October 29, 2016 amounted to $28.5 million or $(0.95) per share compared to a net loss of $28.9 million or $(0.96) per share the previous year.
The retail landscape has evolved and consumer shopping habits have changed significantly with e-commerce. In light of this evolution, the high concentration of stores in large urban markets – a successful model in the pre-digital world – is no longer required. Consequently, our strategy is to continue to review our retail network and close underperforming stores.
During the first nine months of 2016, the Company opened one store, renovated one existing location and, as planned, closed 16 underperforming stores. As at October 29, 2016, the Company operated 196 stores (including 63 fashion outlet stores) compared to 218 stores (including 68 fashion outlet stores) as at October 31, 2015. Total square footage for the Le Château network as at October 29, 2016 amounted to 1,079,000 square feet (including 422,000 square feet for fashion outlet stores), compared to 1,192,000 square feet (including 475,000 square feet for fashion outlet stores) as at October 31, 2015. For the balance of 2016, the Company is planning to close six additional stores and expects its total square footage to decline to approximately 1,035,000 square feet.
Fourth Quarter of 2016
For the fourth quarter up to December 3, 2016, total retail sales decreased 3.9%, with 22 fewer stores in operation. Comparable store sales increased 1.2% compared to the same period last year, with comparable regular store sales increasing 0.8% and comparable outlet store sales increasing 2.6%. Included in comparable store sales are online sales which increased 44.4%.
Profile
Le Château is a leading Canadian brand in specialty retailing, offering a broad array of contemporary fashion apparel, accessories and footwear for style-conscious women and men. The Le Château brand is sold exclusively through the Company’s 196 retail stores located in Canada. The Company’s retail locations are primarily found in major urban shopping malls, as well as street-front locations with high pedestrian traffic. In addition, Le Château’s web-based marketing is further broadening the Company’s customer base among internet shoppers in both Canada and the United States. With its 57-year tradition of vertical integration, emphasizing a design and manufacturing approach to retailing, Le Château is unique among Canadian fashion merchants.
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. 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 for the three and nine-month periods ended October 29, 2016 and October 31, 2015:
| (Unaudited) | For the three months ended | For the nine months ended | ||||||||||
| (In thousands of Canadian dollars) | October 29, 2016 |
October 31, 2015 |
October 29, 2016 |
October 31, 2015 |
||||||||
| Loss before income taxes | $ | (7,994 | ) | $ | (12,478 | ) | $ | (28,476 | ) | $ | (28,858 | ) |
| Depreciation and amortization | 3,326 | 3,849 | 10,633 | 12,582 | ||||||||
| Write-off and impairment of property and equipment | 104 | 351 | 576 | 1,240 | ||||||||
| Finance costs | 1,304 | 1,037 | 3,828 | 2,909 | ||||||||
| Finance income | – | (2 | ) | (4 | ) | (9 | ) | |||||
| Adjusted EBITDA | $ | (3,260 | ) | $ | (7,243 | ) | $ | (13,443 | ) | $ | (12,136 | ) |
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 nine-month periods ended October 29, 2016 and October 31, 2015:
| (Unaudited) | For the three months ended | For the nine months ended | ||||||
| (In thousands of Canadian dollars) | October 29, 2016 |
October 31, 2015 |
October 29, 2016 |
October 31, 2015 |
||||
| Comparable store sales – Regular stores | $ | 41,186 | $ | 39,387 | $ | 122,827 | $ | 120,467 |
| Comparable store sales – Outlet stores | 11,738 | 12,582 | 32,930 | 35,390 | ||||
| Total comparable store sales | 52,924 | 51,969 | 155,757 | 155,857 | ||||
| Non-comparable store sales | 2,497 | 5,671 | 8,210 | 15,821 | ||||
| Total sales | $ | 55,421 | $ | 57,640 | $ | 163,967 | $ | 171,678 |
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; 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; credit facility renewal; lease renewals; information technology security and loss of customer data; fluctuations in foreign currency exchange rates; interest rate fluctuations; liquidity risk and changes in laws, rules and regulations applicable to 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 29, 2016 are available online at www.sedar.com.
| CONSOLIDATED BALANCE SHEETS | |||||||
| (Unaudited) (In thousands of Canadian dollars) |
As at October 29, 2016 |
As at October 31, 2015 |
As at January 30, 2016 |
||||
| ASSETS | |||||||
| Current assets | |||||||
| Cash | $ | 1,014 | $ | 850 | $ | – | |
| Accounts receivable | 1,302 | 1,642 | 1,180 | ||||
| Income taxes refundable | 399 | 494 | 569 | ||||
| Inventories | 110,385 | 122,048 | 113,590 | ||||
| Prepaid expenses | 1,480 | 1,638 | 1,385 | ||||
| Total current assets | 114,580 | 126,672 | 116,724 | ||||
| Deposits | 621 | – | 621 | ||||
| Property and equipment | 41,036 | 52,188 | 48,332 | ||||
| Intangible assets | 3,188 | 2,348 | 2,813 | ||||
| $ | 159,425 | $ | 181,208 | $ | 168,490 | ||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
| Current liabilities | |||||||
| Bank indebtedness | $ | – | $ | – | $ | 545 | |
| Current portion of credit facility | 65,998 | 23,737 | 12,944 | ||||
| Trade and other payables | 15,540 | 14,214 | 17,865 | ||||
| Deferred revenue | 2,649 | 2,752 | 3,216 | ||||
| Current portion of provision for onerous leases | 780 | 666 | 620 | ||||
| Current portion of long-term debt | – | 1,124 | 848 | ||||
| Total current liabilities | 84,967 | 42,493 | 36,038 | ||||
| Credit facility | – | 38,522 | 31,962 | ||||
| Long-term debt | 31,908 | 22,595 | 29,170 | ||||
| Provision for onerous leases | 1,491 | 1,545 | 1,453 | ||||
| Deferred lease credits | 8,582 | 9,946 | 9,513 | ||||
| Total liabilities | 126,948 | 115,101 | 108,136 | ||||
| Shareholders’ equity | |||||||
| Share capital | 47,967 | 47,967 | 47,967 | ||||
| Contributed surplus | 9,154 | 7,421 | 8,555 | ||||
| Retained earnings (deficit) | (24,644 | ) | 10,719 | 3,832 | |||
| Total shareholders’ equity | 32,477 | 66,107 | 60,354 | ||||
| $ | 159,425 | $ | 181,208 | $ | 168,490 | ||
| CONSOLIDATED STATEMENTS OF LOSS | |||||||||||||
| (Unaudited) | |||||||||||||
| (In thousands of Canadian dollars, | For the three months ended |
For the nine months ended |
|||||||||||
| except per share information) | October 29, 2016 |
October 31, 2015 |
October 29, 2016 |
October 31, 2015 |
|||||||||
| Sales | $ 55,421 | $ 57,640 | $ 163,967 | $ 171,678 | |||||||||
| Cost of sales and expenses | |||||||||||||
| Cost of sales | 20,177 | 20,789 | 60,249 | 60,072 | |||||||||
| Selling | 33,716 | 40,173 | 104,038 | 112,534 | |||||||||
| General and administrative | 8,218 | 8,121 | 24,332 | 25,030 | |||||||||
| 62,111 | 69,083 | 188,619 | 197,636 | ||||||||||
| Results from operating activities | (6,690 | ) | (11,443 | ) | (24,652 | ) | (25,958 | ) | |||||
| Finance costs | 1,304 | 1,037 | 3,828 | 2,909 | |||||||||
| Finance income | – | (2 | ) | (4 | ) | (9 | ) | ||||||
| Loss before income taxes | (7,994 | ) | (12,478 | ) | (28,476 | ) | (28,858 | ) | |||||
| Income tax recovery | – | – | – | – | |||||||||
| Net loss | $ | (7,994 | ) | $ | (12,478 | ) | $ | (28,476 | ) | $ | (28,858 | ) | |
| Net loss per share | |||||||||||||
| Basic | $ | (0.27 | ) | $ | (0.42 | ) | $ | (0.95 | ) | $ | (0.96 | ) | |
| Diluted | (0.27 | ) | (0.42 | ) | (0.95 | ) | (0.96 | ) | |||||
| Weighted average number of shares outstanding (‘000) | 29,964 | 29,964 | 29,964 | 29,964 | |||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY | ||||||||||||
| (Unaudited) | For the three months ended | For the nine months ended | ||||||||||
| (In thousands of Canadian dollars) | October 29, 2016 |
October 31, 2015 |
October 29, 2016 |
October 31, 2015 |
||||||||
| SHARE CAPITAL | $ | 47,967 | $ | 47,967 | $ | 47,967 | $ | 47,967 | ||||
| CONTRIBUTED SURPLUS | ||||||||||||
| Balance, beginning of period | $ | 9,088 | $ | 7,318 | $ | 8,555 | $ | 4,439 | ||||
| Fair value adjustment for long-term debt | – | – | 347 | 2,560 | ||||||||
| Stock-based compensation expense | 66 | 103 | 252 | 422 | ||||||||
| Balance, end of period | $ | 9,154 | $ | 7,421 | $ | 9,154 | $ | 7,421 | ||||
| RETAINED EARNINGS (DEFICIT) | ||||||||||||
| Balance, beginning of period | $ | (16,650 | ) | $ | 23,197 | $ | 3,832 | $ | 39,577 | |||
| Net loss | (7,994 | ) | (12,478 | ) | (28,476 | ) | (28,858 | ) | ||||
| Balance, end of period | $ | (24,644 | ) | $ | 10,719 | $ | (24,644 | ) | $ | 10,719 | ||
| Total shareholders’ equity | $ | 32,477 | $ | 66,107 | $ | 32,477 | $ | 66,107 | ||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||
| (Unaudited) | For the three months ended | For the nine months ended | |||||||||||
| (In thousands of Canadian dollars) | October 29, 2016 |
October 31, 2015 |
October 29, 2016 |
October 31, 2015 |
|||||||||
| OPERATING ACTIVITIES | |||||||||||||
| Net loss | $ | (7,994 | ) | $ | (12,478 | ) | $ | (28,476 | ) | $ | (28,858 | ) | |
| Adjustments to determine net cash from operating activities | |||||||||||||
| Depreciation and amortization | 3,326 | 3,849 | 10,633 | 12,582 | |||||||||
| Write-off and impairment of property and equipment | 104 | 351 | 576 | 1,240 | |||||||||
| Amortization of deferred lease credits | (484 | ) | (395 | ) | (1,156 | ) | (1,440 | ) | |||||
| Deferred lease credits | 225 | – | 225 | 32 | |||||||||
| Stock-based compensation | 66 | 103 | 252 | 422 | |||||||||
| Provision for onerous leases | (72 | ) | (18 | ) | 198 | 60 | |||||||
| Finance costs | 1,304 | 1,037 | 3,828 | 2,909 | |||||||||
| Interest paid | (564 | ) | (840 | ) | (2,276 | ) | (2,212 | ) | |||||
| (4,089 | ) | (8,391 | ) | (16,196 | ) | (15,265 | ) | ||||||
| Net change in non-cash working capital items related to operations | 156 | (6,828 | ) | (821 | ) | (9,846 | ) | ||||||
| Income taxes refunded | – | – | 300 | 350 | |||||||||
| Cash flows related to operating activities | (3,933 | ) | (15,219 | ) | (16,717 | ) | (24,761 | ) | |||||
| FINANCING ACTIVITIES | |||||||||||||
| Increase in credit facility | 5,257 | 17,118 | 20,912 | 13,894 | |||||||||
| Financing costs | – | (10 | ) | – | (442 | ) | |||||||
| Proceeds of long-term debt | – | – | 2,500 | 20,000 | |||||||||
| Repayment of long-term debt | (286 | ) | (430 | ) | (848 | ) | (1,730 | ) | |||||
| Cash flows related to financing activities | 4,971 | 16,678 | 22,564 | 31,722 | |||||||||
| INVESTING ACTIVITIES | |||||||||||||
| Additions to property and equipment and intangible assets | (1,733 | ) | (2,223 | ) | (4,288 | ) | (7,306 | ) | |||||
| Cash flows related to investing activities | (1,733 | ) | (2,223 | ) | (4,288 | ) | (7,306 | ) | |||||
| Increase (decrease) in cash | (695 | ) | (764 | ) | 1,559 | (345 | ) | ||||||
| Cash (bank indebtedness), beginning of period | 1,709 | 1,614 | (545 | ) | 1,195 | ||||||||
| Cash, end of period | $ | 1,014 | $ | 850 | $ | 1,014 | $ | 850 | |||||
President
(514) 738-7000
Johnny Del Ciancio, CPA, CA,
Vice-President, Finance
(514) 738-7000
MaisonBrison:
Pierre Boucher
(514) 731-0000
Source:
Le Chateau Inc.
