Danier Leather Inc.

TSX : DL


Danier Leather Inc.

August 14, 2014 08:00 ET

Danier Leather Reports Fiscal 2014 Fourth Quarter and Year End Results

TORONTO, ONTARIO--(Marketwired - Aug. 14, 2014) - Danier Leather Inc. (TSX:DL) ("Danier" or the "Company") today announced its consolidated financial results for the fourth quarter and fiscal year ended June 28, 2014.

FINANCIAL HIGHLIGHTS ($000s, except earnings per share (EPS), square footage and number of stores):
For the 13 Weeks Ended For the 52 Weeks Ended
Jun 28, 2014 Jun 29, 2013 Jun 28, 2014 Jun 29, 2013
Sales $ 24,709 $ 28,369 $ 141,930 $ 154,995
EBITDA(1) (8,132 ) (2,805 ) (6,545 ) 5,357
Adjusted EBITDA(1) (6,823 ) (3,565 ) (4,569 ) 5,381
Net Earnings (Loss) (6,680 ) (2,652 ) (7,663 ) 1,411
EPS - Basic $ (1.74 ) $ (0.69 ) $ (2.00 ) $ 0.34
EPS - Diluted $ (1.74 ) $ (0.69 ) $ (2.00 ) $ 0.33
Number of Stores 90 89 90 89
Retail Square Footage 283,224 283,381 283,224 283,381

Total company sales during the fourth quarter of fiscal 2014 decreased by 13% to $24.7 million from $28.4 million in the same period last year, while comparable store sales(2) over the same time frame decreased by 16%. Year-to-date sales decreased by 8% to $141.9 million compared with $155.0 million last year, while comparable store sales for the full 2014 fiscal year period decreased by 10%, as compared to the corresponding period last year.

Company sales during the fourth quarter and overall 2014 fiscal year were influenced by a number of factors. The extremely cold and long winter resulted in the Company having insufficient quantities of heavily-lined winter coats to meet customer demand during the prolonged winter season. The ice storms in all of Eastern Canada also reduced customer traffic to Danier's stores during the traditionally peak holiday selling season. As a result, the Company's sales and gross margins were negatively affected during what has historically been Danier's busiest selling season, which in turn, had a significant impact on the Company's fiscal 2014 annual results. In addition, the Canadian retail environment was, and continues to be, highly promotional with increased competition for the fashion dollar.

The majority of the decrease in sales and profit occurred during the last half of the fiscal year. This was caused by a combination of factors, including a compressed spring selling season due to the unusually long winter, higher than anticipated fall and winter inventory levels, a reduction in the amount of spring inventory purchases compared with the prior year, a spring assortment that lacked certain colours and styles desired by customers, and a promotional strategy that proved to be less effective than anticipated. As a result, gross profit margin decreased as the Company was required to implement larger discounts during the last half of the fiscal year than is typical in order to clear built-up inventory.

By year-end, Danier had made significant progress in reducing the surplus fall and winter inventory. Recent improvements made to merchandise and assortment planning processes is expected to result in an improved product assortment that is better integrated with marketing promotions as the Company enters the upcoming fall season. As part of these enhancements and in order to better compete in the broader outerwear category, Danier plans to offer a better selection of cold weather outerwear featuring insulated winter-weight linings for the upcoming fall/winter season. For our spring collection next year, the addition of more colour and a better assortment of styles is planned. Danier is also continuing to enhance its brand image by placing an increased emphasis on the Company's leather quality, craftsmanship and heritage.

"We are disappointed by the Company's financial and operating results over the past fiscal year, particularly the unsatisfactory results from the third and fourth quarters," said Jeffrey Wortsman, President and Chief Executive Officer. "We remain committed to implementing our strategic plan as we believe it is the right path forward for our Company. As previously disclosed, part of the Company's strategic plan involved significant changes to the senior leadership team who are being integrated into the business, and we believe, are well-suited to execute on the Company's strategy. We also need to implement additional measures to improve performance in the shorter-term, such as continuing to improve our merchandise planning and allocation and marketing initiatives. We also continue to explore other potential initiatives that may help us enhance and accelerate our strategic plan. However, given the scope of significant changes contemplated by the strategic plan, such changes take time to implement before results and objectives can be meaningfully achieved."

In recent years Danier has been growing its higher margin accessories business, and has made significant changes and investments in this area, resulting in accessory sales growth in fiscal 2014. For example, year-to-date sales of handbags increased by 15% compared to the corresponding period last year. Overall accessory sales now represent 39% of total merchandise revenue, up from 33% last fiscal year. The Company is continuing to make significant progress towards achieving its stated goal of growing the accessories business to 40% to 50% of total merchandise revenue.

In February 2014, Danier launched its eCommerce click-to-buy store for orders within Canada. While not currently a significant portion of Danier's overall sales for the year, eCommerce revenue did increase markedly during the fourth quarter, suggesting initially strong results. Sales from the eCommerce channel for the most recent quarter accounted for more than double the sales from our phone order channel in the same quarter last year. Danier currently believes its eCommerce platform will allow it to reach a broader range of customers across Canada, including younger customers who are more accustomed to online shopping.

Danier is also continuing its previously-announced direct shipment offering, whereby if a particular product in a particular size is not available in a store, the Company will ship the product directly to a customer's home or office. Direct shipment continues to show strong results, and the Company believes that this sales strategy will continue to complement our other sales channels.

Gross profit as a percentage of revenue during the fourth quarter of fiscal 2014 was 39.9% compared with 46.6% during the fourth quarter last year. Year-to-date gross profit margin was 48.1% compared with 50.6% during fiscal 2013. The decrease in gross profit margin was mainly due to higher markdowns and provisions and increased promotional activity undertaken by the Company in order to reduce fall and winter inventory levels, as discussed above.

Selling, general and administrative expenses ("SG&A") during the fourth quarter of fiscal 2014 increased by $2.3 million to $19.3 million, compared with $17.0 million during the fourth quarter last year. Year-to-date SG&A increased by approximately $2.5 million to $79.1 million compared with $76.6 million last year. Excluding non-recurring items like the termination benefits paid in connection with previously-disclosed senior management changes, impairment loss on property and equipment and foreign exchange fair value adjustments on the U.S. dollar foreign exchange contracts, fourth quarter SG&A increased by $0.2 million and year-to-date SG&A increased by $0.5 million, in each case, compared to the corresponding periods last year. The fourth quarter and year-to-date increase in SG&A was mainly due to increased store rent and occupancy costs.

EBITDA(1), which is a non-IFRS measure calculated as net earnings (loss) before interest expense, interest income, income taxes and amortization, was a loss of $8.1 million during the fourth quarter of fiscal 2014, compared with a loss of $2.8 million during the fourth quarter last year. Adjusted EBITDA(1), which excludes non-recurring items like termination benefits, impairment loss on property and equipment and foreign exchange fair value adjustments, discussed above, was a loss of $6.8 million during the fourth quarter of fiscal 2014, compared with a loss of $3.6 million during the fourth quarter last year. For the fiscal year ended June 28, 2014, EBITDA was a loss of $6.5 million compared with EBITDA of $5.4 million in fiscal 2013 and Adjusted EBITDA was a loss of $4.6 million compared with Adjusted EBITDA of $5.4 million during the corresponding period last year.

Net loss during the fourth quarter of fiscal 2014 was $6.7 million ($1.74 per diluted share) compared with a net loss of $2.7 million ($0.69 per diluted share) during the fourth quarter last year. For the fiscal year ended June 28, 2014, net loss was $7.7 million ($2.00 per diluted share) compared with net earnings of $1.4 million ($0.33 per diluted share) for the fiscal year ended June 29, 2013. The fiscal 2014 net loss and poorer results as compared to the corresponding periods last year are due to the lower sales, reduced gross profit and increased SG&A, all as discussed above, as well as the continuing challenging retail environment.

Danier continues to maintain a strong balance sheet with cash of $13.5 million, working capital(3) of $29.2 million, no cash borrowings under its $39 million of available credit facilities and a book value of $12.56 per outstanding share.

Non-IFRS Financial Measures

The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS"). In order to provide additional insight into the business, the Company has also provided certain non-IFRS data, including "EBITDA" and "comparable store sales", each as defined below. These non-IFRS measures are not recognized measures for financial presentation under IFRS. These non-IFRS measures do not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to other financial measures determined in accordance with IFRS.

  1. EBITDA is defined as net earnings (loss) before interest expense, interest income, income taxes and amortization. Adjusted EBITDA is defined as EBITDA before impairment loss on property and equipment, foreign exchange loss (gain) and termination benefits. EBITDA is a financial metric used by management and some investors to compare companies on the basis of ongoing operating results before taxes, interest expense, interest income and amortization and its ability to incur and service debt. Adjusted EBITDA is a financial metric used by management to compare EBITDA (as defined above) before impairment loss on property and equipment, foreign exchange loss (gain) and termination benefits. EBITDA and Adjusted EBITDA is also used by management to measure performance against internal targets, prior period results and other retailers. EBITDA and Adjusted EBITDA are calculated as outlined in the following table:
Fourth Quarter Ended Fiscal Year Ended
Jun 28, 2014 Jun 29, 2013 Jun 28, 2014 Jun 29, 2013
($000) ($000) ($000) ($000)
Net earnings (loss) $ (6,680 ) $ (2,652 ) $ (7,663 ) $ 1,411
Add (deduct) impact of the following:
Income tax (2,717 ) (1,063 ) (3,131 ) 570
Interest expense 10 11 59 51
Interest income (28 ) (68 ) (118 ) (236 )
Amortization 1,283 967 4,308 3,561
EBITDA $ (8,132 ) $ (2,805 ) $ (6,545 ) $ 5,357
Impairment loss on property and equipment 510 - 663 327
Foreign exchange loss (gain) 723 (771 ) 530 (540 )
Termination benefits 76 11 783 237
Adjusted EBITDA $ (6,823 ) $ (3,565 ) $ (4,569 ) $ 5,381
  1. Comparable store sales are defined as sales generated by stores that have been open during the full current fiscal year as well as the full prior fiscal year. Comparable store sales is a key performance indicator used by the Company to measure performance against internal targets and prior period results and excludes sales fluctuations due to new stores, store closings and certain permanent store relocations. This measure is also commonly used by financial analysts and investors to compare Danier to other retailers. Comparable store sales is calculated as outlined in the following tables:
For the 13 Weeks Ended
Jun 28, 2014 Jun 29, 2013 % change
($000) ($000)
Comparable stores $ 22,706 $ 27,178 (16 %)
Non-comparable stores & direct-to customer 1,788 984 82 %
Alterations revenue 164 201 (18 %)
Sales return provision (increase)/decrease 51 6 n/m
Revenue $ 24,709 $ 28,369 (13 %)
For the Fiscal Year Ended
Jun 28, 2014 Jun 29, 2013 % change
($000) ($000)
Comparable stores $ 132,959 $ 147,853 (10 %)
Non-comparable stores & direct-to customer 8,098 6,092 33 %
Alterations revenue 868 1,025 (15 %)
Sales return provision (increase)/decrease 5 25 n/m
Revenue $ 141,930 $ 154,995 (8 %)
  1. Working capital is defined as total current assets minus total current liabilities. Working capital is a key indicator and financial metric used by the Company to measure short-term liquidity for those assets that can easily be converted into cash to satisfy both short-term liabilities and upcoming operating expenses. Working capital is calculated as outlined in the following table:
Jun 28, 2014 Jun 29, 2013
($000) ($000)
Total current assets $ 39,970 $ 49,709
Total current liabilities $ 10,790 $ 11,748
Working capital $ 29,180 $ 37,961

Forward-Looking Statements

This press release contains forward-looking information and forward-looking statements which reflect the current view of Danier with respect to the Company's objectives, plans, goals, strategies, future growth, results of operations, financial and operating performance and business prospects and opportunities. Wherever used, the words "may", "will", "anticipate", "intend", "estimate", "expect", "plan", "believe" and similar expressions identify forward-looking statements and forward-looking information. Forward-looking statements and forward-looking information should not be read as guarantees of future events, performance or results, and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved. All of the statements in this press release containing forward-looking statements or forward-looking information, if any, are qualified by these cautionary statements.

Forward-looking statements and forward-looking information are based on information available at the time they are made, underlying estimates, opinions and assumptions made by management and management's good faith belief with respect to future strategies, events, performance and results, and are subject to inherent risks and uncertainties surrounding future expectations generally. For additional information with respect to Danier's inherent risks and uncertainties, reference should be made to Danier's continuous disclosure materials filed from time to time with the Canadian Securities Regulatory Authorities, including the Company's most recent annual information form, quarterly and annual reports and financial statements and notes thereto, and supplementary information, which are available on SEDAR at www.sedar.com and in the Investor Relations section of the Company's website at www.danier.com. Additional risks and uncertainties not presently known to the Company or outside the Company's control or that Danier currently believes to be less significant may also adversely affect the Company.

Danier cautions readers that such factors and uncertainties are not exhaustive and that should certain risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual strategies, events, performance and results may vary significantly from those expected. There can be no assurance that the actual strategies, results, performance, events or activities anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. Potential investors and other readers are urged to consider these factors carefully in evaluating forward-looking information and forward-looking statements and are cautioned not to place undue reliance on any forward-looking information or forward-looking statements. In addition, Danier does not provide financial outlooks or future-oriented financial information and, accordingly, no forward-looking information or statements should be construed as such. Danier disclaims any intention or obligation to update or revise any forward-looking information or forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable laws.

About Danier

Danier Leather Inc. is a leading integrated designer, manufacturer, distributor and retailer of high-quality fashion-oriented leather apparel and accessories. The Company's merchandise is marketed exclusively under the well-known Danier brand name and is available at its 90 shopping mall, street-front and outlet stores as well as the online store at danier.com. Corporations and other organizations can obtain Danier products for use as incentives and premiums for employees, suppliers and customers through Canada Sportswear Corp. For more information about the Company and our products, visit www.danier.com.

Investors and analysts are invited to participate in a conference call today at 9:00 AM Eastern Time to discuss the results. Please dial 416-623-0333 in the Toronto area or 1-855-353-9183 (rest of Canada and the U.S.) and enter passcode 60247# or state Danier Leather Conference Call at least five minutes prior to the call. The call will also be webcast at http://www.danier.com/ or at http://www.marketwired.com/.
DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) & COMPREHENSIVE EARNINGS (LOSS)
(thousands of Canadian dollars, except per share amounts and number of shares) - unaudited
Fourth Quarter Ended Year Ended
June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013
13 weeks 13 weeks 52 weeks 52 weeks
Revenue $ 24,709 $ 28,369 $ 141,930 $ 154,995
Cost of sales 14,861 15,159 73,697 76,579
Gross profit 9,848 13,210 68,233 78,416
Selling, general and administrative expenses 19,263 16,982 79,086 76,620
Interest income (28 ) (68 ) (118 ) (236 )
Interest expense 10 11 59 51
Earnings (loss) before income taxes (9,397 ) (3,715 ) (10,794 ) 1,981
Provision for (recovery of) income taxes (2,717 ) (1,063 ) (3,131 ) 570
Net earnings (loss) and comprehensive earnings (loss) $ (6,680 ) $ (2,652 ) $ (7,663 ) $ 1,411
Net earnings (loss) per share:
Basic $ (1.74 ) $ (0.69 ) $ (2.00 ) $ 0.34
Diluted $ (1.74 ) $ (0.69 ) $ (2.00 ) $ 0.33
Weighted average number of shares outstanding:
Basic 3,847,794 3,844,558 3,840,319 4,180,829
Diluted 3,935,874 3,971,295 3,948,336 4,323,619
Number of shares outstanding at period end 3,854,168 3,832,168 3,854,168 3,832,168
DANIER LEATHER INC.
CONSOLIDATED BALANCE SHEETS
(thousands of Canadian dollars) - unaudited
June 28,
2014
June 29,
2013
ASSETS
Current Assets
Cash $ 13,507 $ 24,541
Accounts receivable 638 1,197
Income taxes recoverable 3,461 358
Inventories 21,721 22,810
Prepaid expenses 643 803
39,970 49,709
Non-current Assets
Property and equipment 16,826 16,034
Computer software 1,459 1,143
Deferred income tax asset 2,374 2,163
$ 60,629 $ 69,049
LIABILITIES
Current Liabilities
Payables and accruals $ 9,185 $ 10,101
Deferred revenue 1,511 1,548
Sales return provision 94 99
10,790 11,748
Non-current Liabilities
Deferred lease inducements and rent liability 1,432 1,392
12,222 13,140
SHAREHOLDERS' EQUITY
Share capital 11,772 11,533
Contributed surplus 1,040 954
Retained earnings 35,595 43,422
48,407 55,909
$ 60,629 $ 69,049
Approved by the Board of Directors
August 13, 2014
DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(thousands of Canadian dollars) - unaudited
Fourth Quarter Ended Year Ended
June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013
13 weeks 13 weeks 52 weeks 52 weeks
Cash provided by (used in)
OPERATING ACTIVITIES
Net earnings (loss) $ (6,680 ) $ (2,652 ) $ (7,663 ) $ 1,411
Adjustments for:
Amortization of property and equipment 875 825 3,517 3,149
Amortization of computer software 408 142 791 412
Impairment loss on property and equipment 510 - 663 327
Amortization of deferred lease inducements (18 ) (19 ) (75 ) (100 )
Straight line rent expense 40 (16 ) 115 121
Stock-based compensation 63 45 209 131
Interest income (28 ) (68 ) (118 ) (236 )
Interest expense 10 11 59 51
Provision for (refund of) income taxes (2,717 ) (1,063 ) (3,131 ) 570
Changes in working capital 6,980 5,572 883 1,348
Interest paid - (12 ) (107 ) (12 )
Interest received 32 65 133 244
Income taxes (paid) recovered 31 18 (183 ) (664 )
Net cash generated from (used in) operating activities (494 ) 2,848 (4,907 ) 6,752
FINANCING ACTIVITIES
Subordinate voting shares issued 63 125 227 183
Subordinate voting shares repurchased - (606 ) (275 ) (11,399 )
Net cash (used in) generated from financing activities 63 (481 ) (48 ) (11,216 )
INVESTING ACTIVITIES
Acquisition of property and equipment (1,132 ) (628 ) (4,972 ) (4,498 )
Acquisition of computer software (59 ) (674 ) (1,107 ) (829 )
Net cash used in investing activities (1,191 ) (1,302 ) (6,079 ) (5,327 )
Increase (decrease) in cash (1,622 ) 1,065 (11,034 ) (9,791 )
Cash, beginning of period 15,129 23,476 24,541 34,332
Cash, end of period $ 13,507 $ 24,541 $ 13,507 $ 24,541
DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(thousands of Canadian dollars) - unaudited
Share Capital Contributed Surplus Accumulated Other Comprehensive Income Retained Earnings Total
Balance - June 29, 2013 $ 11,533 $ 954 $- $ 43,422 $ 55,909
Net loss - - - (7,663 ) (7,663 )
Stock-based compensation related to stock options - 209 - - 209
Exercise of stock options 350 (123 ) - - 227
Share repurchases (net of tax) (111 ) - - (164 ) (275 )
Balance - June 28, 2014 $ 11,772 $ 1,040 $- $ 35,595 $ 48,407
Share Capital Contributed Surplus Accumulated Other Comprehensive Income Retained Earnings Total
Balance - June 30, 2012 $ 15,040 $ 925 $- $ 49,526 $ 65,491
Net earnings - - - 1,411 1,411
Stock-based compensation related to stock options - 131 - - 131
Exercise of stock options 285 (102 ) - - 183
Share repurchases (net of tax) (3,792 ) - - (7,515 ) (11,307 )
Balance - June 29, 2013 $ 11,533 $ 954 $- $ 43,422 $ 55,909

Contact Information

  • Investor Relations Contact
    Danier Leather Inc.
    Jeffrey Wortsman
    President and Chief Executive Officer
    (416) 762-8175 ext. 302
    jeffreyw@danier.com

    Danier Leather Inc.
    Bryan Tatoff
    Executive Vice-President, CFO and Secretary
    (416) 762-8175 ext. 328
    bryan@danier.com