Le Chateau Reports Fourth Quarter and Year-End Results

MONTRÉAL, QUÉBEC--(Marketwired - April 28, 2017) - Le Château Inc. (TSX:CTU), today reported that sales for the fourth quarter ended January 28, 2017 amounted to $62.6 million as compared with $65.2 million for the fourth quarter ended January 30, 2016, a decrease of 4.0%, with 24 fewer stores in operation. Comparable store sales increased 1.2% for the fourth quarter as compared to last year, with comparable regular store sales increasing 1.8% and comparable outlet store sales decreasing 0.9% (see non-GAAP measures below). Over the past fiscal year, comparable store sales for regular stores have trended positively, reflecting the traction of our merchandise selection, marketing, rebranding efforts and a remaining store base of better performing stores.

Included in comparable store sales are online sales which increased 31.8% for the fourth quarter. At the end of September 2016, 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 and intangible assets ("Adjusted EBITDA") (see non-GAAP measures below) for the fourth quarter of 2016 amounted to $(2.9) million, compared to $(675,000) for the same period last year. The decrease of $2.2 million in adjusted EBITDA for the fourth quarter was primarily attributable to the decrease of $3.8 million in gross margin dollars, offset by a decrease of $1.6 million in selling, general and administrative expenses ("SG&A"). The decrease in SG&A expenses resulted primarily from the reduction in store occupancy costs due mainly to store closures. The decrease of $3.8 million in gross margin dollars was the result of the decline in gross margin percentage to 58.4% from 61.9% in 2015 due to increased promotional activity primarily in scheduled store closures and in the outlet stores, combined with the 4.0% overall sales decline for the fourth 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. For the fourth quarter ended January 28, 2017, the Company recorded write-downs of inventory, net of reversals, totaling $1.0 million, compared to $300,000 the previous year.

Net loss for the fourth quarter ended January 28, 2017 amounted to $8.8 million or $(0.29) per share compared to a net loss of $6.9 million or $(0.23) per share for the same period last year.

Year-end Results

Sales for the year ended January 28, 2017 amounted to $226.6 million as compared with $236.9 million last year, a decrease of 4.3%, with 24 fewer stores in operation. Comparable store sales increased 0.3% for the year, with comparable regular store sales increasing 1.9% and comparable outlet store sales decreasing 5.2%. Included in comparable store sales are online sales which increased 43.6% for the year ended January 28, 2017.

Adjusted EBITDA for the year ended January 28, 2017 amounted to $(16.3) million, compared to $(12.8) million last year. The decrease of $3.5 million in adjusted EBITDA for 2016 was primarily attributable to the decrease of $11.7 million in gross margin dollars, offset by the reduction in SG&A expenses of $8.2 million. The decrease in SG&A expenses resulted from (a) the reduction in store occupancy costs due mainly to store closures and (b) the non-recurrence of the advertising campaign conducted across Canada last year, for which we continue to accrue the benefits of the "Le Château de Montréal" rebrand. The decrease of $11.7 million in gross margin dollars was the result of the decline in gross margin percentage to 61.9% from 64.2% in 2015 due to increased promotional activity primarily in the 25 stores closed during the year and in the outlet stores, combined with the 4.3% overall sales decline for 2016. For the year ended January 28, 2017, the Company recorded write-downs of inventory, net of reversals, totaling $1.2 million, compared to $300,000 the previous year.

Net loss for the year ended January 28, 2017 amounted to $37.2 million or $(1.24) per share compared to a net loss of $35.7 million or $(1.19) 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 year, the Company opened one store, renovated one existing location and, as planned, closed 25 underperforming stores. As at January 28, 2017, the Company operated 187 stores (including 56 fashion outlet stores) compared to 211 stores (including 65 fashion outlet stores) as at January 30, 2016. Total square footage for the Le Château network as at January 28, 2017 amounted to 1,025,000 square feet (including 377,000 square feet for fashion outlet stores), compared to 1,162,000 square feet (including 460,000 square feet for fashion outlet stores) as at January 30, 2016.

First Quarter of 2017

For the first twelve weeks ended April 22, 2017, total retail sales decreased 8.2%, with 27 fewer stores in operation. Comparable store sales decreased 1.6% compared to the same period last year, with comparable regular store sales increasing 0.6% and comparable outlet store sales decreasing 9.9%. Included in comparable store sales are online sales which increased 21.0%.

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 182 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 and intangible assets. 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 tax recovery for the fourth quarters and years ended January 28, 2017 and January 30, 2016:

(Unaudited)		For the three months ended						For the year ended
(In thousands of Canadian dollars)		January 28, 2017			January 30, 2016			January 28, 2017			January 30, 2016
Loss before income tax recovery	$	(8,750	)	$	(6,887	)	$	(37,226	)	$	(35,745	)
Depreciation and amortization		3,670			3,936			14,303			16,518
Write-off and net impairment of property and equipment and intangible assets		913			1,264			1,489			2,504
Finance costs		1,268			1,013			5,096			3,922
Finance income		-			(1	)		(4	)		(10	)
Adjusted EBITDA	$	(2,899	)	$	(675	)	$	(16,342	)	$	(12,811	)

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 consolidated statements of loss for the fourth quarters and years ended January 28, 2017 and January 30, 2016:

(Unaudited)		For the three months ended				For the year ended
(In thousands of Canadian dollars)		January 28, 2017		January 30, 2016		January 28, 2017		January 30, 2016
Comparable store sales - Regular stores	$	45,994	$	45,165	$	168,821	$	165,632
Comparable store sales - Outlet stores		14,713		14,846		47,643		50,236
Total comparable store sales		60,707		60,011		216,464		215,868
Non-comparable store sales		1,913		5,187		10,123		21,008
Total sales	$	62,620	$	65,198	$	226,587	$	236,876

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.

The Company's ability to continue as a going concern for the next twelve months is dependent on its ability to obtain necessary financing through a renewal of its long-term credit facility and the continued support of the controlling shareholders. Management is currently actively addressing this and is in discussions with its current lender for the renewal of a long-term facility, as well as with prospective subordinated lenders. While the Company believes that it will be able to obtain the necessary financing and has been successful in renewing its facility in the past, there can be no assurance of the success of these plans (see note 2 of the Company's consolidated financial statements).

Factors which could cause actual results or events to differ materially from current expectations include, among other things: the Company's ability to continue as a going concern; the credit facility renewal and other liquidity risks; 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; 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 and the approval of the listing of the Company's shares on the TSX Venture Exchange. 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 consolidated financial statements and Management's Discussion and Analysis for the year ended January 28, 2017 are available online at www.sedar.com.

CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands of Canadian dollars)		As at January 28, 2017			As at January 30, 2016
ASSETS
Current assets
Cash	$	266		$	-
Accounts receivable		992			1,180
Income taxes refundable		459			569
Inventories		101,128			113,590
Prepaid expenses		1,604			1,385
Total current assets		104,449			116,724
Deposits		621			621
Property and equipment		36,969			48,332
Intangible assets		2,900			2,813
	$	144,939		$	168,490
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness	$	-		$	545
Current portion of credit facility		54,564			12,944
Trade and other payables		19,335			17,865
Deferred revenue		3,022			3,216
Current portion of provision for onerous leases		846			620
Current portion of long-term debt		1,643			848
Total current liabilities		79,410			36,038
Credit facility		-			31,962
Long-term debt		32,113			29,170
Provision for onerous leases		1,364			1,453
Deferred lease credits		8,192			9,513
Total liabilities		121,079			108,136
Shareholders' equity
Share capital		47,967			47,967
Contributed surplus		9,287			8,555
Retained earnings (deficit)		(33,394	)		3,832
Total shareholders' equity		23,860			60,354
	$	144,939		$	168,490

CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)			For the three months ended						For the year ended
(In thousands of Canadian dollars, except per share information)			January 28, 2017			January 30, 2016			January 28, 2017			January 30, 2016
Sales		$	62,620		$	65,198		$	226,587		$	236,876
Cost of sales and expenses
Cost of sales			26,068			24,831			86,317			84,903
Selling			35,740			37,874			139,778			150,408
General and administrative			8,294			8,368			32,626			33,398
			70,102			71,073			258,721			268,709
Results from operating activities			(7,482	)		(5,875	)		(32,134	)		(31,833	)
Finance costs			1,268			1,013			5,096			3,922
Finance income			-			(1	)		(4	)		(10	)
Loss before income taxes			(8,750	)		(6,887	)		(37,226	)		(35,745	)
Income tax recovery			-			-			-			-
Net loss		$	(8,750	)	$	(6,887	)	$	(37,226	)	$	(35,745	)
Net loss per share
	Basic	$	(0.29	)	$	(0.23	)	$	(1.24	)	$	(1.19	)
	Diluted		(0.29	)		(0.23	)		(1.24	)		(1.19	)
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 year ended
(In thousands of Canadian dollars)		January 28, 2017			January 30, 2016			January 28, 2017			January 30, 2016
SHARE CAPITAL	$	47,967		$	47,967		$	47,967		$	47,967
CONTRIBUTED SURPLUS
Balance, beginning of period	$	9,154		$	7,421		$	8,555		$	4,439
Fair value adjustment of long-term debt		50			1,041			397			3,601
Stock-based compensation expense		83			93			335			515
Balance, end of period	$	9,287		$	8,555		$	9,287		$	8,555
RETAINED EARNINGS (DEFICIT)
Balance, beginning of period	$	(24,644	)	$	10,719		$	3,832		$	39,577
Net loss		(8,750	)		(6,887	)		(37,226	)		(35,745	)
Balance, end of period	$	(33,394	)	$	3,832		$	(33,394	)	$	3,832
Total shareholders' equity	$	23,860		$	60,354		$	23,860		$	60,354

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)	For the three months ended						For the year ended
(In thousands of Canadian dollars)	January 28, 2017			January 30, 2016			January 28, 2017			January 30, 2016
OPERATING ACTIVITIES
Net loss	$	(8,750	)	$	(6,887	)	$	(37,226	)	$	(35,745	)
Adjustments to determine net cash from operating activities
Depreciation and amortization		3,670			3,936			14,303			16,518
Write-off and net impairment of property and equipment and intangible assets		913			1,264			1,489			2,504
Amortization of deferred lease credits		(390	)		(433	)		(1,546	)		(1,873	)
Deferred lease credits		-			-			225			32
Stock-based compensation		83			93			335			515
Provision for onerous leases		(61	)		(138	)		137			(78	)
Finance costs		1,268			1,013			5,096			3,922
Interest paid		(662	)		(868	)		(2,938	)		(3,080	)
Deposits		-			(621	)		-			(621	)
		(3,929	)		(2,641	)		(20,125	)		(17,906	)
Net change in non-cash working capital items related to operations		13,218			13,241			12,397			3,395
Income taxes refunded		-			-			300			350
Cash flows related to operating activities		9,289			10,600			(7,428	)		(14,161	)
FINANCING ACTIVITIES
Increase (decrease) in credit facility		(11,494	)		(17,382	)		9,418			(3,488	)
Financing costs		-			(28	)		-			(470	)
Proceeds of long-term debt		1,685			7,500			4,185			27,500
Repayment of long-term debt		-			(276	)		(848	)		(2,006	)
Cash flows related to financing activities		(9,809	)		(10,186	)		12,755			21,536
INVESTING ACTIVITIES
Additions to property and equipment and intangible assets		(228	)		(1,809	)		(4,516	)		(9,115	)
Cash flows related to investing activities		(228	)		(1,809	)		(4,516	)		(9,115	)
Increase (decrease) in cash (bank indebtedness)		(748	)		(1,395	)		811			(1,740	)
Cash (bank indebtedness), beginning of period		1,014			850			(545	)		1,195
Cash (bank indebtedness), end of period	$	266		$	(545	)	$	266		$	(545	)