Le Chateau Inc.
TSX : CTU.A

Le Chateau Inc.

September 09, 2016 17:52 ET

Le Chateau Reports Second Quarter Results

MONTRÉAL, QUÉBEC--(Marketwired - Sept. 9, 2016) - Le Château Inc. (TSX:CTU.A), today reported that sales for the second quarter ended July 30, 2016 amounted to $59.9 million as compared with $63.3 million for the second quarter ended August 1, 2015, a decrease of 5.3%, with 20 fewer stores in operation. Comparable store sales decreased 0.3% for the second quarter as compared to last year, with comparable regular store sales increasing 2.0% and comparable outlet store sales decreasing 8.5% (see non-GAAP measures below). Included in comparable store sales are online sales which increased 43.0% for the second quarter. The continued success with our online sales is consistent with the shift in consumer shopping habits over the last few years and continues to reinforce 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 second quarter of 2016 amounted to $(1.1) million, compared to $2.2 million for the same period last year. The decrease of $3.3 million in adjusted EBITDA for the second quarter was primarily attributable to the decrease of $4.1 million in gross margin dollars, offset by the reduction in selling, general and administrative expenses of $800,000. The decrease of $4.1 million in gross margin dollars was the result of the decline in gross margin percentage to 63.5% from 66.6% in 2015 due to increased promotional activity primarily in outlet stores and in stores scheduled to be closed, combined with the 5.3% overall sales decline for the second 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 merchandise purchased.

Net loss for the second quarter ended July 30, 2016 amounted to $6.2 million or $(0.21) per share compared to a net loss of $4.0 million or $(0.13) per share for the same period last year.

Six-month Results

Sales for the six months ended July 30, 2016 amounted to $108.5 million as compared with $114.0 million last year, a decrease of 4.8%, with 20 fewer stores in operation. Comparable store sales decreased 1.0% versus the same period a year ago, with comparable regular store sales increasing 0.7% and comparable outlet store sales decreasing 7.1%. Included in comparable store sales are online sales which increased 48.3% for the six months ended July 30, 2016.

Adjusted EBITDA for the six months ended July 30, 2016 amounted to $(10.2) million, compared to $(4.9) million last year. The decrease of $5.3 million in adjusted EBITDA for the first six months of 2016 was primarily attributable to the decrease of $6.3 million in gross margin dollars, offset by the reduction in selling, general and administrative expenses of $1.0 million. The decrease of $6.3 million in gross margin dollars was the result of the decline in gross margin percentage to 63.1% from 65.6% in 2015 due to increased promotional activity primarily in outlet stores and in stores scheduled to be closed, combined with the 4.8% overall sales decline for the first half of 2016.

Net loss for the six-month period ended July 30, 2016 amounted to $20.5 million or $(0.68) per share compared to a net loss of $16.4 million or $(0.55) per share the previous year.

Over the past few years, 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, in light of these changes and situation, our strategy is to continue to review our retail network and close underperforming stores. To date, we have made significant progress on our plan and expect our rightsizing objectives to be largely reached in three years considering the expiry of leases.

During the first six months of 2016, the Company renovated one existing location and, as planned, closed 11 underperforming stores. As at July 30, 2016, the Company operated 200 stores (including 66 fashion outlet stores) compared to 220 stores (including 65 fashion outlet stores) as at August 1, 2015. Total square footage for the Le Château network as at July 30, 2016 amounted to 1,097,000 square feet (including 439,000 square feet for fashion outlet stores), compared to 1,203,000 square feet (including 462,000 square feet for fashion outlet stores) as at August 1, 2015. In 2016, the Company is planning to close approximately 20 stores and expects its total square footage to reach approximately 1,070,000 square feet.

Third Quarter of 2016

For the third quarter up to September 8, 2016, total retail sales decreased 5.3%, with 20 fewer stores in operation. Comparable store sales decreased 0.2% compared to the same period last year, with comparable regular store sales increasing 2.5% and comparable outlet store sales decreasing 10.3%. Included in comparable store sales are online sales which increased 50.0%.

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 197 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 six-month periods ended July 30, 2016 and August 1, 2015:

(Unaudited) For the three months ended For the six months ended
(In thousands of Canadian dollars) July 30, 2016 August 1, 2015 July 30, 2016 August 1, 2015
Loss before income taxes $ (6,209 ) $ (4,022 ) $ (20,482 ) $ (16,380 )
Depreciation and amortization 3,590 4,335 7,307 8,733
Write-off and impairment of property and equipment 294 869 472 889
Finance costs 1,277 1,066 2,524 1,872
Finance income (2 ) (5 ) (4 ) (7 )
Adjusted EBITDA $ (1,050 ) $ 2,243 $ (10,183 ) $ (4,893 )

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 30, 2016 and August 1, 2015:

(Unaudited) For the three months ended For the six months ended
(In thousands of Canadian dollars) July 30, 2016 August 1, 2015 July 30, 2016 August 1, 2015
Comparable store sales - Regular stores $ 45,582 $ 44,696 $ 81,641 $ 81,080
Comparable store sales - Outlet stores 11,493 12,557 21,192 22,808
Total comparable store sales 57,075 57,253 102,833 103,888
Non-comparable store sales 2,842 6,039 5,713 10,150
Total sales $ 59,917 $ 63,292 $ 108,546 $ 114,038

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 second quarter ended July 30, 2016 are available online at www.sedar.com.

CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands of Canadian dollars)
As at
July 30, 2016
As at
August 1, 2015
As at
January 30, 2016
ASSETS
Current assets
Cash $ 1,709 $ 1,614 $ -
Accounts receivable 1,186 1,240 1,180
Income taxes refundable 339 419 569
Inventories 112,392 120,162 113,590
Prepaid expenses 1,657 2,790 1,385
Total current assets 117,283 126,225 116,724
Deposits 621 - 621
Property and equipment 42,820 54,037 48,332
Intangible assets 3,101 2,476 2,813
$ 163,825 $ 182,738 $ 168,490
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness $ - $ - $ 545
Current portion of credit facility 60,681 17,964 12,944
Trade and other payables 16,862 19,755 17,865
Deferred revenue 2,699 2,805 3,216
Current portion of provision for onerous leases 737 676 620
Current portion of long-term debt 286 1,268 848
Total current liabilities 81,265 42,468 36,038
Credit facility - 27,126 31,962
Long-term debt 31,708 22,768 29,170
Provision for onerous leases 1,606 1,553 1,453
Deferred lease credits 8,841 10,341 9,513
Total liabilities 123,420 104,256 108,136
Shareholders' equity
Share capital 47,967 47,967 47,967
Contributed surplus 9,088 7,318 8,555
Retained earnings (deficit) (16,650) 23,197 3,832
Total shareholders' equity 40,405 78,482 60,354
$ 163,825 $ 182,738 $ 168,490
CONSOLIDATED STATEMENTS OF LOSS
(Unaudited) For the three months ended For the six months ended
(In thousands of Canadian dollars, except per share information) July 30, 2016 August 1, 2015 July 30, 2016 August 1, 2015
Sales $ 59,917 $ 63,292 $ 108,546 $ 114,038
Cost of sales and expenses
Cost of sales 21,867 21,152 40,072 39,283
Selling 35,420 36,659 70,322 72,361
General and administrative 7,564 8,442 16,114 16,909
64,851 66,253 126,508 128,553
Results from operating activities (4,934 ) (2,961 ) (17,962 ) (14,515 )
Finance costs 1,277 1,066 2,524 1,872
Finance income (2 ) (5 ) (4 ) (7 )
Loss before income taxes (6,209 ) (4,022 ) (20,482 ) (16,380 )
Income tax recovery - - - -
Net loss $ (6,209 ) $ (4,022 ) $ (20,482 ) $ (16,380 )
Net loss per share
Basic $ (0.21 ) $ (0.13 ) $ (0.68 ) $ (0.55 )
Diluted (0.21 ) (0.13 ) (0.68 ) (0.55 )
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 six months ended
(In thousands of Canadian dollars) July 30, 2016 August 1, 2015 July 30, 2016 August 1, 2015
SHARE CAPITAL $ 47,967 $ 47,967 $ 47,967 $ 47,967
CONTRIBUTED SURPLUS
Balance, beginning of period $ 9,005 $ 5,015 $ 8,555 $ 4,439
Fair value adjustment for long-term debt - 2,157 347 2,560
Stock-based compensation expense 83 146 186 319
Balance, end of period $ 9,088 $ 7,318 $ 9,088 $ 7,318
RETAINED EARNINGS (DEFICIT)
Balance, beginning of period $ (10,441 ) $ 27,219 $ 3,832 $ 39,577
Net loss (6,209 ) (4,022 ) (20,482 ) (16,380 )
Balance, end of period $ (16,650 ) $ 23,197 $ (16,650 ) $ 23,197
Total shareholders' equity $ 40,405 $ 78,482 $ 40,405 $ 78,482
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the three months ended For the six months ended
(In thousands of Canadian dollars) July 30, 2016 August 1, 2015 July 30, 2016 August 1, 2015
OPERATING ACTIVITIES
Net loss $ (6,209 ) $ (4,022 ) $ (20,482 ) $ (16,380 )
Adjustments to determine net cash from operating activities
Depreciation and amortization 3,590 4,335 7,307 8,733
Write-off and impairment of property and equipment 294 869 472 889
Amortization of deferred lease credits (349 ) (443 ) (672 ) (1,045 )
Deferred lease credits - 32 - 32
Stock-based compensation 83 146 186 319
Provision for onerous leases 350 156 270 78
Finance costs 1,277 1,066 2,524 1,872
Interest paid (795 ) (661 ) (1,712 ) (1,372 )
(1,759 ) 1,478 (12,107 ) (6,874 )
Net change in non-cash working capital items related to operations 5,573 11,297 (977 ) (3,018 )
Income taxes refunded - 350 300 350
Cash flows related to operating activities 3,814 13,125 (12,784 ) (9,542 )
FINANCING ACTIVITIES
Increase (decrease) in credit facility (1,297 ) (20,932 ) 15,655 (3,224 )
Financing costs - (401 ) - (432 )
Proceeds of long-term debt - 15,000 2,500 20,000
Repayment of long-term debt (282 ) (425 ) (562 ) (1,300 )
Cash flows related to financing activities (1,579 ) (6,758 ) 17,593 15,044
INVESTING ACTIVITIES
Additions to property and equipment and intangible assets (928 ) (3,608 ) (2,555 ) (5,083 )
Cash flows related to investing activities (928 ) (3,608 ) (2,555 ) (5,083 )
Increase in cash 1,307 2,759 2,254 419
Cash (bank indebtedness), beginning of period 402 (1,145 ) (545 ) 1,195
Cash, end of period $ 1,709 $ 1,614 $ 1,709 $ 1,614

Contact 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 Chateau Inc.