CTU Le Chateau Inc

Le Château Inc. (TSX VENTURE: CTU), today reported that sales for the third quarter ended October 27, 2018 amounted to $45.1 million as compared with $48.7 million for the third quarter ended October 28, 2017, a decrease of 7.3%, with 27 fewer stores in operation. Comparable store sales, which include online sales, increased 1.3% for the third quarter as compared to last year, with comparable regular store sales increasing 1.2% and comparable outlet store sales increasing 2.4% (see non-GAAP measures below).

Adjusted EBITDA (see non-GAAP measures below) for the third quarter of 2018 amounted to $(2.1) million, compared to $(2.5) million for the same period last year. The improvement of $400,000 in adjusted EBITDA for the third quarter was attributable to the reduction of $1.6 million in selling, general and administrative (“SG&A”) expenses, partially offset by the decrease of $1.2 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 $1.2 million in gross margin dollars was the result of the 7.3% overall sales decline for the third quarter, partially offset by the increase in gross margin percentage to 66.3% from 63.8% in 2017.

Net loss for the third quarter ended October 27, 2018 amounted to $6.7 million or $(0.22) per share compared to a net loss of $7.1 million or $(0.24) per share for the same period last year.

Nine-month Results

Sales for the nine months ended October 27, 2018 amounted to $139.5 million as compared with $148.4 million last year, a decrease of 6.0%, with 27 fewer stores in operation. Comparable store sales, which include online sales, increased 2.2% versus the same period a year ago, with comparable regular store sales increasing 1.8% and comparable outlet store sales increasing 4.6%.

Adjusted EBITDA for the nine months ended October 27, 2018 amounted to $(3.9) million, compared to $(7.1) million last year. The improvement of $3.2 million in adjusted EBITDA for the first nine months of 2018 was attributable to the reduction of $7.5 million in SG&A expenses, offset by the decrease in gross margin dollars of $4.3 million. The decrease in SG&A expenses resulted primarily from the reduction in store operating expenses due mainly to store closures. The decrease of $4.3 million in gross margin dollars was the result of the 6.0% overall sales decline for the first nine months of 2018, partially offset by the increase in the gross margin percentage to 65.9% from 64.9% in 2017.

Net loss for the nine-month period ended October 27, 2018 amounted to $17.7 million or $(0.59) per share compared to a net loss of $21.0 million or $(0.70) per share the previous year.

During the first nine months of 2018, the Company renovated two existing locations and, as planned, closed 17 underperforming stores. As at October 27, 2018, the Company operated 143 stores (including 24 fashion outlet stores) compared to 170 stores (including 47 fashion outlet stores) as at October 28, 2017. Total square footage for the Le Château network as at October 27, 2018 amounted to 807,000 square feet (including 210,000 square feet for fashion outlet stores), compared to 946,000 square feet (including 333,000 square feet for fashion outlet stores) as at October 28, 2017. The Company is planning to close 4 additional stores during the remainder of 2018 thereby mostly completing the store optimization program that started three years ago.

Fourth Quarter of 2018

For the first seven weeks ended December 15, 2018, total retail sales decreased 10.3% compared to the same period last year, with 27 fewer stores in operation. Comparable store sales, which include online sales, decreased 3.6% compared to the same period last year, with comparable regular store sales decreasing 3.1% and comparable outlet store sales decreasing 6.5%. 

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 143 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 nine-month periods ended October 27, 2018 and October 28, 2017:

(Unaudited)	For the three months ended							For the nine months ended
(In thousands of Canadian dollars)	October 27, 2018				October 28, 2017			October 27, 2018				October 28, 2017
Loss before income taxes	$	(6,708	)		$	(7,121	)		$	(17,663	)		$	(20,961	)
Depreciation and amortization		2,039				2,473				6,553				8,123
Write-offs and net impairment of property and equipment and intangible assets		156				198				272				682
Finance costs		1,688				1,352				4,873				4,138
Accretion of First Preferred shares series 1		702				573				2,047				948
Adjusted EBITDA	$	(2,123	)		$	(2,525	)		$	(3,918	)		$	(7,070	)

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. Online sales are included in comparable store sales.

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 27, 2018 and October 28, 2017:

(Unaudited)	For the three months ended					For the nine months ended
(In thousands of Canadian dollars)	October 27, 2018			October 28, 2017		October 27, 2018			October 28, 2017
Comparable store sales – Regular stores	$	37,857		$	37,424		$	115,698		$	113,664
Comparable store sales – Outlet stores		6,089			5,949			19,901			19,031
Total comparable store sales		43,946			43,373			135,599			132,695
Non-comparable store sales		1,153			5,303			3,897			15,702
Total sales	$	45,099		$	48,676		$	139,496		$	148,397

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 third quarter ended October 27, 2018 are available online at www.sedar.com.

For further information

Emilia Di Raddo, CPA, CA, President (514) 738-7000Johnny Del Ciancio, CPA, CA, Vice-President, Finance, (514) 738-7000MaisonBrison:  Pierre Boucher, (514) 731-0000Source:  Le Château Inc.

CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands of Canadian dollars)	As atOctober 27, 2018			As atOctober 28, 2017				As atJanuary 27, 2018
ASSETS
Current assets
Cash	$	1,278		$	677			$	-
Accounts receivable		1,050			866				957
Income taxes refundable		389			389				449
Inventories		93,395			95,377				89,911
Prepaid expenses		1,976			1,606				1,747
Total current assets		98,088			98,915				93,064
Deposits		485			621				485
Property and equipment		23,374			29,588				27,052
Intangible assets		1,981			2,555				2,434
	$	123,928		$	131,679			$	123,035
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Bank indebtedness	$	-		$	-			$	261
Current portion of credit facility		11,418			15,636				6,322
Trade and other payables		18,447			16,338				17,342
Deferred revenue		2,549			2,507				2,842
Current portion of provision for onerous leases		340			703				576
Total current liabilities		32,754			35,184				27,343
Credit facility		44,294			30,373				32,221
Long-term debt		29,484			30,463				30,518
Provision for onerous leases		20			961				924
Deferred lease credits		6,791			7,384				7,111
First Preferred shares series 1		24,884			24,130				24,718
Total liabilities		138,227			128,495				122,835
Shareholders' equity (deficiency)
Share capital		47,967			47,967				47,967
Contributed surplus		14,131			9,572				9,600
Deficit		(76,397	)		(54,355		)		(57,367			)
Total shareholders' equity (deficiency)		(14,299	)		3,184				200
	$	123,928		$	131,679			$	123,035

NOTICEThe 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 nine months ended
(In thousands of Canadian dollars, except per share information)	October 27, 2018			October 28, 2017			October 27, 2018			October 28, 2017
Sales	$	45,099		$	48,676		$	139,496		$	148,397
Cost of sales and expenses
Cost of sales		15,203			17,621			47,523			52,067
Selling		27,109			29,024			81,554			89,277
General and administrative		7,105			7,227			21,162			22,928
		49,417			53,872			150,239			164,272
Results from operating activities		(4,318	)		(5,196	)		(10,743	)		(15,875	)
Finance costs		1,688			1,352			4,873			4,138
Accretion of First Preferred shares series 1		702			573			2,047			948
Loss before income taxes		(6,708	)		(7,121	)		(17,663	)		(20,961	)
Income tax recovery		-			-			-			-
Net loss and comprehensive loss	$	(6,708	)	$	(7,121	)	$	(17,663	)	$	(20,961	)
Net loss per share
Basic	$	(0.22	)	$	(0.24	)	$	(0.59	)	$	(0.70	)
Diluted		(0.22	)		(0.24	)		(0.59	)		(0.70	)
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 nine months ended
(In thousands of Canadian dollars)	October 27, 2018				October 28, 2017			October 27, 2018			October 28, 2017
SHARE CAPITAL	$	47,967			$	47,967		$	47,967		$	47,967
CONTRIBUTED SURPLUS
Balance, beginning of period	$	14,125			$	9,529		$	9,600		$	9,287
Transitional adjustments on adoption of new accounting standards		-				-			4,502			-
Adjusted balance, beginning of period		14,125				9,529			14,102			9,287
Fair value adjustment of long-term debt		-				-			-			99
Stock-based compensation expense		6				43			29			186
Balance, end of period	$	14,131			$	9,572		$	14,131		$	9,572
DEFICIT
Balance, beginning of period	$	(69,689		)	$	(47,234	)	$	(57,367	)	$	(33,394	)
Transitional adjustments on adoption of new accounting standards		-				-			(1,367	)		-
Adjusted balance, beginning of period		(69,689		)		(47,234	)		(58,734	)		(33,394	)
Net loss		(6,708		)		(7,121	)		(17,663	)		(20,961	)
Balance, end of period	$	(76,397		)	$	(54,355	)	$	(76,397	)	$	(54,355	)
Total shareholders’ equity (deficiency)	$	(14,299		)	$	3,184		$	(14,299	)	$	3,184

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)	For the three months ended						For the nine months ended
(In thousands of Canadian dollars)	October 27, 2018			October 28, 2017			October 27, 2018			October 28, 2017
OPERATING ACTIVITIES
Net loss	$	(6,708	)	$	(7,121	)	$	(17,663	)	$	(20,961		)
Adjustments to determine net cash from operating activities
Depreciation and amortization		2,039			2,473			6,553			8,123
Write-offs and net impairment of property and equipment and  intangible assets		156			198			272			682
Amortization of deferred lease credits		(430	)		(238	)		(1,165	)		(1,211		)
Deferred lease credits		250			-			845			403
Stock-based compensation		6			43			29			186
Provision for onerous leases		(120	)		(235	)		(1,140	)		(546		)
Finance costs		1,688			1,352			4,873			4,138
Accretion of First Preferred shares series 1		702			573			2,047			948
Interest paid		(1,069	)		(928	)		(3,121	)		(2,195		)
		(3,486	)		(3,883	)		(8,470	)		(10,433		)
Net change in non-cash working capital items related to operations		(5,074	)		(2,447	)		(4,427	)		963
Income taxes refunded		-			-			240			250
Cash flows related to operating activities		(8,560	)		(6,330	)		(12,657	)		(9,220		)
FINANCING ACTIVITIES
Increase in credit facility		10,706			6,683			16,890			(7,767		)
Financing costs		-			(17	)		-			(1,023		)
Proceeds from long-term debt		-			-			-			19,500
Cash flows related to financing activities		10,706			6,666			16,890			10,710
INVESTING ACTIVITIES
Additions to property and equipment and intangible assets		(697	)		(174	)		(2,694	)		(1,679		)
Proceeds from disposal of property and equipment		-			-			-			600
Cash flows related to investing activities		(697	)		(174	)		(2,694	)		(1,079		)
Increase in cash		1,449			162			1,539			411
Cash (bank indebtedness), beginning of period		(171	)		515			(261	)		266
Cash, end of period	$	1,278		$	677		$	1,278		$	677