Le Château Inc. (TSX VENTURE: CTU), today reported financial
results for the first quarter ended April 27, 2019. Unless
otherwise indicated, the Company's results for the first quarter
reflect the impact of the implementation of IFRS 16, as described
below under “Adoption of IFRS 16 – Leases".
Sales for the first quarter ended April 27, 2019
amounted to $36.1 million as compared with $41.1 million for the
first quarter ended April 28, 2018, a decrease of 12.2%, with 18
fewer stores in operation. Comparable store sales, which include
online sales, decreased 5.9% versus the same period a year ago,
with comparable regular store sales decreasing 6.9% and comparable
outlet store sales increasing 2.3% (see non-GAAP measures below).
Sales were negatively impacted in the first quarter of 2019 by
reduced store traffic due to unseasonable weather conditions.
Net loss for the first quarter ended April 27,
2019 amounted to $10.8 million or $(0.36) per share compared to a
net loss of $10.8 million or $(0.36) per share for the same period
last year. The net loss for the first quarter of 2019 included a
favorable impact of IFRS 16 of $306,000.
Adjusted EBITDA (see non-GAAP measures below)
for the first quarter of 2019 amounted to $748,000, compared to
$(6.2) million for the same period last year, an improvement of
$6.9 million. The improvement in adjusted EBITDA includes a
favorable impact of IFRS 16 of $7.8 million. Excluding the $7.8
million impact of IFRS 16, the adjusted EBITDA for first quarter
was $(7.1) million compared with $(6.2) million for same period
last year. The decrease of $900,000 in adjusted EBITDA for the
first quarter of 2019 was primarily attributable to the reduction
of $3.6 million in gross margin dollars, partially offset by the
decrease in selling, distribution and administrative expenses of
$2.7 million. The decrease in selling, distribution and
administrative expenses resulted primarily from the reduction in
store operating expenses due mainly to store closures. The decrease
of $3.6 million in gross margin dollars was the result of the 12.2%
overall sales decline for the first quarter, combined with the
decrease in gross margin percentage to 61.9% from 63.0% in
2018.
During the first quarter of 2019, the Company
closed six underperforming stores. As at April 27, 2019, the
Company operated 133 stores (including 15 fashion outlet stores)
compared to 151 stores (including 31 fashion outlet stores) as at
April 28, 2018. Total square footage for the Le Château network as
at April 27, 2019 amounted to 761,000 square feet (including
168,000 square feet for fashion outlet stores), compared to 850,000
square feet (including 247,000 square feet for fashion outlet
stores) as at April 28, 2018. The Company is planning to close 4
additional stores for the remainder of 2019.
Adoption of IFRS 16 -
LeasesThe Company adopted IFRS 16 – Leases,
replacing IAS 17 – Leases and related interpretations, using the
modified retrospective approach, effective for the annual reporting
period beginning on January 27, 2019. As a result, the Company's
results for the first quarter ended April 27, 2019 reflect lease
accounting under IFRS 16. Comparative figures for the first quarter
ended April 28, 2018 have not been restated and continue to be
reported under IAS 17, Leases. Refer to Note 2 of the unaudited
interim condensed consolidated financial statements for the first
quarter ended April 27, 2019 for additional details on the
implementation of IFRS 16.
ProfileLe
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 133 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
MeasuresIn 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 in the unaudited interim condensed
consolidated statements of loss for the first quarters ended April
27, 2019 and April 28, 2018:
|
For the three months
ended |
(Unaudited) (In thousands of Canadian dollars) |
April 27, 2019(Excluding
impactof IFRS 16) (1) |
IFRS 16 impacts |
April 27, 2019(Including
impactof IFRS 16) |
April 28, 2018 |
Loss before income taxes |
$ |
(11,143) |
$ |
306 |
$ |
(10,837) |
$ |
(10,777) |
Depreciation and amortization |
|
1,932 |
|
6,145 |
|
8,077 |
|
2,285 |
Write-off and net impairment of property and equipment and
intangible assets |
|
41 |
|
- |
|
41 |
|
63 |
Finance costs |
|
2,107 |
|
1,360 |
|
3,467 |
|
1,588 |
Accretion of First Preferred shares series 1 |
|
- |
|
- |
|
- |
|
663 |
Adjusted EBITDA |
$ |
(7,063) |
$ |
7,811 |
$ |
748 |
$ |
(6,178) |
(1) Adjusted EBITDA for the
first quarter of 2019 excluding impact of IFRS 16 assumes the
Company continued to report under IAS 17, Leases and did not adopt
IFRS 16, other than for differences related to testing long-lived
assets for impairment and accounting for onerous store leases
pursuant to the guidance of IAS 37, Provisions, which could have
had an impact on the EBITDA and net loss of the Company under
accounting standards applicable prior to January 27, 2019. Under
IFRS 16, the nature and timing of expenses related to operating
leases have changed as the straight-line operating lease expenses
have been replaced with a depreciation charge for right-of use
assets and interest expense on lease liabilities. Accordingly, IFRS
16 had a favorable impact of approximately $7.8 million on adjusted
EBITDA for the first quarter of 2019 as operating leases expenses
have been replaced with depreciation and interest expenses, which
are not included in the calculation of adjusted EBITDA.
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 first quarters ended April
27, 2019 and April 28, 2018:
(Unaudited) |
For
the three months ended |
(In thousands of Canadian dollars) |
April 27, 2019 |
April 28, 2018 |
Comparable store sales – Regular stores |
$ |
30,599 |
$ |
32,873 |
Comparable store sales – Outlet stores |
|
4,213 |
|
4,117 |
Total comparable store sales |
|
34,812 |
|
36,990 |
Non-comparable store sales |
|
1,258 |
|
4,094 |
Total sales |
$ |
36,070 |
$ |
41,084 |
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 first quarter ended April 27, 2019 are available
online at www.sedar.com.
For further
informationEmilia 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 at April 27, 2019 |
As at April 28, 2018(1) |
As at January 26, 2019(1) |
ASSETS |
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash |
$ |
1,241 |
$ |
2,002 |
$ |
- |
Accounts receivable |
|
1,113 |
|
971 |
|
1,031 |
Income taxes refundable |
|
264 |
|
269 |
|
440 |
Inventories |
|
88,805 |
|
91,288 |
|
86,487 |
Prepaid expenses |
|
2,355 |
|
2,031 |
|
1,976 |
Total current assets |
|
93,778 |
|
96,561 |
|
89,934 |
Deposits |
|
485 |
|
485 |
|
485 |
Property and equipment |
|
19,897 |
|
25,579 |
|
21,648 |
Intangible assets |
|
1,641 |
|
2,234 |
|
1,831 |
Right-of-use assets |
|
79,369 |
|
- |
|
- |
|
$ |
195,170 |
$ |
124,859 |
$ |
113,898 |
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY) |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Bank indebtedness |
$ |
- |
$ |
- |
$ |
489 |
Current portion of credit facility |
|
25,134 |
|
15,617 |
|
19,093 |
Trade and other payables |
|
18,348 |
|
16,467 |
|
20,437 |
Deferred revenue |
|
2,069 |
|
2,954 |
|
2,402 |
Current portion of lease liabilities |
|
27,741 |
|
- |
|
- |
Current portion of provision for onerous leases |
|
- |
|
512 |
|
240 |
Total current liabilities |
|
73,292 |
|
35,550 |
|
42,661 |
Credit facility |
|
33,524 |
|
36,474 |
|
29,901 |
Long-term debt |
|
30,838 |
|
29,101 |
|
29,684 |
Lease liabilities |
|
69,553 |
|
- |
|
- |
Provision for onerous leases |
|
- |
|
851 |
|
- |
Deferred lease credits |
|
- |
|
6,813 |
|
6,490 |
First Preferred shares series 1 |
|
- |
|
23,500 |
|
- |
Total liabilities |
|
207,207 |
|
132,289 |
|
108,736 |
|
|
|
|
|
|
|
Shareholders' equity (deficiency) |
|
|
|
|
|
|
Share capital |
|
73,573 |
|
47,967 |
|
73,573 |
Contributed surplus |
|
14,193 |
|
14,114 |
|
14,132 |
Deficit |
|
(99,803) |
|
(69,511) |
|
(82,543) |
Total shareholders' equity (deficiency) |
|
(12,037) |
|
(7,430) |
|
5,162 |
|
$ |
195,170 |
$ |
124,859 |
$ |
113,898 |
(1) The Company has initially
applied IFRS 16 as at January 27, 2019. Under the transition method
chosen, comparative information is not restated.
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 |
(In thousands of Canadian dollars, except per share
information) |
April 27, 2019 |
April 28, 2018(1) |
Sales |
$ |
36,070 |
$ |
41,084 |
Cost of sales and expenses |
|
|
|
|
Cost of sales |
|
13,744 |
|
15,189 |
Selling and distribution |
|
24,908 |
|
29,060 |
Administrative |
|
4,788 |
|
5,361 |
|
|
43,440 |
|
49,610 |
Results from operating activities |
|
(7,370) |
|
(8,526) |
Finance costs |
|
3,467 |
|
1,588 |
Accretion of First Preferred shares series 1 |
|
- |
|
663 |
Loss before income taxes |
|
(10,837) |
|
(10,777) |
Income tax recovery |
|
- |
|
- |
Net loss and comprehensive loss |
$ |
(10,837) |
$ |
(10,777) |
|
|
|
|
|
Net loss per share |
|
|
|
|
Basic |
$ |
(0.36) |
$ |
(0.36) |
Diluted |
|
(0.36) |
|
(0.36) |
Weighted average number of shares outstanding
('000) |
|
29,964 |
|
29,964 |
(1) The Company has initially
applied IFRS 16 as at January 27, 2019. Under the transition method
chosen, comparative information is not restated.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(DEFICIENCY) |
(Unaudited) |
For the three months ended |
(In thousands of Canadian dollars) |
April 27, 2019 |
April 28, 2018(1) |
|
|
|
|
|
SHARE CAPITAL |
$ |
73,573 |
$ |
47,967 |
CONTRIBUTED SURPLUS |
|
|
|
|
Balance, beginning of period |
$ |
14,132 |
$ |
9,600 |
Transitional adjustments on adoption of new accounting
standards |
|
- |
|
4,502 |
Adjusted balance, beginning of period |
|
14,132 |
|
14,102 |
Fair value adjustment of long-term debt |
|
61 |
|
- |
Stock-based compensation expense |
|
- |
|
12 |
Balance, end of period |
$ |
14,193 |
$ |
14,114 |
DEFICIT |
|
|
|
|
Balance, beginning of period |
$ |
(82,543) |
$ |
(57,367) |
Transitional adjustments on adoption of new accounting
standards |
|
(6,423) |
|
(1,367) |
Adjusted balance, beginning of period |
|
(88,966) |
|
(58,734) |
Net loss |
|
(10,837) |
|
(10,777) |
Balance, end of period |
$ |
(99,803) |
$ |
(69,511) |
Total shareholders’ equity (deficiency) |
$ |
(12,037) |
$ |
(7,430) |
(1) The Company has initially
applied IFRS 16 as at January 27, 2019. Under the transition method
chosen, comparative information is not restated.
CONSOLIDATED STATEMENTS OF CASH
FLOWS |
(Unaudited) |
For the three months ended |
(In thousands of Canadian dollars) |
April 27, 2019 |
April 28, 2018(1) |
OPERATING ACTIVITIES |
|
|
|
|
Net loss |
$ |
(10,837) |
$ |
(10,777) |
Adjustments to determine net cash from operating activities |
|
|
|
|
Depreciation and amortization |
|
8,077 |
|
2,285 |
Write-off and net impairment of property and equipment and
intangible assets |
|
41 |
|
63 |
Amortization of deferred lease credits |
|
- |
|
(367) |
Deferred lease credits |
|
- |
|
69 |
Stock-based compensation |
|
- |
|
12 |
Provision for onerous leases |
|
- |
|
(137) |
Finance costs |
|
3,467 |
|
1,588 |
Accretion of First Preferred shares series 1 |
|
- |
|
663 |
Interest paid |
|
(1,155) |
|
(996) |
|
|
(407) |
|
(7,597) |
Net change in non-cash working capital items related to
operations |
|
(5,625) |
|
(3,161) |
Income taxes refunded |
|
230 |
|
240 |
Cash flows related to operating activities |
|
(5,802) |
|
(10,518) |
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
Net increase in credit facility |
|
9,571 |
|
13,456 |
Payment of lease liabilities |
|
(2,733) |
|
- |
Other finance costs |
|
(274) |
|
- |
Proceeds of long-term debt |
|
1,000 |
|
- |
Cash flows related to financing activities |
|
7,564 |
|
13,456 |
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
Additions to property and equipment and intangible assets |
|
(32) |
|
(675) |
Cash flows related to investing activities |
|
(32) |
|
(675) |
|
|
|
|
|
Increase in cash |
|
1,730 |
|
2,263 |
Bank indebtedness, beginning of period |
|
(489) |
|
(261) |
Cash, end of period |
$ |
1,241 |
$ |
2,002 |
(1) The Company has initially
applied IFRS 16 as at January 27, 2019. Under the transition method
chosen, comparative information is not restated.
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