Le Château reports third quarter results

MONTREAL, Dec. 6, 2013 /CNW Telbec/ - Le Château Inc. (TSX: CTU.A), a leading Canadian brand in specialty retailing, offering a broad array of contemporary fashion apparel, accessories and footwear for style-conscious women and men, today reported its results for the third quarter ended October 26, 2013.

Sales for the third quarter ended October 26, 2013 amounted to $65.4 million, an increase of 2.5% from $63.7 million for the third quarter ended October 27, 2012. Comparable store sales increased 3.1% for the third quarter versus the same period a year ago. Included in comparable store sales are online sales which increased 84% for the third quarter. The e-commerce business continues to gain traction and is expanding customer reach.

The positive comparable store sales for the three and nine-month periods ended October 26, 2013 reflect product assortment improvements, some regional strengths, the performance of new concept stores and momentum of top-tier performing stores.

Net loss for the third quarter amounted to $5.0 million or $(0.18) per share (diluted), compared to a net loss of $3.6 million or $(0.14) per share (diluted) the previous year. Adjusted EBITDA (see non-GAAP measures below) for the third quarter amounted to $(1.9) million, compared to $252,000 last year. The decrease in adjusted EBITDA for the third quarter was primarily attributable to a decrease of $1.1 million in gross margin dollars, an increase of $891,000 in marketing related initiatives and an increase of $184,000 in stock based compensation expense. The decline in gross margin dollars was the result of a decrease in the Company's gross margin percentage to 63.2% from 66.6%, due to increased promotional activity primarily in the outlet stores where prior season discounted merchandise is being offered as part of the Company's previously stated inventory management plan. As for the regular stores, the gross margin remained relatively stable when compared with the same period last year.

Nine-month Results
Sales for the nine months ended October 26, 2013 increased 2.0% to $197.9 million from $194.0 million last year. Comparable store sales increased 2.7% versus the same period a year ago. Included in comparable store sales are online sales which increased 117% for the nine months ended October 26, 2013.

Net loss for the nine-month period ended October 26, 2013 amounted to $12.1 million or $(0.44) per share (diluted) compared to a net loss of $8.9 million or $(0.35) per share the previous year. Adjusted EBITDA for the first nine months amounted to $1.2 million or 0.6% of sales, compared to $5.5 million or 2.9% of sales last year.

During the first nine months of 2013, the Company opened one new store and closed six stores. Total square footage for the Le Château network at the end of the third quarter ended October 26, 2013 amounted to 1,256,000 square feet.

Fourth Quarter of Fiscal 2013
For the first five weeks ended November 30, 2013, total retail sales decreased 2.2% and comparable store sales decreased 1.6% compared to the same period last year.

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 230 retail locations, of which 229 are 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, the Company has 6 stores under license in the Middle East and Asia. 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 54-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 Company also discloses comparable store sales which are defined as sales generated by stores that have been open for at least one year.

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 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; seasonal weather patterns; fluctuations in foreign currency exchange rates; changes in the Company's relationship with its suppliers; interest rate fluctuations; and changes in laws, rules and regulations applicable to the Company.

The Company's unaudited interim condensed financial statements and Management's Discussion and Analysis for the third quarter ended October 26, 2013 are available online at www.sedar.com

CONSOLIDATED BALANCE SHEETS                
(Unaudited)
(In thousands of Canadian dollars)
As at
October 26, 2013
  As at
October 27, 2012
  As at
January 26, 2013
ASSETS                
Current assets                
Cash $ 1,779   $ 3,269   $ 1,783
Accounts receivable   1,566     2,259     1,906
Income taxes refundable   5,952     4,504     3,211
Derivative financial instruments   136     188     215
Inventories   136,602     134,190     123,218
Prepaid expenses   2,283     1,746     1,890
Total current assets   148,318     146,156     132,223
Property and equipment   73,731     88,570     83,315
Intangible assets   4,038     5,030     4,672
  $ 226,087   $ 239,756   $ 220,210
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
Current liabilities                
Bank indebtedness $ 39,762   $ 29,814   $ 13,034
Trade and other payables   19,952     20,065     20,718
Deferred revenue   3,059     3,209     3,558
Current portion of provisions   248     128     228
Current portion of long-term debt    8,237     10,823     9,844
Total current liabilities   71,258     64,039     47,382
Long-term debt   9,618     16,711     14,290
Provisions   415     359     530
Deferred income taxes   2,275     2,970     2,298
Deferred lease credits   14,068     16,177     15,912
Total liabilities   97,634     100,256     80,412
                 
Shareholders' equity                
Share capital   42,939     42,740     42,740
Contributed surplus   3,302     2,544     2,664
Retained earnings   82,113     94,081     94,239
Accumulated other comprehensive income   99     135     155
Total shareholders' equity   128,453     139,500     139,798
  $ 226,087   $ 239,756   $ 220,210


CONSOLIDATED STATEMENTS OF LOSS
(Unaudited) For the three months ended For the nine months ended
(In thousands of Canadian dollars, except per share information) October 26, 2013 October 27, 2012 October 26, 2013 October 27, 2012
Sales $ 65,360 $ 63,736 $ 197,922 $ 194,027
Cost of sales and expenses                
Cost of sales   24,068   21,311   68,784   61,832
Selling   38,699   38,157   116,711   115,021
General and administrative   9,191   9,014   27,083   27,390
    71,958   68,482   212,578   204,243
                 
Results from operating activities   (6,598)   (4,746)   (14,656)   (10,216)
Finance costs   690   823   2,050   2,391
Finance income   (2)   (4)   (10)   (12)
Loss before income tax recovery   (7,286)   (5,565)   (16,696)   (12,595)
Income tax recovery   (2,270)   (1,940)   (4,570)   (3,720)
Net loss $ (5,016) $ (3,625) $ (12,126) $ (8,875)
                 
Net loss per share                
Basic $ (0.18) $ (0.14) $ (0.44) $ (0.35)
Diluted   (0.18)   (0.14)   (0.44)   (0.35)
                 
Weighted average number of shares outstanding ('000)   27,322   25,814   27,274   25,130
                 
                 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited) For the three months ended For the nine months ended
(In thousands of Canadian dollars) October 26, 2013 October 27, 2012 October 26, 2013 October 27, 2012
Net loss $ (5,016) $ (3,625) $ (12,126) $ (8,875)
                 
Other comprehensive income (loss)                
Change in fair value of forward exchange contracts   139   188    140   90
Income tax expense   (38)   (53)   (38)   (25)
    101   135   102   65
Realized forward exchange contracts reclassified to net loss   (7)   (69)   (219)   (31)
Income tax recovery   2    19   61   9
    (5)   (50)   (158)   (22)
Total other comprehensive income (loss)   96   85   (56)   43
Comprehensive loss $ (4,920) $ (3,540) $ (12,182) $ (8,832)
                 
                 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited) For the three months ended For the nine months ended
(In thousands of Canadian dollars) October 26, 2013 October 27, 2012 October 26, 2013 October 27, 2012
         
SHARE CAPITAL        
Balance, beginning of period $ 42,876 $ 37,729 $ 42,740 $ 37,729
Issuance of subordinate voting shares upon conversion of long-term debt   -   5,011   -   5,011
Issuance of subordinate voting shares upon exercise of options   19   -   144   -
Reclassification from contributed surplus due to exercise of share options   44   -   55   -
Balance, end of period $ 42,939 $ 42,740 $ 42,939 $ 42,740
                 
CONTRIBUTED SURPLUS                
Balance, beginning of period $ 3,044 $ 2,426 $ 2,664 $ 2,328
Stock-based compensation expense   302   118   693   216
Exercise of share options   (44)   -   (55)   -
Balance, end of period $ 3,302 $ 2,544 $ 3,302 $ 2,544
                 
RETAINED EARNINGS                
Balance, beginning of period $ 87,129 $ 97,706 $ 94,239 $ 102,956
Net loss   (5,016)   (3,625)   (12,126)   (8,875)
Balance, end of period $ 82,113 $ 94,081 $ 82,113 $ 94,081
                 
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)                
Balance, beginning of period $ 3 $ 50 $ 155 $ 92
Other comprehensive income (loss) for the period   96   85   (56)   43
Balance, end of period $ 99 $ 135 $ 99 $ 135
                 
Total shareholders' equity $ 128,453 $ 139,500 $ 128,453 $ 139,500
                 
                 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the three months ended For the nine months ended
(In thousands of Canadian dollars) October 26, 2013 October 27, 2012 October 26, 2013 October 27, 2012
OPERATING ACTIVITIES                
Net loss $ (5,016) $ (3,625) $ (12,126) $ (8,875)
Adjustments to determine net cash from operating activities                
  Depreciation and amortization   4,625   4,849   14,194   14,768
  Write-off and net impairment of property and equipment and intangible assets   96   149   1,690   985
  Amortization of deferred lease credits   (610)   (338)   (1,883)   (914)
  Deferred lease credits   -   482   39   982
  Stock-based compensation   302   118   693   216
  Provisions   (57)   56   (95)   67
  Finance costs   690   823   2,050   2,391
  Finance income   (2)   (4)   (10)   (12)
  Interest paid   (598)   (820)   (1,826)   (2,253)
  Interest received   3   5   11   17
  Income tax recovery   (2,270)   (1,940)   (4,570)   (3,720)
    (2,837)   (245)   (1,833)   3,652
Net change in non-cash working capital items related to operations   (5,642)   (6,073)   (15,017)   (18,449)
    (8,479)   (6,318)   (16,850)   (14,797)
Income taxes refunded   2,108   625   2,108   1,618
Cash flows related to operating activities   (6,371)   (5,693)   (14,742)   (13,179)
                 
FINANCING ACTIVITIES                
Increase in bank indebtedness   9,947   10,943   26,539   30,443
Repayment of long-term debt   (2,002)   (4,258)   (6,279)   (12,923)
Issue of capital stock upon exercise of options   19   -   144   -
Cash flows related to financing activities   7,964   6,685   20,404   17,520
                 
INVESTING ACTIVITIES                
Additions to property and equipment and intangible assets   (1,321)   (1,292)   (5,666)   (8,265)
Cash flows related to investing activities   (1,321)   (1,292)   (5,666)   (8,265)
                 
Increase (decrease) in cash   272   (300)   (4)   (3,924)
Cash, beginning of period   1,507   3,569   1,783   7,193
Cash, end of period $ 1,779 $ 3,269 $ 1,779 $ 3,269

 

SOURCE LE CHATEAU INC.

For further 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 Château Inc.