Le Château reports first quarter results

  • Credit facility renewed for 3 years
  • Approval of conversion of loan into shares

MONTREAL, June 6, 2014 /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 first quarter ended April 26, 2014.

Sales for the first quarter ended April 26, 2014 amounted to $53.3 million, a decrease of 6.3% from $56.9 million for the first quarter ended April 27, 2013. Sales were negatively impacted in the first quarter of 2014 by reduced store traffic due to unfavourable weather conditions and by increased promotional activity throughout the quarter. Comparable store sales decreased 5.4% for the first quarter versus the same period a year ago. Included in comparable store sales are online sales which increased 45% for the first quarter. While the contribution from online sales remains a relatively small percentage of overall sales, the e-commerce business continues to gain traction and is expanding customer reach.

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 first quarter amounted to $9.3 million, compared to $4.8 million last year. The decrease of $4.5 million in adjusted EBITDA for the first quarter was primarily attributable to the decrease of $4.9 million in gross margin dollars. The Company's gross margin for the first quarter of 2014 decreased to 60.7% from 65.4% in 2013, due to increased promotional activity.

Net loss for the first quarter amounted to $13.0 million or $(0.48) per share (diluted) compared to a net loss of $8.2 million or $(0.30) per share (diluted) the previous year, mainly as a result of the decrease in the gross margin as mentioned above. In addition, $2.1 million of the increase in the net loss is attributed to the unrecognized tax benefit of non-capital losses of $8.0 million for Canadian income tax purposes generated in the quarter, for which a full valuation allowance has been taken against the related deferred tax asset.

During the first quarter of 2014, the Company closed one and renovated four existing locations. Total square footage for the Le Château network as at April 26, 2014 amounted to 1,245,000 square feet, compared to 1,280,000 square feet as at April 27, 2013.

Second Quarter of Fiscal 2014
For the first five weeks ended May 31, 2014, total retail sales decreased 8.3% and comparable store sales decreased 7.2% compared to the same period last year.

Credit Facility
On June 5, 2014, the Company renewed its asset based credit facility with GE Capital Canada for a three year term ending on June 5, 2017 with an increased limit of $80.0 million. The revolving credit facility is collateralized by the Company's cash, cash equivalents, marketable securities, credit card accounts receivable and inventories.

Loan Conversion
The Company approved the conversion to share capital, to the maximum extent possible, of the $5.0 million outstanding loan payable to a company that is directly controlled by the Chairman and Chief Executive Officer of the Company, subject to the issuance of a maximum of 2,734,246 Class A subordinate voting shares of the Company. The conversion price per share will be determined based upon the volume weighted average trading price of the Class A subordinate voting shares on the Toronto Stock Exchange for the five trading days starting June 11, 2014.

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 228 retail locations, of which 227 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 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; 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 financial statements and Management's Discussion and Analysis for the first quarter ended April 26, 2014 are available online at www.sedar.com.

(In thousands of Canadian dollars)
As at
April 26, 2014
As at
April 27, 2013
As at
January 25, 2014
Current assets        
Cash $ 2,334 $ 2,855 $ 1,446
Accounts receivable   1,433   1,936   1,476
Income taxes refundable   5,894   6,216   6,663
Derivative financial instruments   -   -   418
Inventories   130,288   131,365   124,878
Prepaid expenses   2,740   2,424   2,292
Total current assets   142,689   144,796   137,173
Property and equipment   70,354   81,141    69,870
Intangible assets     3,681   4,481   3,815
  $ 216,724 $ 230,418 $ 210,858
Current liabilities            
Bank indebtedness $ 50,437 $ 35,366 $ 30,767
Trade and other payables   18,774   20,076   19,553
Deferred revenue   3,316   3,141   3,712
Current portion of provisions   286   229   265
Derivative financial instruments   28   3   -
Current portion of long-term debt    6,814   8,054   7,987
Total current liabilities   79,655   66,869   62,284
Long-term debt   11,963   13,783   7,843
Provisions     383   475   391
Deferred income taxes   -   2,237   1,829
Deferred lease credits   12,702   15,480   13,412
Total liabilities   104,703   98,844   85,759
Shareholders' equity            
Share capital   42,962   42,740   42,960
Contributed surplus    3,871   2,784   3,581
Retained earnings   65,208   86,052   78,253
Accumulated other comprehensive income (loss)   (20)   (2)   305
Total shareholders' equity   112,021   131,574   125,099
  $ 216,724 $ 230,418 $ 210,858

(Unaudited) For the three months ended
(In thousands of Canadian dollars, except per share information) April 26, 2014 April 27, 2013
Sales $ 53,305 $ 56,882
Cost of sales and expenses        
Cost of sales   20,953   19,680
Selling   37,187   38,604
General and administrative   9,242   9,028
    67,382   67,312
Results from operating activities   (14,077)   (10,430)
Finance costs   687   690
Finance income   (3)   (3)
Loss before income tax recovery   (14,761)   (11,117)
Income tax recovery   (1,716)   (2,930)
Net loss $ (13,045) $ (8,187)
Net loss per share        
  Basic $ (0.48) $ (0.30)
  Diluted   (0.48)   (0.30)
Weighted average number of shares outstanding ('000)   27,343   27,243

(Unaudited) For the three months ended
(In thousands of Canadian dollars) April 26, 2014 April 27, 2013
Net loss $ (13,045) $ (8,187)
Other comprehensive loss to be reclassified to profit or loss in subsequent periods        
Change in fair value of forward exchange contracts   (28)   (3)
Income tax recovery   8   1
    (20)   (2)
Realized forward exchange contracts reclassified to net loss   (418)   (215)
Income tax recovery   113   60
    (305)   (155)
Total other comprehensive loss   (325)    (157)
Comprehensive loss $ (13,370) $ (8,344)

(Unaudited) For the three months ended
(In thousands of Canadian dollars) April 26, 2014 April 27, 2013
Balance, beginning of period $ 42,960 $ 42,740
Issuance of subordinate voting shares upon exercise of options   2   -
Balance, end of period $ 42,962 $ 42,740
Balance, beginning of period $ 3,581 $ 2,664
Stock-based compensation expense    290   120
Balance, end of period $ 3,871 $ 2,784
Balance, beginning of period $ 78,253 $ 94,239
Net loss   (13,045)   (8,187)
Balance, end of period $ 65,208 $ 86,052
Balance, beginning of period $ 305 $ 155
Other comprehensive loss for the period     (325)   (157)
Balance, end of period $ (20) $ (2)
Total shareholders' equity $ 112,021 $ 131,574

(Unaudited) For the three months ended
(In thousands of Canadian dollars) April 26, 2014 April 27, 2013
Net loss $ (13,045) $ (8,187)
Adjustments to determine net cash from operating activities        
  Depreciation and amortization   4,591   4,772
  Write-off and impairment of property and equipment   180   841
  Amortization of deferred lease credits   (584)   (432)
  Deferred lease credits   (126)   -
  Stock-based compensation   290   120
  Provisions   13   (54)
  Finance costs   687   690
  Interest paid   (575)   (570)
  Income tax recovery   (1,716)   (2,930)
     (10,285)   (5,750)
Net change in non-cash working capital items related to operations   (7,160)   (9,902)
Income taxes refunded   898   -
Cash flows related to operating activities   (16,547)   (15,652)
Increase in bank indebtedness   19,607   22,269
Proceeds of long-term debt   5,000   -
Repayment of long-term debt   (2,053)   (2,297)
Issue of share capital upon exercise of options   2   -
Cash flows related to financing activities   22,556   19,972
Additions to property and equipment and intangible assets   (5,121)   (3,248)
Cash flows related to investing activities   (5,121)   (3,248)
Increase in cash   888   1,072
Cash, beginning of period   1,446   1,783
Cash, end of period $ 2,334 $ 2,855




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

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