LXR Reports Financial Results for The Third Quarter 2021

Q3 2021 Total and E-Commerce Revenue Up 75% and 183%, Respectively.
Near Break-even Reported and Adjusted Net Income and EBITDA in Q3.

MONTREAL, Nov. 11, 2021 /CNW/ - LXRandCo, Inc. ("LXR" or the "Company") (TSX: LXR) (TSX: LXR.WT), a North American socially responsible, digital-first omni-channel retailer of authenticated pre-owned luxury handbags and personal accessories, today reported its financial results for the third quarter ended September 30, 2021 ("Q3 2021").

"Q3 was a quarter of several achievements. First, we closed the quarter with near-record break-even financial results on both a reported and adjusted basis one quarter ahead of plan, and are setting the stage for a profitable fourth quarter and growth for next year. Second, we grew our total net revenue in excess of 75% without compromising gross margin, which came in at a near-record level of 35%. To more adequately reflect the needs of our digital-first model, we continued to invest in our business both through increased working capital and human resources, which led to e-commerce net revenue growth of 183% in the period.  Lastly, our total revenue trajectory continues on plan. At Q3, our LTM total net revenue stood at $15 million and our expectations for the fourth quarter are to close the year at between $18 million and $20 million in total net revenue." said Cam di Prata, the Company's CEO.

Provided below are the financial highlights and a discussion of the Company's financial results for the three–months ended September 30, 2021, which are to be read in conjunction with the Company's unaudited interim condensed consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the period.

Overview of Results for the Three-Month Period Ended September 30, 2021 ("Q3 2021"), compared to the Three-Month Period Ended September 30, 2020 ("Q3 2020")

Selected financial highlights include the following:

• Total net revenue increased 75% to $5.0 million.
• E-commerce net revenue increased 183% to $2.5 million and e-commerce average order value increased 3.9% to $937 per transaction.
• E-commerce penetration increased to 50% from 31%.
• Retail net revenue, which includes revenue from retail stores and wholesale operations, was $2.5 million, an increase of 26%. At quarter-end, we had a network of ten stores (nine of which were in operation).
• Gross profit margin was 35.2% compared to 28.2%.
• Selling, general and administrative ("SG&A") expenses decreased 32% to $1.9 million, representing 39% of total net revenue versus 99% of total net revenue last year.
• Adjusted Net loss (a non-IFRS measure) was $0.4 million versus a loss of $1.2 million.
• Adjusted EBITDA (a non-IFRS measure) was a loss of $0.2 million versus a loss of $0.8 million.
• Free Cash Flow (a non-IFRS measure) was negative $2.2 million as compared to $0.1 million, reflecting primarily increased working capital investment in product inventory.
• Cash and cash availability at the end of Q3 2021 totalled $2.6 million as compared to $0.5 million in Q3 2020.

Discussion of the Three-Month Periods Ended September 30, 2021 and 2020

Unless otherwise indicated, all amounts are expressed in Canadian dollars. Certain metrics, including those expressed on an adjusted basis, are non-IFRS measures. See "Non-IFRS Measures" further below. For a reconciliation of non-IFRS measures to their most directly comparable measure calculated in accordance with IFRS, see "Select Consolidated Financial Information" further below.

Comparison of the Three-Month Periods Ended September 30, 2021, and 2020

Net Revenue

For Q3 2021, total net revenue increased by 74.5% to $5.0 million from $2.9 million in Q3 2020. During this period, approximately 50.3% of our total net revenue was generated from e-commerce and 49.7% from retail activities (stores and wholesale channels combined), as compared to 31.0% and 69.0%, respectively, in the same period in 2020. During Q3 2021, approximately 61.1% of our net revenue was generated in the U.S., with the balance coming from Canada, as compared to 80.5% from the U.S. in Q3 2020. This shift in revenue mix was due to the geographic impact of the U.S. Partner Bankruptcies, which reduced our U.S. business substantially in Q3 2021, and to the increased share in e-commerce revenue as compared to Q3 2020.

Included in total net revenue for Q3 2020 is non-recurring net revenue from retail partners affected by the U.S. Partner Bankruptcies of $1.7 million. Excluding the impact of U.S. Partner Bankruptcies, total net revenue in Q3 2021 increased by 173.3% versus the same period in 2020.

E-commerce

E-commerce penetration increased to 50.3% from 31.0% in Q3 2020. During this period, e-commerce net revenue was $2.5 million, an increase of 183.0% compared to prior period.

Included in e-commerce net revenue for Q3 2020 is non-recurring net revenue from retail partners affected by the U.S. Partner Bankruptcies of $0.1 million. Excluding the impact of the U.S. Partner Bankruptcies, e-commerce net revenue in Q3 2021 increased by 197.9% versus the same period in 2020.

E-commerce AOV in Q3 2021 was $937, an increase of 3.9% versus the comparable period last year.

Retail

For Q3 2021, retail net revenue (which includes net revenue from stores and wholesale channels) increased 25.8% to $2.5 million as compared to $2.0 million in Q3 2020. The increase highlights the continued recovery from the adverse impact of COVID-19 on our and our channel partner's retail activities, as well as permanent store closures relating to the U.S. Partner Bankruptcies. As at September 30, 2021, our retail store network consisted of ten stores, of which only nine were open as compared to 11 stores as at September 30, 2020, eight of them being operational. During Q3 2021, we did not open or close any stores (Q3 2020 – 48 closures).

Discontinued Net Revenue from U.S. Partner Bankruptcies

In Q3 2021, we generated no revenue from partners affected by the U.S. Partner Bankruptcies (Q3 2020—$1.7 million total net revenue and $0.1 million e-commerce net revenue, respectively). As these partners have permanently ceased their operations, we are actively working to replace this lost revenue through a combination of increased e-commerce activity and the addition of other retail channel partners.

To facilitate greater comparability, the financial table "Revenue by Channel (Excluding Impact of the U.S. Partner Bankruptcies)" provided below sets forth the net revenue by channel excluding the impact of U.S. Partner Bankruptcies.

Revenue by Channel (Excluding Impact of U.S. Partner Bankruptcies¹)

	For the three-months ended September 30,
($)	2021	2020	Increase/ (Decrease)
Total net revenue	4,987,628	2,857,718	75%
Less: Revenue from U.S. Bankrupt Partners	—	1,669,377	n/a
Adjusted Total net revenue	4,987,628	1,188,341	320%
E-commerce net revenue	2,506,850	885,669	183%
Less: Revenue from U.S. Bankrupt Partners	—	44,148	n/a
Adjusted e-commerce net revenue	2,506,850	841,521	198%

Total and E-commerce LTM Net Revenue

As we emerge from the effects of the pandemic, we closely monitor our LTM net revenue, which adjusts for the effects of seasonality and provides a trailing full-year assessment of revenue momentum and growth through this recovery period. The following table provides an overview of historical total and e-commerce net revenue on a quarterly and LTM basis. As highlighted below, our full-year net revenue target for 2021 is between $18 million and $20 million, with over 50% of total net revenue expected to come from our digital channels.

________________________

¹ Revenue from U.S. Partner Bankruptcies means net revenue pertaining to Stage Stores, Lord & Taylor, Stein Mart Stores and Century 21, all no longer in operation.

	Total net revenue		E-commerce net revenue			E-commerce penetration
Actuals ($):	Quarterly	LTM	Quarterly	LTM		LTM
Q1 2019	8,756,063	38,982,959	604,023	2,294,094		6%
Q2 2019	8,558,435	38,254,627	959,525	2,654,334		7%
Q3 2019	8,314,615	36,493,740	985,288	3,057,856		8%
Q4 2019	14,440,173	40,069,286	1,175,652	3,724,488		9%
Q1 2020	6,097,604	37,410,827	975,592	4,096,057		11%
Q2 2020	1,430,284	30,282,676	802,658	3,939,190		13%
Q3 2020	2,857,718	24,825,779	885,669	3,839,571		15%
Q4 2020	3,391,813	13,777,419	1,715,804	4,379,723		32%
Q1 2021	2,602,071	10,281,886	1,572,640	4,976,771		48%
Q2 2021	4,026,028	12,877,630	2,522,682	6,696,795		52%
Q3 2021	4,987,628	15,007,540	2,506,850	8,317,976		55%
Q4 2021 Target		18,000,000 —				50% — 65%
		20,000,000

Gross Profit and Gross Margin

Gross profit in Q3 2021 increased by 117.8% to $1.8 million as compared to $0.8 million in Q3 2020. The increase in gross profit dollars is attributable to a mix of select price increases, the sale of a larger share of higher margin items during the quarter, increased cost savings and a decrease in partner licensing fees as compared to prior year.

Gross profit margin in Q3 2021 increased to 35.2% compared to 28.2% in Q3 2020, mostly due the factors described above.

SG&A Expenses

In Q3 2021, SG&A expenses decreased by 31.8% to $1.9 million, compared to $2.8 million in Q3 2020. This decrease was primarily due to an absence of store payroll-related expenses for the period, compared to Q3 2020 during which up to 59 stores were open and overall general cost rationalization initiatives.

On September 30, 2021, we employed 59 people across our ten retail stores, and our two office locations in Montreal, Canada and Tokyo, Japan. At the end of Q3 2020, our employee headcount was 56, all of them being direct employees of the Company. Over the past year, we have actively been restructuring the business as part of our digital-first transformation, which has led to investments in key resources to support the growth.

Net Profit

In Q3 2021, we achieved a net profit of $59,223, an improvement from a net loss of $2.7 million in Q3 2020. This was primarily due to the combination of higher revenues, higher gross margin and lower SG&A costs, all as discussed above, as compared to Q3 2020.

Adjusted Net Loss

In Q3 2021, Adjusted Net Loss was $0.4 million as compared to an Adjusted Net Loss of $1.2 million in Q3 2020. This $0.8 million improvement was primarily due to an improvement in net income of $2.8 million, offset by foreign exchange gain adjustments, the absence of any property and equipment write-offs in the quarter from the closure of the US stores and the absence of non-recurring loss due to bad debt. The table on page 12 sets forth the reconciliation of Net Loss to Adjusted Net Loss.

Adjusted EBITDA

In Q3 2021, Adjusted EBITDA was a loss of $0.2 million as compared to an Adjusted EBITDA loss of $0.8 million in Q3 2020. This favorable variance of $0.6 million was primarily due to an improvement in EBITDA in the quarter of $2.7 million, offset by foreign exchange gain adjustments, the absence of any property and equipment write-offs in the quarter from the closure of the US stores and the absence of non-recurring loss due to bad debt. The table on page 12 sets forth the reconciliation of Net Loss to Adjusted EBITDA.

Free Cash Flow

In Q3 2021, Free Cash Flow was negative $2.2 million as compared to $0.1 million in Q3 2020. This negative variance of $2.3 million is the result of an improvement to net profit of $2.8 million, offset by a decrease in non-cash charges of $1.0 million (primarily the write-off of non-core property and equipment) and a decrease in non-cash working capital of $4.0 million due primarily to increased inventory spend to support the upcoming last quarter sales and higher account receivables due to increased revenue during the quarter. The table below sets forth the computation of Free Cash Flow for the period.

	For the three-months ended September 30,
($)	2021	2020	Increase (Decrease)
Net profit (loss)	59,223	(2,786,350)	2,845,573
Non-cash items:
Depreciation of property and equipment	73,099	146,034	(72,935)
Amortization of intangible assets	5,937	32,075	(26,138)
Amortization of deferred financing costs	7,203	7,203	-
Stock-based compensation expense	6,544	72,631	(66,087)
Gain on disposal of property and equipment	-	-	-
Write-off of property and equipment	-	873,435	(873,435)
Unrealized foreign exchange loss	(5,496)	4,595	(10,091)
	87,287	1,135,973	(1,048,686)
Net profit (loss) after non-cash adjustments	146,510	(1,650,377)	1,796,887
Net change in non-cash working capital balances	(2,322,046)	1,712,028	(4,034,074)
Cash flows (used) generated in operating activities	(2,175,536)	61,651	(2,237,187)
Less: Acquisitions of property and equipment	(15,436)	-	(15,436)
Free cash flow	(2,190,972)	61,651	(2,252,623)

Key Financial and Operating Information

The following table summarizes our recent results of operations for the periods indicated. The selected consolidated financial information set out below has been derived from our unaudited interim condensed consolidated financial statements and related notes. The selected unaudited interim condensed consolidated financial information set out below for the periods below is unaudited.

Consolidated statements of profit (loss)

(in Canadian dollars)

	For the three-months ended September 30,			For the nine-months ended September 30,
	2021	2020		2021	2020
Net revenue	4,987,628	2,857,718		11,615,727	10,385,606
Cost of sales	3,233,249	2,052,166		7,721,819	7,182,821
Gross profit	1,754,379	805,552		3,893,908	3,202,785
Operating expenses
Selling, general and administrative expenses	1,927,774	2,827,722		5,587,041	8,128,402
Amortization and depreciation expenses	79,036	178,109		246,843	532,799
Loss from operating activities	(252,431)	(2,200,279)		(1,939,976)	(5,458,416)
Other income and expenses
Finance costs	117,230	133,138		431,468	456,378
Foreign exchange loss (gain)	(428,884)	389,858		15,432	(475,982)
Profit (loss) before income taxes	59,223	(2,723,275)		(2,386,876)	(5,438,812)
Income tax expense (recovery)
Current	—	63,075		18,570	63,075
Net profit (loss)	59,223	(2,786,350)		(2,405,446)	(5,501,887)

	For the three-months ended September 30,			For the nine-months ended September 30,
	2021	2020		2021	2020
Reconciliation of Net Profit (Loss) to Adjusted Net Profit (Loss)
Net Profit (loss)	59,223	(2,786,350)		(2,405,446)	(5,501,887)
Adjustments to Net Profit (loss):
Foreign exchange loss (gain)	(428,884)	389,858		15,432	(475,982)
Non-recurring loss due to bad debt	—	287,829		—	697,625
Gain on disposal of property and equipment	—	—		(1,250)	—
Write-off of property and equipment	—	873,435		—	1,043,013
Stock-based compensation	6,544	78,741		105,781	576,651
Store closing costs	—	(97)		—	11,968
Adjusted Net Loss	(363,117)	(1,156,584)		(2,285,483)	(3,648,612)
	For the three-months ended September 30,			For the nine-months ended September 30,
	2021	2020		2021	2020
Reconciliation of Net Profit (Loss) to Adjusted EBITDA
Net Profit (Loss)	59,223	(2,786,350)		(2,405,446)	(5,501,887)
Adjustments to Net Profit (Loss):
Amortization and depreciation expense	79,036	178,109		246,843	532,799
Finance costs	117,230	133,138		431,468	456,378
Income Tax Expense	—	63,075		18,570	63,075
EBITDA	255,489	(2,412,028)		(1,708,565)	(4,449,635)
Adjustments to EBITDA:
Foreign exchange loss (gain)	(428,884)	389,858		15,432	(475,982)
Non-recurring loss due to bad debt	—	287,829		—	697,625
Gain on disposal of property and equipment	—	—		(1,250)	—
Write-off of property and equipment	—	873,435		—	1,043,013
Stock-based compensation	6,544	78,741		105,781	576,651
Store closing costs	—	(97)		—	11,968
Adjusted EBITDA	(166,851)	(782,262)		(1,588,602)	(2,596,360)

Selected Quarterly Financial Information

The following table summarizes certain of our financial results for the most recently completed eight quarters for which financial statements have been prepared by us as a reporting issuer. This unaudited quarterly information has been prepared in accordance with IFRS. Due to our recent change in strategy, the impact of COVID-19 and other factors such as seasonality, the results of operations for any quarter are not necessarily comparable or indicative of the results of operations for the full year.

($)
Consolidated statements of profit (loss):	Q3-2021		Q2-2021	Q1-2021	Q4-2020	Q3-2020	Q2-2020	Q1-2020	Q4-2019
Total net revenue	4,987,628		4,026,028	2,602,071	3,391,813	2,857,718	1,430,284	6,097,604	14,440,173
E-commerce revenue	2,506,850		2,522,682	1,572,640	1,715,804	885,669	802,658	975,592	1,175,652
E-commerce revenue % of total net revenue	50.3%		62.7%	60.4%	50.60%	31.00%	56.10%	16.00%	8.10%
Gross margin	35.2%		32.8%	31.5%	32.7%	28.2%	33.6%	31.4%	32.8%
Adjusted Net Loss	(363,117)		(1,067,683)	(854,683)	(886,691)	(1,156,584)	(934,116)	(1,967,708)	(522,182)
Adjusted EBITDA	(166,851)		(839,510)	(582,241)	(708,200)	(782,262)	(643,919)	(1,579,975)	(73,941)
Adjusted EBITDA % of total net revenue	(3.3%)		(20.9%)	(22.4%)	(20.9%)	(27.4%)	(45.0%)	(25.9%)	(0.5%)
LTM metrics and growth:
LTM Total net revenue	15,007,540		12,877,630	10,281,886	13,777,419	24,825,779	30,282,676	37,410,827	40,069,286
LTM E-commerce revenue	8,317,976		6,696,795	4,976,771	4,379,723	3,839,571	3,939,190	4,096,057	3,724,488
E-commerce revenue – period over period growth	183.0%		214.3%	61.2%	45.9%	-10.1%	-16.3%	61.5%	131.0%
Free Cash Flow:
Net profit (loss)	59,223		(1,580,635)	(884,034)	(2,208,618)	(2,786,350)	(1,741,391)	(974,146)	(1,685,777)
Add: non-cash items	87,287		390,704	(94,643)	97,883	1,135,973	24,825	642,166	976,914
Add: Net change in non-cash working capital	(2,322,046)		(32,428)	(628,959)	1,475,699	1,712,028	994,985	177,852	1,525,191
Cash flows provided/(used) in operating activities	(2,175,536)		(1,222,358)	(1,607,636)	(635,036)	61,651	(721,581)	(154,128)	816,328
Less: acquisition of property and equipment	(15,436)		(9,998)	(14,593)	(4,171)	—	—	(1,337)	(6,770)
Free Cash Flow	(2,190,972)		(1,232,356)	(1,622,229)	(639,207)	61,651	(721,581)	(155,465)	809,558
Liquidity:
Cash availability	2,603,395		4,315,918	4,653,792	7,289,957	501,033	797,777	1,393,351	3,498,824
Working capital	7,083,280		7,033,183	7,133,717	8,949,997	2,877,864	4,523,360	-584,103	1,332,673
Capitalization:
Shares outstanding	92,783,155		92,783,155	92,783,155	92,783,155	32,783,145	32,783,145	28,176,012	28,176,012
Closing share price	0.100		0.130	0.120	0.245	0.200	0.250	0.280	0.205
Market capitalization	9,278,316		12,061,810	11,133,979	22,731,873	6,556,629	8,195,786	7,889,283	5,776,082
Add: Total debt*	6,272,286		5,758,443	4,814,459	5,733,129	5,173,259	5,438,870	6,009,844	8,044,331
Less: Cash	2,603,395		4,315,918	4,653,792	7,289,957	501,033	797,777	1,393,351	3,498,824
Enterprise value (EV)	12,947,207		13,504,335	11,404,730	21,175,045	11,228,855	12,836,879	12,505,776	10,321,589
Multiple of EV/Last 12 months revenue	0.86x		1.05x	1.10x	1.54x	0.45x	0.42x	0.33x	0.26x
* Total debt includes the Line of Credit and the BCAP loan

About LXR

LXR is a socially responsible, digital-first omni-channel retailer of authenticated pre-owned luxury handbags and personal accessories. We provide consumers with branded products from Hermès, Louis Vuitton, Gucci, Prada, and Chanel, among other high-quality brands, by promoting their reuse and providing an environmentally responsible way for consumers to purchase luxury products. We achieve this through our digital-first strategy by selling directly to consumers through our website at www.lxrco.com and indirectly by powering the e-commerce platforms of key channel partners. Our omni-channel model is also supported by retail 'shop-in-shop' experience centers and by wholesale activities with select retail partners across North America.

Non-IFRS Measures

This press release refers to certain non-IFRS measures. These measures are not recognized under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement IFRS measures by providing further understanding of LXR's performance and results of operations from management's perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of LXR's financial information reported under IFRS. Management uses non-IFRS measures including: "LTM", "EBITDA," "Adjusted EBITDA," and "Adjusted Net Loss". These non-IFRS measures are used to provide investors with supplemental measures of LXR's operating performance and thus highlight trends in LXR's business that may not otherwise be apparent when relying solely on IFRS measures. Management believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of company performance. Management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of management compensation. For a definition of EBITDA, Adjusted EBITDA, and Adjusted Net Loss, and a reconciliation of these non-IFRS measures to IFRS measures, see the above tables presented.

Caution Regarding Forward-Looking Statements

Certain statements in this press release are prospective in nature and constitute forward-looking information or forward-looking statements within the meaning of applicable securities laws (collectively, "forward-looking statements"). Forward-looking statements generally, but not always, can be identified by the use of forward-looking terminology such as "outlook", "objective", "may", "could", "would", "will", "expect", "intend", "estimate", "forecasts", "project", "seek", "anticipate", "believes", "should", "plans" or "continue", or similar expressions suggesting future outcomes or events and the negative of any of these terms. Forward-looking statements in this news release include, but are not limited to, statements concerning future objectives and strategies to achieve those objectives, including, without limitation, store openings and closures, as well as other statements with respect to management's beliefs, plans, estimates and intentions, and similar statements concerning anticipated future events, results, outlook, circumstances, performance or expectations that are not historical facts. Forward-looking statements reflect management's current beliefs, expectations and assumptions and are based on information currently available to management, which includes assumptions about continued revenues based on historical past performance, management's historical experience, perception of trends and current business conditions, expected future developments, including the Company's capacity to secure additional financing, and other factors which management considers appropriate. With respect to the forward-looking statements included in this press release, management has made certain assumptions with respect to, among other things, the Company's ability to meet its future objectives and strategies, the Company's ability to achieve its future projects and plans and that such projects and plans will proceed as anticipated, the expected growth of the Company's e-commerce revenue, the expected number and timing of store openings, entering into new and/or expanded retail partnerships, the Company's ability to source products, the Company's competitive position in the vintage luxury industry, and beliefs and intentions regarding the ownership of material trademarks and domain names used in connection with the marketing, distribution and sale of the Company's products as well as assumptions concerning general economic and market growth rates, currency exchange and interest rates and competitive intensity, notably in the context of the current COVID-19 outbreak.

Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the future circumstances, outcomes, or results anticipated or implied by such forward-looking statements will occur or that plans, intentions or expectations upon which the forward-looking statements are based will occur.

All forward-looking statements included in and incorporated into this press release are qualified by these cautionary statements. Unless otherwise indicated, the forward-looking statements contained herein are made as of the date of this press release, and except as required by applicable law, the Company does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Readers are cautioned that the actual results achieved will vary from the information provided herein and that such variations may be material. Consequently, there are no representations by LXR that actual results achieved will be the same in whole or in part as those set out in the forward-looking statements.

SOURCE LXRandCo, Inc.

please contact: Nadine Eap, Chief Financial Officer, LXRandCo. Inc., [phone] ext: 037, [email protected]

Related Links

https://lxrco.com/