– Fourth Quarter Highlighted by Strong Growth by Expanded Gross Profit Margin, Continued Progress on Cost Management and Positive Cash Provided from Operations –
MONTREAL, April 1, 2019 /CNW/ - LXRandCo, Inc. ("LXRandCo" or the "Company") (TSX: LXR, LXR.WT), a North American omni-channel retailer of branded vintage luxury handbags and accessories, today reported its financial results for the fourth quarter and year ended December 31, 2018.
"Our continuing steady progress on our strategic priorities, which include disciplined revenue growth, margin expansion and sustainable cash flow generation, was once again evident in our financial results for the fourth quarter," said Steven Goldsmith, President and Chief Executive Officer, LXRandCo Inc. "Most notably, the quarter was highlighted by an improvement in gross profit margin, continued progress on cost management and a significant improvement in cash provided from operations, which came in at a positive $0.4 million."
"A major area of focus during the fourth quarter was the implementation of our optimized retail partner model, which now enables a spectrum of arrangements to maximize contribution margin and support sustainable profitably with each and every partner. With this improved model now substantially in place across our retail network, we have turned our attention to growing revenue in each of the three components of our business, including the prudent expansion of our retail store network targeting the top designated market areas (DMAs) in the U.S. and Canada, as well as capitalizing on the underpenetrated opportunities in our e-commerce and wholesale businesses. Our recently completed private placement provides us with financial stability and resources to execute on each of these opportunities. At the same time, we will continue to vigorously pursue our ongoing initiatives to expand gross profit margin and further manage costs to drive EBITDA improvements and sustainable positive cash flow from operations in the quarters to come."
"LXRandCo is a differentiated and proven retail concept within a rapidly emerging market that is being driven by powerful macro trends. We continue to enjoy excellent demand from our retail partners and we believe we have room to expand within our DMAs in the medium- to long-term. With a strengthened balance sheet post-financing and significantly improved business fundamentals, I remain confident in our ability to execute on our strategic plan, realize the true potential of our business model, and see that reflected in our financial results." added Steven Goldsmith.
As at September 30, 2018, the Company ceased the operations of its European based subsidiaries, LXR&Co Germany GmbH, LXR&Co UK Limited, and LXRandCo Netherlands B.V. As the cash flows related to the operations of the European based subsidiaries are clearly distinguished, both operationally, geographically and for financial reporting purposes from the rest of the entity, the financial performance within these entities for the comparative periods has been reclassified and presented separately as discontinued operations in the consolidated statements of comprehensive loss and cash flows.
Highlights for the Fourth Quarter Ended December 31, 2018
(All comparable figures are to the fourth quarter ended December 31, 2017 unless otherwise stated)
- The retail network at December 31, 2018 had 17% fewer stores and consisted of 86 stores compared with 103 at December 31, 2017 (excluding the 28 European stores closed in 2018 and subsequently classified as discontinued operations). This decrease in stores is primarily due to the closure of four stores during the fourth quarter of 2018, as well as the transition of 12 retail stores to a wholesale arrangement as part of the Company's retail partner model optimization strategy. During the fourth quarter 2018, the Company opened seven stores, including six with a new retail partner.
- Net revenue decreased 20% to $10.9 million from $13.6 million, however increased 10% from $9.9 million in the third quarter of 2018;
- Gross profit was $3.3 million compared with $2.7 million.
- Gross profit margin was 30.3% compared with 20.1%.
- Selling, general and administrative expenses were $7.6 million compared with $5.9 million. Excluding non-recurring costs primarily related to the store closures and professional fees related to the strategic review and private placement financing, SG&A expenses were $6.2 million, or 57% of net revenue (see discussion of Selling, General and Administrative Expenses below);
- Net loss improved to $3.7 million compared from $3.8 million;
- Adjusted EBITDA (a non-IFRS measure) improved to $(2.5) million, compared with $(2.8) million;
- Adjusted Net Loss (a non-IFRS measure) improved to $2.8 million compared with $3.6 million; and,
- Cash provided from / (used in) operations improved to $0.4 million from $(2.2) million.
- On March 4, 2019, pursuant to the strategic review process launched in August 2018, the Company completed a non-brokered private placement of 12,500,000 Class B Shares in the capital of the Company at a price of $0.40 per Share for gross proceeds of $5,000,000. The net proceeds will be used to fund the execution of the Company's strategic plan. As previously reported, completion of the private placement concluded the mandate of the Company's special committee of independent directors to identify and evaluate a broad range of strategic and financing alternatives for the Company and which unanimously recommended the Private Placement.
Highlights for the Year Ended December 31, 2018
(All comparable figures are to the year ended December 31, 2017 unless otherwise stated)
- Net revenue increased 20% to a record $39.0 million from $32.4 million;
- Average revenue productivity for the Company's 40 stores that were open for 12 months or more was approximately $2,064 per square foot;
- Gross profit increased 16% to $9.8 million from $8.4 million;
- Gross profit margin was 25.0% compared with 26.0%;
- Selling, general and administrative expenses were $24.5 million, or 63% of net revenue compared with $13.8 million, or 43% of net revenue. Excluding non-recurring costs primarily related to the store closures and professional fees related to the strategic review and private placement financing, SG&A expenses were $23.1 million, or 59.1% of net revenue;
- Net loss from continuing operations and discontinued operations improved to $22.2 million compared with $52.4 million. Excluding discontinued operations, net loss from continuing operations improved to $19.6 million, compared with $51.1 million for 2017.
- Adjusted EBITDA (a non-IFRS measure) was $(12.7) million, compared with $(4.0) million;
- Adjusted Net Loss (a non-IFRS measure) was $15.0 million compared with $5.6 million; and,
- Cash used in operations improved to ($7.3) million from ($15.3) million.
Discussion of Fourth Quarter 2018 Results
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.
The following provides an overview of LXRandCo's financial results for the three-month period ended December 31, 2018 compared with the three-month period ended December 31, 2017.
Net revenue decreased by 20.0% to $10.9 million in the three-month period ended December 31, 2018 from $13.6 million in the three-month period ended December 31, 2017. LXRandCo's retail network consisted of 86 stores as at December 31, 2018 compared to 103 stores as at December 31, 2017 (excluding from the 2017 comparative are the 28 European stores closed in 2018 and subsequently classified as discontinued operations). There were seven new store openings in the three-month period ended December 31, 2018, four store closures, and 12 locations transitioning to a wholesale arrangement as part of the Company's retail partner optimization. The opening and closings were within the context of the Company's strategic plan, including its intention to prudently expand its retail network in the top designated market areas in the United States and Canada and implement an evolved retail partner model across its network.
During the quarter, net revenue from Canada and the United States was 11.0% and 89.0%, respectively. In the United States, LXRandCo's largest market, net revenue decreased by 19.9% from the prior period due to the effect of the closures in the United states in addition to a decrease in wholesale revenue.
Gross profit increased by 20.7% to $3.3 million in the three-month period ended December 31, 2018 from $2.7 million in the three-month period ended December 31, 2017.
Gross profit margin for 2018 was 30.3% compared to 20.1% in 2017. The three-month period ended December 31, 2017 has been significantly impacted by the 2017 inventory shrinkage that was corrected in the context of the inventory counts performed by the Company in September 2018. An additional shrinkage provision was recorded for $1.1 million as of December 31, 2017.
SG&A expenses were $7.6 million in the three-month period ended December 31, 2018, compared to $5.9 million.
Excluding non-recurring costs primarily related to the store closures and professional fees related to the strategic review and private placement financing, SG&A expenses were 57.1% of net revenue in the three-month period ended December 31, 2018.
The number of employees decreased by 171 in the three-month period ended December 31, 2018 to 179 as at December 31, 2017 compared to an increase of 172 employees in the three-month period ended December 31, 2017 to 500 as at December 31, 2017.
Net loss was $3.7 million in the three-month period ended December 31, 2018, compared to a net loss of $3.8 million in the three-month period ended December 31, 2017. The decrease was largely attributable to the reduction of various non-recurring elements described above and mostly related to the LXR Acquisition.
Adjusted Net Loss
Adjusted Net Loss was $2.8 million in the three-month period ended December 31, 2018, compared to an adjusted net loss of $3.6 million in the three-month period ended December 31, 2017. This decrease was the result of the factors discussed above.
Adjusted EBITDA was $(2.5) million in the three-month period ended December 31, 2018, compared to $(2.8) million in the three-month period ended December 31, 2017. This decrease was primarily due to the factors discussed above. Adjusted EBITDA Margin was (23.8) % of net revenue in the three-month period ended December 31, 2018, compared to (20.7) % of net revenue in the three- month period ended December 31, 2017. This decrease was primarily due to the factors discussed above.
Consolidated Financial Statements and Management's Discussion and Analysis
The Company's unaudited interim condensed consolidated financial statements for the three-month and 12-month periods ended December 31, 2018 and Management's Discussion and Analysis ("MD&A") thereon are available on the Company's web site at http://investors.lxrco.com/financials-reports-information and under the Company's profile on SEDAR at www.sedar.com.
The fourth quarter and year end 2018 Reconciliation of Net Loss to Adjusted EBITDA and Reconciliation of Net Loss to Adjusted Net Loss are available here.
Board of Directors Change
LXRandCo also announced that Luc Manella has resigned from the Company's Board of Directors and as Corporate Secretary of the Company, effectively immediately.
A conference call to discuss the Company's fourth quarter and year end 2018 results is scheduled for tomorrow, Tuesday, April 2, 2019 at 8:30 a.m. (ET). Participants can access the conference call by telephone by dialing 647-427-7450 or 1-888-231-8191, or via the Internet at http://investors.lxrco.com/events-and-webcasts.
The conference call will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call. To access the archived conference call by telephone, dial 1-855-859-2056 or 416-849-0833 and enter the pass code 9285908 followed by the pound key. The telephone replay will be available until Tuesday, April 9, 2019 at midnight. To access the archived conference call via the Internet, go to http://investors.lxrco.com/events-and-webcasts.
LXRandCo is a North American omni-channel retailer of branded vintage luxury handbags and other personal luxury products. LXRandCo sources and authenticates high-quality, pre-owned products from iconic brands such as Hermès, Louis Vuitton, Gucci and Chanel, among others, and sells them at attractive prices through: a retail network of stores located primarily in major department stores in the United States and Canada; wholesale operations primarily in the United States; and its own e-Commerce website, www.lxrco.com.
Caution Regarding Forward-Looking Statements
Certain statements in this press release are prospective in nature and constitute forward-looking information and/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, 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 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 in North America and internationally, entering into new and/or expanded retail partnerships in North America and internationally, 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.
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 LXRandCo 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.
For further information: Nadine Eap, Interim Chief Financial Officer, LXRandCo. Inc., +1 (514) 564-9993 ext: 037, [email protected]; Lawrence Chamberlain, Investor Relations, LodeRock Advisors, +1 (416) 519-4196, [email protected]