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.

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 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.

CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands of Canadian dollars)	As at April 26, 2014		As at April 27, 2013		As at January 25, 2014
ASSETS
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
LIABILITIES AND SHAREHOLDERS' EQUITY
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

CONSOLIDATED STATEMENTS OF LOSS
(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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(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)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)	For the three months ended
(In thousands of Canadian dollars)	April 26, 2014		April 27, 2013
SHARE CAPITAL
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
CONTRIBUTED SURPLUS
Balance, beginning of period	$	3,581	$	2,664
Stock-based compensation expense		290		120
Balance, end of period	$	3,871	$	2,784
RETAINED EARNINGS
Balance, beginning of period	$	78,253	$	94,239
Net loss		(13,045)		(8,187)
Balance, end of period	$	65,208	$	86,052
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
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

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)		For the three months ended
(In thousands of Canadian dollars)		April 26, 2014		April 27, 2013
OPERATING ACTIVITIES
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)
FINANCING ACTIVITIES
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
INVESTING ACTIVITIES
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

 

 

SOURCE: LE CHATEAU INC.

Emilia Di Raddo, CPA, CA, President [phone]
Johnny Del Ciancio, CPA, CA, Vice-President, Finance, [phone]
MaisonBrison:  Pierre Boucher, [phone]