Le Château reports second quarter results

MONTREAL, Sept. 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 second quarter ended July 27, 2013.

Sales for the second quarter ended July 27, 2013 amounted to $75.7 million, an increase of 4.4% from $72.5 million for the second quarter ended July 28, 2012. Comparable store sales increased 4.9% for the second quarter versus the same period a year ago. Included in comparable store sales are online sales which increased 120% for the second quarter. The e-commerce business continues to gain traction and is expanding customer reach.

The positive trend observed in the second half of 2012 continued into the first half of 2013, and to date, with an increasing number of regular stores reporting positive comparable sales over last year. This reflects product assortment improvements, some regional strengths, the performance of new concept stores and momentum of top-tier performing stores.

Net earnings for the second quarter amounted to $1.1 million or $0.04 per share (diluted), compared to $1.3 million or $0.05 per share (diluted) the previous year. Earnings before interest, income taxes, depreciation and amortization ("EBITDA") for the second quarter amounted to $7.9 million or 10.5% of sales, compared to $8.5 million or 11.7% of sales last year. The decrease in EBITDA for the second quarter was primarily attributable to an increase of $758,000 in marketing related initiatives and an increase of $219,000 in stock based compensation expense, offset by an increase of $633,000 in gross margin. The increase in gross margin dollars was the result of a 4.4% increase in sales for the second quarter of 2013, offset by a decrease in the Company's gross margin percentage to 66.9% from 69.0%, due to increased promotional activity.

Six-month Results
Sales for the six months ended July 27, 2013 increased 1.7% to $132.6 million from $130.3 million last year. Comparable store sales increased 2.5% versus the same period a year ago.

Net loss for the six-month period ended July 27, 2013 amounted to $7.1 million or $(0.26) per share (diluted) compared to a net loss of $5.3 million or $(0.21) per share the previous year. EBITDA for the first six months amounted to $3.1 million or 2.3% of sales, compared to $5.3 million or 4.1% of sales last year.

During the first six months of 2013, the Company opened one new store and closed three. Total square footage for the Le Château network at the end of the second quarter ended July 27, 2013 amounted to 1,267,000 square feet.

Third Quarter of Fiscal 2013
For the first five weeks ended August 31, 2013, total retail sales increased 3.8% and comparable store sales increased 3.9% 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 232 retail locations, of which 231 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 5 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 53-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 earnings before interest, income taxes, depreciation and amortization ("EBITDA") as a supplementary earnings measure. Depreciation and amortization includes the write-off and impairment of property and equipment. 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 second quarter ended July 27, 2013 are available online at www.sedar.com

CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands of Canadian dollars)		As at July 27, 2013			As at July 28, 2012			As at January 26, 2013
ASSETS
Current assets
Cash	$	1,507		$	3,569		$	1,783
Accounts receivable		1,638			1,665			1,906
Income taxes refundable		5,715			3,114			3,211
Derivative financial instruments		4			69			215
Inventories		131,199			127,651			123,218
Prepaid expenses		2,460			2,101			1,890
Total current assets		142,523			138,169			132,223
Property and equipment		76,716			91,888			83,315
Intangible assets		4,453			5,418			4,672
	$	223,692		$	235,475		$	220,210
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness	$	29,752		$	18,808		$	13,034
Trade and other payables		20,353			19,367			20,718
Deferred revenue		3,041			3,186			3,558
Current portion of provisions		246			160			228
Current portion of long-term debt		8,145			13,450			9,844
Total current liabilities		61,537			54,971			47,382
Long-term debt		11,712			23,353			14,290
Provisions		474			271			530
Deferred income taxes		2,239			2,936			2,298
Deferred lease credits		14,678			16,033			15,912
Total liabilities		90,640			97,564			80,412
Shareholders' equity
Share capital		42,876			37,729			42,740
Contributed surplus		3,044			2,426			2,664
Retained earnings		87,129			97,706			94,239
Accumulated other comprehensive income		3			50			155
Total shareholders' equity		133,052			137,911			139,798
	$	223,692		$	235,475		$	220,210

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(Unaudited)		For the three months ended						For the six months ended
(In thousands of Canadian dollars, except per share information)		July 27, 2013			July 28, 2012			July 27, 2013			July 28, 2012
Sales	$	75,680		$	72,514		$	132,562		$	130,291
Cost of sales and expenses
Cost of sales		25,036			22,503			44,716			40,521
Selling		39,408			38,381			78,012			76,864
General and administrative		8,864			8,716			17,892			18,376
		73,308			69,600			140,620			135,761
Results from operating activities		2,372			2,914			(8,058)			(5,470)
Finance costs		670			879			1,360			1,568
Finance income		(5)			(7)			(8)			(8)
Earnings (loss) before income taxes		1,707			2,042			(9,410)			(7,030)
Income tax expense (recovery)		630			760			(2,300)			(1,780)
Net earnings (loss)	$	1,077		$	1,282		$	(7,110)		$	(5,250)
Net earnings (loss) per share
Basic	$	0.04		$	0.05		$	(0.26)		$	(0.21)
Diluted		0.04			0.05			(0.26)			(0.21)
Weighted average number of shares outstanding ('000)		27,256			24,789			27,249			24,789

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)	For the three months ended				For the six months ended
(In thousands of Canadian dollars)		July 27, 2013		July 28, 2012		July 27, 2013		July 28, 2012
Net earnings (loss)	$	1,077	$	1,282	$	(7,110)	$	(5,250)
Other comprehensive income (loss)
Change in fair value of forward exchange contracts		4		295		1		(98)
Income tax recovery (expense)		(1)		(82)		-		28
		3		213		1		(70)
Realized forward exchange contracts reclassified to net earnings (loss)		3		167		(212)		38
Income tax recovery (expense)		(1)		(47)		59		(10)
		2		120		(153)	28
Total other comprehensive income (loss)		5		333		(152)		(42)
Comprehensive income (loss)	$	1,082	$	1,615	$	(7,262)	$	(5,292)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)		For the three months ended						For the six months ended
(In thousands of Canadian dollars)		July 27, 2013			July 28, 2012			July 27, 2013			July 28, 2012
SHARE CAPITAL
Balance, beginning of period	$	42,740		$	37,729		$	42,740		$	37,729
Issuance of subordinate voting shares upon exercise of options		125			-			125			-
Reclassification from contributed surplus due to exercise of share options		11			-			11			-
Balance, end of period	$	42,876		$	37,729		$	42,876		$	37,729
CONTRIBUTED SURPLUS
Balance, beginning of period	$	2,784		$	2,374		$	2,664		$	2,328
Stock-based compensation expense		271			52			391			98
Exercise of share options		(11)			-			(11)			-
Balance, end of period	$	3,044		$	2,426		$	3,044		$	2,426
RETAINED EARNINGS
Balance, beginning of period	$	86,052		$	96,424		$	94,239		$	102,956
Net earnings (loss)		1,077			1,282			(7,110)			(5,250)
Balance, end of period	$	87,129		$	97,706		$	87,129		$	97,706
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance, beginning of period	$	(2)		$	(283)		$	155		$	92
Other comprehensive income (loss) for the period		5			333			(152)			(42)
Balance, end of period	$	3		$	50		$	3		$	50
Total shareholders' equity	$	133,052		$	137,911		$	133,052		$	137,911

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)			For the three months ended						For the six months ended
(In thousands of Canadian dollars)			July 27, 2013			July 28, 2012			July 27, 2013			July 28, 2012
OPERATING ACTIVITIES
Net earnings (loss)		$	1,077		$	1,282		$	(7,110)		$	(5,250)
Adjustments to determine net cash from operating activities
	Depreciation and amortization		4,797			4,969			9,569			9,919
	Write-off and impairment of property and equipment		753			607			1,594			836
	Amortization of deferred lease credits		(841)			(310)			(1,273)			(576)
	Deferred lease credits		39			481			39			500
	Stock-based compensation		271			52			391			98
	Provisions		16			214			(38)			11
	Finance costs		670			879			1,360			1,568
	Finance income		(5)			(7)			(8)			(8)
	Interest paid		(658)			(744)			(1,228)			(1,433)
	Interest received		5			5			8			12
	Income tax expense (recovery)		630			760			(2,300)			(1,780)
			6,754			8,188			1,004			3,897
Net change in non-cash working capital items related to operations			464			(1,236)			(9,501)			(11,684)
			7,218			6,952			(8,497)			(7,787)
Income taxes refunded			-			489			-			993
Cash flows related to operating activities			7,218			7,441			(8,497)			(6,794)
FINANCING ACTIVITIES
Repayment of long-term debt			(1,980)			(4,205)			(4,277)			(8,665)
Issue of capital stock upon exercise of options			125			-			125			-
Cash flows related to financing activities			(1,855)			(4,205)			(4,152)			(8,665)
INVESTING ACTIVITIES
Additions to property and equipment and intangible assets			(1,097)			(3,594)			(4,345)			(6,973)
Cash flows related to investing activities			(1,097)			(3,594)			(4,345)			(6,973)
Increase (decrease) in cash, net of bank indebtedness			4,266			(358)			(16,994)			(22,432)
Cash, net of bank indebtedness, beginning of period			(32,511)			(14,881)			(11,251)			7,193
Cash, net of bank indebtedness, end of period		$	(28,245)		$	(15,239)		$	(28,245)		$	(15,239)

SOURCE: LE CHATEAU INC.

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