MONTREAL, Sept. 5, 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 second quarter ended July 26, 2014.
Sales for the second quarter ended July 26, 2014 amounted to $68.3 million, a decrease of 9.7% from $75.7 million for the second quarter ended July 27, 2013. Sales were negatively impacted in the second quarter of 2014 by reduced store traffic and increased promotional activity throughout the quarter. Comparable store sales decreased 8.6% for the second quarter versus the same period a year ago. Included in comparable store sales are online sales which increased 7% for the second quarter. While the contribution from online sales remains a small percentage of overall sales, the e-commerce business continues to gain traction and is expanding customer reach.
Earnings 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 second quarter amounted to $2.9 million, compared to $7.9 million last year. The decrease of $5.0 million in adjusted EBITDA for the second quarter was primarily attributable to the decrease of $6.8 million in gross margin dollars, offset by a decrease in selling, general and administrative expenses of $1.8 million. The Company's gross margin for the second quarter of 2014 decreased to 64.2% from 66.9% in 2013, due to increased promotional activity.
Net loss for the second quarter amounted to $3.0 million or $(0.10) per share (diluted) compared to a net earnings of $1.1 million or $0.04 per share (diluted) the previous year, mainly as a result of the decrease in the gross margin as mentioned above. In addition, $800,000 of the net loss is attributed to the unrecognized tax benefit of non-capital losses of $2.8 million for Canadian income tax purposes generated in the second quarter, for which a full valuation allowance has been taken against the related deferred tax asset.
"Despite lower sales in the second quarter, gross margin increased to 64.2% when compared to 60.7% for the first quarter of 2014. As a result, the Company returned to a positive adjusted EBITDA of $2.9 million in the second quarter. Efforts to reduce inventories have resulted in a 6% decline over last year. Finally, we remain focused on cost control initiatives which yielded savings of $1.8 million for the three months ended July 26, 2014," said Jane Silverstone Segal, Chairman and CEO, Le Château.
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.
Six-month Results
Sales for the six months ended July 26, 2014 decreased 8.3% to $121.6 million from $132.6 million last year. Comparable store sales decreased 7.2% versus the same period a year ago. Included in comparable store sales are online sales which increased 24% for the six months ended July 26, 2014.
Loss before interest, income taxes, depreciation, amortization, write-off and/or impairment of property and equipment and intangible assets for the six months ended July 26, 2014 amounted to $6.4 million, compared to earnings before interest, income taxes, depreciation, amortization, write-off and/or impairment of property and equipment and intangible assets of $3.1 million last year. The decrease of $9.5 million in adjusted EBITDA for the first six months was primarily attributable to a decline of $11.6 million in gross margin dollars, offset by a decrease in selling, general and administrative expenses of $2.1 million. The reduction in gross margin dollars was the result of the decrease in the Company's gross margin percentage to 62.7% from 66.3%, due to increased promotional activity.
Net loss for the six-month period ended July 26, 2014 amounted to $16.0 million or $(0.57) per share (diluted) compared to a net loss of $7.1 million or $(0.26) per share (diluted) the previous year, mainly as a result of the decrease in the gross margin as mentioned above. In addition, $2.9 million of the increase in the net loss is attributed to the unrecognized tax benefit of non-capital losses of $10.8 million for Canadian income tax purposes generated in the six-month period ended July 26, 2014, for which a full valuation allowance has been taken against the related deferred tax asset.
During the first six months of 2014, the Company opened one store, closed two stores and renovated five existing locations. Total square footage for the Le Château network as at July 26, 2014 amounted to 1,237,000 square feet, compared to 1,267,000 square feet as at July 27, 2013.
Third Quarter of Fiscal 2014
For the first five weeks ended August 30, 2014, total retail sales decreased 10.7% and comparable store sales decreased 9.4% compared to the same period last year.
New Initiative with Actress, Lauren Holly
Le Château is proud to team up with Actress Lauren Holly to bring "Lauren's Closet", a sophisticated collection, designed by Le Château and curated by Lauren Holly. The collection is available in Le Château locations across Canada and online at lechateau.com.
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 227 retail locations, of which 226 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. 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 consolidated financial statements and Management's Discussion and Analysis for the second quarter ended July 26, 2014 are available online at www.sedar.com.
| CONSOLIDATED BALANCE SHEETS | ||||||
| (Unaudited) (In thousands of Canadian dollars) |
As at July 26, 2014 |
As at July 27, 2013 |
As at January 25, 2014 |
|||
| ASSETS | ||||||
| Current assets | ||||||
| Cash | $ | 2,468 | $ | 1,507 | $ | 1,446 |
| Accounts receivable | 1,691 | 1,638 | 1,476 | |||
| Income taxes refundable | 1,319 | 5,715 | 6,663 | |||
| Derivative financial instruments | - | 4 | 418 | |||
| Inventories | 122,996 | 131,199 | 124,878 | |||
| Prepaid expenses | 2,671 | 2,460 | 2,292 | |||
| Total current assets | 131,145 | 142,523 | 137,173 | |||
| Property and equipment | 66,851 | 76,716 | 69,870 | |||
| Intangible assets | 3,557 | 4,453 | 3,815 | |||
| $ | 201,553 | $ | 223,692 | $ | 210,858 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
| Current liabilities | ||||||
| Current portion of bank indebtedness | $ | 22,052 | $ | 29,752 | $ | 30,767 |
| Trade and other payables | 16,723 | 20,353 | 19,553 | |||
| Deferred revenue | 3,135 | 3,041 | 3,712 | |||
| Current portion of provisions | 332 | 246 | 265 | |||
| Derivative financial instruments | 372 | - | - | |||
| Current portion of long-term debt | 5,169 | 8,145 | 7,987 | |||
| Total current liabilities | 47,783 | 61,537 | 62,284 | |||
| Bank indebtedness | 20,400 | - | - | |||
| Long-term debt | 6,543 | 11,712 | 7,843 | |||
| Provisions | 481 | 474 | 391 | |||
| Deferred income taxes | - | 2,239 | 1,829 | |||
| Deferred lease credits | 12,373 | 14,678 | 13,412 | |||
| Total liabilities | 87,580 | 90,640 | 85,759 | |||
| Shareholders' equity | ||||||
| Share capital | 47,967 | 42,876 | 42,960 | |||
| Contributed surplus | 4,140 | 3,044 | 3,581 | |||
| Retained earnings | 62,238 | 87,129 | 78,253 | |||
| Accumulated other comprehensive income (loss) | (372) | 3 | 305 | |||
| Total shareholders' equity | 113,973 | 133,052 | 125,099 | |||
| $ | 201,553 | $ | 223,692 | $ | 210,858 | |
| 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 26, 2014 | July 27, 2013 | July 26, 2014 | July 27, 2013 | |||||
| Sales | $ | 68,304 | $ | 75,680 | $ | 121,609 | $ | 132,562 | |
| Cost of sales and expenses | |||||||||
| Cost of sales | 24,453 | 25,036 | 45,406 | 44,716 | |||||
| Selling | 37,469 | 39,408 | 74,656 | 78,012 | |||||
| General and administrative | 8,634 | 8,864 | 17,876 | 17,892 | |||||
| 70,556 | 73,308 | 137,938 | 140,620 | ||||||
| Results from operating activities | (2,252) | 2,372 | (16,329) | (8,058) | |||||
| Finance costs | 726 | 670 | 1,413 | 1,360 | |||||
| Finance income | (8) | (5) | (11) | (8) | |||||
| Earnings (loss) before income taxes | (2,970) | 1,707 | (17,731) | (9,410) | |||||
| Income tax expense (recovery) | - | 630 | (1,716) | (2,300) | |||||
| Net earnings (loss) | $ | (2,970) | $ | 1,077 | $ | (16,015) | $ | (7,110) | |
| Net earnings (loss) per share | |||||||||
| Basic | $ | (0.10) | $ | 0.04 | $ | (0.57) | $ | (0.26) | |
| Diluted | (0.10) | 0.04 | (0.57) | (0.26) | |||||
| Weighted average number of shares outstanding ('000) | 28,524 | 27,256 | 27,933 | 27,249 | |||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | ||||||||
| (Unaudited) | For the three months ended | For the six months ended | ||||||
| (In thousands of Canadian dollars) | July 26, 2014 | July 27, 2013 | July 26, 2014 | July 27, 2013 | ||||
| Net earnings (loss) | $ | (2,970) | $ | 1,077 | $ | (16,015) | $ | (7,110) |
| Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods | ||||||||
| Change in fair value of forward exchange contracts | (360) | 4 | (388) | 1 | ||||
| Income tax expense | (8) | (1) | - | - | ||||
| (368) | 3 | (388) | 1 | |||||
| Realized forward exchange contracts reclassified to net earnings (loss) | 16 | 3 | (402) | (212) | ||||
| Income tax recovery (expense) | - | (1) | 113 | 59 | ||||
| 16 | 2 | (289) | (153) | |||||
| Total other comprehensive income (loss) | (352) | 5 | (677) | (152) | ||||
| Comprehensive income (loss) | $ | (3,322) | $ | 1,082 | $ | (16,692) | $ | (7,262) |
| CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY | ||||||||
| (Unaudited) | For the three months ended | For the six months ended | ||||||
| (In thousands of Canadian dollars) | July 26, 2014 | July 27, 2013 | July 26, 2014 | July 27, 2013 | ||||
| SHARE CAPITAL | ||||||||
| Balance, beginning of period | $ | 42,962 | $ | 42,740 | $ | 42,960 | $ | 42,740 |
| Issuance of subordinate voting shares upon conversion of long-term debt | 5,000 | - | 5,000 | - | ||||
| Issuance of subordinate voting shares upon exercise of options | 3 | 125 | 5 | 125 | ||||
| Reclassification from contributed surplus due to exercise of share options | 2 | 11 | 2 | 11 | ||||
| Balance, end of period | $ | 47,967 | $ | 42,876 | $ | 47,967 | $ | 42,876 |
| CONTRIBUTED SURPLUS | ||||||||
| Balance, beginning of period | $ | 3,871 | $ | 2,784 | $ | 3,581 | $ | 2,664 |
| Stock-based compensation expense | 271 | 271 | 561 | 391 | ||||
| Exercise of share options | (2) | (11) | (2) | (11) | ||||
| Balance, end of period | $ | 4,140 | $ | 3,044 | $ | 4,140 | $ | 3,044 |
| RETAINED EARNINGS | ||||||||
| Balance, beginning of period | $ | 65,208 | $ | 86,052 | $ | 78,253 | $ | 94,239 |
| Net earnings (loss) | (2,970) | 1,077 | (16,015) | (7,110) | ||||
| Balance, end of period | $ | 62,238 | $ | 87,129 | $ | 62,238 | $ | 87,129 |
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||
| Balance, beginning of period | $ | (20) | $ | (2) | $ | 305 | $ | 155 |
| Other comprehensive income (loss) for the period | (352) | 5 | (677) | (152) | ||||
| Balance, end of period | $ | (372) | $ | 3 | $ | (372) | $ | 3 |
| Total shareholders' equity | $ | 113,973 | $ | 133,052 | $ | 113,973 | $ | 133,052 |
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||
| (Unaudited) | For the three months ended | For the six months ended | |||||||
| (In thousands of Canadian dollars) | July 26, 2014 | July 27, 2013 | July 26, 2014 | July 27, 2013 | |||||
| OPERATING ACTIVITIES | |||||||||
| Net earnings (loss) | $ | (2,970) | $ | 1,077 | $ | (16,015) | $ | (7,110) | |
| Adjustments to determine net cash from operating activities | |||||||||
| Depreciation and amortization | 4,609 | 4,797 | 9,200 | 9,569 | |||||
| Write-off and impairment of property and equipment | 533 | 753 | 713 | 1,594 | |||||
| Amortization of deferred lease credits | (589) | (841) | (1,173) | (1,273) | |||||
| Deferred lease credits | 260 | 39 | 134 | 39 | |||||
| Stock-based compensation | 271 | 271 | 561 | 391 | |||||
| Provisions | 144 | 16 | 157 | (38) | |||||
| Finance costs | 726 | 670 | 1,413 | 1,360 | |||||
| Interest paid | (686) | (658) | (1,261) | (1,228) | |||||
| Income tax expense (recovery) | - | 630 | (1,716) | (2,300) | |||||
| 2,298 | 6,754 | (7,987) | 1,004 | ||||||
| Net change in non-cash working capital items related to operations | 4,425 | 527 | (2,735) | (9,375) | |||||
| Income taxes refunded | 4,650 | - | 5,548 | - | |||||
| Cash flows related to operating activities | 11,373 | 7,281 | (5,174) | (8,371) | |||||
| FINANCING ACTIVITIES | |||||||||
| Increase (decrease) in bank indebtedness | (7,662) | (5,677) | 11,945 | 16,592 | |||||
| Proceeds of long-term debt | - | - | 5,000 | - | |||||
| Repayment of long-term debt | (2,065) | (1,980) | (4,118) | (4,277) | |||||
| Issue of capital stock upon exercise of options | 3 | 125 | 5 | 125 | |||||
| Cash flows related to financing activities | (9,724) | (7,532) | 12,832 | 12,440 | |||||
| INVESTING ACTIVITIES | |||||||||
| Additions to property and equipment and intangible assets | (1,515) | (1,097) | (6,636) | (4,345) | |||||
| Cash flows related to investing activities | (1,515) | (1,097) | (6,636) | (4,345) | |||||
| Increase (decrease) in cash | 134 | (1,348) | 1,022 | (276) | |||||
| Cash, beginning of period | 2,334 | 2,855 | 1,446 | 1,783 | |||||
| Cash, end of period | $ | 2,468 | $ | 1,507 | $ | 2,468 | $ | 1,507 | |
SOURCE: Le Château Inc.
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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