Le Château reports third quarter results

MONTREAL, Dec. 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 third quarter ended October 25, 2014.

Sales for the third quarter ended October 25, 2014 amounted to $58.1 million, a decrease of 11.1% from $65.4 million for the third quarter ended October 26, 2013. Sales were negatively impacted in the third quarter of 2014 by reduced store traffic and increased promotional activity throughout the quarter. The retail environment continued to be challenging in the third quarter as consumers remained cautious with discretionary spending. Comparable store sales decreased 9.7% for the third quarter, including online sales which were flat for the quarter.

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 third quarter amounted to $4.9 million, compared to $1.9 million last year. The decrease of $3.0 million in adjusted EBITDA for the third quarter was primarily attributable to the decrease of $5.5 million in gross margin dollars, partially offset by cost control initiatives resulting in a decrease of $2.5 million in selling, general and administrative expenses. The decrease of $5.5 million in gross margin dollars was the result of the 11.1% decline in sales for the third quarter combined with the decrease in gross margin percentage to 61.6% from 63.2% in 2013. The latter was impacted by the $890,000 of net inventory write-downs recorded in the third quarter and increased promotional activity.

Net loss for the third quarter amounted to $11.1 million or $(0.37) per share (diluted) compared to $5.0 million or $(0.18) per share (diluted) the previous year, mainly as a result of the decrease in the gross margin as mentioned above. Included in the net loss for the third quarter is $1.1 million relating to the write-off and net impairment of property and equipment compared to $96,000 for the same period last year. In addition, $2.3 million of the increase in the net loss is attributed to the unrecognized tax benefit of non-capital losses for Canadian income tax purposes generated in the third quarter, for which a full valuation allowance has been taken against the related deferred tax asset.

Nine-month Results
Sales for the nine months ended October 25, 2014 decreased 9.2% to $179.7 million from $197.9 million last year. Comparable store sales decreased 8.0% versus the same period a year ago. Included in comparable store sales are online sales which increased 14% for the nine months ended October 25, 2014.

Loss before interest, income taxes, depreciation, amortization, write-off and/or impairment of property and equipment and intangible assets for the nine months ended October 25, 2014 amounted to $11.3 million, compared to earnings before interest, income taxes, depreciation, amortization, write-off and/or impairment of property and equipment and intangible assets of $1.2 million last year. The decrease of $12.5 million in adjusted EBITDA for the first nine months was primarily attributable to a decline of $17.1 million in gross margin dollars, partially  offset by cost control initiatives resulting in a decrease of $4.6 million in selling, general and administrative expenses. The decrease of $17.1 million in gross margin dollars was the result of the 9.2% decline in sales for the nine months ended October 25, 2014, combined with the decrease in gross margin percentage to 62.3% from 65.2% in 2013. The latter was impacted by the $1.6 million of net inventory write-downs recorded for the first nine months of 2014 and increased promotional activity.

Net loss for the nine-month period ended October 25, 2014 amounted to $27.1 million or $(0.95) per share (diluted) compared to $12.1 million or $(0.44) 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 for Canadian income tax purposes generated in the nine-month period ended October 25, 2014, for which a full valuation allowance has been taken against the related deferred tax asset.

During the first nine months of 2014, the Company opened one store, closed five stores and renovated five existing locations. Total square footage for the Le Château network as at October 25, 2014 amounted to 1,230,000 square feet, compared to 1,256,000 square feet as at October 26, 2013.

Fourth Quarter of Fiscal 2014
For the first five weeks ended November 29, 2014, total retail sales decreased 14.0% and comparable store sales decreased 12.7% compared to the same period last year. Included in comparable store sales are online sales which increased 30%.

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 225 retail locations, of which 224 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 55-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 third quarter ended October 25, 2014 are available online at www.sedar.com.

CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands of Canadian dollars)	As at October 25, 2014		As at October 26, 2013		As at January 25, 2014
ASSETS
Current assets
Cash	$	2,355	$	1,779	$	1,446
Accounts receivable		1,061		1,566		1,476
Income taxes refundable		539		5,952		6,663
Derivative financial instruments		104		136		418
Inventories		128,393		136,602		124,878
Prepaid expenses		2,481		2,283		2,292
Total current assets		134,933		148,318		137,173
Property and equipment		62,648		73,731		69,870
Intangible assets		3,282		4,038		3,815
	$	200,863	$	226,087	$	210,858
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of credit facility	$	17,221	$	39,762	$	30,767
Trade and other payables		16,942		19,952		19,553
Deferred revenue		3,106		3,059		3,712
Current portion of provisions		298		248		265
Current portion of long-term debt		3,505		8,237		7,987
Total current liabilities		41,072		71,258		62,284
Credit facility		37,900		-		-
Long-term debt		6,113		9,618		7,843
Provisions		409		415		391
Deferred income taxes		-		2,275		1,829
Deferred lease credits		11,838		14,068		13,412
Total liabilities		97,332		97,634		85,759
Shareholders' equity
Share capital		47,967		42,939		42,960
Contributed surplus		4,274		3,302		3,581
Retained earnings		51,186		82,113		78,253
Accumulated other comprehensive income		104		99		305
Total shareholders' equity		103,531		128,453		125,099
	$	200,863	$	226,087	$	210,858

CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)		For the three months ended				For the nine months ended
(In thousands of Canadian dollars, except per share information)		October 25, 2014		October 26, 2013		October 25, 2014		October 26, 2013
Sales		$	58,134	$	65,360	$	179,743	$	197,922
Cost of sales and expenses
Cost of sales			22,338		24,068		67,744		68,784
Selling			37,595		38,699		112,251		116,711
General and administrative			8,501		9,191		26,377		27,083
			68,434		71,958		206,372		212,578
Results from operating activities			(10,300)		(6,598)		(26,629)		(14,656)
Finance costs			757		690		2,170		2,050
Finance income			(5)		(2)		(16)		(10)
Loss before income taxes			(11,052)		(7,286)		(28,783)		(16,696)
Income tax recovery			-		(2,270)		(1,716)		(4,570)
Net Loss		$	(11,052)	$	(5,016)	$	(27,067)	$	(12,126)
Net loss per share
	Basic	$	(0.37)	$	(0.18)	$	(0.95)	$	(0.44)
	Diluted		(0.37)		(0.18)		(0.95)		(0.44)
Weighted average number of shares outstanding ('000)			29,964		27,322		28,610		27,274

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)	For the three months ended				For the nine months ended
(In thousands of Canadian dollars)	October 25, 2014		October 26, 2013		October 25, 2014		October 26, 2013
Net loss	$	(11,052)	$	(5,016)	$	(27,067)	$	(12,126)
Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods
Change in fair value of forward exchange contracts		121		139		(267)		140
Income tax expense		-		(38)		-		(38)
		121		101		(267)		102
Realized forward exchange contracts reclassified to net loss		355		(7)		(47)		(219)
Income tax recovery		-		2		113		61
		355		(5)		66		(158)
Total other comprehensive income (loss)		476		96		(201)		(56)
Comprehensive loss	$	(10,576)	$	(4,920)	$	(27,268)	$	(12,182)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)	For the three months ended				For the nine months ended
(In thousands of Canadian dollars)	October 25, 2014		October 26, 2013		October 25, 2014		October 26, 2013
SHARE CAPITAL
Balance, beginning of period	$	47,967	$	42,876	$	42,960	$	42,740
Issuance of subordinate voting shares upon conversion of long-term debt		-		-		5,000		-
Issuance of subordinate voting shares upon exercise of options		-		19		5		144
Reclassification from contributed surplus due to exercise of share options		-		44		2		55
Balance, end of period	$	47,967	$	42,939	$	47,967	$	42,939
CONTRIBUTED SURPLUS
Balance, beginning of period	$	4,140	$	3,044	$	3,581	$	2,664
Stock-based compensation expense		134		302		695		693
Exercise of share options		-		(44)		(2)		(55)
Balance, end of period	$	4,274	$	3,302	$	4,274	$	3,302
RETAINED EARNINGS
Balance, beginning of period	$	62,238	$	87,129	$	78,253	$	94,239
Net loss		(11,052)		(5,016)		(27,067)		(12,126)
Balance, end of period	$	51,186	$	82,113	$	51,186	$	82,113
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance, beginning of period	$	(372)	$	3	$	305	$	155
Other comprehensive income (loss) for the period		476		96		(201)		(56)
Balance, end of period	$	104	$	99	$	104	$	99
Total shareholders' equity	$	103,531	$	128,453	$	103,531	$	128,453

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)		For the three months ended				For the nine months ended
(In thousands of Canadian dollars)		October 25, 2014		October 26, 2013		October 25, 2014		October 26, 2013
OPERATING ACTIVITIES
Net loss		$	(11,052)	$	(5,016)	$	(27,067)	$	(12,126)
Adjustments to determine net cash from operating activities
	Depreciation and amortization		4,297		4,625		13,497		14,194
	Write-off and net impairment of property and equipment and intangible assets		1,134		96		1,847		1,690
	Amortization of deferred lease credits		(570)		(610)		(1,743)		(1,883)
	Deferred lease credits		35		-		169		39
	Stock-based compensation		134		302		695		693
	Provisions		(106)		(57)		51		(95)
	Finance costs		757		690		2,170		2,050
	Interest paid		(607)		(597)		(1,868)		(1,825)
	Income tax recovery		-		(2,270)		(1,716)		(4,570)
			(5,978)		(2,837)		(13,965)		(1,833)
Net change in non-cash working capital items related to operations			(4,566)		(5,642)		(7,301)		(15,017)
Income taxes refunded			905		2,108		6,453		2,108
Cash flows related to operating activities			(9,639)		(6,371)		(14,813)		(14,742)
FINANCING ACTIVITIES
Increase in credit facility			12,573		9,947		24,518		26,539
Proceeds of long-term debt			-		-		5,000		-
Repayment of long-term debt			(2,094)		(2,002)		(6,212)		(6,279)
Issue of capital stock upon exercise of options			-		19		5		144
Cash flows related to financing activities			10,479		7,964		23,311		20,404
INVESTING ACTIVITIES
Additions to property and equipment and intangible assets			(953)		(1,321)		(7,589)		(5,666)
Cash flows related to investing activities			(953)		(1,321)		(7,589)		(5,666)
Increase (decrease) in cash			(113)		272		909		(4)
Cash, beginning of period			2,468		1,507		1,446		1,783
Cash, end of period		$	2,355	$	1,779	$	2,355	$	1,779

SOURCE: LE CHATEAU INC.

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