LXR REPORTS FINANCIAL RESULTS FOR Q1 2023

Total Net Revenue decreased 13.5% with E-commerce Penetration of 74%
Net loss was $0.3M, an improvement of $0.6M
Free Cash Flow was negative $0.4M, an improvement of $0.2M

MONTREAL, May 11, 2023 /CNW/ - LXRandCo, Inc. ("LXR" or the "Company") (TSX: LXR), a North American socially responsible, digital-first omni-channel retailer of authenticated pre-owned handbags and personal accessories, today reported its financial results for the first quarter ended March 31, 2023 ("Q1 2023").

In fiscal 2022, our business activity exhibited strong revenue growth in the first half and was followed later in the year (particularly in the fourth quarter) by challenging economic conditions in Canada and the United States, which led to a weakening in consumer purchases for our pre-owned branded luxury products, which have a relatively high AOV. This weaker demand trend continued into Q1 2023 where we experienced a sales decline as compared to the strong sales growth experienced in the first quarter of 2022. Faced with these economic headwinds,  we will continue to manage our cost base, which to-date has led to steady improvements in Cash Earnings and Free Cash Flow. We remain overall cautious for the first half of 2023.

As part of a multi-quarter succession planning process, in Q1 2023 our leadership team was strengthened with the appointment of Nadine Eap and Laura Swan to the newly-created roles of Co-President & Chief Financial and Administrative Officer and Co-President & Chief Revenue Officer.

Overview of Results for the Three-Month Period Ended March 31, 2023 ("Q1 2023") as Compared to the Three-Month Period Ended March 31, 2022 ("Q1 2022")

• In Q1 2023, total net revenue decreased 13.5% to $3.7 million.
• E-commerce net revenue decreased 12.3% to $2.8 million, and e-commerce average order value ("AOV") was $890 per transaction. E-commerce net revenue as a proportion of total net revenue ("E-commerce penetration") increased to 74.3% versus 73.3%.
• Retail net revenue was $1.0 million, a decrease of 16.8%. At quarter-end, we had eight stores in operation as compared to 10 in Q1 2022.
• Gross profit margin increased to 35.9% as compared to 35.3%.
• Selling, general and administrative ("SG&A") expenses decreased 28.4% to $1.4 million, representing 38.6% of net revenue, from 46.6% of net revenue.
• Net loss, despite a sales decline of 13.5% in the quarter, came in at $0.3 million, an improvement of $0.6 million.
• Adjusted EBITDA loss (a non-IFRS measure) was flat at $0.6 million.
• Cash Earnings (a non-IFRS measure), which is Net loss adjusted for non-cash items was negative $0.8 million, an improvement of $0.1 million
• Free Cash Flow (a non-IFRS measure), was negative $0.4 million an improvement of $0.2 million.
• Cash availability at the end of Q1 2023 was $3.0 million.

Provided below are the financial highlights and a discussion of our financial results for the three–months period ended March 31, 2023, which are to be read in conjunction with the Company's unaudited interim condensed consolidated financial statements and the Company's Management's Discussion and Analysis ("MD&A") for the period. Certain statements in this press release are prospective in nature and constitute forward-looking information or forward-looking statements within the meaning of applicable securities laws. All forward-looking statements included in and incorporated into this press release are to be read in conjunction with the section Caution Regarding Forward-Looking Statements below.

Discussion of the Three-Month Periods Ended March 31, 2023 and 2022

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.

Net Revenue

For the three-month period ended March 31, 2023, total net revenue decreased 13.5% to $3.7 million from $4.3 million in Q1 2022. During this period, 74.3% of our total net revenue was generated from e-commerce and 25.7% from retail activities (stores and wholesale channels combined), as compared to 73.3% and 26.7%, respectively, in Q1 2022.

During this period, 67.9% of our net revenue was generated in the U.S., with the balance coming from Canada, as compared to 66.5% from the U.S. in Q1 2022. In Q1 2023, Canadian and U.S. total net revenue decreased 17.1% and 11.7%, respectively, as compared to Q1 2022.

E-commerce

E-commerce net revenue during Q1 2023 was $2.8 million, a decrease of 12.3% compared to the prior period. E-commerce penetration increased to 74.3% versus 73.3% in Q1 2022. AOV during the period was $890, a decrease of 7.8% versus the comparable period last year.

Retail

Retail net revenue during Q1 2023 was $1.0 million, a decrease of 16.8% compared to $1.1 million in Q1 2022. The decrease reflects the effect of a weakened economy which led to a slowing in consumer demand for our product in Q1 2023. 

Our store network consisted of eight stores, compared to ten stores as at March 31, 2022. During Q1 2023, we did not open or close any stores.

Gross Profit & Gross Profit Margin

Gross profit in Q1 2023 decreased 12.0% to $1.3 million as compared to $1.5 million in Q1 2022. The decrease in gross profit is attributable to the decrease in total net revenue, which declined 13.5% and to a decrease in our AOV, which declined 2% versus Q1 2022.

Gross margin in Q1 2023, was 35.9% compared to 35.3% in Q1 2022, primarily due to a more profitable revenue mix made up of higher e-commerce sales which enjoy typically higher gross margin and to a lesser degree in greater efficiencies in inventory management and product sourcing.

SG&A Expenses

In Q1 2023, SG&A expenses decreased by 28.4% to $1.4 million, compared to $2.0 million in Q1 2022. This net decrease of $0.6 million in expense was primarily due to the stock-based compensation gains recorded during the quarter ,which resulted from a weaker share price,  and to lower advertising and promotion spend due to weaker revenue growth, which decreased 27.7% as compared to Q1 2022.

On March 31, 2023, we employed 58 people across our eight retail stores and our two office locations in Montreal, Canada and Tokyo, Japan as compared to 60 employees on March 31, 2022. At the end of Q1 2023, 42 employees were employed on a full-time basis as compared to 48 employees in Q1 2022.

Net Loss

In Q1 2023, we reduced our Net Loss to $0.3 million from a Net Loss of $0.9 million.  This $0.6 million improvement was due primarily to stock-based compensation gain of $0.5 million.

Adjusted Net Loss

In Q1 2023, Adjusted Net Loss was flat at $0.8 million. Adjusted Net Loss as a percent of total net revenue was 22.1% compared to 18.4% in Q1 2022. This was primarily due to a lower reported Net Loss and lower stock-based compensation expense.

Adjusted EBITDA

In Q1 2023, Adjusted EBITDA loss was flat at $0.6 million. This was primarily due to a lower reported Net Loss and lower stock-based compensation expense.

Cash Earning and Free Cash Flow

In Q1 2023, Cash Earnings (or net cash generated before changes in non-cash working capital) was negative $0.8 million compared to negative $0.9 million in Q1 2022, an improvement of $0.1 million. This improvement in Cash Earnings was due primarily to a $0.6 million reduction in net loss over the period, offset by the add-back of non-cash items such as stock-based compensation gain which increased by $0.5 million during the period.

In Q1 2023, we generated a negative Free Cash Flow of $0.4 million as compared to negative Free Cash Flow of $0.5 million in Q1 2022. This $0.2 million improvement was primarily due to the improvement in Cash Earnings cited above. For the period, variation in net changes in non-cash working capital and capital expenditures were non-material.

Selected Consolidated Financial Information
The following table summarizes LXR's recent results for the periods indicated:

						For the three-months ended March 31
						2023		2022
						$		$
Net revenue						3,715,167		4,295,516
Cost of sales						2,381,265		2,779,805
Gross profit						1,333,902		1,515,711
Operating expenses
Selling, general and administrative expenses						1,433,522		2,002,452
Depreciation of property and equipment						79,838		68,764
Amortization of intangible assets						2,034		4,407
Results from operating activities						(181,492)		(559,912)
Other income and expenses
Finance costs						135,850		141,674
Foreign exchange loss						20,044		222,380
Net Loss						(337,386)		(923,966)

The following table provides a reconciliation of Net Loss to Adjusted Net Income or Adjusted Net Loss and Net Loss to EBITDA and Adjusted EBITDA for the periods indicated:

				For the three-months ended March 31
				2023		2022
Reconciliation of Net Loss to Adjusted Net Loss				$		$
Net Loss				(337,386)		(923,966)
Adjustments to Net Loss:
Foreign exchange loss				20,044		222,380
Stock-based compensation loss (gain)				(502,529)		(88,723)
Adjusted Net Loss				(819,871)		(790,309)
				For the three-months ended March 31
				2023	2022
Reconciliation of Net Loss to Adjusted EBITDA				$	$
Net Loss				(337,386)	(923,966)
Add: Amortization and depreciation expense				81,872	73,171
Add: Finance costs				135,850	141,674
EBITDA				(119,664)	(709,121)
Adjustments to EBITDA:
Foreign exchange loss				20,044	222,380
Stock-based compensation loss (gain)				(502,529)	(88,723)
Adjusted EBITDA				(602,149)	(575,464)

						For the three-month periods ended March 31,
($)						2023	2022		Increase (decrease)
Reconciliation of Net Loss to Cash Earnings and Free Cash Flow
Net Loss						(337,386)	(923,966)		586,580
Non-cash items:
Depreciation of property and equipment						79,838	68,764		11,074
Amortization of intangible assets						2,034	4,407		(2,373)
Amortization of deferred financing costs						7,045	7,045		-
Stock-based compensation expense (gain)						(502,529)	(88,723)		(413,806)
Unrealized foreign exchange loss (gain)						(12,622)	(2,588)		(10,034)
						(426,234)	(11,095)		(415,139)
Cash Earnings						(763,620)	(935,061)		171,441
Net change in non-cash working capital balances						409,298	393,568		15,730
Cash flows (used) generated in operating activities						(354,322)	(541,493)		187,171
Less: Acquisitions of property and equipment						(972)	(4,435)		3,463
Free Cash Flow						(355,294)	(545,928)		190,634

Selected Quarterly Financial Information

The following table summarizes certain of our financial results for the most recently completed eight quarters for which financial statements have been prepared by us as a reporting issuer. This unaudited quarterly information has been prepared in accordance with IFRS. Due to the impact of COVID-19 and other factors such as seasonality, the results of operations for any quarter are not necessarily indicative of the results of operations for the full year.

($)
Consolidated statements of loss	Q1-2023		Q4-2022		Q3-2022		Q2-2022		Q1-2022		Q4-2021		Q3-2021		Q2-2021
Total net revenue	3,715,167		5,223,973		5,006,612		5,481,267		4,295,516		6,415,527		4,987,628		4,026,028
E-commerce revenue	2,761,264		3,028,134		2,669,366		3,268,570		3,149,395		3,958,670		2,506,850		2,522,682
E-commerce revenue % of total net revenue	74.3 %		58.0 %		53.9 %		59.6 %		73.3 %		61.7 %		50.3 %		62.7 %
Gross margin	35.9 %		44.0 %		37.5 %		35.5 %		35.3 %		40.0 %		38.4 %		35.7 %
Adjusted Net (Loss) Income	(819,871)		(317,620)		(562,799)		(696,424)		(790,309)		123,230		(367,455)		(1,085,937)
Adjusted EBITDA	(602,149)		(50,159)		(317,434)		(486,244)		(575,464)		298,025		(171,149)		(857,764)
Adjusted EBITDA % of total net revenue	(16,2 %)		(1.0 %)		(6.3 %)		(8.9 %)		(13.4 %)		4.6 %		(3.4 %)		(21.3 %)
Run rate metrics and growth:
Total net revenue – last 12 months revenue run-rate	19,427,019		20,007,368		21,198,922		21,179,938		19,724,699		18,031,254		15,007,540		12,877,630
E-commerce revenue – last 12 months revenue run-rate	11,757,334		12,145,465		13,076,001		12,883,485		12,137,597		10,560,842		8,317,976		6,691,499
Free Cash Flow:
Net loss	(337,386)		(739,531)		370,210		(353,552)		(923,966)		(492,803)		59,223		(1,580,635)
Add: non-cash items	(426,234)		228,056		346,803		354,340		(11,095)		724,391		87,287		390,704
Cash Earnings	(763,620)		(511,475)		717,013		788		(935,061)		231,588		146,510		(1,189,931)
Add: Net change in non-cash working capital	409,298		500,609		470,826		(646,138)		393,568		1,221,311		(2,322,046)		(32,427)
Cash flows provided/(used) in operating activities	(354,322)		(10,866)		1,187,839		(645,350)		(541,493)		1,452,899		(2,175,536)		(1,222,358)
Less: acquisition of property and equipment	(972)		(2,150)		(4,050)		(6,062)		(4,435)		(4,283)		(15,436)		(9,998)
Free Cash Flow	(355,294)		(13,016)		1,183,789		(651,412)		(545,928)		1,448,616		(2,190,972)		(1,232,356)
Liquidity:
Cash availability	3,001,298		2,868,350		2,231,325		2,934,437		3,662,768		3,810,767		2,640,169		4,481,560
Working capital	(805,319)		(949,149)		(551,302)		(59,214)		6,833,114		7,052,502		7,083,280		7,033,183
Capitalization:
Shares outstanding	91,425,499		91,425,499		91,425,499		91,425,499		92,783,155		92,783,155		92,783,155		92,783,155
Closing share price	0.07		0.105		0.11		0.11		0.11		0.14		0.10		0.13
Market capitalization	6,399,785		9,599,677		10,056,805		10,056,805		10,206,147		12,989,642		9,278,316		12,061,810
Add: Total debt	5,973,393		5,252,143		4,645,115		6,619,796		6,526,453		5,999,440		6,272,286		5,758,443
Less: Cash	2,909,786		2,586,237		2,007,396		2,884,427		3,570,681		3,695,677		2,603,395		4,315,918
Enterprise value (EV)	9,463,392		12,265,583		12,694,524		13,792,174		13,161,919		15,293,405		12,947,207		13,504,335
Multiple of EV/Last 12 months revenue	0.49x		0.61x		0.60x		0.65x		0.67x		0.85x		0.86x		1.05x

About LXR

LXR is a socially responsible, digital-first omni-channel retailer of authenticated pre-owned handbags and personal accessories. Since 2010, we have been providing consumers with authenticated branded luxury products from Hermès, Louis Vuitton, Gucci, Prada and Chanel, among other high-quality brands, by promoting their reuse and providing an environmentally responsible way for consumers to purchase luxury products. We achieve this through our digital-first strategy by selling directly to consumers through our website at www.lxrco.com and indirectly by powering the e-commerce and other platforms of key channel partners. Our omni-channel model is also supported by retail "shop-in-shop" experience centers and by wholesale activities with select retail partners across North America.

Non-IFRS Measures

This press release refers to certain non-IFRS measures. These measures are not recognized under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement IFRS measures by providing further understanding of LXR's performance and results of operations from management's perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of LXR's financial information reported under IFRS. Management uses non-IFRS measures including: "EBITDA," "Adjusted EBITDA," "Adjusted Net Loss", "Cash Earnings", "Free Cash Flow", "LTM Total Net Revenue", "LTM E-commerce Net Revenue" and "Inventory Turns".

These non-IFRS measures are used to provide investors with supplemental measures of LXR's operating performance and thus highlight trends in LXR's core business that may not otherwise be apparent when relying solely on IFRS measures. Management believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of company performance. Management also uses non-IFRS measures to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of management compensation. For a definition of EBITDA, Adjusted EBITDA, and Adjusted Net Loss, Cash Earnings, Free Cash Flow, and a reconciliation of these non-IFRS measures to IFRS measures, see the above tables presented.

Caution Regarding Forward-Looking Statements

Certain statements in this press release are prospective in nature and constitute forward-looking information or forward-looking statements within the meaning of applicable securities laws (collectively, "forward-looking statements"). Forward-looking statements include, but are not limited to, statements concerning the financial results and condition of the Company, expectations regarding market trends, overall market growth rates and the Company's growth rates, future objectives and strategies to achieve those objectives, including, without limitation, e-commerce growth and penetration, the state of wholesale demand, new store openings, store productivity, margin improvements, and future acquisitions, 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 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", "continue" or similar expressions suggesting future outcomes or events and the negative of any of these terms.

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 renew successfully the line of credit and the long-term debt facilities, 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 or closings in North America, entering into new or expanded retail partnerships in North America, the ability of the Company to continue to expand its wholesale activities, the Company's ability to source products, the Company's competitive position in the pre-owned 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 activity and market growth rates, currency exchange and interest rates and competitive intensity.

Given the recent rise in global interest rates and inflationary expectations, our results in the future may be materially affected by the overall state of economic growth, customer demand and spending (including the impact of recessionary fears), the level of inflation, interest rates, regional labor market and global supply chain constraints, world events, the rate of growth of online commerce, and cloud services, and various other related factors.

Generally, and especially given this unprecedented period of uncertainty brought about by the geo-political events or acts of terrorism (such as the military conflict between Russia and Ukraine and the political tensions arising from such conflict between Russia, the United States and countries in Europe and elsewhere), 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. By their nature, forward-looking statements involve known and unknown risks and uncertainties and other factors that could cause actual results to differ materially from those contemplated by such statements. Factors that could cause such differences include, but are not limited to, those factors described under the headings "Risk Factors" and "Management's Discussion and Analysis of LXR – Risk Factors" in LXR's annual information form (the "Annual Information Form"), and as described from time to time in the reports and disclosure documents filed by the Company with the Canadian securities regulatory agencies and commissions. Such list of risk factors is not exhaustive of the factors that may impact the forward-looking statements. These and other factors should be considered carefully, and readers should not place undue reliance on any of the forward-looking statements in this press release. As a result of the foregoing and other factors, there can be no assurance that actual results will be consistent with these forward-looking statements.

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.

SOURCE LXRandCo, Inc.

Nadine Eap, Co-President and Chief Financial and Administrative Officer, LXRandCo, Inc., [phone] ext: 037, [email protected]