LXRandCo Reports Financial Results for Third Quarter 2019

– Significant Improvements in Gross Margin and Cost Reduction –

MONTREAL, Nov. 12, 2019 /CNW/ - LXRandCo, Inc. ("LXRandCo" or the "Company") (TSX: LXR, LXR.WT), a North American omni-channel retailer of branded vintage luxury handbags and accessories, today reported its financial results for the third quarter and nine-month period ended September 30, 2019.

"We are satisfied with our third quarter results particularly of our increased gross margin and cost management efforts. Our aim for the balance of the year is to continue to simplify and optimize everything we do across our value chain. While our gross profit increased by 19%, and we continue to see trend-line decreases in our selling, general, and administrative expenses, we are accelerating the pace of change within the company and we are re-invigorating a culture that places our channel partners and our customers at the center of everything we do. I am proud of the tremendous effort of our senior leadership team and the commitment and efforts of all our employees at repositioning the Company and, on behalf of the board, we are grateful for their unwavering commitment through all this change." said Cam di Prata, interim Chief Executive Officer of the Company.

Set forth below are the financial highlights of the Company's three-month and nine-month periods ended September 30, 2019, which are to be read in conjunction with the Company's unaudited interim condensed consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the period.

Highlights for the Third Quarter Ended September 30, 2019
(All comparable figures are to the third quarter ended September 30, 2018, unless otherwise stated¹)

• The retail network at September 30, 2019 consisted of 81 stores compared to 95 in the prior period. This decrease was mainly the result of the closure of two stores, and the transition of 12 retail stores to a wholesale arrangement as part of the Company's retail partner model optimization strategy.
• While net revenue decreased during the period by 17.5% to $8.3 million from $10.0 million due to fewer stores, gross profit increased 19.0% to $2.6 million from $2.2 million.
• E-Commerce revenue increased to 11.9% of net revenue from 5.8%.
• Gross profit margin increased to 31.4% during the period compared to 21.8%.
• Selling, general and administrative expenses decreased 9.4% to $4.0 million, representing 48.3% of net revenue, from $4.4 million, or 43.9% of net revenue.
• Net loss decreased to $2.3 million from a net loss of $3.0 million.
• Adjusted Net Loss (a non-IFRS measure) improved to a loss of $1.7 million versus a loss of $2.7 million in the prior period.
• Adjusted EBITDA (a non-IFRS measure) improved to a loss of $1.3 million versus a loss of $2.1 million in the prior period.

Highlights for the Nine-Month Period Ended September 30, 2019
(All comparable figures are to the nine-month period ended September 30, 2018, unless otherwise stated¹)

• While net revenue decreased during the period by 9.0% to $25.6 million from $28.2 million due to fewer stores, gross profit increased 26.2% to $7.6 million from $6.1 million. Excluding the impact of two sample sales to liquidate slow-moving inventory in the first quarter of 2019, normalized gross profit would have been $8.0 million.
• E-Commerce revenue increased to 9.9% of net revenue from 6.8%.
• Gross profit margin increased to 29.8% compared to 21.5%. Excluding the impact of two sample sales referred to above, normalized gross margin would have been 32.6%.
• Selling, general and administrative expenses decreased 19.6% to $13.0 million, representing 50.8% of net revenue, from $16.2 million, or 57.5% of net revenue.
• Net loss decreased to $8.3 million from a net loss of $15.6 million.
• Adjusted Net Loss (a non-IFRS measure) improved to a loss of $5.8 million from $12.0 million.
• Adjusted EBITDA (a non-IFRS measure) improved to a loss of $4.6 million from $10.0 million.
• Cash used in operations over this period improved to $6.1 million from $7.9 million.
• Cash balance at the end of the quarter was $2.0 million.

Discussion of the Three-Month and Nine-Month Periods Ended September 30, 2019 and 2018.

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.

Comparison of the Three-Month and Nine-Month Periods Ended September 30, 2019 and 2018.

Net Revenue

LXRandCo's retail network consisted of 81 stores as at September 30, 2019, compared to 95 stores as at September 30, 2018 (which excludes 12 European stores closed in 2018 and subsequently classified as discontinued operations). Operating fewer stores is in line with the Company's objective to optimize its retail network and implement a more mutually beneficial retail partner model across its network.

Net revenue decreased 17.5% to $8.3 million in the three-month period ended September 30, 2019 compared to $10.0 million in the three-month period ended September 30, 2018 primarily as a result of 15% fewer stores during the period. E-Commerce revenue over this period increased to 11.9% of net revenue from 5.8%. Net revenue decreased by 9.0% to $25.6 million in the nine-month period ended September 30, 2019 compared to $28.2 million in the nine-month period ended September 30, 2018, with e-commerce revenue increasing to 9.9% of net revenue from 6.8%.

Gross Profit

Despite fewer stores in operation, gross profit increased by 19.0% to $2.6 million in the three-month period ended September 30, 2019 compared to $2.2 million in the three-month period ended September 30, 2018 and increased by 26.2% to $7.6 million in the nine-month period ended September 30, 2019 compared to $6.1 million in the nine-month period ended September 30, 2018. Excluding the impact of two sample sales to liquidate slow-moving inventory in the first quarter of 2019, normalized gross profit would have been $8.0 million for the nine-month period ended September 30, 2019.

Gross profit margin increased to 31.4% in the three-month period ended September 30, 2019 compared to 21.8% in the three-month period ended September 30, 2018 and increased to 29.8% in the nine-month period ended September 30, 2019 compared to 21.5% in the nine-month period ended September 30, 2018. The three-month and nine-month periods ended September 30, 2019 reflect an improvement in gross margin from the previous year as a result of reduced store-related operating costs, more efficient product sourcing, a decrease in inventory obsolescence provisions from the liquidation of slow-moving inventory in the first quarter of 2019, and a significant reduction in inventory shrinkage and freight expense.

SG&A Expenses

Selling, general and administration ("SG&A") expenses decreased by 9.4% to $4.0 million in the three-month period ended September 30, 2019, compared to $4.4 million in the three-month period ended September 30, 2018. SG&A expenses decreased 19.6% to $13.0 million in the nine-month period ended September 30, 2019, compared to $16.2 million in the nine-month period ended September 30, 2018. The improvement in SG&A expenses is attributable primarily to the operation of fewer stores throughout the period, which resulted in decreased store and corporate headcount, and lower store closure costs.

Including retail partner employees managed by LXR, the Company's total number of employees decreased to 300 as of September 30, 2019, compared to 350 as at September 30, 2018. The number of employees hired directly by the Company decreased to 171 as of September 30, 2019, compared to 225 as at September 30, 2018. This decrease in headcount is mainly the result of a smaller retail network, including the impact of the discontinued operations in Europe.

Net Loss

Net loss decreased to $2.3 million in the three-month period ended September 30, 2019, from a net loss of $3.0 million in the three-month period ended September 30, 2018. Net loss decreased to $8.3 million in the nine-month period ended September 30, 2019, from a net loss of $15.7 million in the nine-month period ended September 30, 2018.

Adjusted Net Loss

Adjusted Net Loss decreased to $1.7 million in the three-month period ended September 30, 2019, from an Adjusted Net Loss of $2.7 million in the three-month period ended September 30, 2018. Adjusted Net Loss decreased to $5.8 million in the nine-month period ended September 30, 2019, from an Adjusted Net Loss of $12.0 million in the nine-month period ended September 30, 2018.

Adjusted EBITDA

Adjusted EBITDA improved to a loss of $1.3 million in the three-month period ended September 30, 2019, from a loss of $2.1 million in the three-month period ended September 30, 2018. Adjusted EBITDA improved to a loss of $4.6 million in the nine-month period ended September 30, 2019, from a loss of $10.0 million in the nine-month period ended September 30, 2018.

 Consolidated Financial Statements and Management's Discussion and Analysis

The Company's unaudited interim condensed consolidated financial statements for the three-month and nine-month periods ended September 30, 2019, and Management's Discussion and Analysis ("MD&A") thereon are available on the Company's web site at http://investors.lxrco.com/financials-reports-information and under the Company's profile on SEDAR at www.sedar.com.

Selected Consolidated Financial Information

The following table summarizes LXRandCo's recent results for the periods indicated:

LXRandCo, Inc.
Condensed consolidated statements of loss and comprehensive loss
(in Canadian dollars, except per share amounts)
	For the 3-month period ended September 30,			For the 9-month period ended September 30,
	2019	2018		2019	2018
Net revenue	8,314,615	10,075,502		25,629,115	28,154,267
Cost of sales	5,707,183	7,883,710		17,983,306	22,094,692
Gross profit	2,607,432	2,191,792		7,645,809	6,059,575
Operating expenses
Selling, general and administrative expenses	4,011,816	4,425,971		13,007,248	16,187,540
Amortization and depreciation expenses	254,467	400,826		762,171	1,009,753
Impairment of goodwill	—	—		—	3,683,987
Results from operating activities	(1,658,851)	(2,635,005)		(6,123,610)	(14,821,705)
Other income and expenses
Finance costs	125,764	147,940		352,044	922,314
Foreign exchange loss/(gain)	(138,402)	264,474		1,008,248	(137,305)
Loss on disposition of assets	295,121	—		427,898	—
Loss on disposition of subsidiaries	363,304	—		382,846	—
Loss before income taxes	(2,304,638)	(3,047,419)		(8,294,646)	(15,606,714)
Income tax expense
Current	6,154	1,404		54,357	40,065
Deferred	—	—		—	44,000
	6,154	1,404		54,357	84,065
Net loss from continuing operations	(2,310,792)	(3,048,823)		(8,349,003)	(15,690,779)
Net loss from discontinued
operations	—	(352,167)		—	(2,732,164)
Net loss for the period	(2,310,792)	(3,400,990)		(8,349,003)	(18,422,943)

	For the 3-month period ended Sept 30,			For the 9-month period ended Sept 30,
	2019	2018		2019	2018
Reconciliation of net loss to Adjusted EBITDA
Net Loss	(2,310,792)	(3,400,990)		(8,349,003)	(18,422,943)
Add: Amortization and depreciation expense	254,467	400,826		762,171	1,009,753
Add: Finance Costs	125,764	147,940		352,044	922,314
Add: Income Tax Expense	6,154	1,404		54,357	84,065
EBITDA	(1,924,407)	(2,850,820)		(7,180,431)	(16,406,811)
Adjustments to EBITDA:
Foreign exchange loss (gain)	(138,402)	264,474		1,008,248	(137,305)
Loss on disposition of assets	295,121	—		427,898	—
Impairment of goodwill	—	—		—	3,683,987
Stock-Based Compensation Expense	41,309	87,817		178,229	102,315
Loss on disposition of subsidiaries	363,304	—		382,846	—
Professional fees related to strategic review and private placement	—	—		474,853	—
Store closing costs	75,626	—		105,944	—
Loss from discontinued operations	—	352,167		—	2,732,164
Adjusted EBITDA	(1,287,449)	(2,146,362)		(4,602,413)	(10,025,650)
Reconciliation of Net Loss to Adjusted Net Loss
Net Loss	(2,310,792)	(3,400,990)		(8,349,003)	(18,422,943)
Adjustments to Net Income:
Foreign exchange loss (gain)	(138,402)	264,474		1,008,248	(137,305)
Impairment of goodwill	—	—		—	3,683,987
Loss on disposition of assets	295,121	—		427,898	—
Stock-Based Compensation Expense	41,309	87,817		178,229	102,315
Loss on disposition of subsidiaries	363,304	—		382,846	—
Non-recurring professional fees	—	—		474,853	—
Store closing costs	75,626	—		105,944	—
Loss from discontinued operations	—	352,167		—	2,732,164
Adjusted Net Loss	(1,673,834)	(2,696,532)		(5,770,985)	(12,041,782)
Notes
1. As at September 30, 2018, the Company ceased the operations of its European based subsidiaries, LXR&Co Germany GmbH, LXR&Co UK Limited, and LXRandCo Netherlands B.V. As the cash flows related to the operations of the European based subsidiaries are clearly distinguished, both operationally, geographically and for financial reporting purposes from the rest of the entity, the financial performance within these entities for the comparative periods has been reclassified and presented separately as discontinued operations in the consolidated statements of comprehensive loss and cash flows.

Conference Call

A conference call to discuss the Company's third quarter 2019 results is scheduled for today, Tuesday, November 12, 2019, at 8:30 a.m. (ET).  Participants can access the conference call by telephone by dialing 647-427-7450 or 1-888-231-8191, or via the Internet at http://investors.lxrco.com/events-and-webcasts.

The conference call will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call. To access the archived conference call by telephone, dial 1-855-859-2056 or 416-849-0833 and enter the pass code 8542868 followed by the pound key.  The telephone replay will be available until Tuesday, November 19, 2019, at midnight. To access the archived conference call via the Internet, go to http://investors.lxrco.com/events-and-webcasts.

About LXRandCo

LXRandCo is a North American omni-channel retailer of branded vintage luxury handbags and other personal luxury products. LXRandCo sources and authenticates high-quality, pre-owned products from iconic brands such as Hermès, Louis Vuitton, Gucci and Chanel, among others, and sells them at attractive prices through a retail network of stores located primarily in major department stores in the United States and Canada, wholesale operations primarily in the United States, and its own e-commerce website, www.lxrco.com, as well as the e-commerce platforms of its partners.

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 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" or "continue", or similar expressions suggesting future outcomes or events and the negative of any of these terms. Forward-looking statements in this news release include, but are not limited to, statements concerning future objectives and strategies to achieve those objectives, including, without limitation, store openings and closures, 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 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 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, entering into new and/or expanded retail partnerships, the Company's ability to source products, the Company's competitive position in the vintage 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 and market growth rates, currency exchange and interest rates and competitive intensity.

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.

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.

Readers are cautioned that the actual results achieved will vary from the information provided herein and that such variations may be material. Consequently, there are no representations by LXRandCo that actual results achieved will be the same in whole or in part as those set out in the forward-looking statements.

SOURCE LXRandCo, Inc.

Nadine Eap, Chief Financial Officer, LXRandCo. Inc., [phone] ext: 037, [email protected]