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Le Château Reports First Quarter Results

MONTRÉAL, June 26, 2019 (GLOBE NEWSWIRE) -- Le Château Inc. (TSX VENTURE: CTU), today reported financial results for the first quarter ended April 27, 2019. Unless otherwise indicated, the Company's results for the first quarter reflect the impact of the implementation of IFRS 16, as described below under “Adoption of IFRS 16 – Leases".

Sales for the first quarter ended April 27, 2019 amounted to $36.1 million as compared with $41.1 million for the first quarter ended April 28, 2018, a decrease of 12.2%, with 18 fewer stores in operation. Comparable store sales, which include online sales, decreased 5.9% versus the same period a year ago, with comparable regular store sales decreasing 6.9% and comparable outlet store sales increasing 2.3% (see non-GAAP measures below). Sales were negatively impacted in the first quarter of 2019 by reduced store traffic due to unseasonable weather conditions.

Net loss for the first quarter ended April 27, 2019 amounted to $10.8 million or $(0.36) per share compared to a net loss of $10.8 million or $(0.36) per share for the same period last year. The net loss for the first quarter of 2019 included a favorable impact of IFRS 16 of $306,000.

Adjusted EBITDA (see non-GAAP measures below) for the first quarter of 2019 amounted to $748,000, compared to $(6.2) million for the same period last year, an improvement of $6.9 million. The improvement in adjusted EBITDA includes a favorable impact of IFRS 16 of $7.8 million. Excluding the $7.8 million impact of IFRS 16, the adjusted EBITDA for first quarter was $(7.1) million compared with $(6.2) million for same period last year. The decrease of $900,000 in adjusted EBITDA for the first quarter of 2019 was primarily attributable to the reduction of $3.6 million in gross margin dollars, partially offset by the decrease in selling, distribution and administrative expenses of $2.7 million. The decrease in selling, distribution and administrative expenses resulted primarily from the reduction in store operating expenses due mainly to store closures. The decrease of $3.6 million in gross margin dollars was the result of the 12.2% overall sales decline for the first quarter, combined with the decrease in gross margin percentage to 61.9% from 63.0% in 2018.

During the first quarter of 2019, the Company closed six underperforming stores. As at April 27, 2019, the Company operated 133 stores (including 15 fashion outlet stores) compared to 151 stores (including 31 fashion outlet stores) as at April 28, 2018. Total square footage for the Le Château network as at April 27, 2019 amounted to 761,000 square feet (including 168,000 square feet for fashion outlet stores), compared to 850,000 square feet (including 247,000 square feet for fashion outlet stores) as at April 28, 2018. The Company is planning to close 4 additional stores for the remainder of 2019.

Adoption of IFRS 16 - Leases
The Company adopted IFRS 16 – Leases, replacing IAS 17 – Leases and related interpretations, using the modified retrospective approach, effective for the annual reporting period beginning on January 27, 2019. As a result, the Company's results for the first quarter ended April 27, 2019 reflect lease accounting under IFRS 16. Comparative figures for the first quarter ended April 28, 2018 have not been restated and continue to be reported under IAS 17, Leases. Refer to Note 2 of the unaudited interim condensed consolidated financial statements for the first quarter ended April 27, 2019 for additional details on the implementation of IFRS 16.

Profile
Le Château is a leading Canadian specialty retailer and manufacturer of exclusively designed apparel, footwear and accessories for contemporary and style-conscious women and men, with an extensive network of 133 prime locations across Canada and an e-com platform servicing Canada and the U.S. Le Château, committed to research, design and product development, manufactures approximately 30% of the Company’s apparel in its own Canadian production facilities.

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 and accretion of First Preferred shares series 1 (“Adjusted EBITDA”). 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 following table reconciles adjusted EBITDA to loss before income taxes in the unaudited interim condensed consolidated statements of loss for the first quarters ended April 27, 2019 and April 28, 2018:

For the three months ended

(Unaudited)
(In thousands of Canadian dollars)

April 27, 2019
(Excluding impact
of IFRS 16) (1)

IFRS 16 impacts

April 27, 2019
(Including impact
of IFRS 16)

April 28, 2018

Loss before income taxes

$

(11,143)

$

306

$

(10,837)

$

(10,777)

Depreciation and amortization

1,932

6,145

8,077

2,285

Write-off and net impairment of property and equipment and intangible assets

41

-

41

63

Finance costs

2,107

1,360

3,467

1,588

Accretion of First Preferred shares series 1

-

-

-

663

Adjusted EBITDA

$

(7,063)

$

7,811

$

748

$

(6,178)

(1) Adjusted EBITDA for the first quarter of 2019 excluding impact of IFRS 16 assumes the Company continued to report under IAS 17, Leases and did not adopt IFRS 16, other than for differences related to testing long-lived assets for impairment and accounting for onerous store leases pursuant to the guidance of IAS 37, Provisions, which could have had an impact on the EBITDA and net loss of the Company under accounting standards applicable prior to January 27, 2019. Under IFRS 16, the nature and timing of expenses related to operating leases have changed as the straight-line operating lease expenses have been replaced with a depreciation charge for right-of use assets and interest expense on lease liabilities. Accordingly, IFRS 16 had a favorable impact of approximately $7.8 million on adjusted EBITDA for the first quarter of 2019 as operating leases expenses have been replaced with depreciation and interest expenses, which are not included in the calculation of adjusted EBITDA.

The Company also discloses comparable store sales which are defined as sales generated by stores that have been open for at least one year on a comparable week basis. Online sales are included in comparable store sales.

The following table reconciles comparable store sales to total sales disclosed in the unaudited interim condensed consolidated statements of loss for the first quarters ended April 27, 2019 and April 28, 2018:

(Unaudited)

For the three months ended

(In thousands of Canadian dollars)

April 27, 2019

April 28, 2018

Comparable store sales – Regular stores

$

30,599

$

32,873

Comparable store sales – Outlet stores

4,213

4,117

Total comparable store sales

34,812

36,990

Non-comparable store sales

1,258

4,094

Total sales

$

36,070

$

41,084

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; liquidity risks; 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 and changes in laws, rules and regulations applicable to the Company. There can be no assurance that borrowings will be available to the Company, or available on acceptable terms, in an amount sufficient to fund the Company's needs or that additional financing will be provided by any of the controlling shareholders of 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 first quarter ended April 27, 2019 are available online at www.sedar.com.

For further information
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
Source: Le Château Inc.

CONSOLIDATED BALANCE SHEETS

(Unaudited)
(In thousands of Canadian dollars)

As at
April 27, 2019

As at
April 28, 2018(1)

As at
January 26, 2019(1)

ASSETS

Current assets

Cash

$

1,241

$

2,002

$

-

Accounts receivable

1,113

971

1,031

Income taxes refundable

264

269

440

Inventories

88,805

91,288

86,487

Prepaid expenses

2,355

2,031

1,976

Total current assets

93,778

96,561

89,934

Deposits

485

485

485

Property and equipment

19,897

25,579

21,648

Intangible assets

1,641

2,234

1,831

Right-of-use assets

79,369

-

-

$

195,170

$

124,859

$

113,898

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

Current liabilities

Bank indebtedness

$

-

$

-

$

489

Current portion of credit facility

25,134

15,617

19,093

Trade and other payables

18,348

16,467

20,437

Deferred revenue

2,069

2,954

2,402

Current portion of lease liabilities

27,741

-

-

Current portion of provision for onerous leases

-

512

240

Total current liabilities

73,292

35,550

42,661

Credit facility

33,524

36,474

29,901

Long-term debt

30,838

29,101

29,684

Lease liabilities

69,553

-

-

Provision for onerous leases

-

851

-

Deferred lease credits

-

6,813

6,490

First Preferred shares series 1

-

23,500

-

Total liabilities

207,207

132,289

108,736

Shareholders' equity (deficiency)

Share capital

73,573

47,967

73,573

Contributed surplus

14,193

14,114

14,132

Deficit

(99,803)

(69,511)

(82,543)

Total shareholders' equity (deficiency)

(12,037)

(7,430)

5,162

$

195,170

$

124,859

$

113,898

(1) The Company has initially applied IFRS 16 as at January 27, 2019. Under the transition method chosen, comparative information is not restated.

NOTICE
The Company’s independent auditors have not performed a review of the accompanying interim condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(Unaudited)

For the three months ended

(In thousands of Canadian dollars, except per share information)

April 27, 2019

April 28, 2018(1)

Sales

$

36,070

$

41,084

Cost of sales and expenses

Cost of sales

13,744

15,189

Selling and distribution

24,908

29,060

Administrative

4,788

5,361

43,440

49,610

Results from operating activities

(7,370)

(8,526)

Finance costs

3,467

1,588

Accretion of First Preferred shares series 1

-

663

Loss before income taxes

(10,837)

(10,777)

Income tax recovery

-

-

Net loss and comprehensive loss

$

(10,837)

$

(10,777)

Net loss per share

Basic

$

(0.36)

$

(0.36)

Diluted

(0.36)

(0.36)

Weighted average number of shares outstanding ('000)

29,964

29,964

(1) The Company has initially applied IFRS 16 as at January 27, 2019. Under the transition method chosen, comparative information is not restated.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIENCY)

(Unaudited)

For the three months ended

(In thousands of Canadian dollars)

April 27, 2019

April 28, 2018(1)

SHARE CAPITAL

$

73,573

$

47,967

CONTRIBUTED SURPLUS

Balance, beginning of period

$

14,132

$

9,600

Transitional adjustments on adoption of new accounting standards

-

4,502

Adjusted balance, beginning of period

14,132

14,102

Fair value adjustment of long-term debt

61

-

Stock-based compensation expense

-

12

Balance, end of period

$

14,193

$

14,114

DEFICIT

Balance, beginning of period

$

(82,543)

$

(57,367)

Transitional adjustments on adoption of new accounting standards

(6,423)

(1,367)

Adjusted balance, beginning of period

(88,966)

(58,734)

Net loss

(10,837)

(10,777)

Balance, end of period

$

(99,803)

$

(69,511)

Total shareholders’ equity (deficiency)

$

(12,037)

$

(7,430)

(1) The Company has initially applied IFRS 16 as at January 27, 2019. Under the transition method chosen, comparative information is not restated.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

For the three months ended

(In thousands of Canadian dollars)

April 27, 2019

April 28, 2018(1)

OPERATING ACTIVITIES

Net loss

$

(10,837)

$

(10,777)

Adjustments to determine net cash from operating activities

Depreciation and amortization

8,077

2,285

Write-off and net impairment of property and equipment and intangible assets

41

63

Amortization of deferred lease credits

-

(367)

Deferred lease credits

-

69

Stock-based compensation

-

12

Provision for onerous leases

-

(137)

Finance costs

3,467

1,588

Accretion of First Preferred shares series 1

-

663

Interest paid

(1,155)

(996)

(407)

(7,597)

Net change in non-cash working capital items related to operations

(5,625)

(3,161)

Income taxes refunded

230

240

Cash flows related to operating activities

(5,802)

(10,518)

FINANCING ACTIVITIES

Net increase in credit facility

9,571

13,456

Payment of lease liabilities

(2,733)

-

Other finance costs

(274)

-

Proceeds of long-term debt

1,000

-

Cash flows related to financing activities

7,564

13,456

INVESTING ACTIVITIES

Additions to property and equipment and intangible assets

(32)

(675)

Cash flows related to investing activities

(32)

(675)

Increase in cash

1,730

2,263

Bank indebtedness, beginning of period

(489)

(261)

Cash, end of period

$

1,241

$

2,002

(1) The Company has initially applied IFRS 16 as at January 27, 2019. Under the transition method chosen, comparative information is not restated.