Le Chateau Reports Second Quarter Results

MONTREAL, QUEBEC--(Marketwired - Sept. 11, 2015) - 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 August 1, 2015. The 2015 year refers to the 26-week period ended August 1, 2015 while the 2014 year refers to the 26-week period ended July 26, 2014.

Sales for the second quarter ended August 1, 2015 decreased 7.3% to $63.3 million from $68.3 million for the second quarter ended July 26, 2014. Sales were negatively impacted for the second quarter of 2015 by reduced mall and store traffic. The retail environment remains competitive but some signs of improvements are appearing in the aftermath of significant industry consolidation. Comparable store sales decreased 3.9% for the second quarter as compared to last year. Included in comparable store sales are online sales which increased 34.5% for the second quarter.

Earnings (loss) before interest, income taxes, depreciation, amortization, write-off and/or impairment of property and equipment ("Adjusted EBITDA") (see non-GAAP measures below) for the second quarter amounted to $2.2 million, compared to $2.9 million for the same period last year. The decrease of $647,000 in adjusted EBITDA for the second quarter was primarily attributable to the decrease of $1.7 million in gross margin dollars, offset by a decrease in selling, general and administrative expenses of $1.1 million. The decrease of $1.7 million in gross margin dollars was the result of the 7.3% decline in sales for the second quarter of 2015, offset by the increase in gross margin percentage to 66.6% from 64.2% in 2014. The gross margin improvement in the second quarter of 2015 resulted from reduced promotional activity.

Net loss for the second quarter ended August 1, 2015 amounted to $4.0 million or $(0.13) per share compared to a net loss of $3.0 million or $(0.10) per share for the same period last year.

Six-month Results

Sales for the six months ended August 1, 2015 decreased 6.2% to $114.0 million from $121.6 million last year. Comparable store sales decreased 5.0% versus the same period a year ago. Included in comparable store sales are online sales which increased 29.3% for the six months ended August 1, 2015.

Adjusted EBITDA for the six months ended August 1, 2015 amounted to $(4.9) million, compared to $(6.4) million last year. The improvement of $1.5 million in adjusted EBITDA for the first six months was primarily attributable to a decline in selling, general and administrative expenses of $3.0 million, offset by a decrease of $1.5 million in gross margin dollars. The decrease of $1.5 million in gross margin dollars was the result of the 6.2% decline in sales for the first half of 2015, offset by the increase in gross margin percentage to 65.6% from 62.7% in 2014. The gross margin improvement in the first half of 2015 resulted from reduced promotional activity.

Net loss for the six-month period ended August 1, 2015 amounted to $16.4 million or $(0.55) per share compared to a net loss of $16.0 million or $(0.57) per share the previous year.

During the first six months of 2015, the Company closed two stores and renovated five existing locations. Total square footage for the Le Château network as at August 1, 2015 amounted to 1,203,000 square feet, compared to 1,237,000 square feet as at July 26, 2014.

Third Quarter of 2015

During the preceding three years, in response to significant competition entering the Company's markets, the Company embarked on a major product repositioning and rebranding project. In conjunction with the project, the Company initiated a store renovation program and in mid-August, launched a marketing campaign across Canada in collaboration with Sid Lee. The campaign combines TV, billboards and social media, and aims to raise brand awareness. Consumers are rediscovering our brand and products, and we believe this will have a sustainable impact. We remain optimistic about the opportunity to grow our business and improve our margins.

For the first five weeks ended September 5, 2015, total retail sales decreased 1.6% and comparable store sales increased 3.2% compared to the same period last year. Included in comparable store sales are online sales which increased 16.1%.

For the year-to-date, the Company renovated four stores: Scarborough Town Centre in Ontario on April 1, 2015, Fairview Pointe Claire in Quebec on May 21, 2015, Mayfair Shopping Centre in British Columbia on September 3, 2015 and Yorkdale Shopping Centre in Ontario on September 10, 2015. The Company plans to launch an additional renovated store in September 2015 at the St. Laurent Shopping Centre in Ottawa, Ontario.

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 220 retail locations, of which 219 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 4 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 56-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. 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 tax recovery for the three and six-month periods ended August 1, 2015 and July 26, 2014:

(Unaudited)	For the three months ended						For the six months ended
(In thousands of Canadian dollars)	August 1, 2015			July 26, 2014			August 1, 2015			July 26, 2014
Loss before income tax recovery	$	(4,022	)	$	(2,970	)	$	(16,380	)	$	(17,731	)
Depreciation and amortization		4,335			4,609			8,733			9,200
Write-off and impairment of property and equipment		869			533			889			713
Finance costs		1,066			726			1,872			1,413
Finance income		(5	)		(8	)		(7	)		(11	)
Adjusted EBITDA	$	2,243		$	2,890		$	(4,893	)	$	(6,416	)

The Company also discloses comparable store sales which are defined as sales generated by stores that have been open for at least one year. Comparable store sales exclude sales from stores converted to outlet or clearance stores during the year of conversion.

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 August 1, 2015 are available online at www.sedar.com.

CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands of Canadian dollars)	As at August 1, 2015		As at July 26, 2014			As at January 31, 2015
ASSETS
Current assets
Cash	$	1,614	$	2,468		$	1,195
Accounts receivable		1,240		1,691			2,025
Income taxes refundable		419		1,319			619
Inventories		120,162		122,996			115,357
Prepaid expenses		2,790		2,671			1,079
Total current assets		126,225		131,145			120,275
Property and equipment		54,037		66,851			58,091
Intangible assets		2,476		3,557			2,961
	$	182,738	$	201,553		$	181,327
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of credit facility	$	17,964	$	22,052		$	14,737
Trade and other payables		19,755		16,723			16,133
Deferred revenue		2,805		3,135			3,452
Current portion of provisions		676		332			678
Derivative financial instruments		-		372			-
Current portion of long-term debt		1,268		5,169			2,007
Total current liabilities		42,468		47,783			37,007
Credit facility		27,126		20,400			33,674
Long-term debt		22,768		6,543			5,836
Provisions		1,553		481			1,473
Deferred lease credits		10,341		12,373			11,354
Total liabilities		104,256		87,580			89,344
Shareholders' equity
Share capital		47,967		47,967			47,967
Contributed surplus		7,318		4,140			4,439
Retained earnings		23,197		62,238			39,577
Accumulated other comprehensive loss		-		(372	)		-
Total shareholders' equity		78,482		113,973			91,983
	$	182,738	$	201,553		$	181,327

CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)		For the three months ended						For the six months ended
(In thousands of Canadian dollars, except per share information)		August 1, 2015			July 26, 2014			August 1, 2015			July 26, 2014
Sales		$ 63,292			$ 68,304			$ 114,038			$ 121,609
Cost of sales and expenses
Cost of sales			21,152			24,453			39,283			45,406
Selling			36,659			37,469			72,361			74,656
General and administrative			8,442			8,634			16,909			17,876
			66,253			70,556			128,553			137,938
Results from operating activities			(2,961	)		(2,252	)		(14,515	)		(16,329	)
Finance costs			1,066			726			1,872			1,413
Finance income			(5	)		(8	)		(7	)		(11	)
Loss before income taxes			(4,022	)		(2,970	)		(16,380	)		(17,731	)
Income tax recovery			-			-			-			(1,716	)
Net loss		$	(4,022	)	$	(2,970	)	$	(16,380	)	$	(16,015	)
Net loss per share
	Basic	$	(0.13	)	$	(0.10	)	$	(0.55	)	$	(0.57	)
	Diluted		(0.13	)		(0.10	)		(0.55	)		(0.57	)
Weighted average number of shares outstanding ('000)			29,964			28,524			29,964			27,933

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)	For the three months ended						For the six months ended
(In thousands of Canadian dollars)	August 1, 2015			July 26, 2014			August 1, 2015			July 26, 2014
Net loss	$ (4,022)			$ (2,970)			$ (16,380)			$ (16,015)
Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods
Change in fair value of forward exchange contracts		-			(360	)		-			(388	)
Income tax expense		-			(8	)		-			-
		-			(368	)		-			(388	)
Realized forward exchange contracts reclassified to net loss		-			16			-			(402	)
Income tax recovery		-			-			-			113
		-			16			-			(289	)
Total other comprehensive loss		-			(352	)		-			(677	)
Comprehensive loss	$	(4,022	)	$	(3,322	)	$	(16,380	)	$	(16,692	)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)	For the three months ended						For the six months ended
(In thousands of Canadian dollars)	August 1, 2015			July 26, 2014			August 1, 2015			July 26, 2014
SHARE CAPITAL
Balance, beginning of period	$	47,967		$	42,962		$	47,967		$	42,960
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			-			5
Reclassification from contributed surplus due to exercise of share options		-			2			-			2
Balance, end of period	$	47,967		$	47,967		$	47,967		$	47,967
CONTRIBUTED SURPLUS
Balance, beginning of period	$	5,015		$	3,871		$	4,439		$	3,581
Fair value adjustment for long-term debt		2,157			-			2,560			-
Stock-based compensation expense		146			271			319			561
Exercise of share options		-			(2	)		-			(2	)
Balance, end of period	$	7,318		$	4,140		$	7,318		$	4,140
RETAINED EARNINGS
Balance, beginning of period	$	27,219		$	65,208		$	39,577		$	78,253
Net loss		(4,022	)		(2,970	)		(16,380	)		(16,015	)
Balance, end of period	$	23,197		$	62,238		$	23,197		$	62,238
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance, beginning of period	$	-		$	(20	)	$	-		$	305
Other comprehensive loss for the period		-			(352	)		-			(677	)
Balance, end of period	$	-		$	(372	)	$	-		$	(372	)
Total shareholders' equity	$	78,482		$	113,973		$	78,482		$	113,973

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)		For the three months ended						For the six months ended
(In thousands of Canadian dollars)		August 1, 2015			July 26, 2014			August 1, 2015			July 26, 2014
OPERATING ACTIVITIES
Net loss		$	(4,022	)	$	(2,970	)	$	(16,380	)	$	(16,015	)
Adjustments to determine net cash from operating activities
	Depreciation and amortization		4,335			4,609			8,733			9,200
	Write-off and impairment of property and equipment		869			533			889			713
	Amortization of deferred lease credits		(443	)		(589	)		(1,045	)		(1,173	)
	Deferred lease credits		32			260			32			134
	Stock-based compensation		146			271			319			561
	Provisions		156			144			78			157
	Finance costs		1,066			726			1,872			1,413
	Interest paid		(661	)		(686	)		(1,372	)		(1,261	)
	Income tax recovery		-			-			-			(1,716	)
			1,478			2,298			(6,874	)		(7,987	)
Net change in non-cash working capital items related to operations			11,297			4,425			(3,018	)		(2,735	)
Income taxes refunded			350			4,650			350			5,548
Cash flows related to operating activities			13,125			11,373			(9,542	)		(5,174	)
FINANCING ACTIVITIES
Increase (decrease) in credit facility			(20,932	)		(7,662	)		(3,224	)		11,945
Financing costs			(401	)		-			(432	)		-
Proceeds of long-term debt			15,000			-			20,000			5,000
Repayment of long-term debt			(425	)		(2,065	)		(1,300	)		(4,118	)
Issue of share capital upon exercise of options			-			3			-			5
Cash flows related to financing activities			(6,758	)		(9,724	)		15,044			12,832
INVESTING ACTIVITIES
Additions to property and equipment and intangible assets			(3,608	)		(1,515	)		(5,083	)		(6,636	)
Cash flows related to investing activities			(3,608	)		(1,515	)		(5,083	)		(6,636	)
Increase in cash			2,759			134			419			1,022
Cash (bank indebtedness), beginning of period			(1,145	)		2,334			1,195			1,446
Cash, end of period		$	1,614		$	2,468		$	1,614		$	2,468