Danier Leather Reports Fiscal 2014 Third Quarter Results and Update on Its Strategic Plan

TORONTO, ONTARIO--(Marketwired - April 23, 2014) - Danier Leather Inc. (TSX:DL) ("Danier" or the "Company") today announced its unaudited interim consolidated financial results for the 13-week and 39-week periods ended March 29, 2014. The Company also provided an update on the implementation of its previously disclosed strategic plan.

FINANCIAL HIGHLIGHTS ($000s, except earnings per share (EPS), square footage and number of stores):

	For the 13 Weeks Ended						For the 39 Weeks Ended
	Mar. 29, 2014			Mar. 30, 2013			Mar. 29, 2014			Mar. 30, 2013
Sales	$	31,011		$	37,400		$	117,221		$	126,626
EBITDA(1)	$	(4,541	)		(224	)		1,740			8,489
Net Earnings (Loss)		(4,286	)		(883	)		(983	)		4,063
EPS - Basic	$	(1.12	)	$	(0.23	)	$	(0.26	)	$	0.95
EPS - Diluted	$	(1.12	)	$	(0.23	)	$	(0.26	)	$	0.91
Number of Stores		89			89			89			89
Retail Square Footage		281,024			287,567			281,024			287,567

FISCAL 2014 THIRD QUARTER AND NINE MONTHS RESULTS

Sales during the third quarter of fiscal 2014 decreased by 17% or $6.4 million to $31.0 million compared with $37.4 million during the third quarter last year. 

Over the same period comparable store sales⁽²⁾ decreased by 19%. With a longer than usual winter and extreme cold weather (among the coldest winters in history in some parts of Canada), customers were looking for extreme cold weather insulated jackets beyond what Danier had to offer. The weather, along with increased promotional pricing and insufficient quantities of parkas and cold weather related jackets, resulted in significantly lower outerwear sales. Next winter season, Danier plans to adjust its product assortment to ensure a better selection of cold weather outerwear to improve its competitiveness in the outerwear category. 

At the same time, Danier's higher margin accessories business continued to grow with sales of handbags increasing more than 30% compared with the corresponding period last year. The continued growth in accessories is largely a reflection of the significant changes and investments made during the second quarter of last year beginning to take full effect. 

Year-to-date sales decreased by 7% or $9.4 million to $117.2 million, while comparable store sales decreased by 9%, compared to the corresponding period last year. 

During the third quarter of fiscal 2014, the company launched the Danier.com eCommerce click-to-buy store for orders within Canada. At present, sales from the eCommerce business did not have a meaningful impact on revenue as it launched midway through the quarter and is still in its early days. However, preliminary indications and feedback received to date are positive and Danier believes that its transactional website will now allow it to reach a broader range of customers across Canada, including younger customers who are more accustomed to online shopping.

Gross profit as a percentage of revenue during the third quarter decreased by 340 basis points to 43.9% compared with 47.3% during the third quarter last year. Gross profit margin during the first nine months of fiscal 2014 decreased by 170 basis points to 49.8% compared with 51.5% during the first nine months of last year. The decrease in gross margin was mainly due to higher markdowns and increased promotional activity in order to reduce inventory levels. Gross profit margin was also affected by the weakened Canadian dollar relative to the U.S. dollar, as Danier purchases a significant amount of its inventory from foreign vendors with payment terms in U.S. dollars.

Selling, general and administrative expenses ("SG&A") during the third quarter of fiscal 2014 increased by about $0.6 million to $19.4 million, compared with $18.8 million during the third quarter last year. Year-to-date SG&A increased by approximately $0.2 million to $59.8 million compared with $59.6 million during the first nine months of last year. The increase in SG&A is mainly due to severance provisions in connection with senior management changes discussed below, impairment loss on property and equipment, increased store rent and occupancy charges and higher administrative salaries associated with Danier's ongoing investments to support the growth of the higher margin accessories business and further enhancements to merchandise planning and sourcing capabilities, as Danier continues to implement its strategic plan.

Net loss during the third quarter of fiscal 2014 was $4.3 million ($1.12 loss per diluted share) compared with $0.9 million ($0.23 loss per diluted share) during the third quarter last year. For the year-to-date period, net loss was $1.0 million ($0.26 loss per diluted share) compared with net earnings of $4.1 million ($0.91 per diluted share) during the first nine months of last year.

Danier continues to maintain a strong balance sheet with cash of $15.1 million, working capital⁽³⁾ of $35.8 million, no long-term debt and a book value of $14.33 per outstanding share.

STRATEGIC PLAN UPDATE - SENIOR LEADERSHIP TEAM ENHANCEMENTS

"We are disappointed with the Company's unsatisfactory financial results this past quarter.  We are continuing to make a number of changes which we believe will produce meaningful improvements," said Jeffrey Wortsman, President and Chief Executive Officer.  "We are continuing to implement our strategic plan and are working tirelessly to ensure that we meet our financial and operational goals."

A critical aspect of the successful implementation of our strategic plan is to attract highly motivated, positive and independent-minded people who bring fresh ideas and expertise to Danier and participate at all levels. To that end, over the past year, Danier has made changes to its senior leadership team, adding a number of key executives who we believe will be invaluable in driving the execution of the Company's strategic plan. The enhanced senior leadership team includes the following:

Elizabeth Margles, Vice President, Marketing and Chief Marketing Officer

Elizabeth joined Danier in February 2014 and is responsible for leading the development and execution of the overall brand and marketing strategies for the retail store business and the recently-launched Danier.com eCommerce business. Elizabeth brings 17 years of retail and fashion brand experience with a proven track record for launching and positioning national and international brands, having created and implemented successful strategies for well-known and luxury brands including Porter Airlines, Joe Fresh and Holt Renfrew. She has also advised U.S. retailers such as J.Crew and Nordstrom on market entry into Canada. 

Rodney McBrien, Vice President, Information Technology and Chief Information Officer

Rodney joined Danier in January 2014 and is responsible for setting the direction and managing capital investments for all information technology systems in support of all Danier stores across the country, the Danier.com website (including eCommerce), distribution centres, corporate head office and departments and international sourcing offices. Rodney brings 20 years of consulting and direct leadership experience in all aspects of IT. He joins Danier from IBM Global Services, where he led large-scale system implementation for companies in the retail industry.

Brian Burgess, Executive Vice President, Merchandising, Sourcing and Planning

Brian joined Danier in October 2013 and is responsible for merchandising strategies, product and assortment for all categories including apparel and accessories, and supplier relationships. Brian brings to Danier 17 years of experience in the retail sector and apparel and accessories categories, proven business leadership and a track record for achieving results. Brian developed and led successful strategies for brands and retailers including Hudson's Bay Company, Joe Fresh and TJX Canada.

Michael Watson, Executive Vice President, Retail Operations

Michael joined Danier in January 2013 and his responsibilities include overseeing Danier's human resources, store operations, and logistics and distribution. With more than 20 years' experience in the retail industry, Michael is recognized for his ability to motivate and build strong customer-focused cultures as well as for his operational and business acumen. He has led growth in store operations both in Canada and the United States for brands and retailers such as Hudson's Bay Company, Northern Reflections, The Limited and Bath and Body Works.

Bryan Tatoff, Executive Vice President, Chief Financial Officer and Secretary

Bryan has been with Danier for 17 years in roles of increasing responsibility. Bryan will continue in his current role with responsibility for financial strategy and the implementation of financial plans aligned with Danier's operational and growth strategies. He also maintains responsibility for financial reporting.

As previously disclosed, Danier has been working on implementing its stated business strategy, which includes several key elements. Among other things, Danier is continuing to focus on the growth of the accessories line of business, the introduction of online sales, as well as improved marketing, merchandising and brand messaging activities. Danier's strategy is also focused on increasing leather outerwear and sportswear sales, building brand awareness to drive more traffic to our stores and grow profitable sales, and improving the effectiveness and efficiency of Danier's real estate on a broader company-wide basis.

"We have carefully assembled a high performance team with a proven track record in retail and fashion to drive the business and bring about profitable growth," said Mr. Wortsman. "The team is stronger, more experienced and focused on executing the various elements of our stated business strategy."

While we recognize that change takes time to implement, we believe that the individuals who have joined Danier over the past several months are uniquely qualified and positioned to take us from strategy through to implementation and improved results."

Non-IFRS Financial Measures

The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS"). In order to provide additional insight into the business, the Company has also provided certain non-IFRS data, including "EBITDA", "comparable store sales", and "working capital", each as defined below. These non-IFRS measures are not recognized measures for financial presentation under IFRS. These non-IFRS measures do not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to other financial measures determined in accordance with IFRS.

¹ EBITDA is defined as net earnings (loss) before interest expense, interest income, income taxes, impairment loss on property and equipment and amortization. EBITDA is a financial metric used by management and some investors to compare companies on the basis of ongoing operating results before taxes, interest expense, interest income, impairment loss on property and equipment and amortization and its ability to incur and service debt. EBITDA is also used by management to measure performance against internal targets, prior period results and other retailers. EBITDA is calculated as outlined in the following table:

		For the 13 Weeks Ended							For the 39 Weeks Ended
		Mar 29, 2014			Mar 30, 2013				Mar 29, 2014			Mar 30, 2013
		$	(000	)	$	(000	)		$	(000	)	$	(000	)
Net earnings (loss)		$	(4,286	)	$	(883	)		$	(983	)	$	4,063
Add (deduct) impact of the following:
	Income tax		(1,425	)		(200	)			(414	)		1,633
	Interest expense		10			9				49			40
	Interest income		(44	)		(65	)			(90	)		(168	)
	Impairment loss on property and equipment		153			-				153			327
	Amortization		1,051			915				3,025			2,594
EBITDA		$	(4,541	)	$	(224	)		$	1,740		$	8,489

² Comparable store sales are defined as sales generated by stores that have been open during the full current fiscal year as well as the full prior fiscal year. Comparable store sales is a key performance indicator used by the Company to measure performance against internal targets and prior period results and excludes sales fluctuations due to new stores, store closings and certain permanent store relocations. This measure is also commonly used by financial analysts and investors to compare Danier to other retailers. Comparable store sales is calculated as outlined in the following tables:

	For the 13 Weeks Ended
	Mar 29, 2014			Mar 30, 2013			% change
	$	(000	)	$	(000	)
Comparable stores	$	27,357		$	33,633		(19	%)
Non-comparable stores & direct-to customer		1,951			1,848		6	%
Alterations revenue		235			308		(24	%)
Sales return provision (increase)/decrease		1,468			1,611		(9	%)
Revenue	$	31,011		$	37,400		(17	%)

	For the 39 Weeks Ended
	Mar 29, 2014			Mar 30, 2013			% change
	$	(000	)	$	(000	)
Comparable stores	$	110,254		$	120,675		(9	%)
Non-comparable stores & direct-to customer		6,309			5,108		23	%
Alterations revenue		704			824		(15	%)
Sales return provision (increase)/decrease		(46	)		19		(342	%)
Revenue	$	117,221		$	126,626		(7	%)

³ Working capital is defined as total current assets minus total current liabilities. Working capital is a key indicator and financial metric used by the Company to measure short-term liquidity for those assets that can easily be converted into cash to satisfy both short-term liabilities and upcoming operating expenses. Working capital is calculated as outlined in the following table:

	Mar 29, 2014			Mar 30, 2013
	$	(000	)	$	(000	)
Total current assets	$	47,568		$	53,832
Total current liabilities	$	11,814		$	12,356
Working capital	$	35,754		$	41,476

Forward-Looking Statements

This press release may contain forward-looking information and forward-looking statements which reflect the current view of Danier with respect to the Company's objectives, plans, goals, strategies, future growth, results of operations, financial and operating performance and business prospects and opportunities. Wherever used, the words "may", "will", "anticipate", "intend", "estimate", "expect", "plan", "believe" and similar expressions identify forward-looking statements and forward-looking information. Forward-looking statements and forward-looking information should not be read as guarantees of future events, performance or results, and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved. All of the statements in this press release containing forward-looking statements or forward-looking information, if any, are qualified by these cautionary statements. 

Forward-looking statements and forward-looking information are based on information available at the time they are made, underlying estimates, opinions and assumptions made by management and management's good faith belief with respect to future events, performance and results and are subject to inherent risks and uncertainties surrounding future expectations generally. For additional information with respect to Danier's inherent risks and uncertainties, reference should be made to Danier's continuous disclosure materials filed from time to time with the Canadian Securities Regulatory Authorities, including the Company's most recent annual information form, quarterly and annual reports and financial statements and notes thereto, and supplementary information, which are available on SEDAR at www.sedar.com and in the Investor Relations section of the Company's website at www.danier.com. Additional risks and uncertainties not presently known to the Company or that Danier currently believes to be less significant may also adversely affect the Company.

Danier cautions readers that such factors and uncertainties are not exhaustive and that should certain risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual events, performance and results may vary significantly from those expected. There can be no assurance that the actual results, performance, events or activities anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. Potential investors and other readers are urged to consider these factors carefully in evaluating forward-looking information and forward-looking statements and are cautioned not to place undue reliance on any forward-looking information or forward-looking statements. Danier disclaims any intention or obligation to update or revise any forward-looking information or forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable laws.

About Danier

Danier Leather Inc. is a leading integrated designer, manufacturer, distributor and retailer of high-quality fashion-oriented leather apparel and accessories. The Company's merchandise is marketed exclusively under the well-known Danier brand name at its 89 shopping mall, street-front and outlet stores as well as the online store at danier.com. Corporations and other organizations can obtain Danier products for use as incentives and premiums for employees, suppliers and customers through Canada Sportswear Corp. For more information about the Company and our products, visit www.danier.com.

DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) & COMPREHENSIVE EARNINGS (LOSS)
(thousands of Canadian dollars, except per share amounts and number of shares) - unaudited
		For the 13 Weeks Ended							For the 39 Weeks Ended
		March 29, 2014			March 30, 2013				March 29, 2014			March 30, 2013
Revenue		$	31,011		$	37,400			$	117,221		$	126,626
Cost of sales (Note 11)			17,389			19,711				58,836			61,420
Gross profit			13,622			17,689				58,385			65,206
	Selling, general and administrative expenses (Note 11)		19,367			18,828				59,823			59,638
	Interest income		(44	)		(65	)			(90	)		(168	)
	Interest expense		10			9				49			40
Earnings (loss) before income taxes			(5,711	)		(1,083	)			(1,397	)		5,696
Provision for (recovery of) income taxes (Note 12)			(1,425	)		(200	)			(414	)		1,633
Net earnings (loss) and comprehensive earnings (loss)		$	(4,286	)	$	(883	)		$	(983	)	$	4,063
Net earnings (loss) per share:
	Basic	$	(1.12	)	$	(0.23	)		$	(0.26	)	$	0.95
	Diluted	$	(1.12	)	$	(0.23	)		$	(0.26	)	$	0.91
Weighted average number of shares outstanding:
	Basic		3,839,616			3,861,844				3,837,828			4,292,920
	Diluted		3,948,947			4,012,803				3,952,490			4,441,060
Number of shares outstanding at period end			3,834,168			3,852,868				3,834,168			3,852,868

See accompanying notes to the interim consolidated financial statements

DANIER LEATHER INC.
CONSOLIDATED BALANCE SHEETS
(thousands of Canadian dollars) - unaudited
		March 29, 2014			March 30, 2013			June 29, 2013
ASSETS
Current Assets
	Cash	$	15,129		$	23,476		$	24,541
	Accounts receivable		1,654			1,340			1,197
	Income taxes recoverable		1,419			-			358
	Inventories (Note 3)		28,821			28,525			22,810
	Prepaid expenses		545			491			803
			47,568			53,832			49,709
Non-current Assets
	Property and equipment (Note 4)		17,079			16,231			16,034
	Computer software (Note 5)		1,808			611			1,143
	Deferred income tax asset		1,730			2,108			2,163
		$	68,185		$	72,782		$	69,049
LIABILITIES
Current Liabilities
	Payables and accruals (Note 7)	$	9,835		$	9,896		$	10,101
	Deferred revenue		1,834			1,723			1,548
	Sales return provision (Note 8)		145			105			99
	Income taxes payable		-			632			-
			11,814			12,356			11,748
Non-current Liabilities
Deferred lease inducements and rent liability			1,410			1,429			1,392
			13,224			13,785			13,140
SHAREHOLDERS' EQUITY
	Share capital (Note 9)		11,676			11,558			11,533
	Contributed surplus		1,010			981			954
	Retained earnings		42,275			46,458			43,422
			54,961			58,997			55,909
		$	68,185		$	72,782		$	69,049

Contingencies, Guarantees and Commitments (Notes 14 and 15)

Approved by the Board of Directors

April 23, 2014

See accompanying notes to the interim consolidated financial statements

DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(thousands of Canadian dollars) - unaudited
			For the 13 Weeks Ended							For the 39 Weeks Ended
			March 29, 2014			March 30, 2013				March 29, 2014			March 30, 2013
Cash provided by (used in)
OPERATING ACTIVITIES
	Net earnings (loss)		$	(4,286	)	$	(883	)		$	(983	)	$	4,063
	Adjustments for:
		Amortization of property and equipment		894			823				2,642			2,324
		Amortization of computer software		157			92				383			270
		Impairment loss on property and equipment		153			-				153			327
		Amortization of deferred lease inducements		(18	)		(24	)			(57	)		(81	)
		Straight line rent expense		41			47				75			137
		Stock-based compensation		58			40				146			86
		Interest income		(44	)		(65	)			(90	)		(168	)
		Interest expense		10			9				49			40
		Provision for (recovery of) income taxes		(1,425	)		(200	)			(414	)		1,633
	Changes in working capital (Note 13)			(3,529	)		(7,144	)			(6,097	)		(4,224	)
	Interest paid			(99	)		-				(107	)		-
	Interest received			40			58				101			179
	Income taxes recovered (paid)			528			654				(214	)		(682	)
Net cash (used in) generated from operating activities				(7,520	)		(6,593	)			(4,413	)		3,904
FINANCING ACTIVITIES
	Subordinate voting shares issued			90			58				164			58
	Subordinate voting shares repurchased			(275	)		(328	)			(275	)		(10,793	)
Net cash used in financing activities				(185	)		(270	)			(111	)		(10,735	)
INVESTING ACTIVITIES
	Acquisition of property and equipment			(215	)		(393	)			(3,840	)		(3,870	)
	Acquisition of computer software			(116	)		(117	)			(1,048	)		(155	)
Net cash used in investing activities				(331	)		(510	)			(4,888	)		(4,025	)
Decrease in cash				(8,036	)		(7,373	)			(9,412	)		(10,856	)
Cash, beginning of period				23,165			30,849				24,541			34,332
Cash, end of period			$	15,129		$	23,476			$	15,129		$	23,476

See accompanying notes to the interim consolidated financial statements

DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(thousands of Canadian dollars) - unaudited
		Share Capital			Contributed Surplus			Accumulated Other Comprehensive Income		Retained Earnings			Total
Balance - June 29, 2013		$	11,533		$	954		$	-	$	43,422		$	55,909
	Net earnings (loss)		-			-			-		(983	)		(983	)
	Stock-based compensation related to stock options		-			146			-		-			146
	Exercise of stock options		254			(90	)		-		-			164
	Share repurchases (net of tax)		(111	)		-			-		(164	)		(275	)
Balance - March 29, 2014		$	11,676		$	1,010		$	-	$	42,275		$	54,961

		Share Capital			Contributed Surplus			Accumulated Other Comprehensive Income		Retained Earnings			Total
Balance - June 30, 2012		$	15,040		$	925		$	-	$	49,526		$	65,491
	Net earnings		-			-			-		4,063			4,063
	Stock-based compensation related to stock options		-			86			-		-			86
	Exercise of stock options		88			(30	)		-		-			58
	Share repurchases (net of tax)		(3,570	)		-			-		(7,131	)		(10,701	)
Balance - March 30, 2013		$	11,558		$	981		$	-	$	46,458		$	58,997

See accompanying notes to the interim consolidated financial statements

DANIER LEATHER INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the 13-week and 39-week periods ended March 29, 2014 and March 30, 2013

(unless otherwise stated, all amounts are in thousands of Canadian dollars) - unaudited

1. Reporting Entity:

Danier Leather Inc. and its subsidiaries ("Danier" or the "Company") comprise a vertically integrated designer, manufacturer, distributor and retailer of leather apparel and accessories. Danier Leather Inc. is a corporation existing under the Business Corporations Act (Ontario) and is domiciled in Canada. The Company's subordinate voting shares (the "Subordinate Voting Shares") are listed on the Toronto Stock Exchange (the "TSX") under the symbol "DL". The address of its registered head office is 2650 St. Clair Avenue West, Toronto, Ontario, M6N 1M2, Canada. 

Under an accounting practice common in the retail industry, the Company follows a 52-week reporting cycle which periodically necessitates a fiscal year of 53 weeks. Fiscal 2014 (ending June 28, 2014) and Fiscal 2013 (ended June 29, 2013) each comprise a 52-week fiscal year. The 52-week reporting cycle is divided into four quarters of 13 weeks each. 

2. Significant Accounting Policies:

1. Statement of Compliance

These unaudited interim condensed consolidated financial statements ("unaudited interim financial statements") have been prepared on a going concern basis in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"). The unaudited interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting and using accounting policies and methods consistent with those used for the Company's audited annual consolidated financial statements and notes thereto for the fiscal years ended June 29, 2013 and June 30, 2012 (the "2013 Financial Statements"), except for the following new accounting pronouncements which have been adopted. Certain information, in particular the accompanying notes, normally included in the audited annual consolidated financial statements prepared in accordance with IFRS, has been omitted or condensed. Accordingly, these unaudited interim financial statements do not include all the information required for annual consolidated financial statements and, therefore, should be read in conjunction with the 2013 Financial Statements.

1. On June 30, 2013, the Company adopted IFRS 7, Financial Instruments: Offsetting Financial Assets and Financial Liabilities ("IFRS 7"). Amendments to IFRS 7 increased the disclosure requirements for transactions involving transfers of financial assets. The amendments had no impact on the Company's disclosures as it has no transfer of financial assets.

2. On June 30, 2013, the Company prospectively adopted IFRS 13, Fair Value Measurement ("IFRS 13"). This standard provides a standard definition of fair value, sets out a framework for measuring fair value and provides for specific disclosures about fair value. IFRS 13 defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The Company determined that the adoption of IFRS 13 had no measurement impact on the Company's unaudited interim financial statements. The Company has included the disclosures required by this standard in Note 16. 

The unaudited interim financial statements for the 13-week and 39-week periods ended March 29, 2014 (including comparatives) were approved by the Board of Directors on April 23, 2014.

2. Basis of Measurement

The unaudited interim financial statements have been prepared on a going concern basis under the historical cost convention except for the following items which are measured at fair value:

• Financial instruments at fair value through profit and loss; and
• Liabilities for cash-settled share-based payment plans.

3. Functional and Presentation Currency

These unaudited interim financial statements are presented in Canadian dollars ("$" or "C$"), the Company's functional currency. All financial information is presented in thousands, except per share amounts, which are presented in whole dollars, and number of shares, which are presented as whole numbers.

4. Seasonality of Interim Operations

Due to the seasonal nature of the retail business and the Company's product lines, the results of operation for any interim period are not necessarily indicative of the results of operation to be expected for the full fiscal year. Generally, a significant portion of the Company's sales and earnings are typically generated during the second fiscal quarter, which includes the holiday selling season. Sales are usually lowest and losses are typically experienced during the period from April to September.

5. Estimates, Judgments and Assumptions

The preparation of these unaudited interim financial statements in accordance with IFRS requires management to make certain estimates, judgments and assumptions in applying the Company's accounting policies which have an effect on the reported amounts and disclosures made in these unaudited interim financial statements and accompanying notes. These estimates, judgments and assumptions are based on historical experience, knowledge of current events and conditions, expectations of the future and other relevant factors that are believed to be reasonable under the circumstances. Estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Significant estimates, judgments and assumptions applicable to the preparation of these unaudited interim financial statements are described in the Company's 2013 Financial Statements. Estimates made by management depend upon subjective or complex judgments about matters that may be uncertain, and changes in those estimates could materially impact these unaudited interim financial statements. Illiquid credit markets, volatile equity, foreign currency and energy markets and declines in consumer spending have combined to increase the uncertainty inherent in estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from the estimates, judgments and assumptions made by management.

6. Future Changes in Accounting Policies

A number of new standards and amendments to standards and interpretations are not yet effective for the 13-week and 39-week periods ended March 29, 2014. Accordingly, they have not been applied in preparing these unaudited interim financial statements. New standards and amendments to standards and interpretations that are currently under review include:

IFRS 9 - Financial Instruments

On November 12, 2009, the IASB issued a new standard, IFRS 9, Financial Instruments ("IFRS 9"), which will ultimately replace IAS 39, Financial Instruments: Recognition and Measurement ("IAS 39"). The replacement of IAS 39 is a multi-phase project with the objective of improving and simplifying the reporting for financial instruments and the issuance of IFRS 9 is a part of the first phase. 

On November 19, 2013, the IASB published IFRS 9, Hedge Accounting, which is a part of the third phase of its replacement of IAS 39. The new requirements allow entities to better reflect their risk management activities in the financial statements. As part of the amendments, entities may change the accounting for liabilities that they have elected to measure at fair value, before applying any of the requirements in IFRS 9. This change in accounting would mean that gains caused by a worsening in an entity's own credit risk on such liabilities would no longer be recognized in profit or loss.

Because the impairment phase of the IFRS 9 project is not yet completed, the IASB decided that a mandatory effective date of January 1, 2015 would not allow sufficient time for entities to prepare to apply IFRS 9. Accordingly, the IASB determined to apply a later mandatory effective date, which will be determined when IFRS 9 is closer to completion. However, entities may still choose to apply IFRS 9 immediately. IFRS 9 must be applied retrospectively; however, hedge accounting is to be applied prospectively (with some exceptions). At the present time, Danier does not expect to apply IFRS 9 earlier than the date required by the IASB.

IAS 32 - Financial Instruments: Presentation ("IAS 32")

The IASB issued an amendment to IAS 32 which provides further guidance on the requirements for offsetting financial instruments. The amendments to IAS 32 are effective for annual periods beginning on or after January 1, 2014 and must be applied retrospectively. 

IAS 36 - Impairment of Assets: Recoverable Amount Disclosures for Non-Financial Assets ("IAS 36")

The IASB issued amendments to IAS 36 which reduces the circumstances in which the recoverable amount of assets or cash generating units is required to be disclosed, clarifies the disclosure required and introduces an explicit requirement to disclose the discount rate in determining impairment or reversals where the recoverable amount (based on fair value less costs of disposal) is determined using a present value technique. The amendments to IAS 36 are effective for annual periods beginning on or after January 1, 2014 and must be applied retrospectively. The amendments to IAS 36 will apply to Danier's 2015 fiscal year, which commences on June 29, 2014.

IFRIC 21 - Levies ("IFRIC 21")

The IFRS Interpretations Committee ("IFRIC") of the IASB issued IFRIC 21 which addresses the accounting for a liability to pay a levy to a government. IFRIC applies to levy liabilities within the scope of IAS 37 - Provisions, Contingent Liabilities and Contingent Assets, and to levy liabilities when the timing and amount is uncertain. IFRIC 21 is effective for years beginning on or after January 1, 2014 and must be applied retrospectively. The amendments to IFRIC 21 will apply to Danier's 2015 fiscal year, which commences on June 29, 2014. 

The extent of the impact of adoption of the above noted standards and interpretations on the financial statements of the Company have not yet been determined.

A number of other standards have been adopted by the IASB but currently have no impact on the Company.

3. Inventories:

	March 29, 2014			March 30, 2013			June 29, 2013
Raw materials	$	1,225		$	3,168		$	2,594
Work-in-process		75			106			222
Finished goods		27,521			25,251			19,994
	$	28,821		$	28,525		$	22,810

	13 Weeks Ended						39 Weeks Ended
	March 29, 2014			March 30, 2013			March 29, 2014			March 30, 2013
Cost of inventory recognized as an expense	$	17,210		$	19,491		$	58,341		$	60,838
Write-downs of inventory due to net realizable value being lower than cost	$	676		$	557		$	1,466		$	987
Write-downs recognized in previous periods that were reversed		-			-		$	8		$	27

4. Property and Equipment:

	39 Weeks Ended March 29, 2014
	Land		Building		Roof		HVAC		Leasehold Improvements			Furniture & Equipment			Computer Hardware		Total
Cost
At June 29, 2013	$	1,000	$	6,063	$	308	$	840	$	22,679		$	9,957		$	3,348	$	44,195
Additions		-		-		-		-		2,335			1,377			128		3,840
Disposals		-		-		-		-		(2,451	)		(188	)		-		(2,639	)
At March 29, 2014	$	1,000	$	6,063	$	308	$	840	$	22,563		$	11,146		$	3,476	$	45,396
Accumulated amortization and impairment losses
At June 29, 2013		-	$	2,508	$	216	$	625	$	15,322		$	6,754		$	2,736	$	28,161
Amortization for the period		-		116		11		37		1,408			752			318		2,642
Impairment losses		-		-		-		-		153			-			-		153
Disposals		-		-		-		-		(2,451	)		(188	)		-		(2,639	)
At March 29, 2014		-	$	2,624	$	227	$	662	$	14,432		$	7,318		$	3,054	$	28,317
Net carrying value
At March 29, 2014	$	1,000	$	3,439	$	81	$	178	$	8,131		$	3,828		$	422	$	17,079
At June 29, 2013	$	1,000	$	3,555	$	92	$	215	$	7,357		$	3,203		$	612	$	16,034
Capital work in progress included above
At March 29, 2014		-		-		-		-	$	162		$	67			-	$	229

	39 Weeks Ended March 30, 2013
	Land		Building		Roof		HVAC		Leasehold Improvements			Furniture & Equipment			Computer Hardware		Total
Cost
At June 30, 2012	$	1,000	$	6,063	$	308	$	793	$	22,208		$	9,088		$	3,386	$	42,846
Additions		-		-		-		-		2,584			1,228			58		3,870
Disposals		-		-		-		-		(1,941	)		(383	)		-		(2,324	)
At March 30, 2013	$	1,000	$	6,063	$	308	$	793	$	22,851		$	9,933		$	3,444	$	44,392
Accumulated amortization and impairment losses
At June 30, 2012		-	$	2,354	$	201	$	578	$	15,875		$	6,321		$	2,505	$	27,834
Amortization for the period		-		116		11		35		1,249			622			291		2,324
Impairment losses		-		-		-		-		277			50			-		327
Disposals		-		-		-		-		(1,941	)		(383	)		-		(2,324	)
At March 30, 2013		-	$	2,470	$	212	$	613	$	15,460		$	6,610		$	2,796	$	28,161
Net carrying value
At March 30, 2013	$	1,000	$	3,593	$	96	$	180	$	7,391		$	3,323		$	648	$	16,231
At June 30, 2012	$	1,000	$	3,709	$	107	$	215	$	6,333		$	2,767		$	881	$	15,012
Capital work in progress included above
At March 30, 2013		-		-		-		-		-			-			-		-

The Company conducted an impairment test for its property and equipment and determined there was an impairment at three of its stores, in the aggregate amount of $153 for the 13-week and 39-week periods ended March 29, 2014 ($NIL and $327 for the 13-week and 39-week periods ended March 30, 2013, respectively). The recoverable amount of the cash generating unit ("CGU") was estimated based on value-in-use calculations, as this was determined to be higher than fair value less costs to sell. These calculations use cash flow projections based on actual performance during the past 12 months which are then extrapolated over each CGU's remaining lease term and then discounted using an estimated discount rate. The key assumptions for the value-in-use calculations include discount rates, growth rates and expected cash flows. Management estimates discount rates using pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the CGUs. Changes in revenues and direct costs are based on past experience and expectations of future changes in the market. 

The pre-tax discount rate used to calculate the value-in-use range was 12% (11% during the 13-week and 39-week periods ended March 30, 2013), and was dependent on the specific risks in relation to the CGU. The discount rate was derived from retail industry comparable post-tax weighted average cost of capital.

If management's cash flow estimate were to decrease by 10%, the impairment would have increased by $85. Similarly, if the discount rate were to increase by 100 basis points, the impairment would have increased by $29. 

5. Computer Software:

	39 Weeks Ended
	March 29, 2014				March 30, 2013
Cost
Beginning of period	$	4,684			$	3,994
Additions		1,048				155
Disposals		(480	)			-
End of period	$	5,252			$	4,149
Accumulated amortization
Beginning of period	$	3,541			$	3,268
Amortization for the period		383				270
Disposals		(480	)			-
End of period	$	3,444			$	3,538
Net carrying value
End of period	$	1,808			$	611
Beginning of period	$	1,143			$	726
Capital work in process included above		-				-

6. Bank Facilities:

The Company has an operating credit facility for working capital and for general corporate purposes to a maximum amount of $25 million that is committed until June 25, 2016 and bears interest at prime plus 0.75%. The Company also has a revolving term credit facility ("term capex facility") to be used exclusively for capital expenditures in the amount of $4 million that is committed until June 25, 2016 and bears interest at prime plus 0.75%. At the end of each quarter, repayments equal to 6.25% of the aggregate principal amount of all borrowings under the term capex facility must be paid. 

Standby fees of 0.50% are paid on a quarterly basis for any unused portion of the operating credit facility and term capex facility. The operating credit facility and term capex facility are subject to certain covenants and other limitations that, if breached, could cause a default and may result in a requirement for immediate repayment of amounts outstanding. Security provided includes a security interest over all personal property of the Company's business and a mortgage over the land and building comprising the Company's head office/distribution facility. 

The Company also has an uncommitted letter of credit facility to a maximum amount of $10 million and an uncommitted demand overdraft facility in the amount of $0.5 million to be used exclusively for issuance of letters of credit for the purchase of inventory. Any amounts outstanding under the overdraft facility will bear interest at the bank's prime rate. In addition, the Company has a US$4.05 million foreign exchange line available to hedge foreign currency exposure not exceeding 12 months. The foregoing facilities and exchange line are secured by the Company's personal property from time to time financed with the proceeds drawn thereunder.

7. Payables and Accruals:

	March 29, 2014			March 30, 2013			June 29, 2013
Trade payables	$	1,896		$	1,355		$	1,840
Accruals		5,679			4,974			4,981
RSU/DSU liability		1,738			2,676			2,516
Commodity and capital taxes		522			891			764
	$	9,835		$	9,896		$	10,101

8. Sales Return Provision:

The provision for sales returns primarily relates to customer returns of unworn and undamaged purchases for a full refund within the time period provided by Danier's return policy, which is generally 14 days after the purchase date. Since the time period of the provision is of relatively short duration, all of the provision is classified as current. The following transactions occurred during the 13-week and 39-week periods ended March 29, 2014 and March 30, 2013 with respect to the sales return provision:

	13 Weeks Ended							39 Weeks Ended
	March 29, 2014			March 30, 2013				March 29, 2014			March 30, 2013
Beginning of period	$	1,613		$	1,716			$	99		$	124
Amount provided during the period		145			105				1,902			1,950
Utilized or released during the period		(1,613	)		(1,716	)			(1,856	)		(1,969	)
End of period	$	145		$	105			$	145		$	105

9. Share Capital:

1. Authorized

1,224,329 Multiple Voting Shares

Unlimited Subordinate Voting Shares

Unlimited Class A and B Preference Shares

2. Issued

Multiple Voting Shares
	Number	Consideration
Balance March 30, 2013	1,224,329	Nominal
Balance June 29, 2013	1,224,329	Nominal
Balance March 29, 2014	1,224,329	Nominal

Subordinate Voting Shares
		Number		Consideration
Balance June 29, 2013		2,607,839		$	11,533
	Shares repurchased	(25,000	)		(111	)
	Shares issued upon exercising of stock options	27,000			254
Balance March 29, 2014		2,609,839		$	11,676
Balance June 30, 2012		3,422,573		$	15,040
	Shares repurchased	(812,401	)		(3,570	)
	Shares issued upon exercising of stock options	18,367			88
Balance March 30, 2013		2,628,539		$	11,558

The Multiple Voting Shares and Subordinate Voting Shares have identical attributes except that the Multiple Voting Shares entitle the holder to 10 votes per share and the Subordinate Voting Shares entitle the holder to one vote per share. Each Multiple Voting Share is convertible at any time, at the holder's option, into one fully paid and non-assessable Subordinate Voting Share. The Multiple Voting Shares are subject to provisions whereby, if a triggering event occurs, then each Multiple Voting Share is converted into one fully paid and non-assessable Subordinate Voting Share. A triggering event may occur if, among other things, Mr. Jeffrey Wortsman, President and Chief Executive Officer: (i) dies; (ii) ceases to be a Senior Officer of the Company; (iii) ceases to own 5% or more of the aggregate number of Multiple Voting Shares and Subordinate Voting Shares outstanding; or (iv) owns less than 918,247 Multiple Voting Shares and Subordinate Voting Shares combined.

3. Earnings per share

Basic and diluted per share amounts are based on the following weighted average number of shares outstanding:

	13 Weeks Ended			39 Weeks Ended
	March 29, 2014	March 30, 2013		March 29, 2014	March 30, 2013
Weighted average number of shares for basic earnings per share calculations	3,839,616	3,861,844		3,837,828	4,292,920
Effect of dilutive options outstanding	109,331	150,959		114,662	148,140
Weighted average number of shares for diluted earnings per share calculations	3,948,947	4,012,803		3,952,490	4,441,060

The computation of dilutive options outstanding only includes those options having exercise prices below the average market price of Subordinate Voting Shares on the TSX during the period. The number of options excluded was 111,200 as at March 29, 2014 and NIL options were excluded as at March 30, 2013.

4. Normal Course Issuer Bids

During the past several years, the Company has from time to time received approval from the TSX to commence various normal course issuer bids ("NCIBs"). On February 12, 2014, the Company announced that the TSX had accepted a notice of its intention to proceed with its seventh NCIB (the "2014 NCIB"). Pursuant to the 2014 NCIB, the Company may purchase for cancellation up to a maximum of 145,496 Subordinate Voting Shares. The maximum number of Subordinate Voting Shares that may be purchased pursuant to the 2014 NCIB represents approximately 10% of the "public float" of the Subordinate Voting Shares outstanding as at the date of the notice of its intention to proceed with the 2014 NCIB. The 2014 NCIB commenced on February 14, 2014 and will terminate on February 13, 2015, or on such earlier date as the Company may complete its purchases under the 2014 NCIB.

During the 13-week and 39-week periods ended March 29, 2014, the Company repurchased for cancellation 25,000 Subordinate Voting Shares under its previous NCIB at a price of $11.00 per share. Approximately $111 of the purchase price, representing the average paid-in value of the shares, was charged to share capital, and approximately $164, which included the excess of the average paid-in value of the shares, was charged to retained earnings. During the 13-week and 39-week periods ended March 30, 2013, the Company repurchased for cancellation 25,000 Subordinate Voting Shares under its then-current NCIB at a price of $13.10 per share. Approximately $110 of the purchase price, representing the average paid-in value of the shares, was charged to share capital, and approximately $218, which included the excess of the average paid-in value of the shares, was charged to retained earnings. 

5. Substantial Issuer Bid

During the 13-week and 26-week period ended December 29, 2012, the Company announced its intention to commence a substantial issuer bid (the "Offer"). The Offer was formally commenced on October 24, 2012 by filing and mailing a formal offer to purchase and accompanying circular, pursuant to which the Company offered to purchase for cancellation up to $10 million in value of its Subordinate Voting Shares from shareholders for cash by way of a "modified Dutch Auction" at a range of Offer prices between $12.55 and $13.30 per share. The Offer expired on November 28, 2012 and a total of 1,748,470 Subordinate Voting Shares were validly deposited and not withdrawn under the Offer. Pursuant to the terms of the Offer, the Company determined the purchase price to be $12.70 per share. As the aggregate value of Subordinate Voting Shares deposited under the Offer at or below the purchase price of $12.70 per share exceeded the $10 million maximum value of consideration payable by the Company pursuant to the Offer, a pro-ration factor of 0.9852 was applied to deposited Subordinate Voting Shares (except for odd lot deposits, which were not subject to pro-ration), and the Company repurchased for cancellation 787,401 Subordinate Voting Shares at a price of $12.70 per share. Approximately $3,460 of the purchase price, representing the average paid-in value of the shares, was charged to share capital, and approximately $6,913, which included the excess of the average paid-in value of the shares as well as the transaction costs (net of tax) associated with the Offer, was charged to retained earnings. 

10. Share-based Compensation:

The Company's net share-based compensation expense recognized in selling, general and administrative expenses ("SG&A") related to its stock option, restricted share unit ("RSU") and deferred share unit ("DSU") plans is presented below:

	13 Weeks Ended						39 Weeks Ended
	March 29, 2014			March 30, 2013			March 29, 2014			March 30, 2013
Stock option plan expense	$	58		$	40		$	146		$	86
RSU plan expense		75			163			293			720
DSU plan expense		(20	)		42			(45	)		207
	$	113		$	245		$	394		$	1,013

The carrying amount of the Company's share-based compensation arrangements including stock option, RSU and DSU plans are recorded on the balance sheet as follows:

	March 29, 2014			March 30, 2013			June 29, 2013
Payables and accruals	$	1,738		$	2,676		$	2,516
Contributed surplus		1,010			981			954
	$	2,748		$	3,657		$	3,470

1. Stock option plan

The Company maintains a Stock Option Plan, as amended, for the benefit of directors, officers, employees and service providers, pursuant to which granted options are exercisable for Subordinate Voting Shares. As at March 29, 2014, the Company has reserved 545,100 Subordinate Voting Shares for issuance under its Stock Option Plan. The granting of options and the related vesting periods are at the discretion of the Board of Directors, on the advice of the Governance, Compensation, Human Resources and Nominating Committee of the Board (the "Committee"), at exercise prices determined as the weighted average of the trading prices of the Company's Subordinate Voting Shares on the TSX for the five trading days preceding the effective date of the grant. In general, options granted to officers, employees and service providers under the Stock Option Plan typically vest over a period of three years from the grant date and expire no later than the tenth anniversary of the grant date (subject to extension in accordance with the Stock Option Plan if the options would otherwise expire during a black-out period).

A summary of the status of the Company's Stock Option Plan as of March 29, 2014 and March 30, 2013 and changes during the respective 39-week periods ended on those dates is presented below:

		March 29, 2014					March 30, 2013
Stock Options		Shares		Weighted Average Exercise Price			Shares		Weighted Average Exercise Price
Outstanding at beginning of period		277,900		$	6.45		357,767		$	7.14
	Granted	85,000		$	11.29		26,200		$	12.97
	Exercised	(27,000	)	$	6.08		(18,367	)	$	3.15
	Forfeited	(28,100	)	$	10.68		(58,000	)	$	15.85
Outstanding at end of period		307,800		$	7.43		307,600		$	6.23
Options exercisable at end of period		205,332		$	5.36		253,300		$	5.04

The following table summarizes the distribution of these options and the remaining contractual life as at March 29, 2014:

	Options Outstanding					Options Exercisable
Exercise Prices	# Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price			# of Shares Exercisable	Weighted Average Exercise Price
$3.15	103,600	4.6 years	$	3.15		103,600	$	3.15
$6.25	50,000	4.2 years	$	6.25		50,000	$	6.25
$7.80	28,000	2.8 years	$	7.80		28,000	$	7.80
$8.68	15,000	3.1 years	$	8.68		15,000	$	8.68
$10.99	25,000	9.9 years	$	10.99		-	$	10.99
$11.21	25,000	9.9 years	$	11.21		-	$	11.21
$11.56	35,000	9.6 years	$	11.56		-	$	11.56
$12.97	26,200	8.9 years	$	12.97		8,732	$	12.97
	307,800	6.1 years	$	7.43		205,332	$	5.36

During the 13-week and 39-week periods ended March 29, 2014, the Company granted 50,000 and 85,000 stock options, respectively (13-week and 39-week periods ended March 30, 2013 - 26,200 stock options), the cost of which will be expensed over their vesting period based on their estimated fair values on the date of the grant, determined using the Black-Scholes Option Pricing Model. Compensation cost related to the stock options under the fair value based approach was calculated using the following assumptions:

	39 Weeks Ended March 29, 2014										39 Weeks Ended March 30, 2013
Grant date		Oct 30,  2013			Feb 7,  2014			Feb 12,  2014				Feb 7,  2013
Number of options granted		35,000			25,000			25,000				26,200
Expected option life		5 years			5 years			5 years				10 years
Risk free rate		1.7	%		1.6	%		1.6	%			2.0	%
Expected stock price volatility		36	%		36	%		36	%			38	%
Dividend yield		-			-			-				-
Estimated forfeiture rate		0	%		0	%		0	%			0	%
Share price at grant date	$	11.56		$	11.21		$	10.99			$	12.97
Weighted average fair value of options granted	$	4.10		$	3.82		$	3.74				$6.57

The risk free rate was based on the Government of Canada benchmark bond yield on the date of grant for a term equal to the expected life of the options. Expected volatility was determined by calculating the historical volatility of the Company's share price over a period equal to the expected life of the options. The expected contractual life was based on the contractual life of the awards and adjusted, based on management's best estimate and historical redemption rates. The estimated forfeiture rate was estimated based on forfeiture rates for options granted between January 2007 and December 2013.

The Black-Scholes Option Pricing Model was developed for use in estimating the fair value of traded options, which have no black-out or vesting restrictions and are fully transferable. In addition, the Black-Scholes Option Pricing Model requires the use of subjective assumptions, including the expected stock price volatility. As a result of the Company's Stock Option Plan having characteristics different from those of traded options, and because changes in the subjective assumptions can have a material effect on the fair value estimates, the Black-Scholes Option Pricing does not necessarily provide a single measure of the fair value of options granted.

2. Restricted Share Unit Plan

The Company has established a cash-settled RSU Plan, as amended, as part of its overall compensation plan. An RSU is a notional unit equivalent in value to one Subordinate Voting Share of the Company. The RSU Plan is administered by the Board of Directors, with the advice of the Committee. Under the RSU Plan, certain eligible officers, employees and directors of the Company are eligible to receive a grant of RSUs that generally vest over periods not exceeding three years, as determined by the Committee. Upon the exercise of the vested RSUs, a cash payment equal to the market value of the exercised vested RSUs will be paid to the participant. The market value is based on the five-day average daily closing prices of the Subordinate Voting Shares on the TSX immediately prior to the applicable payment date. RSU expense is recognized on a graded vesting schedule and is determined based on the fair value of the liability incurred at each financial position date until the award is settled. The fair value of the liability is measured by applying the Black-Scholes Option Pricing Model, taking into account the extent to which participants have rendered services to date.

The following transactions occurred during each of the 13-week and 39-week periods ended March 29, 2014 and March 30, 2013, respectively, with respect to the RSU Plan:

		13 Weeks Ended							39 Weeks Ended
		March 29, 2014			March 30, 2013				March 29, 2014			March 30, 2013
Outstanding at beginning of period			107,871			156,139				174,605			167,536
	Granted		25,000			-				45,000			25,000
	Redeemed		(1,566	)		-				(88,133	)		(36,063	)
	Forfeited		(4,402	)		(3,134	)			(4,569	)		(3,468	)
Outstanding at end of period			126,903			153,005				126,903			153,005
RSU vested at end of period			11,100			37,765				11,100			37,765
Liability at end of period		$	843		$	1,603			$	843		$	1,603

3. Deferred Share Unit Plan

The cash-settled DSU Plan, as amended, was established for non-management directors. Under the DSU Plan, non-management directors of the Company may receive an annual grant of DSUs at the discretion of the Board of Directors on the advice of the Committee, and can also elect to receive their annual retainers and meeting fees in DSUs. A DSU is a notional unit equivalent in value to one Subordinate Voting Share of the Company based on the five-day average daily closing prices of the Subordinate Voting Shares on the TSX immediately prior to the date on which the value of the DSU is determined. The fair value of the liability is measured at each financial position date by applying the Black-Scholes Option Pricing Model until the award is settled.

The following transactions occurred during each of the 13-week and 39-week periods ended March 29, 2014 and March 30, 2013, respectively, with respect to the DSU Plan:

		13 Weeks Ended					39 Weeks Ended
		March 29, 2014		March 30, 2013			March 29, 2014		March 30, 2013
Outstanding at beginning of period			83,136		83,136			83,136		103,920
	Granted		-		-			-		-
	Redeemed		-		-			-		(20,784	)
Outstanding at end of period			83,136		83,136			83,136		83,136
Danier stock price at end of period		$	10.76	$	12.90		$	10.76	$	12.90
Liability at end of period		$	895	$	1,073		$	895	$	1,073

11. Amortization and Impairment Loss on Property and Equipment:

Amortization and impairment loss on property and equipment included in cost of sales and SG&A is summarized as follows:

	13 Weeks Ended					39 Weeks Ended
	March 29,  2014		March 30,  2013			March 29,  2014		March 30,  2013
Cost of sales	$	41	$	42		$	124	$	125
SG&A		1,163		873			3,054		2,796
	$	1,204	$	915		$	3,178	$	2,921

12. Income Taxes:

The Company's income tax expense is comprised as follows:

	39 Weeks Ended
	March 29, 2014			March 30, 2013
Current period income tax expense	$	(800	)	$	1,729
Adjustment for prior years taxes		(47	)		11
Current income tax expense	$	(847	)	$	1,740
Deferred tax expense		433			(107	)
Income tax expense	$	(414	)	$	1,633

The estimated average annual effective income tax recovery rate was 29.6% during the 39 weeks ended March 29, 2014 compared with the 28.7% estimated income tax rate for the 39 weeks ended March 30, 2013 and 28.8% for the fiscal year ended June 29, 2013. The difference between the rate for the 39 weeks ended March 29, 2014 and the rate for the 39 weeks ended March 30, 2013 is mainly due to the effect of certain non-deductible expenses on estimated performance, the effect of differences in tax rates on a loss carry-back and adjustments for prior years taxes.

The Company's effective income tax rate consists of the following:

	39 Weeks Ended
	March 29, 2014		March 30, 2013
Combined basic federal and provincial average statutory rate	26.5	%	26.4	%
Non-deductible expenses	(2.1	%)	3.0	%
Effect of loss carry-back	1.9	%	-
Adjustment for prior years taxes	3.5	%	0.2	%
Other	(0.2	%)	(0.9	%)
	29.6	%	28.7	%

13. Change in Working Capital Items:

		13 Weeks Ended							39 Weeks Ended
		March 29,  2014			March 30,  2013				March 29,  2014			March 30,  2013
Decrease (increase) in:
	Accounts receivable	$	71		$	11			$	(457	)	$	(823	)
	Inventories		4,437			3,536				(6,011	)		(3,634	)
	Prepaid expenses		(48	)		(148	)			305			257
Increase (decrease) in:
	Payables and accruals		(6,432	)		(8,788	)			(266	)		(265	)
	Deferred revenue		(89	)		(144	)			286			260
	Sales return provision		(1,468	)		(1,611	)			46			(19	)
		$	(3,529	)	$	(7,144	)		$	(6,097	)	$	(4,224	)

14. Contingencies and Guarantees:

1. Legal proceedings

In the course of its business, the Company from time to time becomes involved in various claims and legal proceedings. In the opinion of management, all such claims and suits are adequately covered by insurance, or if not so covered, the results are not expected to materially affect the Company's financial position.

2. Guarantees

The Company has provided the following guarantees to third parties and no amounts have been accrued in the unaudited interim financial statements for these guarantees:

1. In the ordinary course of business, the Company has agreed to indemnify its lenders under its credit facilities against certain costs or losses resulting from changes in laws and regulations or from a default in repaying a borrowing. These indemnifications extend for the term of the credit facilities and do not provide any limit on the maximum potential liability. Historically, the Company has not made any indemnification payments under such agreements. 

2. In the ordinary course of business, the Company has provided indemnification commitments to certain counterparties in matters such as real estate leasing transactions, director and officer indemnification agreements and certain purchases of non-inventory assets and services. These indemnification agreements generally require the Company to compensate the counterparties for costs or losses resulting from legal action brought against the counterparties related to the actions of the Company. The terms of these indemnification agreements will vary based on the contract and generally do not provide any limit on the maximum potential liability.

15. Commitments:

1. Operating leases

The Company leases various store locations, a distribution warehouse and equipment under non-cancellable operating lease agreements. The leases are classified as operating leases since there is no transfer of risks and rewards inherent to ownership. 

The leases have varying terms, escalation clauses and renewal rights. Minimum lease payments are recognized on a straight-line basis. Leases run for varying terms that generally do not exceed 10 years, with options to renew (if any) that do not exceed five years. The majority of leases are net leases, which require additional payments for the cost of insurance, taxes, common area maintenance and utilities. Certain rental agreements include contingent rent, which is based on revenue exceeding a minimum amount. Minimum rentals, excluding rentals based upon revenue, are as follows:

Not later than one year	$	10,897
Later than one year and not later than five years	$	30,684
Later than five years	$	15,518
Total	$	57,099

Minimum lease payments, contingent rentals and sublease payments recognized as an expense are summarized as follows:

	13 Weeks Ended							39 Weeks Ended
	March 29,  2014			March 30,  2013				March 29,  2014		March 30,  2013
Minimum lease payments recognized as an expense	$	2,973		$	2,917			$	8,798	$	8,646
Contingent rentals recognized as an expense	$	(34	)	$	(59	)		$	300	$	300

2. Letters of credit

As at March 29, 2014, the Company had outstanding letters of credit in the amount of $4,214 (March 30, 2013 - $3,146) for purchases of inventory to be received.

16. Financial Instruments:

1. Fair value disclosure

The following table presents the carrying amount and the fair value of the Company's financial instruments: 

					March 29, 2014					March 30, 2013
		Classification		Maturity	Carrying value		Fair  value			Carrying value		Fair  value
Cash		Loans and receivables		Short-term	$	15,129	$	15,129		$	23,476	$	23,476
Accounts receivable		Loans and receivables		Short-term	$	1,089	$	1,089		$	1,305	$	1,305
Payables and accruals		Financial liabilities		Short-term	$	9,835	$	9,835		$	9,896	$	9,896
Sales return provision		Financial liabilities		Short-term	$	145	$	145		$	105	$	105
Derivative financial instruments(1)		Fair value through profit and loss		Short-term	$	565	$	565		$	35	$	35

⁽¹⁾ Included in accounts receivable for the 39-week periods ended March 29, 2014 and March 30, 2013.

The fair value of a financial instrument is the estimated amount that the Company would receive to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants as at the reporting date. These estimates are subjective in nature, often involve uncertainties and the exercise of significant judgment and are made at a specific point in time, using available information about the financial instrument and may not reflect fair value in the future. The estimated fair value amounts can be materially affected by the use of different assumptions or methodologies.

The methods and assumptions used in estimating the fair value of the Company's financial instruments are as follows:

• The derivative financial instruments, which consist of foreign exchange contracts, have been marked-to-market and are categorized as Level 2 in the fair value hierarchy. Factors included in the determination of fair value include the spot rate, forward rates, estimates of volatility, present value factor, strike prices, credit risk of the Company and credit risk of counterparties. As at March 29, 2014, a $565 unrealized gain (March 30, 2013 - $35 unrealized gain) was recorded in SG&A for the foreign exchange contracts outstanding.
• Given their short-term maturity, the fair value of cash, accounts receivable, payables and accruals and sales return provision approximates their carrying values.

2. Financial instrument risk management

Exposure to foreign currency risk, interest rate risk, equity price risk, liquidity risk and credit risk arise in the normal course of the Company's business and are discussed further below:

Foreign Currency Risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency exchange rates. The Company purchases a significant portion of its leather and finished goods inventory from foreign vendors with payment terms in U.S. dollars. The Company uses a combination of foreign exchange contracts and spot purchases to manage its foreign exchange exposure on cash flows related to these purchases. A foreign exchange contract represents an option with a counterparty to buy or sell a foreign currency to meet its obligations. Credit risk exists in the event of a failure by a counterparty to fulfill its obligations. The Company reduces this risk by mainly dealing with highly-rated counterparties such as major Canadian financial institutions.

During the 13-week and 39-week periods ended March 29, 2014 and March 30, 2013, the Company entered into foreign exchange contracts with Canadian financial institutions as counterparties with U.S. dollar notional amounts as listed below. Foreign exchange contracts outstanding as at March 29, 2014 expire or expired at various times between April 4, 2014 and November 21, 2014 and the foreign exchange contracts that were outstanding as at March 30, 2013 expired between April 5, 2013 and December 20, 2013.

		39 Weeks Ended
		March 29, 2014			March 30, 2013
Notional amount outstanding at beginning of period (US$000)		$	32,700		$	21,000
	Notional amount of foreign exchange contracts entered into during the period (US$000)		9,700			24,500
	Notional amount of foreign exchange contracts expired during the period (US$000)		(24,550	)		(23,500	)
Notional amount outstanding at end of period (US$000)		$	17,850		$	22,000
	Maturing in less than 1 year (US$000)	$	17,850		$	22,000
	Maturing between 1 year and 2 years (US$000)		-			-
Fair value of foreign exchange contracts - gain/(loss) (C$000)		$	565		$	35

As at March 29, 2014, a sensitivity analysis was performed on the Company's U.S. dollar denominated financial instruments, which principally consist of US$0.9 million of cash, to determine how a change in the U.S. dollar exchange rate would impact net loss. A 500 basis point rise or fall in the Canadian dollar against the U.S. dollar, assuming that all other variables, in particular interest rates, remained the same, would have resulted in a $8 and $24 decrease or increase, respectively, in the Company's net loss for the 13-week and 39-week periods ended March 29, 2014, respectively.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company's exposure to interest rate fluctuations is primarily related to cash borrowings under its existing credit facility, which bears interest at floating rates, and interest earned on its cash balances. The Company has performed a sensitivity analysis on interest rate risk as at March 29, 2014 to determine how a change in interest rates would have impacted net loss. As at March 29, 2014, the Company's cash balance available for investment was approximately $15.1 million. A 100 basis point change in interest rates would have increased or decreased net loss by approximately $28 and $83 for the 13-week and 39-week periods ended March 29, 2014, respectively. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.

Equity Price Risk

Equity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market equity prices. The Company's exposure to equity price fluctuations is primarily related to the RSU and DSU liability included in payables and accruals. The value of the vested DSU and RSU liability is adjusted to reflect changes in the market value of the Company's Subordinate Voting Shares on the TSX. The Company has performed a sensitivity analysis on equity price risk as at March 29, 2014 to determine how a change in the price of the Subordinate Voting Shares would have impacted net loss. As at March 29, 2014, a total of 126,903 RSUs and 83,136 DSUs have been granted and are outstanding. An increase or decrease of $1.00 in the market price of the Company's Subordinate Voting Shares would have increased or decreased net loss by approximately $154 for the 13-week and 39-week periods ended March 29, 2014. This analysis assumes that all RSUs and DSUs were fully vested and other variables remain constant.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company's approach to managing liquidity risk is to ensure, to the extent possible, that it will have sufficient liquidity to meet its liabilities when due. As at March 29, 2014, the Company had $15.1 million of cash; an operating credit facility of $25 million and term capex facility of $4 million that are committed until June 25, 2016; and a $10 million uncommitted letter of credit facility which includes an uncommitted demand overdraft facility in the amount of $0.5 million and an uncommitted foreign exchange line in the amount of US$4.05 million related thereto. The credit facilities are used to finance seasonal working capital requirements for merchandise purchases and other corporate purposes. The Company expects that the majority of its payables and accruals and deferred revenue will be discharged within 90 days. 

Credit Risk

Credit risk is the risk that a customer or counterparty to a financial instrument will cause a financial loss to the Company by failing to meet its obligations. The Company's financial instruments that are exposed to concentrations of credit risk are primarily cash, accounts receivable and foreign exchange option contracts. The Company limits its exposure to credit risk with respect to cash and money market investments by investing in short-term deposits and bankers' acceptances with major Canadian financial institutions. The Company's accounts receivable, excluding derivative financial instruments, consist primarily of credit card receivables from the last few days of the fiscal period end, which are settled within the first few days of the new fiscal period. Accounts receivable also consist of accounts receivable from distributors and corporate customers. Accounts receivable are net of applicable allowance for doubtful accounts, which is established based on the specific credit risks associated with the distributor, each corporate customer and other relevant information. The allowance for doubtful accounts is assessed on a quarterly basis. Concentration of credit risk with respect to accounts receivable from distributors and corporate customers is limited due to the relatively insignificant balances outstanding and the number of different customers comprising the Company's customer base. Credit risk for foreign exchange contracts exists in the event of failure by a counterparty to fulfill its obligations. The Company reduces this risk by mainly dealing with highly-rated counterparties such as major Canadian financial institutions.

As at March 29, 2014, the Company's exposure to credit risk for these financial instruments was cash of $15.1 million, accounts receivable of $1.7 million and foreign exchange option contracts that had a notional amount of US$17.9 million. 

17. Capital Disclosure:

The Company defines its capital as shareholders' equity. The Company's objectives in managing capital are to:

• Ensure sufficient liquidity to support its current operations and execute its business plans;
• Enable the internal financing of capital projects; and
• Maintain a strong capital base so as to maintain investor, creditor and market confidence.

The Company's primary uses of capital are to finance non-cash working capital along with capital expenditures for new store additions, existing store renovation or relocation projects, information technology software and hardware purchases and production machinery and equipment purchases. The Company maintains a $25 million operating credit facility, a $4 million term capex facility and a $10 million uncommitted letter of credit facility which includes an uncommitted demand overdraft facility in the amount of $0.5 million and an uncommitted foreign exchange line in the amount of US$4.05 million related thereto, that it uses to finance seasonal working capital requirements for merchandise purchases and other corporate purposes. The Company does not have any long-term debt and therefore net earnings generated from operations are available for reinvestment in the Company. 

The Board of Directors does not establish quantitative return on capital criteria for management, but rather promotes year-over-year sustainable profitable growth. On a quarterly basis, the Board of Directors monitors share repurchase program activities. Decisions on whether to repurchase shares are made on a specific transaction basis and depend on the Company's cash position, estimates of future cash requirements, market prices and regulatory restrictions, among other factors. The Company does not currently pay dividends.

Externally imposed capital requirements include a debt-to-equity ratio covenant as part of the operating credit facility. The Company was in compliance with this covenant as at March 29, 2014 and March 30, 2013. There has been no change with respect to the overall capital risk management strategy during the 39-week period ended March 29, 2014.

18. Expenses by Nature:

	13 Weeks Ended					39 Weeks Ended
	March 29,  2014		March 30,  2013			March 29,  2014		March 30,  2013
Selling and retail operating expenses	$	14,771	$	14,883		$	46,110	$	46,532
General and administrative expenses		4,596		3,945			13,713		13,106
	$	19,367	$	18,828		$	59,823	$	59,638

Selling and retail operating expenses comprise costs incurred to operate the Company's stores including wages and benefits for store personnel, rent and occupancy, marketing and advertising, credit card fees, amortization of property and equipment and computer software and other store operating expenses.

General and administrative expenses include the cost of design, merchandising, sourcing, merchandise planning, marketing, store administrative support, finance, loss prevention, information technology, human resources and executive functions.

Employee benefits expense included in the costs above is summarized as follows:

	13 Weeks Ended					39 Weeks Ended
	March 29,  2014		March 30,  2013			March 29,  2014		March 30,  2013
Wages, salaries and bonus	$	7,004	$	6,897		$	21,395	$	21,413
Short-term benefits expense		1,067		1,258			3,243		3,380
Termination benefits		701		153			707		226
Share-based compensation		113		245			394		1,013
	$	8,885	$	8,553		$	25,739	$	26,032

19. Segmented Information:

Management has determined that the Company operates in one dominant industry which involves the design, manufacture, distribution and retail of fashion leather clothing and accessories.