- Agreements reached with landlords regarding rent obligations as of
July 2020 - Q2 sales impacted by government-mandated store closures as well as social distancing and other COVID-19 measures limiting store traffic as store operations resumed
- Continued focus on growing e-commerce sales while safely serving customers in our 123 prime locations across
Canada
“Our results for the second quarter of 2020 reflect the unprecedented impacts of the pandemic on fashion retailers across
“Through our 60-year history, we have experienced many shifts in the retail landscape and have proven time and again our ability to adapt. Having taken decisive action in the last several months to preserve our financial position, and with our 5-year strategic plan aimed at right-sizing our footprint and leveraging our e-commerce platform now behind us, Le Château is on a clear path to providing customers with compelling fashion apparel both online and in-store as economic activity resumes, and to serve the modern millennial market in a post-COVID world.” - Le Château Executive Team.
Financial and operating results – Second quarter of 2020
Results for the second quarter ended
Sales for the second quarter ended
Gross profit for the second quarter of 2020 decreased to
Adjusted EBITDA (see non-GAAP measures below) for the second quarter of 2020 amounted to
Net earnings for the second quarter ended
In July and
Financial and operating results – First six months of 2020
Sales for the six months ended
Gross profit for the first half of 2020 decreased to
Adjusted EBITDA (see non-GAAP measures below) for the first half of 2020 amounted to
Net loss for the six months ended
COVID-19 impact
The outbreak of the coronavirus disease (COVID-19), which was declared a pandemic on
In reaction to the COVID-19 pandemic, the Company has taken the following measures to protect its financial position:
- Furloughing the majority of store and head office employees during the closure period, while maintaining essential services such as e-commerce, warehousing and distribution;
- Initiating reduced work week schedules for all remaining staff based on business requirements;
- Availing itself of the CEWS;
- Working with landlords to reach agreement on rental obligations;
- Adjusting inventory levels by cancelling, delaying or reducing orders;
- Extending payment terms with merchandise and non-merchandise suppliers;
- Reducing discretionary expenditures;
- Cancelling or delaying all non-essential capital expenditures for the balance of the year;
- Supporting the medical community through the manufacturing of medical gowns.
Prior to the COVID-19 pandemic, and beginning in 2015, the Company began the execution of its strategic plan aimed at optimizing its brick and mortar network across
Current developments and subsequent events
As disclosed in note 2 of the unaudited interim condensed consolidated financial statements (‘interim financial statements”) for the second quarter ended
As described further in note 3 of the interim financial statements, the Company has a
The Company’s ability to continue as a going concern for the next twelve months involves significant judgment and is dependent on, among other things, its ability to obtain necessary financing, either from its existing lenders or from other financing sources; the availability of adequate credit under its revolving credit facility and subordinated term loan; the impact of the COVID-19 pandemic and related government restrictions on the Company’s operations and liquidities (including the Company’s ability to resume normal operations); if previously negotiated rent concessions prove to be insufficient, the Company’s ability to negotiate additional favorable amendments to lease rents and other obligations with major landlords; the Company’s ability to improve its sales and generate positive cash flow from operations; and the continued support of its suppliers, landlords and other creditors.
The going concern uncertainty note in the Company’s annual consolidated financial statements for the fiscal year ended
The interim financial statements for the second quarter ended
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 123 prime locations across
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, lease modifications, and write-off and impairment of long-term assets (“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 earnings (loss) before income taxes in the interim statements of earnings (loss) for the three and six-month periods ended
(Unaudited) | For the three months ended | For the six months ended | |||||||||||||
(In thousands of Canadian dollars) | |||||||||||||||
Earnings (loss) before income taxes | $ | 337 | $ | (305 | ) | $ | (13,021 | ) | $ | (11,142 | ) | ||||
Depreciation and amortization | 4,117 | 8,020 | 8,516 | 16,097 | |||||||||||
Write-off of long-term assets | 14 | - | 781 | 41 | |||||||||||
Lease modifications | (4,568 | ) | - | (4,705 | ) | - | |||||||||
Finance costs | 2,838 | 3,662 | 5,950 | 7,129 | |||||||||||
Adjusted EBITDA | $ | 2,738 | $ | 11,377 | $ | (2,479 | ) | $ | 12,125 |
The Company typically 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. As indicated above, the Company temporarily closed all of its retail stores on
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.
The Company’s ability to continue as a going concern for the next twelve months involves significant judgment and is dependent on, among other things, its ability to obtain necessary financing, either from its existing lenders or from other financing sources; the availability of adequate credit under its revolving credit facility and subordinated term loan; the impact of the COVID-19 pandemic and related government restrictions on the Company’s operations and liquidities (including the Company’s ability to resume normal operations); if previously negotiated rent concessions prove to be insufficient, the Company’s ability to negotiate additional favorable amendments to lease rents and other obligations with major landlords; the Company’s ability to improve its sales and generate positive cash flow from operations; and the continued support of its suppliers, landlords and other creditors. There can be no assurance that availability under the existing credit facilities, as amended, or that any alternative source of financing will be sufficient to finance the Company’s operations to the maturity date of the credit facilities, that borrowings or alternative sources of financing will be available to the Company or available on acceptable terms, in an amount sufficient to fund the Company’s needs or that the Company’s suppliers, landlords and other creditors will continue their support of the Company. Consequently, the Company’s management is evaluating its alternatives should these contingencies materialize (see note 2 of the Company’s interim financial statements).
Factors which could cause actual results or events to differ materially from current expectations include, among other things: the ability of the Company to continue as a going concern; public health crises & economic downturn; liquidity risks; general economic conditions and normal business uncertainty; the ability of the Company to successfully implement its business initiatives and whether such business initiatives will yield the expected benefits; the ability of the Company to complete the refinancing on acceptable terms and, to the extent applicable, to implement the contingency plan; competitive conditions in the businesses in which the Company participates; changes in consumer spending; seasonality; changes in the Company’s relationship with its suppliers; inventory management; extreme changes in weather; lease renewals and obligations; 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. The foregoing list of risk factors is not exhaustive and other factors could also adversely affect our results. The risks and uncertainties faced by the Company are substantially the same as those outlined in the annual MD&A for the year ended
The Company’s interim financial statements and Management’s Discussion and Analysis for the second quarter ended
For further information
MaisonBrison:
Source: Le Château Inc.
CONSOLIDATED BALANCE SHEETS | |||||||||
(Unaudited) (In thousands of Canadian dollars) | As at | As at | As at | ||||||
ASSETS | |||||||||
Current assets | |||||||||
Cash | $ | 1,108 | $ | - | $ | - | |||
Accounts receivable | 3,244 | 2,326 | 870 | ||||||
Income taxes refundable | 294 | 318 | 426 | ||||||
Inventories | 81,981 | 85,024 | 76,093 | ||||||
Prepaid expenses | 2,099 | 2,325 | 1,678 | ||||||
Total current assets | 88,726 | 89,993 | 79,067 | ||||||
Deposits | 485 | 485 | 485 | ||||||
Property and equipment | 5,726 | 18,220 | 7,883 | ||||||
Intangible assets | 487 | 1,434 | 621 | ||||||
Right-of-use assets | 23,404 | 74,683 | 45,810 | ||||||
$ | 118,828 | $ | 184,815 | $ | 133,866 | ||||
LIABILITIES AND SHAREHOLDERS' DEFICIENCY | |||||||||
Current liabilities | |||||||||
Bank indebtedness | $ | - | $ | 41 | $ | 1,064 | |||
Current portion of credit facility | 50,860 | 46,024 | 43,525 | ||||||
Trade and other payables | 41,391 | 20,355 | 27,200 | ||||||
Deferred revenue | 1,238 | 1,750 | 1,646 | ||||||
Current portion of lease liabilities | 10,097 | 32,507 | 19,609 | ||||||
Current portion of long-term debt | 30,876 | 15,000 | 30,369 | ||||||
Total current liabilities | 134,462 | 115,677 | 123,413 | ||||||
Long-term debt | - | 16,058 | - | ||||||
Lease liabilities | 66,641 | 65,422 | 79,707 | ||||||
Total liabilities | 201,103 | 197,157 | 203,120 | ||||||
Shareholders' deficiency | |||||||||
Share capital | 73,573 | 73,573 | 73,573 | ||||||
Contributed surplus | 15,354 | 14,193 | 15,354 | ||||||
Deficit | (171,202 | ) | (100,108 | ) | (158,181 | ) | |||
Total shareholders' deficiency | (82,275 | ) | (12,342 | ) | (69,254 | ) | |||
$ | 118,828 | $ | 184,815 | $ | 133,866 |
(1) See note 2, Going concern uncertainty, in the interim financial statements for the second quarter ended
NOTICE
The Company’s independent auditors have not performed a review of the interim financial statements.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) | |||||||||||
(Unaudited) | For the three months ended | For the six months ended | |||||||||
(In thousands of Canadian dollars, except per share information) | |||||||||||
Sales | $ | 14,652 | $ | 49,661 | $ | 32,311 | $ | 85,731 | |||
Cost of sales and expenses | |||||||||||
Cost of sales | 5,610 | 16,689 | 12,852 | 30,433 | |||||||
Selling and distribution | 5,124 | 25,391 | 23,184 | 50,299 | |||||||
Administrative | 743 | 4,224 | 3,346 | 9,012 | |||||||
11,477 | 46,304 | 39,382 | 89,744 | ||||||||
Results from operating activities | 3,175 | 3,357 | (7,071 | ) | (4,013 | ) | |||||
Finance costs | 2,838 | 3,662 | 5,950 | 7,129 | |||||||
Earnings (loss) before income taxes | 337 | (305 | ) | (13,021 | ) | (11,142 | ) | ||||
Income tax recovery | - | - | - | - | |||||||
Net earnings (loss) and comprehensive income (loss) | $ | 337 | $ | (305 | ) | $ | (13,021 | ) | $ | (11,142 | ) |
Net earnings (loss) per share | |||||||||||
Basic | $ | 0.02 | $ | (0.01 | ) | $ | (0.43 | ) | $ | (0.37 | ) |
Diluted | 0.02 | (0.01 | ) | (0.43 | ) | (0.37 | ) | ||||
Weighted average number of shares outstanding ('000) | 29,964 | 29,964 | 29,964 | 29,964 | |||||||
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY | |||||||||||||
(Unaudited) | For the three months ended | For the six months ended | |||||||||||
(In thousands of Canadian dollars) | |||||||||||||
SHARE CAPITAL | $ | 73,573 | $ | 73,573 | $ | 73,573 | $ | 73,573 | |||||
CONTRIBUTED SURPLUS | |||||||||||||
Balance, beginning of period | $ | 15,354 | $ | 14,193 | $ | 15,354 | $ | 14,132 | |||||
Fair value adjustment of long-term debt | - | - | - | 61 | |||||||||
Balance, end of period | $ | 15,354 | $ | 14,193 | $ | 15,354 | $ | 14,193 | |||||
DEFICIT | |||||||||||||
Balance, beginning of period | $ | (171,539 | ) | $ | (99,803 | ) | $ | (158,181 | ) | $ | (82,543 | ) | |
Transitional adjustments on adoption of new accounting standards | - | - | - | (6,423 | ) | ||||||||
Adjusted balance, beginning of period | (171,539 | ) | (99,803 | ) | (158,181 | ) | (88,966 | ) | |||||
Net earnings (loss) | 337 | (305 | ) | (13,021 | ) | (11,142 | ) | ||||||
Balance, end of period | $ | (171,202 | ) | $ | (100,108 | ) | $ | (171,202 | ) | $ | (100,108 | ) | |
Total shareholders’ deficiency | $ | (82,275 | ) | $ | (12,342 | ) | $ | (82,275 | ) | $ | (12,342 | ) | |
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
(Unaudited) | For the three months ended | For the six months ended | ||||||||||
(In thousands of Canadian dollars) | ||||||||||||
OPERATING ACTIVITIES | ||||||||||||
Net earnings (loss) | $ | 337 | $ | (305 | ) | $ | (13,021 | ) | $ | (11,142 | ) | |
Adjustments to determine net cash from operating activities | ||||||||||||
Depreciation and amortization | 4,117 | 8,020 | 8,516 | 16,097 | ||||||||
Write-off of long-term assets | 14 | - | 781 | 41 | ||||||||
Lease modifications | (4,568 | ) | - | (4,705 | ) | - | ||||||
Finance costs | 2,838 | 3,662 | 5,950 | 7,129 | ||||||||
Interest paid | (904 | ) | (1,052 | ) | (1,945 | ) | (2,207 | ) | ||||
1,834 | 10,325 | (4,424 | ) | 9,918 | ||||||||
Net change in non-cash working capital items related to operations | 3,755 | 3,845 | 3,872 | (1,780 | ) | |||||||
Income taxes refunded | - | - | 219 | 230 | ||||||||
Cash flows related to operating activities | 5,589 | 14,170 | (333 | ) | 8,368 | |||||||
FINANCING ACTIVITIES | ||||||||||||
Increase (decrease) in credit facility | (2,935 | ) | (12,727 | ) | 7,221 | (3,156 | ) | |||||
Payment of lease liabilities | (971 | ) | (2,172 | ) | (3,900 | ) | (4,905 | ) | ||||
Other finance costs | (238 | ) | (535 | ) | (616 | ) | (809 | ) | ||||
Proceeds from long-term debt | - | - | - | 1,000 | ||||||||
Cash flows related to financing activities | (4,144 | ) | (15,434 | ) | 2,705 | (7,870 | ) | |||||
INVESTING ACTIVITIES | ||||||||||||
Additions to property and equipment and intangible assets | (40 | ) | (18 | ) | (200 | ) | (50 | ) | ||||
Cash flows related to investing activities | (40 | ) | (18 | ) | (200 | ) | (50 | ) | ||||
Increase (decrease) in cash (bank indebtedness) | 1,405 | (1,282 | ) | 2,172 | 448 | |||||||
Cash (bank indebtedness), beginning of period | (297 | ) | 1,241 | (1,064 | ) | (489 | ) | |||||
Cash (bank indebtedness), end of period | $ | 1,108 | $ | (41 | ) | $ | 1,108 | $ | (41 | ) |
Source:
2020 GlobeNewswire, Inc., source