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Press release from CNW Group

Le Château reports second quarter results

Friday, September 06, 2013

Le Château reports second quarter results

17:00 EDT Friday, September 06, 2013

MONTREAL, Sept. 6, 2013 /CNW Telbec/ - 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 July 27, 2013.

Sales for the second quarter ended July 27, 2013 amounted to $75.7 million, an increase of 4.4% from $72.5 million for the second quarter ended July 28, 2012. Comparable store sales increased 4.9% for the second quarter versus the same period a year ago. Included in comparable store sales are online sales which increased 120% for the second quarter. The e-commerce business continues to gain traction and is expanding customer reach.

The positive trend observed in the second half of 2012 continued into the first half of 2013, and to date, with an increasing number of regular stores reporting positive comparable sales over last year. This reflects product assortment improvements, some regional strengths, the performance of new concept stores and momentum of top-tier performing stores.

Net earnings for the second quarter amounted to $1.1 million or $0.04 per share (diluted), compared to $1.3 million or $0.05 per share (diluted) the previous year. Earnings before interest, income taxes, depreciation and amortization ("EBITDA") for the second quarter amounted to $7.9 million or 10.5% of sales, compared to $8.5 million or 11.7% of sales last year. The decrease in EBITDA for the second quarter was primarily attributable to an increase of $758,000 in marketing related initiatives and an increase of $219,000 in stock based compensation expense, offset by an increase of $633,000 in gross margin. The increase in gross margin dollars was the result of a 4.4% increase in sales for the second quarter of 2013, offset by a decrease in the Company's gross margin percentage to 66.9% from 69.0%, due to increased promotional activity.

Six-month Results
Sales for the six months ended July 27, 2013 increased 1.7% to $132.6 million from $130.3 million last year. Comparable store sales increased 2.5% versus the same period a year ago.

Net loss for the six-month period ended July 27, 2013 amounted to $7.1 million or $(0.26) per share (diluted) compared to a net loss of $5.3 million or $(0.21) per share the previous year. EBITDA for the first six months amounted to $3.1 million or 2.3% of sales, compared to $5.3 million or 4.1% of sales last year.

During the first six months of 2013, the Company opened one new store and closed three. Total square footage for the Le Château network at the end of the second quarter ended July 27, 2013 amounted to 1,267,000 square feet.

Third Quarter of Fiscal 2013
For the first five weeks ended August 31, 2013, total retail sales increased 3.8% and comparable store sales increased 3.9% compared to the same period last year.

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 232 retail locations, of which 231 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 5 stores under license in the Middle East and Asia. 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 53-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 earnings before interest, income taxes, depreciation and amortization ("EBITDA") as a supplementary earnings measure. Depreciation and amortization includes the write-off and impairment of property and equipment. 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 Company also discloses comparable store sales which are defined as sales generated by stores that have been open for at least one year.

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 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; seasonal weather patterns; fluctuations in foreign currency exchange rates; changes in the Company's relationship with its suppliers; interest rate fluctuations; and changes in laws, rules and regulations applicable to the Company.

The Company's unaudited interim condensed financial statements and Management's Discussion and Analysis for the second quarter ended July 27, 2013 are available online at www.sedar.com

CONSOLIDATED BALANCE SHEETS

(Unaudited)
(In thousands of Canadian dollars)
  As at
July 27, 2013
    As at
July 28, 2012
    As at
January 26, 2013
ASSETS                
Current assets                
Cash $ 1,507   $ 3,569   $ 1,783
Accounts receivable   1,638     1,665     1,906
Income taxes refundable   5,715     3,114     3,211
Derivative financial instruments   4     69     215
Inventories   131,199     127,651     123,218
Prepaid expenses   2,460     2,101     1,890
Total current assets   142,523     138,169     132,223
Property and equipment   76,716     91,888     83,315
Intangible assets   4,453     5,418     4,672
  $ 223,692   $ 235,475   $ 220,210
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
Current liabilities                
Bank indebtedness $ 29,752   $ 18,808   $ 13,034
Trade and other payables   20,353     19,367     20,718
Deferred revenue   3,041     3,186     3,558
Current portion of provisions   246     160     228
Current portion of long-term debt    8,145     13,450     9,844
Total current liabilities   61,537     54,971     47,382
Long-term debt   11,712     23,353     14,290
Provisions   474     271     530
Deferred income taxes   2,239     2,936     2,298
Deferred lease credits   14,678     16,033     15,912
Total liabilities   90,640     97,564     80,412
                 
Shareholders' equity                      
Share capital   42,876     37,729     42,740
Contributed surplus   3,044     2,426     2,664
Retained earnings   87,129     97,706     94,239
Accumulated other comprehensive income   3     50     155
Total shareholders' equity   133,052     137,911     139,798
  $ 223,692   $ 235,475   $ 220,210

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(Unaudited)   For the three months ended     For the six months ended
(In thousands of Canadian dollars, except per share information)   July 27, 2013     July 28, 2012     July 27, 2013     July 28, 2012
Sales $ 75,680   $ 72,514   $ 132,562   $ 130,291
Cost of sales and expenses                      
Cost of sales   25,036     22,503     44,716     40,521
Selling   39,408     38,381     78,012     76,864
General and administrative   8,864     8,716     17,892     18,376
    73,308     69,600     140,620     135,761
                       
Results from operating activities   2,372     2,914     (8,058)     (5,470)
Finance costs   670     879     1,360     1,568
Finance income   (5)     (7)     (8)     (8)
Earnings (loss) before income taxes   1,707     2,042     (9,410)     (7,030)
Income tax expense (recovery)   630     760     (2,300)     (1,780)
Net earnings (loss) $ 1,077   $ 1,282   $ (7,110)   $ (5,250)
                       
Net earnings (loss) per share                      
Basic $ 0.04   $ 0.05   $ (0.26)   $ (0.21)
Diluted   0.04     0.05     (0.26)     (0.21)
                       
Weighted average number of shares outstanding ('000)   27,256     24,789     27,249     24,789

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited) For the three months ended  For the six months ended
(In thousands of Canadian dollars)   July 27, 2013   July 28, 2012   July 27, 2013   July 28, 2012
Net earnings (loss) $ 1,077 $ 1,282 $ (7,110) $ (5,250)
                 
Other comprehensive income (loss)                
Change in fair value of forward exchange contracts   4   295   1   (98)
Income tax recovery (expense)   (1)   (82)   -   28
    3   213   1   (70)
Realized forward exchange contracts reclassified
to net earnings (loss)
  3   167   (212)   38
Income tax recovery (expense)   (1)   (47)   59   (10)
    2   120   (153) 28
Total other comprehensive income (loss)   5   333   (152)   (42)
Comprehensive income (loss) $ 1,082 $ 1,615 $ (7,262) $ (5,292)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)   For the three months ended     For the six months ended
(In thousands of Canadian dollars)   July 27, 2013     July 28, 2012     July 27, 2013     July 28, 2012
                       
SHARE CAPITAL                      
Balance, beginning of period $ 42,740   $ 37,729   $ 42,740   $ 37,729
Issuance of subordinate voting shares upon exercise of options   125     -     125     -
Reclassification from contributed surplus due to exercise of share options   11     -     11     -
Balance, end of period $ 42,876   $ 37,729   $ 42,876   $ 37,729
                       
CONTRIBUTED SURPLUS                      
Balance, beginning of period $ 2,784   $ 2,374   $ 2,664   $ 2,328
Stock-based compensation expense   271     52     391     98
Exercise of share options   (11)     -     (11)     -
Balance, end of period $ 3,044   $ 2,426   $ 3,044   $ 2,426
                       
RETAINED EARNINGS                      
Balance, beginning of period $ 86,052   $ 96,424   $ 94,239   $ 102,956
Net earnings (loss)   1,077     1,282     (7,110)     (5,250)
Balance, end of period $ 87,129   $ 97,706   $ 87,129   $ 97,706
                       
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)                      
Balance, beginning of period $ (2)   $ (283)   $ 155   $ 92
Other comprehensive income (loss) for the period   5     333     (152)     (42)
Balance, end of period $ 3   $ 50   $ 3   $ 50
                       
Total shareholders' equity $ 133,052   $ 137,911   $ 133,052   $ 137,911

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)   For the three months ended      For the six months ended
(In thousands of Canadian dollars)   July 27, 2013     July 28, 2012     July 27, 2013     July 28, 2012
OPERATING ACTIVITIES                      
Net earnings (loss) $ 1,077   $ 1,282   $ (7,110)   $ (5,250)
Adjustments to determine net cash from operating activities                      
  Depreciation and amortization   4,797     4,969     9,569     9,919
  Write-off and impairment of property and equipment   753     607     1,594     836
  Amortization of deferred lease credits   (841)     (310)     (1,273)     (576)
  Deferred lease credits   39     481     39     500
  Stock-based compensation   271     52     391     98
  Provisions   16     214     (38)     11
  Finance costs   670     879     1,360     1,568
  Finance income   (5)     (7)     (8)     (8)
  Interest paid   (658)     (744)     (1,228)     (1,433)
  Interest received   5     5     8     12
  Income tax expense (recovery)   630     760     (2,300)     (1,780)
    6,754     8,188     1,004     3,897
Net change in non-cash working capital items related to operations   464     (1,236)     (9,501)     (11,684)
    7,218     6,952     (8,497)     (7,787)
Income taxes refunded   -     489     -     993
Cash flows related to operating activities   7,218     7,441     (8,497)     (6,794)
                       
FINANCING ACTIVITIES                      
Repayment of long-term debt   (1,980)     (4,205)     (4,277)     (8,665)
Issue of capital stock upon exercise of options   125     -     125    
Cash flows related to financing activities   (1,855)     (4,205)     (4,152)     (8,665)
                       
INVESTING ACTIVITIES                      
Additions to property and equipment and intangible assets   (1,097)     (3,594)     (4,345)     (6,973)
Cash flows related to investing activities   (1,097)     (3,594)     (4,345)     (6,973)
                       
Increase (decrease) in cash, net of bank indebtedness   4,266     (358)     (16,994)     (22,432)
Cash, net of bank indebtedness, beginning of period   (32,511)     (14,881)     (11,251)     7,193
Cash, net of bank indebtedness, end of period $ (28,245)   $ (15,239)   $ (28,245)   $ (15,239)

SOURCE: LE CHATEAU INC.

For further information:

Emilia Di Raddo, CPA, CA, President (514) 738-7000
Johnny Del Ciancio, CPA, CA, Vice-President, Finance, (514) 738-7000
MaisonBrison:  Pierre Boucher, (514) 731-0000
Source:  Le Château Inc.

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