CTU Le Chateau Inc

Le Château Inc. (TSX VENTURE:CTU), today reported that sales for the fourth quarter ended January 27, 2018 amounted to $56.0 million as compared with $62.6 million for the fourth ended January 28, 2017, a decrease of 10.6%, with 27 fewer stores in operation. Comparable store sales decreased 1.7% for the fourth quarter as compared to last year, with comparable regular store sales decreasing 0.5% and comparable outlet store sales decreasing 7.2% (see non-GAAP measures below). Included in comparable store sales are online sales which increased 23.5% for the fourth quarter. Considering the closure of a large number of non-performing stores in the past few years, comparable store sales of regular stores have levelled-off. However, the retail brick-and-mortar environment remains highly competitive and continues to be adversely impacted by reduced store traffic which reflects in part the increase in the digital shopping behavior of today’s consumer.

Adjusted EBITDA (see non-GAAP measures below) for the fourth quarter of 2017 amounted to $1.7 million, compared to $(2.9) million for the same period last year. The improvement of $4.6 million in adjusted EBITDA for the fourth quarter was primarily attributable to the reduction of $5.8 million in selling, general and administrative (“SG&A”) expenses, partially offset by the decrease in gross margin dollars of $1.2 million. The decrease in SG&A expenses resulted primarily from the reduction in store operating expenses due mainly to store closures. The decrease of $1.2 million in gross margin dollars was the result of the 10.6% overall sales decline for the fourth quarter of 2017, partially offset by an increase in the gross margin percentage to 63.1% from 58.4% in 2016. The gross margin benefited from the closure of non-performing stores in recent quarters and improved inventory levels and quality, partially offset by the short-term liquidation process of store merchandise during the closing period of stores.

Net loss for the fourth quarter ended January 27, 2018 amounted to $3.0 million or $(0.10) per share compared to a net loss of $8.8 million or $(0.29) per share for the same period last year.

Year-end ResultsSales for the year ended January 27, 2018 amounted to $204.4 million as compared with $226.6 million last year, a decrease of 9.8%, with 27 fewer stores in operation. Comparable store sales decreased 2.6% versus the same period a year ago, with comparable regular store sales decreasing 1.4% and comparable outlet store sales decreasing 7.7%. Included in comparable store sales are online sales which increased 20.3% for the year ended January 27, 2018.

Adjusted EBITDA for the year ended January 27, 2018 amounted to $(5.4) million, compared to $(16.3) million last year. The improvement of $10.9 million in adjusted EBITDA for 2017 was primarily attributable to the reduction of $19.5 million in SG&A expenses, partially offset by the decrease in gross margin dollars of $8.6 million. The decrease in SG&A expenses resulted primarily from the reduction in store operating expenses due mainly to store closures. The decrease of $8.6 million in gross margin dollars was the result of the 9.8% overall sales decline for 2017, partially offset by the increase in the gross margin percentage to 64.4% from 61.9% in 2016.

Net loss for the year ended January 27, 2018 amounted to $24.0 million or $(0.80) per share compared to a net loss of $37.2 million or $(1.24) per share the previous year.

OutlookIn light of the impact of e-commerce on consumer behavior, the execution of our business plan required a significant reduction in the number of stores and of retail square footage. Over the past two years, the Company has made significant progress. In the past fiscal year, the Company closed 27 stores as part of its retail right-sizing strategy. This represents the largest number of store closures in one year, surpassing the 25 closures in the previous year. In 2018, the Company is planning to close approximately 20 stores and expects its total square footage to decline from 896,000 square feet to approximately 800,000 square feet. Most of the executed store closures and those forecasted for this year are related to outlet stores. By the end of the current fiscal year the network optimization process will be mostly completed.

During the store closure process, the planned increase in promotional activities had a significant impact on store contribution as merchandise from those stores were heavily discounted, thus reducing our margins. Despite the impact of store closures, the gross margin improved by 250 basis point to 64.4% for the year ended January 27, 2018. For the current fiscal year, considering the significant decline in the number of non-performing stores in the network and the improved inventory level and quality, the Company’s gross margin should see further improvement.

For 2018, the projected capital expenditures are $3.0 to $3.5 million, of which $1.8 million is expected to be invested in the renovation of two existing stores, with $1.2 to $1.7 million to be used for investments in information technology and infrastructure.

ProfileLe Château de Montréal 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 151 prime locations across Canada and an e-com platform servicing Canada and the U.S. Le Château, committed to research, design and product development, manufactures approximately 30% of the Company’s apparel in its own Canadian production facilities. 

Non-GAAP MeasuresIn addition to discussing earnings measures in accordance with IFRS, this press release provides adjusted EBITDA as a supplementary earnings measure, which is defined as earnings (loss) before interest, income taxes, depreciation, amortization, write-off and/or impairment of property and equipment and intangible assets and accretion of First Preferred shares series 1 (“Adjusted EBITDA”). Adjusted EBITDA is provided to assist readers in determining the ability of the Company to generate cash from operations and to cover financial charges. It is also widely used for valuation purposes for public companies in our industry.

The following table reconciles adjusted EBITDA to loss before income taxes for the fourth quarters and years ended January 27, 2018 and January 28, 2017:

(Unaudited)	For the three months ended				For the year ended
(In thousands of Canadian dollars)	January 27, 2018		January 28, 2017		January 27, 2018		January 28, 2017
Loss before income taxes	$	(3,012)	$	(8,750)	$	(23,973)	$	(37,226)
Depreciation and amortization		2,403		3,670		10,526		14,303
Write-offs and net impairment of property and equipment and intangible assets		382		913		1,064		1,489
Finance costs		1,322		1,268		5,460		5,092
Accretion of First Preferred shares series 1		588		-		1,536		-
Adjusted EBITDA	$	1,683	$	(2,899)	$	(5,387)	$	(16,342)

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

The following table reconciles comparable store sales to total sales disclosed in the consolidated statements of loss for the fourth quarters and years ended January 27, 2018 and January 28, 2017:

(Unaudited)	For the three months ended				For the year ended
(In thousands of Canadian dollars)	January 27, 2018		January 28, 2017			January 27, 2018	January 28, 2017
Comparable store sales – Regular stores	$	44,857	$	45,079	$	158,879	$	161,096
Comparable store sales – Outlet stores		9,137		9,850		36,117		39,145
Total comparable store sales		53,994		54,929		194,996		200,241
Non-comparable store sales		1,978		7,691		9,373		26,346
Total sales	$	55,972	$	62,620	$	204,369	$	226,587

The above measures do not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies.

Forward-Looking Statements

This news release may contain forward-looking statements relating to the Company and/or the environment in which it operates that are based on the Company's expectations, estimates and forecasts. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict and/or are beyond the Company's control. A number of factors may cause actual outcomes and results to differ materially from those expressed. These factors also include those set forth in other public filings of the Company. Therefore, readers should not place undue reliance on these forward-looking statements. In addition, these forward-looking statements speak only as of the date made and the Company disavows any intention or obligation to update or revise any such statements as a result of any event, circumstance or otherwise except to the extent required under applicable securities law.

Factors which could cause actual results or events to differ materially from current expectations include, among other things: the ability of the Company to successfully implement its business initiatives and whether such business initiatives will yield the expected benefits; liquidity risks; competitive conditions in the businesses in which the Company participates; changes in consumer spending; general economic conditions and normal business uncertainty; seasonality and weather patterns; changes in the Company's relationship with its suppliers; lease renewals; information technology security and loss of customer data; fluctuations in foreign currency exchange rates; interest rate fluctuations and changes in laws, rules and regulations applicable to the Company. There can be no assurance that borrowings will be available to the Company, or available on acceptable terms, in an amount sufficient to fund the Company's needs or that additional financing will be provided by any of the controlling shareholders of the Company. The foregoing list of risk factors is not exhaustive and other factors could also adversely affect our results.

The Company’s audited consolidated financial statements and Management’s Discussion and Analysis for the year ended January 27, 2018 are available online at www.sedar.com.

For further information

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

CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands of Canadian dollars)	As at January 27, 2018				As at January 28, 2017
ASSETS
Current assets
Cash	$	-			$	266
Accounts receivable		957				992
Income taxes refundable		449				459
Inventories		89,911				101,128
Prepaid expenses		1,747				1,604
Total current assets		93,064				104,449
Deposits		485				621
Property and equipment		27,052				36,969
Intangible assets		2,434				2,900
	$	123,035			$	144,939
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness	$	261			$	-
Current portion of credit facility		6,322				54,564
Trade and other payables		17,342				19,335
Deferred revenue		2,842				3,022
Current portion of provision for onerous leases		576				846
Current portion of long-term debt		-				1,643
Total current liabilities		27,343				79,410
Credit facility		32,221				-
Long-term debt		30,518				32,113
Provision for onerous leases		924				1,364
Deferred lease credits		7,111				8,192
First Preferred shares series 1		24,718				-
Total liabilities		122,835				121,079
Shareholders' equity
Share capital		47,967				47,967
Contributed surplus		9,600				9,287
Deficit		(57,367		)		(33,394			)
Total shareholders' equity		200				23,860
	$	123,035			$	144,939

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(Unaudited)	For the three months ended						For the year ended
(In thousands of Canadian dollars, except per share information)	January 27, 2018			January 28, 2017			January 27, 2018			January 28, 2017
Sales	$	55,972		$	62,620		$	204,369		$	226,587
Cost of sales and expenses
Cost of sales		20,670			26,068			72,737			86,317
Selling		29,417			35,740			118,694			139,778
General and administrative		6,987			8,294			29,915			32,626
		57,074			70,102			221,346			258,721
Results from operating activities		(1,102	)		(7,482	)		(16,977	)		(32,134	)
Finance costs		1,322			1,268			5,460			5,092
Accretion of First Preferred shares series 1		588			-			1,536			-
Loss before income taxes		(3,012	)		(8,750	)		(23,973	)		(37,226	)
Income tax recovery		-			-			-			-
Net loss and comprehensive loss	$	(3,012	)	$	(8,750	)	$	(23,973	)	$	(37,226	)
Net loss per share
Basic	$	(0.10	)	$	(0.29	)	$	(0.80	)	$	(1.24	)
Diluted		(0.10	)		(0.29	)		(0.80	)		(1.24	)
Weighted average number of shares outstanding ('000)		29,964			29,964			29,964			29,964

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)			For the three months ended					For the year ended
(In thousands of Canadian dollars)	January 27, 2018				January 28, 2017			January 27, 2018			January 28, 2017
SHARE CAPITAL	$	47,967			$	47,967		$	47,967		$	47,967
CONTRIBUTED SURPLUS
Balance, beginning of period	$	9,572			$	9,154		$	9,287		$	8,555
Fair value adjustment of long-term debt		-				50			99			397
Stock-based compensation expense		28				83			214			335
Balance, end of period	$	9,600			$	9,287		$	9,600		$	9,287
RETAINED EARNINGS (DEFICIT)
Balance, beginning of period	$	(54,355		)	$	(24,644	)	$	(33,394	)	$	3,832
Net loss		(3,012		)		(8,750	)		(23,973	)		(37,226	)
Balance, end of period	$	(57,367		)	$	(33,394	)	$	(57,367	)	$	(33,394	)
Total shareholders’ equity	$	200			$	23,860		$	200		$	23,860

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)	For the three months ended						For the year ended
(In thousands of Canadian dollars)	January 27, 2018			January 28, 2017			January 27, 2018			January 28, 2017
OPERATING ACTIVITIES
Net loss	$	(3,012	)	$	(8,750	)	$	(23,973	)	$	(37,226		)
Adjustments to determine net cash from operating activities
Depreciation and amortization		2,403			3,670			10,526			14,303
Write-off and net impairment of property and equipment and  intangible assets		382			913			1,064			1,489
Amortization of deferred lease credits		(273	)		(390	)		(1,484	)		(1,546		)
Deferred lease credits		-			-			403			225
Stock-based compensation		28			83			214			335
Provision for onerous leases		(164	)		(61	)		(710	)		137
Finance costs		1,322			1,268			5,460			5,092
Accretion of First Preferred shares series 1		588			-			1,536			-
Interest paid		(944	)		(662	)		(3,139	)		(2,934		)
Deposits		136			-			136			-
		466			(3,929	)		(9,967	)		(20,125		)
Net change in non-cash working capital items related to operations		6,283			13,218			7,246			12,397
Income taxes refunded		-			-			250			300
Cash flows related to operating activities		6,749			9,289			(2,471	)		(7,428		)
FINANCING ACTIVITIES
Increase (decrease) in credit facility		(7,557	)		(11,494	)		(15,324	)		9,418
Financing costs		(2	)		-			(1,025	)		-
Proceeds from long-term debt		-			1,685			19,500			4,185
Repayment of long-term debt		-			-			-			(848		)
Cash flows related to financing activities		(7,559	)		(9,809	)		3,151			12,755
INVESTING ACTIVITIES
Additions to property and equipment and intangible assets		(128	)		(228	)		(1,807	)		(4,516		)
Proceeds from disposal of property and equipment		-			-			600			-
Cash flows related to investing activities		(128	)		(228	)		(1,207	)		(4,516		)
Increase (decrease) in cash (bank indebtedness)		(938	)		(748	)		(527	)		811
Cash (bank indebtedness), beginning of period		677			1,014			266			(545		)
Cash (bank indebtedness), end of period	$	(261	)	$	266		$	(261	)	$	266