PRESS RELEASE LE CHÂTEAU REPORTS THIRD QUARTER RESULTS Q3 Comparable Store Sales Increased by 1.3% Montréal, December 21, 2018 Le Château Inc. (TSX VENTURE: CTU), today reported that sales for the third quarter ended October 27, 2018 amounted to $45.1 million as compared with $48.7 million for the third quarter ended October 28, 2017, a decrease of 7.3%, with 27 fewer stores in operation. Comparable store sales, which include online sales, increased 1.3% for the third quarter as compared to last year, with comparable regular store sales increasing 1.2% and comparable outlet store sales increasing 2.4% (see non-gaap measures below). Adjusted EBITDA (see non-gaap measures below) for the third quarter of 2018 amounted to $(2.1) million, compared to $(2.5) million for the same period last year. The improvement of $400,000 in adjusted EBITDA for the third quarter was attributable to the reduction of $1.6 million in selling, general and administrative ( SG&A ) expenses, partially offset by the decrease of $1.2 million in gross margin dollars. 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 7.3% overall sales decline for the third quarter, partially offset by the increase in gross margin percentage to 66.3% from 63.8% in 2017. Net loss for the third quarter ended October 27, 2018 amounted to $6.7 million or $(0.22) per share compared to a net loss of $7.1 million or $(0.24) per share for the same period last year. Nine-month Results Sales for the nine months ended October 27, 2018 amounted to $139.5 million as compared with $148.4 million last year, a decrease of 6.0%, with 27 fewer stores in operation. Comparable store sales, which include online sales, increased 2.2% versus the same period a year ago, with comparable regular store sales increasing 1.8% and comparable outlet store sales increasing 4.6%. Adjusted EBITDA for the nine months ended October 27, 2018 amounted to $(3.9) million, compared to $(7.1) million last year. The improvement of $3.2 million in adjusted EBITDA for the first nine months of 2018 was attributable to the reduction of $7.5 million in SG&A expenses, offset by the decrease in gross margin dollars of $4.3 million. The decrease in SG&A expenses resulted primarily from the reduction in store operating expenses due mainly to store closures. The decrease of $4.3 million in gross margin dollars was the result of the 6.0% overall sales decline for the first nine months of 2018, partially offset by the increase in the gross margin percentage to 65.9% from 64.9% in 2017. Net loss for the nine-month period ended October 27, 2018 amounted to $17.7 million or $(0.59) per share compared to a net loss of $21.0 million or $(0.70) per share the previous year. During the first nine months of 2018, the Company renovated two existing locations and, as planned, closed 17 underperforming stores. As at October 27, 2018, the Company operated 143 stores (including 24 fashion outlet stores) compared to 170 stores (including 47 fashion outlet stores) as at October 28, 2017. Total square footage for the Le Château network as at October 27, 2018 amounted to 807,000 square feet (including 210,000 square feet for fashion outlet stores), compared to 946,000 square feet (including 333,000 square feet for fashion outlet stores) as at October 28, 2017. The Company is planning to close 4 additional stores during the remainder of 2018 thereby mostly completing the store optimization program that started three years ago. Fourth Quarter of 2018 For the first seven weeks ended December 15, 2018, total retail sales decreased 10.3% compared to the same period last year, with 27 fewer stores in operation. Comparable store sales, which include online sales, decreased 3.6% compared to the same period last year, with comparable regular store sales decreasing 3.1% and comparable outlet store sales decreasing 6.5%. 1
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 143 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 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, writeoff 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 disclosed in the unaudited interim condensed consolidated statements of loss for the three and nine-month periods ended October 27, 2018 and October 28, 2017: Loss before income taxes $ (6,708) $ (7,121) $ (17,663) $ (20,961) Depreciation and amortization 2,039 2,473 6,553 8,123 Write-offs and net impairment of property and equipment and intangible assets 156 198 272 682 Finance costs 1,688 1,352 4,873 4,138 Accretion of First Preferred shares series 1 702 573 2,047 948 Adjusted EBITDA $ (2,123) $ (2,525) $ (3,918) $ (7,070) 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. Online sales are included in comparable store sales. The following table reconciles comparable store sales to total sales disclosed in the unaudited interim condensed consolidated statements of loss for the three and nine-month periods ended October 27, 2018 and October 28, 2017: Comparable store sales Regular stores $ 37,857 $ 37,424 $ 115,698 $ 113,664 Comparable store sales Outlet stores 6,089 5,949 19,901 19,031 Total comparable store sales 43,946 43,373 135,599 132,695 Non-comparable store sales 1,153 5,303 3,897 15,702 Total sales $ 45,099 $ 48,676 $ 139,496 $ 148,397 The above measures do not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. 2
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 unaudited interim condensed consolidated financial statements and Management s Discussion and Analysis for the third quarter ended October 27, 2018 are available online at www.sedar.com. 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. - 30-3
CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands of Canadian dollars) As at October 27, 2018 As at October 28, 2017 As at January 27, 2018 ASSETS Current assets Cash $ 1,278 $ 677 $ - Accounts receivable 1,050 866 957 Income taxes refundable 389 389 449 Inventories 93,395 95,377 89,911 Prepaid expenses 1,976 1,606 1,747 Total current assets 98,088 98,915 93,064 Deposits 485 621 485 Property and equipment 23,374 29,588 27,052 Intangible assets 1,981 2,555 2,434 $ 123,928 $ 131,679 $ 123,035 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) Current liabilities Bank indebtedness $ - $ - $ 261 Current portion of credit facility 11,418 15,636 6,322 Trade and other payables 18,447 16,338 17,342 Deferred revenue 2,549 2,507 2,842 Current portion of provision for onerous leases 340 703 576 Total current liabilities 32,754 35,184 27,343 Credit facility 44,294 30,373 32,221 Long-term debt 29,484 30,463 30,518 Provision for onerous leases 20 961 924 Deferred lease credits 6,791 7,384 7,111 First Preferred shares series 1 24,884 24,130 24,718 Total liabilities 138,227 128,495 122,835 Shareholders' equity (deficiency) Share capital 47,967 47,967 47,967 Contributed surplus 14,131 9,572 9,600 Deficit (76,397) (54,355) (57,367) Total shareholders' equity (deficiency) (14,299) 3,184 200 $ 123,928 $ 131,679 $ 123,035 NOTICE The Company s independent auditors have not performed a review of the accompanying interim condensed consolidated financial statements. 4
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (In thousands of Canadian dollars, except per share information) October 27, 2018 October 28, 2017 October 27, 2018 October 28, 2017 Sales $ 45,099 $ 48,676 $ 139,496 $ 148,397 Cost of sales and expenses Cost of sales 15,203 17,621 47,523 52,067 Selling 27,109 29,024 81,554 89,277 General and administrative 7,105 7,227 21,162 22,928 49,417 53,872 150,239 164,272 Results from operating activities (4,318) (5,196) (10,743) (15,875) Finance costs 1,688 1,352 4,873 4,138 Accretion of First Preferred shares series 1 702 573 2,047 948 Loss before income taxes (6,708) (7,121) (17,663) (20,961) Income tax recovery - - - - Net loss and comprehensive loss $ (6,708) $ (7,121) $ (17,663) $ (20,961) Net loss per share Basic $ (0.22) $ (0.24) $ (0.59) $ (0.70) Diluted (0.22) (0.24) (0.59) (0.70) Weighted average number of shares outstanding ('000) 29,964 29,964 29,964 29,964 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIENCY) SHARE CAPITAL $ 47,967 $ 47,967 $ 47,967 $ 47,967 CONTRIBUTED SURPLUS Balance, beginning of period $ 14,125 $ 9,529 $ 9,600 $ 9,287 Transitional adjustments on adoption of new accounting standards - - 4,502 - Adjusted balance, beginning of period 14,125 9,529 14,102 9,287 Fair value adjustment of long-term debt - - - 99 Stock-based compensation expense 6 43 29 186 Balance, end of period $ 14,131 $ 9,572 $ 14,131 $ 9,572 DEFICIT Balance, beginning of period $ (69,689) $ (47,234) $ (57,367) $ (33,394) Transitional adjustments on adoption of new accounting standards - - (1,367) - Adjusted balance, beginning of period (69,689) (47,234) (58,734) (33,394) Net loss (6,708) (7,121) (17,663) (20,961) Balance, end of period $ (76,397) $ (54,355) $ (76,397) $ (54,355) Total shareholders equity (deficiency) $ (14,299) $ 3,184 $ (14,299) $ 3,184 5
CONSOLIDATED STATEMENTS OF CASH FLOWS OPERATING ACTIVITIES Net loss $ (6,708) $ (7,121) $ (17,663) $ (20,961) Adjustments to determine net cash from operating activities Depreciation and amortization 2,039 2,473 6,553 8,123 Write-offs and net impairment of property and equipment and intangible assets 156 198 272 682 Amortization of deferred lease credits (430) (238) (1,165) (1,211) Deferred lease credits 250-845 403 Stock-based compensation 6 43 29 186 Provision for onerous leases (120) (235) (1,140) (546) Finance costs 1,688 1,352 4,873 4,138 Accretion of First Preferred shares series 1 702 573 2,047 948 Interest paid (1,069) (928) (3,121) (2,195) (3,486) (3,883) (8,470) (10,433) Net change in non-cash working capital items related to operations (5,074) (2,447) (4,427) 963 Income taxes refunded - - 240 250 Cash flows related to operating activities (8,560) (6,330) (12,657) (9,220) FINANCING ACTIVITIES Increase in credit facility 10,706 6,683 16,890 (7,767) Financing costs - (17) - (1,023) Proceeds from long-term debt - - - 19,500 Cash flows related to financing activities 10,706 6,666 16,890 10,710 INVESTING ACTIVITIES Additions to property and equipment and intangible assets (697) (174) (2,694) (1,679) Proceeds from disposal of property and equipment - - - 600 Cash flows related to investing activities (697) (174) (2,694) (1,079) Increase in cash 1,449 162 1,539 411 Cash (bank indebtedness), beginning of period (171) 515 (261) 266 Cash, end of period $ 1,278 $ 677 $ 1,278 $ 677 6