INTERIM REPORT RAPPORT INTERMÉDIAIRE

INTERIM REPORT RAPPORT INTERMÉDIAIRE POUR LES FOR NEUFS THE NINE MOIS MONTHS TERMINÉS ENDED LE 27 OCTOBER OCTOBRE 27, 2018 2018

MESSAGE TO SHAREHOLDERS Dear shareholders, 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 in the Management s Discussion and Analysis). On a year-to-date basis, 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, for the first nine months of 2018 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%. Net loss for the third quarter 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. For the nine-month period ended October 27, 2018, the net loss 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. Over the past few years, the retail landscape and consumer shopping habits have changed significantly with e-commerce. Consequently, the Company initiated a major shift with a view to close underperforming stores and recalibrate its retail network. This major undertaking is nearing its end with 100 stores closed to date from the peak of 243 stores reached in 2011. With the store network optimization process nearly completed and the solid momentum of our e-commerce platform, we remain optimistic about the opportunity to grow our business and improve our margins. 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%. I wish to thank our employees, customers, suppliers and our shareholders for their continued support. (signed) Jane Silverstone Segal, B.A., LLL Chairman of the Board and Chief Executive Officer December 21, 2018

Management s Discussion & Analysis Management s Discussion and Analysis ( MD&A ) should be read in conjunction with the unaudited interim condensed consolidated financial statements for the three and nine-month periods ended October 27, 2018 and the audited consolidated financial statements and MD&A for the year ended January 27, 2018. The risks and uncertainties faced by Le Château Inc. (the Company ) are substantially the same as those outlined in the annual MD&A contained in the Annual Report for the year ended January 27, 2018, other than as described in note 2 of the unaudited interim condensed consolidated financial statements for the three and nine-month periods ended October 27, 2018. The MD&A has been prepared as at December 21, 2018. The Company s independent auditors have not performed a review of the accompanying interim condensed consolidated financial statements. Additional information relevant to the Company can be found on the SEDAR website at www.sedar.com and the Company s website at www.lechateau.com. Results of Operations 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). On a year-to-date basis, 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, for the first nine months of 2018 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 (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. 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. Depreciation and amortization for the third quarter amounted to $2.0 million compared to $2.5 million last year. Write-off and impairment of property and equipment relating to store closures and underperforming stores amounted to $156,000 in the third quarter of 2018 (2017 $198,000). For the nine months ended October 27, 2018, depreciation and amortization decreased to $6.6 million from $8.1 million in 2017, due to the reduced investments in non-financial assets over the last several years. On a year-to-date basis, write-off and impairment of property and equipment amounted to $272,000 (2017 $682,000). Finance costs for the third quarter increased to $1.7 million from $1.4 million last year and for the nine months ended October 27, 2018, finance costs increased to $4.9 million from $4.1 million the previous year. The increase in finance costs for the three and nine-month periods ended October 27, 2018 was due to the additional borrowings during the current year. Net loss for the third quarter 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. For the nine-month period ended October 27, 2018, the net loss 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. Over the past few years, the retail landscape and consumer shopping habits have changed significantly with e-commerce. Consequently, the Company initiated a major shift with a view to close underperforming stores and recalibrate its retail network. This major undertaking is nearing its end with 100 stores closed to date from the peak of 243 stores reached in 2011. With the store network optimization process nearly completed and the solid momentum of our e-commerce platform, we remain optimistic about the opportunity to grow our business and improve our margins. 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. Page 1

Management s Discussion & Analysis Liquidity and Capital Resources Cash flow used for operating activities amounted to $8.6 million for the third quarter ended October 27, 2018, compared with $6.3 million for the same period last year. The increase of $2.3 million in cash flow used for operating activities during the third quarter of 2018 was mainly the result of the increase of $2.6 million in the net change in non-cash working capital requirements. On a year-to-date basis, cash flow used for operating activities amounted to $12.7 million, compared with $9.2 million last year. The increase of $3.5 million in cash flow used for operating activities during the first nine months of 2018 was mainly the result of the increase of $5.4 million in the net change in non-cash working capital requirements, offset by the decrease of $2.4 million in the net loss before depreciation, amortization, write-off and impairment of property and equipment and accretion of First Preferred shares for the first nine months of 2018. The Company s credit facility, including the current portion, net of cash (bank indebtedness), amounted to $54.4 million at the end of the third quarter, compared with $45.3 million as at October 28, 2017 and $38.8 million as at January 27, 2018. On June 9, 2017, the Company renewed its asset based revolving credit facility for a three-year term ending on June 9, 2020 with a limit of $70.0 million, subject to the availability constraints of the borrowing base which is comprised of cash, credit card balances in transit and inventories, as defined in the credit agreement. The revolving credit facility is secured by all the Company s assets. The borrowings bear interest at a rate based on the Canadian prime rate plus 1.75% or the banker s acceptance rate plus 3.0%. The Company is required to pay a standby fee of 0.35% on the unused portion of the revolving credit facility. As at October 27, 2018, the Company had drawn $56.3 million (2017 - $47.0 million) under this credit facility and had outstanding standby letters of credit totaling $650,000 (2017 $1.1 million) which reduced the availability under this credit facility. A portion of the amount drawn under this facility is presented as a current liability based on the Company s estimate of what it expects to settle in the next 12 months. Financing costs related to obtaining the above facility have been deferred and netted against the amounts drawn under the facility, and are being amortized over the term of the facility as finance costs in the consolidated statement of loss. Furthermore on June 9, 2017, the Company obtained a three-year $15.0 million subordinated term loan from another lender, subject to the availability constraints of the borrowing base which is comprised of cash, credit card balances in transit and inventories, as defined in the term loan agreement. The subordinated term loan is secured by all the Company s assets and is subordinated in terms of ranking and repayment to the Company s $70.0 million revolving credit facility. The subordinated term loan bears interest at a variable rate of the banker s acceptance rate plus 9.0% and is repayable at maturity on June 9, 2020. The proceeds of the term loan were used to reduce the amount outstanding under the revolving credit facility. The revolving and subordinated term loan credit agreements require the Company to comply with certain non-financial covenants, including restrictions on: i) the declaration and payment of dividends on the Company s shares, ii) the redemption or repurchase of the Company s shares and iii) the payment of interest with respect to loans from related parties. As at October 27, 2018, the Company is in compliance with all of its covenants. Aside from the letters of credit outstanding, the Company did not have any other off-balance sheet financing arrangements as at October 27, 2018. Capital expenditures for the third quarter amounted to $697,000, compared to $174,000 for the same period last year. Capital expenditures for the first nine months of 2018 amounted to $2.7 million, compared to $1.7 million for the same period last year and are primarily related to the renovation of certain existing stores and investments in information technology. Capital expenditures were financed with the Company s asset based credit facility. Financial Position Working capital stood at $65.3 million at the end of the third quarter of 2018, compared to $63.7 million as at October 28, 2017 and $65.7 million as at January 27, 2018. Long-term debt, including the current portion, amounted to $29.5 million as at October 27, 2018 compared with $30.5 million as at January 27, 2018. On February 15, 2017 and March 8, 2017, the Company entered into loan agreements for $2.0 million and $2.5 million, respectively, with a company that is directly controlled by a director of the Company. The financing is in the form of secured loans which bear a variable rate of interest, payable monthly, equal to the lesser of (i) the prime rate of the Royal Bank of Canada multiplied by two and (ii) 7.5%. These loans, which were repayable at maturity on July 14, 2017, were exchanged for First Preferred shares series 1 on June 9, 2017, as noted below. Page 2

Management s Discussion & Analysis Inventory Total inventories as at October 27, 2018 amounted to $93.4 million compared to $95.4 million as at October 28, 2017 and $89.9 million as at January 27, 2018. Total finished goods inventory, including goods in transit, at the end of the third quarter decreased by 1.4% compared to October 28, 2017, particularly in prior season discounted merchandise. As part of the Company s inventory management plan, the Company continues to use 24 outlets (210,000 square feet) in its network to sell prior season discounted merchandise. In addition, the on-line outlet division has also played an important role in the selling of these goods. Outstanding Share Data As at December 21, 2018, there were 29,963,762 Class B voting shares and 250,000 First Preferred Shares series 1 outstanding. Furthermore, there were 1,077,500 stock options outstanding with exercise prices ranging from $0.23 to $1.91, of which 1,040,500 were exercisable. On June 9, 2017, approximately $25.0 million of the outstanding principal amount of $41.2 million loans from a company that is directly controlled by a director of the Company, was exchanged for 250,000 newly created First Preferred shares series 1 of Le Château with an equivalent stated capital. The maturity date of the remaining principal amount of the $16.2 million loan was extended to September 30, 2020. The loan is secured by all the Company s assets and subordinated in terms of ranking and repayment to the $70.0 million revolving credit facility and the $15.0 million subordinated term loan. The holder of the First Preferred shares series 1 will be entitled to receive, if declared by the board of directors, cumulative quarterly preferred dividends at the rate of 2.5% per quarter. The First Preferred shares series 1 are nonvoting and redeemable, in whole or in part, at the Company s option, at $100 per share, together with accumulated and unpaid dividends. The holder of First Preferred shares series 1 will have the option, after the 5 th anniversary date of their issuance, to require the Company to redeem the shares at $100 per share, together with accumulated and unpaid dividends. The revolving and term loan credit agreements contain restrictions on the declaration and payment of dividends on the Company s shares and on the redemption or repurchase of the Company s shares during the term of these facilities. The preferred shares are classified as a financial liability in the consolidated balance sheet as a result of the holder s right, after the 5 th anniversary date of their issuance, to require the Company to redeem the First Preferred shares series 1. Critical Accounting Policies and Estimates Critical Accounting Estimates: The preparation of financial statements requires the Company to estimate the effect of various matters that are inherently uncertain as of the date of the financial statements. Each of these required estimates varies in regard to the level of judgment involved and its potential impact on the Company s reported financial results. Estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from period to period, and would materially impact the Company s financial position, changes in financial position or results of operations. The Company s significant accounting policies are discussed in notes 3, 4 and 5 of the audited consolidated financial statements for the year ended January 27, 2018. Changes resulting from the adoption of the new accounting standards effective January 28, 2018 are disclosed below. Critical estimates inherent in these accounting policies are discussed in the following paragraphs. Going Concern Assumption In the preparation of financial statements, management is required to identify when events or conditions indicate that significant doubt may exist about the Company s ability to continue as a going concern. Significant doubt about the Company s ability to continue as a going concern would exist when relevant conditions and events, considered in the aggregate, indicate that the Company will not be able to meet its obligations as they become due for a period of at least, but not limited to, twelve months from the balance sheet date. When the Company identifies conditions or events that raise potential for significant doubt about its ability to continue as a going concern, the Company considers whether its plans that are intended to mitigate those relevant conditions or events will alleviate the potential significant doubt. As described further in note 3 of the unaudited interim condensed consolidated financial statements for the three and nine-month periods ended October 27, 2018, the Company renewed its asset based revolving credit facility on June 9, 2017 for a three-year term ending on June 9, 2020 and obtained a three-year $15.0 million subordinated term loan from another lender. For the nine months ended October 27, 2018, the Company generated a loss and negative cash flows from operations. The Company has working capital of $65.3 million as at October 27, 2018. The Company s ability to continue as a going concern for the next twelve months involves significant judgment and is dependent on the availability under its credit facility as well as continued support from its controlling shareholders. Inventory valuation The Company records a write-down to reflect management s best estimate of the net realizable value of inventory which includes assumptions and estimates for future sell-through of units, selling prices, as well as disposal costs, where appropriate, based on historical Page 3

Management s Discussion & Analysis experience. Management continually reviews the carrying value of its inventory, to assess whether the write-down is adequate, based on current economic conditions and an assessment of sales trends. Impairment of non-financial assets Non-financial assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. A review for impairment is conducted by comparing the carrying amount of the cash generating unit s ( CGU ) assets with their respective recoverable amounts based on value in use. Value in use is determined based on management s best estimate of expected future cash flows, which includes estimates of growth rates, from use over the remaining lease term and discounted using a pre-tax weighted average cost of capital. Management is required to use significant judgment in determining if individual commercial premises in which it carries out its activities are individual CGUs, or if these units should be aggregated at a district or regional level to form a CGU. The significant judgments applied by management in determining if stores should be aggregated in a given geographic area to form a CGU include the determination of expected customer behaviour and whether customers could interchangeably shop in any of the stores in a given area and whether management views the cash flows of the stores in the group as inter-dependent. Accounting Standards Implemented in 2018: IFRS 15 - Revenue from contracts with customers IFRS 15 replaced the requirements of IAS 11, Construction Contracts, and IAS 18, Revenue and related interpretations. This standard specifies the steps and timing for issuers to recognize revenue as well as requiring them to provide more informative, relevant disclosures. These changes are applicable for annual periods beginning on or after January 1, 2018. The Company adopted the standard for the annual period beginning January 28, 2018 and applied the requirements of the standard retrospectively, with the cumulative effects of initial application recorded in the opening deficit on January 28, 2018 with no restatement for comparative periods. The implementation of IFRS 15 impacted the allocation of revenue that is deferred in relation to gift cards sold. Previously, an estimate was made of gift cards not expected to be redeemed based on historical redemption patterns. Under IFRS 15, if the Company expects to be entitled to a breakage amount for the gift cards, it recognizes the expected breakage amount as revenue in proportion to the pattern of rights exercised by the customer. The adoption of IFRS 15 increased the deferred revenue liability and the deficit by $347,000 as at January 28, 2018, in relation to revenue that is deferred due to gift cards sold. IFRS 9 - Financial Instruments IFRS 9 replaced the requirements of IAS 39, Financial Instruments: Recognition and Measurement. This final version of IFRS 9 brings together the classification and measurements as well as impairment and hedge accounting phases of the project to replace IAS 39. In addition to the new requirements for classification and measurement of financial assets, a new general hedge accounting model and other amendments issued in previous versions of IFRS 9, the standard also introduces new impairment requirements that are based on a forwardlooking expected credit loss model. These changes are applicable for annual periods beginning on or after January 1, 2018. The Company adopted the standard for the annual period beginning January 28, 2018 and applied the requirements of the standard retrospectively, with the cumulative effects of initial application recorded in the opening deficit on January 28, 2018 with no restatement for comparative periods. The implementation of IFRS 9 impacted the fair values of the long-term debt and the first preferred shares at which these financial instruments were initially recorded, as well as their respective interest and accretion expenses. Previously, modifications of debt conditions did not result in any re-evaluation of their fair values provided the value changed by less than 10%. Under IFRS 9, that option is not available and modified debt has been re-evaluated. The adoption of IFRS 9 required a re-classification of measurement category for some financial instruments. Accounts receivable, previously classified as Loans and Receivables under IAS 39 are now classified as Amortized Cost under IFRS 9. Credit facility, trade and other payables, long-term debt and preferred shares, previously classified as Other Financial Liabilities under IAS 39 are now classified as Amortized Cost under IFRS 9. All other assets and liabilities have kept the same classification as under IAS 39. The adoption of IFRS 9 increased the contributed surplus by $4.5 million and the deficit by $1.0 million as at January 28, 2018. These were offset by a decrease in the carrying value of the First Preferred shares series 1 by $1.9 million and the carrying value of the long-term debt by $1.6 million as at January 28, 2018. These changes are in relation to changes in fair value adjustments and subsequent amortization and accretion expenses. New Standards Not Yet Effective: IFRS 16 Leases In January 2016, the IASB issued IFRS 16, Leases ( IFRS 16 ), replacing IAS 17, Leases and related interpretations. The standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the Page 4

Management s Discussion & Analysis underlying asset and a lease liability representing its obligation to make lease payments. Lessors continue to classify leases as finance and operating leases. Other areas of the lease accounting model have been impacted, including the definition of a lease. IFRS 16 becomes effective for annual periods beginning on or after January 1, 2019, and is to be applied retrospectively. Early adoption is permitted if IFRS 15, Revenue from Contracts with Customers ( IFRS 15 ) has been adopted. The Company does not intend to early adopt IFRS 16. The Company continues to work on the implementation of revised processes, as well as data recording and reporting in order to comply with the requirements of the standard. The Company has upgraded its lease management software and continues to test and validate the inputs, outputs and key assumptions used in its IFRS 16 calculations. Based on the assessment and work done to date, the Company expects the adoption of IFRS 16 will have a significant impact on its consolidated financial statements as the Company will recognize new assets and liabilities for its operating leases of retail stores, offices and equipment. In addition, the nature and timing of expenses related to those leases will change as IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of use assets and interest expense on lease liabilities. The Company will apply the requirements of the standard retrospectively, with the cumulative effects of initial application recorded in the opening deficit on January 27, 2019 with no restatement for comparative periods. The Company has not yet determined whether it will use the optional exemptions or practical expedients under the standard. The Company expects to disclose additional detailed information, including the estimated quantitative financial effects, before the adoption of IFRS 16. Non-GAAP Measures In addition to discussing earnings measures in accordance with IFRS, this MD&A 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 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: (Unaudited) For the three months ended For the nine months ended (In thousands of Canadian dollars) October 27, 2018 October 28, 2017 October 27, 2018 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: (Unaudited) For the three months ended For the nine months ended (In thousands of Canadian dollars) October 27, 2018 October 28, 2017 October 27, 2018 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. Page 5

Management s Discussion & Analysis Summary of Quarterly Results The table below presents selected financial data for the eight most recently reported quarters. This unaudited quarterly information has been prepared under IFRS. The operating results for any quarter are not necessarily indicative of the results to be expected for any future period. (Unaudited) Loss before Loss per share (In thousands of Canadian dollars, except per share amounts) Sales income taxes Net loss Basic Diluted Third quarter ended October 27, 2018 $ 45,099 $ (6,708) $ (6,708) $ (0.22) $ (0.22) Second quarter ended July 28, 2018 53,313 (178) (178) (0.01) (0.01) First quarter ended April 28, 2018 41,084 (10,777) (10,777) (0.36) (0.36) Fourth quarter ended January 27, 2018 55,972 (3,012) (3,012) (0.10) (0.10) Third quarter ended October 28, 2017 48,676 (7,121) (7,121) (0.24) (0.24) Second quarter ended July 29, 2017 55,308 (987) (987) (0.03) (0.03) First quarter ended April 29, 2017 44,413 (12,853) (12,853) (0.43) (0.43) Fourth quarter ended January 28, 2017 62,620 (8,750) (8,750) (0.29) (0.29) Retail sales are traditionally higher in the fourth quarter due to the holiday season. In addition, fourth quarter earnings results are usually reduced by post holiday sale promotions. Forward-looking Statements This Management s Discussion and Analysis 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 forwardlooking 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. Page 6

FINANCIAL HIGHLIGHTS (Unaudited) (In units except where otherwise stated) October 27, 2018 October 28, 2017 Working capital ($'000) $ 65,334 $ 63,731 Capital expenditures ($'000) $ 2,694 $ 1,679 Number of stores at end of quarter 143 170 Total number of square feet ('000) 807 946 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 (notes 3 and 13) Current assets Cash $ 1,278 $ 677 $ - Accounts receivable 1,050 866 957 Income taxes refundable 389 389 449 Inventories (note 4) 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 (note 5) 23,374 29,588 27,052 Intangible assets (note 6) 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 (note 3) 11,418 15,636 6,322 Trade and other payables (note 7) 18,447 16,338 17,342 Deferred revenue 2,549 2,507 2,842 Current portion of provision for onerous leases (note 8) 340 703 576 Total current liabilities 32,754 35,184 27,343 Credit facility (note 3) 44,294 30,373 32,221 Long-term debt (notes 3 and 13) 29,484 30,463 30,518 Provision for onerous leases (note 8) 20 961 924 Deferred lease credits 6,791 7,384 7,111 First Preferred shares series 1 (notes 3, 9 and 13) 24,884 24,130 24,718 Total liabilities 138,227 128,495 122,835 Shareholders' equity (deficiency) Share capital (note 9) 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 See accompanying notes NOTICE The Company s independent auditors have not performed a review of the accompanying interim condensed consolidated financial statements. Page 7

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (Unaudited) For the three months ended For the nine months ended (In thousands of Canadian dollars, except per share information) October 27, 2018 October 28, 2017 October 27, 2018 October 28, 2017 Sales (note 11) $ 45,099 $ 48,676 $ 139,496 $ 148,397 Cost of sales and expenses Cost of sales (note 4) 15,203 17,621 47,523 52,067 Selling (note 5) 27,109 29,024 81,554 89,277 General and administrative (notes 5 and 6) 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 (note 10) 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 See accompanying notes CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIENCY) (Unaudited) For the three months ended For the nine months ended (In thousands of Canadian dollars) October 27, 2018 October 28, 2017 October 27, 2018 October 28, 2017 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 (note 2) - - 4,502 - Adjusted balance, beginning of period 14,125 9,529 14,102 9,287 Fair value adjustment of long-term debt (note 13) - - - 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 (note 2) - - (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 See accompanying notes Page 8

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the three months ended For the nine months ended (In thousands of Canadian dollars) October 27, 2018 October 28, 2017 October 27, 2018 October 28, 2017 OPERATING ACTIVITIES Net loss $ (6,708) $ (7,121) $ (17,663) $ (20,961) Adjustments to determine net cash from operating activities Depreciation and amortization (notes 5 and 6) 2,039 2,473 6,553 8,123 Write-offs and impairment of property and equipment and intangible assets (notes 5 and 6) 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 (notes 5 and 6) (697) (174) (2,694) (1,679) Proceeds from disposal of property and equipment (note 5) - - - 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 See accompanying notes Page 9

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited Tabular figures in thousands of Canadian dollars, except share information) 1. Corporate information The unaudited interim condensed consolidated financial statements of Le Château Inc. (the Company ) for the three and nine-month periods ended October 27, 2018 were authorized for issue on December 21, 2018 in accordance with a resolution of the Board of Directors. The Company is incorporated and domiciled in Canada and its shares are publicly traded on the TSX Venture Exchange. The registered office is located in Montreal, Quebec, Canada. The Company s principal business activity is the retail of fashion apparel, accessories and footwear aimed at style-conscious women and men. 2. Basis of preparation The unaudited interim condensed consolidated financial statements for the three and nine-month periods ended October 27, 2018 have been prepared in accordance with IAS 34 Interim Financial Reporting. The accounting policies and methods of computation followed in the preparation of these unaudited interim condensed consolidated financial statements are the same as those used in the preparation of the most recent audited annual consolidated financial statements for the year ended January 27, 2018, except for the adoption of new accounting standards effective January 28, 2018, as further described below. These unaudited interim condensed consolidated financial statements for the three and nine-month periods ended October 27, 2018 should be read together with the audited annual consolidated financial statements for the year ended January 27, 2018 prepared in accordance with International Financial Reporting Standards ( IFRS ). The significant accounting judgments, estimates and assumptions used in these unaudited interim condensed consolidated financial statements are consistent with those disclosed in the most recent audited annual consolidated financial statements for the year ended January 27, 2018. Significant Accounting Judgment - Going Concern Assumption In the preparation of financial statements, management is required to identify when events or conditions indicate that significant doubt may exist about the Company s ability to continue as a going concern. Significant doubt about the Company s ability to continue as a going concern would exist when relevant conditions and events, considered in the aggregate, indicate that the Company will not be able to meet its obligations as they become due for a period of at least, but not limited to, twelve months from the balance sheet date. When the Company identifies conditions or events that raise potential for significant doubt about its ability to continue as a going concern, the Company considers whether its plans that are intended to mitigate those relevant conditions or events will alleviate the potential significant doubt. As described further in note 3 of the unaudited interim condensed consolidated financial statements for the three and nine-month periods ended October 27, 2018, the Company renewed its asset based revolving credit facility on June 9, 2017 for a three-year term ending on June 9, 2020 and obtained a three-year $15.0 million subordinated term loan from another lender. For the nine months ended October 27, 2018, the Company generated a loss and negative cash flows from operations. The Company has working capital of $65.3 million as at October 27, 2018. The Company s ability to continue as a going concern for the next twelve months involves significant judgment and is dependent on the availability under its credit facility as well as continued support from its controlling shareholders. New Accounting Standards Implemented IFRS 15 - Revenue from contracts with customers IFRS 15 replaced the requirements of IAS 11, Construction Contracts, and IAS 18, Revenue and related interpretations. This standard specifies the steps and timing for issuers to recognize revenue as well as requiring them to provide more informative, relevant disclosures. These changes are applicable for annual periods beginning on or after January 1, 2018. The Company adopted the standard for the annual period beginning January 28, 2018 and applied the requirements of the standard retrospectively, with the cumulative effects of initial application recorded in the opening deficit on January 28, 2018 with no restatement for comparative periods. The implementation of IFRS 15 impacted the allocation of revenue that is deferred in relation to gift cards sold. Previously, an estimate was made of gift cards not expected to be redeemed based on historical redemption patterns. Under IFRS 15, if the Company expects to be entitled to a breakage amount for the gift cards, it recognizes the expected breakage amount as revenue in proportion to the pattern of rights exercised by the customer. The adoption of IFRS 15 increased the deferred revenue liability and the deficit by $347,000 as at January 28, 2018, in relation to revenue that is deferred due to gift cards sold. Page 10

Notes to the Interim Condensed Consolidated Financial Statements IFRS 9 - Financial Instruments IFRS 9 replaced the requirements of IAS 39, Financial Instruments: Recognition and Measurement. This final version of IFRS 9 brings together the classification and measurements as well as impairment and hedge accounting phases of the project to replace IAS 39. In addition to the new requirements for classification and measurement of financial assets, a new general hedge accounting model and other amendments issued in previous versions of IFRS 9, the standard also introduces new impairment requirements that are based on a forwardlooking expected credit loss model. These changes are applicable for annual periods beginning on or after January 1, 2018. The Company adopted the standard for the annual period beginning January 28, 2018 and applied the requirements of the standard retrospectively, with the cumulative effects of initial application recorded in the opening deficit on January 28, 2018 with no restatement for comparative periods. The implementation of IFRS 9 impacted the fair values of the long-term debt and the first preferred shares at which these financial instruments were initially recorded, as well as their respective interest and accretion expenses. Previously, modifications of debt conditions did not result in any re-evaluation of their fair values provided the value changed by less than 10%. Under IFRS 9, that option is not available and modified debt has been re-evaluated. The adoption of IFRS 9 required a re-classification of measurement category for some financial instruments. Accounts receivable, previously classified as Loans and Receivables under IAS 39 are now classified as Amortized Cost under IFRS 9. Credit facility, trade and other payables, long-term debt and preferred shares, previously classified as Other Financial Liabilities under IAS 39 are now classified as Amortized Cost under IFRS 9. All other assets and liabilities have kept the same classification as under IAS 39. The adoption of IFRS 9 increased the contributed surplus by $4.5 million and the deficit by $1.0 million as at January 28, 2018. These were offset by a decrease in the carrying value of the First Preferred shares series 1 by $1.9 million and the carrying value of the long-term debt by $1.6 million as at January 28, 2018. These changes are in relation to changes in fair value adjustments and subsequent amortization and accretion expenses. The following table presents the impact of adopting IFRS 9 and IFRS 15 on the Company s equity as at January 28, 2018: Share capital Contributed surplus Deficit Total Balance as at January 27, 2018 $ 47,967 $ 9,600 $ (57,367) $ 200 Transitional adjustments on adoption of new accounting standards: Adoption of IFRS 9 for long-term debt - 2,479 (878) 1,601 Adoption of IFRS 9 for First Preferred shares series 1-2,023 (142) 1,881 Adoption of IFRS 15 for deferred revenue - - (347) (347) - 4,502 (1,367) 3,135 Balance as at January 28, 2018 $ 47,967 $ 14,102 $ (58,734) $ 3,335 New Standards Not Yet Effective IFRS 16 Leases In January 2016, the IASB issued IFRS 16, Leases ( IFRS 16 ), replacing IAS 17, Leases and related interpretations. The standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. Lessors continue to classify leases as finance and operating leases. Other areas of the lease accounting model have been impacted, including the definition of a lease. IFRS 16 becomes effective for annual periods beginning on or after January 1, 2019, and is to be applied retrospectively. Early adoption is permitted if IFRS 15, Revenue from Contracts with Customers ( IFRS 15 ) has been adopted. The Company does not intend to early adopt IFRS 16. The Company continues to work on the implementation of revised processes, as well as data recording and reporting in order to comply with the requirements of the standard. The Company has upgraded its lease management software and continues to test and validate the inputs, outputs and key assumptions used in its IFRS 16 calculations. Based on the assessment and work done to date, the Company expects the adoption of IFRS 16 will have a significant impact on its consolidated financial statements as the Company will recognize new assets and liabilities for its operating leases of retail stores, offices and equipment. In addition, the nature and timing of expenses related to those leases will change as IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of use assets and interest expense on lease liabilities. The Company will apply the requirements of the standard retrospectively, with the cumulative effects of initial application recorded in the opening deficit on January 27, 2019 with no restatement for comparative periods. The Company has not yet determined whether it will use the optional exemptions or practical expedients under the standard. The Company expects to disclose additional detailed information, including the estimated quantitative financial effects, before the adoption of IFRS 16. Page 11

Notes to the Interim Condensed Consolidated Financial Statements Basis of consolidation The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. The unaudited interim financial statements of the subsidiary are prepared for the same reporting period as the parent company, using consistent accounting policies. All intercompany transactions, balances and unrealized gains or losses have been eliminated. The Company has no interests in special purpose entities. 3. Credit facility and long-term debt On June 9, 2017, the Company renewed its asset based revolving credit facility for a three-year term ending on June 9, 2020 with a limit of $70.0 million, subject to the availability constraints of the borrowing base which is comprised of cash, credit card balances in transit and inventories, as defined in the credit agreement. The revolving credit facility is secured by all the Company s assets. The borrowings bear interest at a rate based on the Canadian prime rate plus 1.75% or the banker s acceptance rate plus 3.0%. The Company is required to pay a standby fee of 0.35% on the unused portion of the revolving credit facility. As at October 27, 2018, the Company had drawn $56.3 million (2017 - $47.0 million) under this credit facility and had outstanding standby letters of credit totaling $650,000 (2017 $1.1 million) which reduced the availability under this credit facility. A portion of the amount drawn under this facility is presented as a current liability based on the Company s estimate of what it expects to settle in the next 12 months. Financing costs related to obtaining the above facility have been deferred and netted against the amounts drawn under the facility, and are being amortized over the term of the facility as finance costs in the consolidated statement of loss. Furthermore on June 9, 2017, the Company obtained a three-year $15.0 million subordinated term loan from another lender, subject to the availability constraints of the borrowing base which is comprised of cash, credit card balances in transit and inventories, as defined in the term loan agreement. The subordinated term loan is secured by all the Company s assets and is subordinated in terms of ranking and repayment to the Company s $70.0 million revolving credit facility. The subordinated term loan bears interest at a variable rate of the banker s acceptance rate plus 9.0% and is repayable at maturity on June 9, 2020. The proceeds of the term loan were used to reduce the amount outstanding under the revolving credit facility. The revolving and subordinated term loan credit agreements require the Company to comply with certain non-financial covenants, including restrictions on: i) the declaration and payment of dividends on the Company s shares, ii) the redemption or repurchase of the Company s shares and iii) the payment of interest with respect to loans from related parties. As at October 27, 2018, the Company is in compliance with all of its covenants. 4. Inventories October 27, 2018 October 28, 2017 January 27, 2018 Raw materials $ 1,853 $ 2,372 $ 2,076 Work-in-process 2,030 2,266 2,461 Finished goods 86,851 88,560 79,264 Finished goods in transit 2,661 2,179 6,110 $ 93,395 $ 95,377 $ 89,911 The cost of inventory recognized as an expense and included in cost of sales for the three and nine-month periods ended October 27, 2018 was $13.8 million and $43.7 million, respectively (2017 $16.4 million and $49.0 million). For the three and nine-month periods ended October 27, 2018, the Company recorded $373,000 of write-downs as a result of net realizable value being lower than cost (2017 NIL). Page 12