PRESS RELEASE LE CHÂTEAU REPORTS FIRST QUARTER RESULTS RENEWS CREDIT FACILITY ENTERS INTO NEW LONG-TERM FINANCING ARRANGEMENTS Montréal, June 9, 2017 Le Château Inc. (TSX: CTU), today reported that sales for the first quarter ended April 29, 2017 amounted to $44.4 million as compared with $48.6 million for the first quarter ended April 30, 2016, a decrease of 8.6%, with 26 fewer stores in operation. Comparable store sales decreased 1.5% for the first quarter as compared to last year, with comparable regular store sales increasing 0.7% and comparable outlet store sales decreasing 9.9% (see non-gaap measures below). Included in comparable store sales are online sales which increased 22.0% for the first quarter. The Company continues to make progress in its strategy to recalibrate its retail network, close underperforming stores and further strengthen its rapidly growing e-commerce platform. The renewal of the credit facility, a new term loan and the exchange of a portion of the loan from a company controlled by a director of Le Château, into First Preferred Shares are expected to provide Le Château with the financial flexibility to complete its strategy of right-sizing its retail network of stores. In 2017, the Company is planning to close approximately 18 stores. Earnings (loss) before interest, income taxes, depreciation, amortization, write-off and/or impairment of property and equipment and intangible assets ( Adjusted EBITDA ) (see non-gaap measures below) for the first quarter of 2017 amounted to $(8.3) million, compared to $(9.1) million for the same period last year. The improvement of $820,000 in adjusted EBITDA for the first quarter was primarily attributable to the reduction of $4.1 million in selling, general and administrative ( SG&A ) expenses offset by the decrease of $3.3 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 $3.3 million gross margin dollars was the result of the decline in gross margin percentage to 61.1% from 62.6% in 2016 due to increased promotional activity primarily in scheduled store closures and in the outlet stores, combined with the 8.6% overall sales decline for the first quarter. As for the comparable regular stores, the gross margin dollars remained relatively stable when compared with the same period last year. Net loss for the first quarter ended April 29, 2017 amounted to $12.9 million or $(0.43) per share compared to a net loss of $14.3 million or $(0.48) per share for the same period last year. During the first quarter of 2017, the Company renovated one existing location and, as planned, closed seven underperforming stores. As at April 29, 2017, the Company operated 180 stores (including 50 fashion outlet stores) compared to 206 stores (including 62 fashion outlet stores) as at April 30, 2016. Total square footage for the Le Château network as at April 29, 2017 amounted to 994,000 square feet (including 354,000 square feet for fashion outlet stores), compared to 1,136,000 square feet (including 441,000 square feet for fashion outlet stores) as at April 30,2016. Credit Facility 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. The revolving credit facility is secured by all the Company s assets. In addition, the Company has entered into a three-year $15.0 million term loan with a subordinate lender, subject to the availability constraints of the borrowing base. The 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 and is repayable at maturity on June 9, 2020. The proceeds of the term loan will be used to reduce the amount outstanding under the revolving credit facility. Furthermore on June 9, 2017, approximately $25.0 million of the 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 $16.2 million loan has been 1
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 term loan. The holder of the 250,000 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 non-voting and redeemable, in whole or in part, at the Company s option, at $100 per share, together with declared 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 declared and unpaid dividends. The revolving and term loan credit agreements contain prohibitions on the declaration and payment of dividends on the Company s shares and on the redemption or repurchase of the Company s shares. These arrangements will provide the Company with additional capital and financing flexibility, with net proceeds being used primarily for working capital, capital expenditures and other general corporate purposes. Further details regarding the facilities are set out in the Company s unaudited interim condensed consolidated financial statements and Management s Discussion and Analysis for the first quarter ended April 29, 2017. The transaction with the corporation controlled by Mr. Segal was approved by all of the independent directors of the Company and is exempt from the requirement to obtain a formal valuation and minority shareholder approval under the related party transaction rules of applicable securities legislation. After giving effect to the transaction, Mr. Segal will own, directly or indirectly, and exercise control over 6,856,377 Class B Voting Shares, representing approximately 22.9% of the outstanding Class B Voting Shares and 250,000 First Preferred Shares Series 1. The shares owned by Mr. Segal are held for investment purposes only. Depending upon the circumstances, Mr. Segal may, from time to time acquire additional securities or related financial instruments of Le Château or dispose of all or a portion of the securities or related financial instruments of Le Château previously acquired. Other than as noted above, Mr. Segal does not currently have any plans or future intentions relating to any of the circumstances described in subparagraphs (b) to (k) of Item 5 of Form 62-103F1 filed on SEDAR under Le Château s issuer profile. Second Quarter of 2017 For the first five weeks ended June 3, 2017, total retail sales decreased 8.5%, with 26 fewer stores in operation. Comparable store sales decreased 2.9% compared to the same period last year, with comparable regular store sales increasing 0.6% and comparable outlet store sales decreasing 15.6%. Included in comparable store sales are online sales which increased 14.5%. Profile Le 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 179 prime locations across Canada and a rapidly growing 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. 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. 2
The following table reconciles adjusted EBITDA to loss before income tax recovery for the first quarters ended April 29, 2017 and April 30, 2016: (In thousands of Canadian dollars) April 29,2017 April 30,2016 Loss before income tax recovery $ (12,853) $ (14,273) Depreciation and amortization 2,873 3,717 Write-off and impairment of property and equipment 227 178 Finance costs 1,440 1,245 Adjusted EBITDA $ (8,313) $ (9,133) 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 unaudited interim condensed consolidated statements of loss for the first quarters ended April 29, 2017 and April 30, 2016: (In thousands of Canadian dollars) April 29, 2017 April 30, 2016 Comparable store sales Regular stores $ 33,968 $ 33,721 Comparable store sales Outlet stores 8,109 9,000 Total comparable store sales 42,077 42,721 Non-comparable store sales 2,336 5,908 Total sales $ 44,413 $ 48,629 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 and the approval of the listing of the Company s shares on the TSX Venture Exchange. 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 first quarter ended April 29, 2017 are available online at www.sedar.com. 3
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. - 30-4
CONSOLIDATED BALANCE SHEETS (In thousands of Canadian dollars) As at April 29, 2017 As at April 30, 2016 As at January 28, 2017 ASSETS Current assets Cash $ 1,168 $ 402 $ 266 Accounts receivable 1,033 1,298 992 Income taxes refundable 519 344 459 Inventories 99,320 116,133 101,128 Prepaid expenses 1,907 1,549 1,604 Total current assets 103,947 119,726 104,449 Deposits 621 621 621 Property and equipment 34,282 45,900 36,969 Intangible assets 2,755 2,977 2,900 $ 141,605 $ 169,224 $ 144,939 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of credit facility $ 63,401 $ 22,506 $ 54,564 Trade and other payables 16,087 14,562 19,335 Deferred revenue 2,736 2,950 3,022 Current portion of provision for onerous leases 832 643 846 Current portion of long-term debt 6,123 568 1,643 Total current liabilities 89,179 41,229 79,410 Credit facility - 39,411 - Long-term debt 32,322 31,513 32,113 Provision for onerous leases 1,214 1,350 1,364 Deferred lease credits 7,711 9,190 8,192 Total liabilities 130,426 122,693 121,079 Shareholders' equity Share capital 47,967 47,967 47,967 Contributed surplus 9,459 9,005 9,287 Deficit (46,247) (10,441) (33,394) Total shareholders' equity 11,179 46,531 23,860 $ 141,605 $ 169,224 $ 144,939 5
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (In thousands of Canadian dollars, except per share information) April 29, 2017 April 30, 2016 Sales $ 44,413 $ 48,629 Cost of sales and expenses Cost of sales 17,258 18,205 Selling 30,278 34,902 General and administrative 8,290 8,550 55,826 61,657 Results from operating activities (11,413) (13,028) Finance costs 1,440 1,245 Loss before income taxes (12,853) (14,273) Income tax recovery - - Net loss and comprehensive loss $ (12,853) $ (14,273) Net loss per share Basic $ (0.43) $ (0.48) Diluted (0.43) (0.48) Weighted average number of shares outstanding ('000) 29,964 29,964 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (In thousands of Canadian dollars) April 29, 2017 April 30, 2016 SHARE CAPITAL $ 47,967 $ 47,967 CONTRIBUTED SURPLUS Balance, beginning of period $ 9,287 $ 8,555 Fair value adjustment of long-term debt 99 347 Stock-based compensation expense 73 103 Balance, end of period $ 9,459 $ 9,005 DEFICIT Balance, beginning of period $ (33,394) $ 3,832 Net loss (12,853) (14,273) Balance, end of period $ (46,247) $ (10,441) Total shareholders equity $ 11,179 $ 46,531 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of Canadian dollars) April 29, 2017 April 30, 2016 OPERATING ACTIVITIES Net loss $ (12,853) $ (14,273) Adjustments to determine net cash from operating activities Depreciation and amortization 2,873 3,717 Write-off and impairment of property and equipment 227 178 Amortization of deferred lease credits (681) (323) Deferred lease credits 200 - Stock-based compensation 73 103 Provision for onerous leases (164) (80) Finance costs 1,440 1,245 Interest paid (531) (915) (9,416) (10,348) Net change in non-cash working capital items related to operations (2,691) (6,550) Income taxes refunded - 300 Cash flows related to operating activities (12,107) (16,598) FINANCING ACTIVITIES Increase in credit facility 8,777 16,952 Proceeds of long-term debt 4,500 2,500 Repayment of long-term debt - (280) Cash flows related to financing activities 13,277 19,172 INVESTING ACTIVITIES Additions to property and equipment and intangible assets (868) (1,627) Proceeds from disposal of property and equipment 600 - Cash flows related to investing activities (268) (1,627) Increase in cash 902 947 Cash (bank indebtedness), beginning of period 266 (545) Cash, end of period $ 1,168 $ 402 7