LXRandCo Reports Continuing Strong Revenue Growth for the Fourth Quarter and Full Year 2017

 

Quarter Highlighted by 47 Store Openings and Year-over-Year Revenue Growth of 65% –

Company Nearly Triples Store Count in 2017 and Delivers 69% Increase in Full Year Revenue –

MONTREAL, March 20, 2018 /CNW/ - LXRandCo, Inc. ("LXRandCo" or the "Company") (TSX: LXR, LXR.WT), an international omni-channel retailer of branded vintage luxury handbags and accessories, today reported its financial results for the fourth quarter and 12-month period ended December 31, 2017.

"The fourth quarter was by far our busiest yet in terms of expanding our physical retail network as we opened 47 "shop-in-shop" stores to end the year at 133, nearly tripling our store count from the end of 2016, and surpassing our year-end target of 122," said Fred Mannella, CEO, LXRandCo. "Expansion of our retail network, complemented by continued growth in our online business, contributed to 65% and 70% year-over-year increases in fourth quarter and full-year revenue, respectively. With the vast majority of our 2017 store openings taking place in the second half of the year, most of these new stores are still ramping up to full productivity and profitability. As a result, SG&A expenses continue to trend above our long-term target as we incur staffing costs in these new stores ahead of sales ramp and as we solidify our corporate team to support our network expansion plan in 2018."

"Despite our strong sales performance, gross margin for the fourth quarter was impacted by a number of items specific to the quarter, including our decision to significantly increase our promotional activity to take advantage of the large number of store openings and busy holiday season to build brand awareness and attract new customers that will benefit us for years to come. In addition, we incurred higher sourcing costs for certain brands in Japan due to increased competitive activity, which impacted gross margin by approximately 150 basis points compared to the same period in 2016. While these higher costs may persist for the foreseeable future, we remain confident in our ability to enhance gross margin by sourcing more inventory directly from customers and alternative third-party suppliers, which we more than doubled in 2017, and by implementing other margin enhancement initiatives."

"Following the success of our store openings in 2017, we are seeing increased demand for new locations from both existing and potential new retail partners.  We believe we have a unique opportunity to build on our leadership position in the vintage luxury sector as the only true omni-channel retailer and exceed our year-end target of 205 stores for 2018.  Based on current opportunities, we estimate that our store expansion pipeline could grow the retail network to as many as 300 stores by the end of 2018, if all such opportunities are realized.  We will, however, be prudent and selective about the opportunities we pursue in the context of our internal resources and the broader retail environment."

Unless otherwise indicated, all amounts are expressed in Canadian dollars. Certain metrics, including those expressed on an adjusted basis, are non-IFRS measures. See "Non-IFRS Measures" further below. For a reconciliation of non-IFRS measures to their most directly comparable measure calculated in accordance with IFRS, see "Select Consolidated Financial Information" further below.

Financial Highlights for the Fourth Quarter ended December 31, 2017
(all comparable figures are for the fourth quarter ended December 30, 2016)

  • Net revenue increased 65% to $15.0 million from $9.1 million;
  • E-Commerce revenue increased to 6.2% of net revenue from 5.2%;
  • Gross profit increased 22% to $3.6 million, or 24.2% of net revenue, from $3.0 million, or 32.6% of revenue;
  • Adjusted EBITDA  (a non-IFRS measure) was $(2.3) million, compared with $0.9 million; and
  • Adjusted Net Loss (a non-IFRS measure) was $3.2 million, compared with $0.1 million.

 

Operational Highlights for the Fourth Quarter Ended December 31, 2017

  • Opened 47 stores (offset by one closure); and 
  • Added four retail partners in the United States.

 

Financial Highlights for the 12-Month Period ended December 31, 2017
(all comparable figures are for the third quarter ended December 30, 2016)

  • Net revenue increased 69% to $37.1 million from $21.9 million;
  • Average productivity for the Company's 30 stores that have been open for more than 12 months was more than $2,350 per square foot;
  • E-Commerce revenue increased to 5.9% of net revenue from 5.4%;
  • Gross profit increased 49% to $10.3 million, or 27.9% of net revenue, from $6.9 million, or 31.6% of revenue;
  • Adjusted EBITDA (a non-IFRS measure) was $(4.1) million, compared with $0.8 million; and
  • Adjusted Net Loss (a non-IFRS measure) was $5.7 million, compared with $0.9 million.

 

Operational Highlights for the 12-Month Period Ended December 31, 2017

  • Opened 90 stores (offset by three closures), expanding its retail network to 133 stores at year end compared with 46 stores at the end of 2016;
  • Added five new retail partners, bringing the total number of retail partners to 11;
  • More than doubled the dollar value of inventory sourced directly from consumers and third parties outside Japan; and
  • Expanded the number of stores purchasing inventory directly from customers by more than seven-fold.

 

Other Highlights Subsequent to the 12-Month Period Ended December 31, 2017

  • Appointed Ms. Audrey Lara as Chief Financial Officer, effective April 1, 2018. Ms. Lara brings more than 15 years of finance and capital markets experience, with an extensive background in financial planning and operations, management and strategy, and a deep knowledge of retail and retail technology.
  • Completed a bought deal financing of 2,728,500 Class B shares at $5.25 per share for aggregate gross proceeds of $14,324,625.

 

Discussion of Fourth Quarter Results

The following provides an overview of LXRandCo's financial results for the fourth quarter ended December 31, 2017 compared to the fourth quarter ended December 30, 2016.

Net Revenue

Net revenue increased by 64.6% to $15.0 million in the three-month period ended December 31, 2017 from $9.1 million in the three-month period ended December 31, 2016.  The increase in net revenue was primarily attributable to the increase in sales from LXRandCo operating 87 more stores by the end of the three-month period ended December 31, 2017 compared to the number of stores at the end of the three-month period ended December 31, 2016. LXRandCo's retail network consisted of 133 stores as at December 31, 2017 compared to 46 stores as at December 31, 2016. There were 47 new store openings in the three-month period ended December 31, 2017, many of them with 4 new retail partners in the United States. The increase in net revenue was also due to another quarter of revenue growth from existing wholesale customers, as well as an increase in e-Commerce revenue. E-Commerce revenue as a percentage of net revenue was 6.2% in the three-month period ended December 31, 2017 compared to 5.2% in the three-month period ended December 31, 2016.

Gross Profit

Gross profit increased by 22.4% to $3.6 million in the three-month period ended December 31, 2017 from $3.0 million in the three-month period ended December 31, 2016. The change was primarily attributable to the increase in net revenue.

Gross profit margin was 24.2% in the three-month period ended December 31, 2017, compared to 32.6% in the three-month period ended December 31, 2016. The decrease in gross profit margin was due to several factors, including:

  • A general increase in the sourcing cost of certain brands in Japan that typically account for a large part of the Company's sales; 
  • The decision to increase promotional activity to take advantage of a large number new stores opening during the busy holiday shopping season and a resulting higher proportion of overall sales taking place during promotional events in the period; 
  • The addition to the omni-channel network of new retail partners with higher licensing fee rates which were partially offset by improved cost sharing economics;
  • A decision to increase the provision for potentially slow moving inventory which was appropriate given the increase in the size of the omni-channel network in the period; and 
  • Other factors including changes in product mix, landed cost and shrinkage.

 

SG&A Expenses

SG&A expenses were $6.4 million in the three-month period ended December 31, 2017, compared to $2.1 million in the three-month period ended December 31, 2016. Of the $6.4 million of SG&A expenses incurred during the quarter, approximately $0.5 million or 8.2% was related to store-related opening and closing costs.

SG&A expenses were 42.7% of net revenue in the three-month period ended December 31, 2017, compared to 22.8% of net revenue in the three-month period ended December 31, 2016. The increase was due to several factors including:

  • Expansion of the omni-channel network by 87 stores, which increased salaries and related costs for in-store staff by $2.1 million (163%) to $3.4 million in the three-month period ended December 31, 2017 from $1.3 million in the three-month period ending December 31, 2016;
  • Increased headcount relating to head office and support personnel; and
  • Public company costs such as professional fees, directors' fees, and stock-based compensation.

 

The number of employees grew by 172 in the three-month period ended December 31, 2017 to 500 as at December 31, 2017 compared to an increase of one employee in the three-month period ended December 31, 2016 to 175 as at December 31, 2016.

Net Loss

Net loss was $3.4 million in the three-month period ended December 31, 2017, compared to a net loss of $27.9 million in the three-month period ended December 31, 2016. The decrease was largely attributable to the reduction of various non-recurring expenses totalling $26.9 million in 2016. 

Adjusted Net Loss

Adjusted Net Loss was $3.2 million in the three-month period ended December 31, 2017, compared to adjusted net loss of $0.1 million in the three-month period ended December 31, 2016. This increase was the result of the factors discussed above, primarily lower gross profit margin and higher SG&A expenses.

Adjusted EBITDA

Adjusted EBITDA was $(2.3) million in the three-month period ended December 31, 2017, compared to $0.9 million in the three-month period ended December 31, 2016. This decrease was primarily due to the factors discussed above.  Adjusted EBITDA Margin was (15.7)% of net revenue in the three-month period ended December 31, 2017, compared to 9.8% of net revenue in the three-month period ended December 31, 2016. This decrease was primarily due to the factors discussed above.

Adjusted EBITDA includes approximately $0.5 million of SG&A expenses incurred in the three-month period ended December 31, 2017 related to store-related opening costs.

Outlook

In response to retail partner demand, management anticipates that the mix of stores will continue to shift from predominantly full license retail stores to a higher percentage of hybrid stores. Through a combination of conversion of existing full license retail stores to hybrid stores and new store openings, management expects that its store mix at the end of 2018 will be approximately 20% to 40% full license retail stores and 60% to 80% hybrid stores. Hybrid stores provide LXRandCo with greater flexibility as hybrid models allow retail partners to enter into cost sharing arrangements with LXRandCo with respect to capital expenditures, staffing costs or responsibility for store inventory that the full license retail store model does not accommodate. In addition, hybrid stores generally have smaller footprints with an average size of between 100 and 175 square feet compared to an average size of 375 square feet for full license retail stores. Management's targeted productivity for full license retail stores is approximately $2,400 per square foot and $1,100 to $2,100 per square foot for hybrid stores. The anticipated lower productivity of hybrid stores is mitigated by the assumption of certain costs by retail partners, including, in certain circumstances, the outright purchase of inventory by the retail partner.

Consolidated Financial Statements and Management's Discussion and Analysis

The Company's unaudited interim condensed consolidated financial statements for the 12-month period ended December 31, 2017 and Management's Discussion and Analysis ("MD&A") thereon are available on the Company's web site at http://investors.lxrco.com/financials-reports-information and under the Company's profile on SEDAR at www.sedar.com.

Conference Call

A conference call to discuss the Company's fourth quarter and year end 2017 results is scheduled for tomorrow, Wednesday, March 21, 2018 at 8:00 a.m. (ET).  Participants can access the conference call by telephone by dialing 647-427-7450 or 1-888-231-8191, or via the Internet at http://investors.lxrco.com/events-and-webcasts.

The conference call will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call. To access the archived conference call by telephone, dial 1-855-859-2056 or 416-849-0833 and enter the pass code 2167158 followed by the pound key.  The telephone replay will be available until Wednesday, March 28, 2018 at midnight. To access the archived conference call via the Internet, go to http://investors.lxrco.com/events-and-webcasts.

About LXRandCo

LXRandCo is a rapidly growing, international omni-channel retailer of branded vintage luxury handbags and other personal luxury products. LXRandCo sources and authenticates high-quality, pre-owned products from iconic brands such as Hermès, Louis Vuitton, Gucci and Chanel, among others, and sells them at attractive prices through: a retail network of stores located in major department stores in Canada, the United States and Europe; wholesale operations primarily in the United States; and its own e-Commerce website, www.lxrco.com.

Caution Regarding Forward-Looking Statements

Certain statements in this press release are prospective in nature and constitute forward-looking information and/or forward-looking statements within the meaning of applicable securities laws (collectively, "forward-looking statements"). Forward-looking statements generally, but not always, can be identified by the use of forward-looking terminology such as "outlook", "objective", "may", "could", "would", "will", "expect", "intend", "estimate", "forecasts", "project", "seek", "anticipate", "believes", "should", "plans" or "continue", or similar expressions suggesting future outcomes or events and the negative of any of these terms. Forward-looking statements in this news release include, but are not limited to, statements concerning future objectives and strategies to achieve those objectives, including, without limitation, store openings, as well as other statements with respect to management's beliefs, plans, estimates and intentions, and similar statements concerning anticipated future events, results, outlook, circumstances, performance or expectations that are not historical facts.  Forward-looking statements reflect management's current beliefs, expectations and assumptions and are based on information currently available to management, which includes assumptions about continued revenues based on historical past performance, management's historical experience, perception of trends and current business conditions, expected future developments and other factors which management considers appropriate. With respect to the forward-looking statements included in this press release, management has made certain assumptions with respect to, among other things, the Company's ability to meet its future objectives and strategies, the Company's ability to achieve its future projects and plans and that such projects and plans will proceed as anticipated, the expected growth of the Company's e-Commerce revenue, the expected number and timing of store openings in North America and internationally, entering into new and/or expanded retail partnerships in North America and internationally, the Company's ability to source products, the Company's competitive position in the vintage luxury industry, and beliefs and intentions regarding the ownership of material trademarks and domain names used in connection with the marketing, distribution and sale of the Company's products as well as assumptions concerning general economic and market growth rates, currency exchange and interest rates and competitive intensity.

Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the future circumstances, outcomes or results anticipated or implied by such forward-looking statements will occur or that plans, intentions or expectations upon which the forward-looking statements are based will occur.

All forward-looking statements included in and incorporated into this press release are qualified by these cautionary statements. Unless otherwise indicated, the forward-looking statements contained herein are made as of the date of this press release, and except as required by applicable law, the Company does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Readers are cautioned that the actual results achieved will vary from the information provided herein and that such variations may be material. Consequently, there are no representations by LXRandCo that actual results achieved will be the same in whole or in part as those set out in the forward-looking statements.

Selected Consolidated Financial Information

The following table summarizes LXRandCo's recent results for the periods indicated:

 

For the Year Ended
December 31,

Consolidated statements of loss and comprehensive loss:

2017

 

2016

       

Net revenue

$37,069,137

 

$21,890,810

 

Cost of sales

26,741,928

 

14,965,438

Gross profit

10,327,209

 

6,925,372

 

Selling, general and administrative expenses

16,162,129

 

6,127,350

 

Amortization and depreciation expenses

474,777

 

224,329

Results from operating activities

(6,309,697)

 

573,693

 

Finance costs

1,010,496

 

1,473,986

 

Debt extinguishment costs

612,939

 

 

Foreign exchange gain

(104,652)

 

(193,639)

 

Convertible redeemable preferred share dividends

61,308

 

661,442

 

Non-recurring gain on loss of control of a subsidiary

 

(363,948)

 

Non-recurring gain from a step business combination

(2,070,422)

 

 

Excess of fair value over net assets acquired

14,363,558

 

 

Non-recurring acquisition costs

819,141

 

 

Gain on expiration of warrants

(3,195,459)

 

 

Share of loss in an associate

 

499,007

 

Change in fair value of convertible redeemable preferred shares

 

17,277,928

 

Change in fair value of warrants

 

9,582,300

Loss before income taxes

(17,806,607)

 

(28,363,383)

 

Income tax expense (recovery)

     
 

Current

106,240

 

(210,119)

 

Deferred

39,528

 

163,754

 

145,768

 

(46,365)

Net loss for the period

(17,952,374)

 

(28,317,018)

Other comprehensive loss

     
 

Cumulative translation adjustment

(340,581)

 

11,540

Comprehensive loss for the period

(18,292,955)

 

(28,305,477)

 

The following table provides a reconciliation of net loss to EBITDA and Adjusted EBITDA for the periods indicated:

 

For the Year Ended
December 31,

Reconciliation of net loss to EBITDA and Adjusted EBITDA:

2017

 

2016

       

Net loss

($17,952,374)

 

($28,317,018)

Amortization and depreciation expense

474,777

 

224,329

Finance Costs

1,010,496

 

1,473,986

Income tax expense

145,768

 

(46,365)

EBITDA

(16,321,333)

 

(26,665,067)

Adjustments to EBITDA:

     
 

Debt extinguishment costs

612,939

 

 

Foreign exchange loss

(104,652)

 

(193,639)

 

Convertible redeemable preferred share dividends

61,308

 

661,442

 

Non-recurring gain on loss of control of a subsidiary

 

(363,948)

 

Non-recurring gain from a step business combination

(2,070,422)

 

 

Excess of fair value over assets acquired

14,363,558

 

 

IPO transaction costs

819,141

 

 

Gain on expiration of warrants

(3,195,459)

 

 

Share of loss in an associate

 

499,007

 

Change in fair value of convertible redeemable preferred shares

 

17,277,928

 

Change in fair value of warrants

 

9,582,300

 

Stock-Based Compensation Expense

1,780,265

 

Adjusted EBITDA

(4,054,655)

 

798,022

Adjusted EBITDA Margin

(10.9%)

 

3.6%

 

The following table provides a reconciliation of net loss to Adjusted Net Loss for the periods indicated:

 

For the Year Ended
December 31,

Reconciliation of net loss to Adjusted Net income (loss):

2017

 

2016

       

Net loss

(17,952,374)

 

(28,317,018)

Adjustments to net loss:

     
 

Debt extinguishment costs

612,939

 

 

Foreign exchange gain

(104,652)

 

(193,639)

 

Convertible redeemable preferred share dividends

61,308

 

661,442

 

Non-recurring gain on loss of control of a subsidiary

 

(363,948)

 

Non-recurring gain from a step business combination

(2,070,422)

 

 

Excess of fair value over net assets acquired

14,363,558

 

 

Non-recurring acquisition costs

819,141

 

 

Gain on expiration of warrants

(3,195,459)

 

 

Share of loss in an associate

 

499,007

 

Change in fair value of convertible redeemable preferred shares

 

17,277,928

 

Change in fair value of warrants

 

9,582,300

 

Stock-Based Compensation Expense

1,780,265

 

 

Other non-recurring costs

 

Adjusted net loss

(5,685,696)

 

(853,928)

 

The following table provides selected retail network data for the periods indicated:

   

For the Three-Months Ended

December 31,

 

For the Year Ended

December 31,

Selected retail network data:

2017

 

2016

 

2017

 

2016

               

Number of stores, beginning of period

86

 

29

 

46

 

15

 

Store openings

47

 

18

 

90

 

33

 

Store closures

-

 

1

 

3

 

2

Number of stores, end of period

133

 

46

 

133

 

46

 

SOURCE LXRandCo, Inc.

For further information: Jeremy Stepak, Interim Chief Financial Officer, LXRandCo. Inc., +1 (416) 301-1333; Lawrence Chamberlain, LodeRock Advisors, +1 (416) 519-4196, lawrence.chamberlain@loderockadvisors.com