LXRandCo Reports Strong Revenue Growth for the First Quarter of 2018

MONTREAL, May 4, 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 first quarter ended March 31, 2018.

Financial Highlights for the First Quarter ended March 31, 2018
(all comparable figures are to the first quarter ended March 31, 2017)

  • Net revenue increased 62% to $10.0 million from $6.1 million;
  • Average revenue productivity for the Company's 29 stores that were open for 12 months or more was approximately $2,300 per square foot;
  • E-Commerce revenue increased by 50%, and was 7.0 % of net revenue compared with 8.1%, with the decrease as a percentage of net revenue due to the larger growth in revenue of the retail store network;
  • Gross profit increased by 30.7% to $2.4 million, or 23.7% of net revenue, compared to $1.8 million, or 29.4% of net revenue;
  • Adjusted EBITDA  (a non-IFRS measure) was $(3.8) million, compared with $0.3 million; and
  • Adjusted Net Loss (a non-IFRS measure) was $4.4 million, compared with $0.7 million.

Operational Highlights for the First Quarter Ended March 31, 2018
(all comparable figures are to the first quarter ended March 31, 2017)

  • Opened seven stores compared to three stores in the prior period, which was offset by closure of five and two stores respectively, to end the quarter at 135 stores compared to 47 stores;
  • Appointed Ms. Audrey Lara as Chief Financial Officer, which became 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; and,
  • Completed an equity financing of 2,728,500 Class B shares at $5.25 per share for aggregate gross proceeds of $14,324,625.

Highlights Subsequent to March 31, 2018

  • Appointed independent director, Steven Goldsmith, as President and Chief Executive Officer.  Mr. Goldsmith brings to LXRandCo more than 25 years of executive leadership experience in retail, merchandising and marketing across multiple distribution platforms, including retail and wholesale channels, department stores, internet, catalogue and television;
  • Appointed Frederick Mannella, Co-Founder of LXRandCo, to the newly created position of Vice-Chair of the Board of Directors and Chief Development Officer, with responsibility for the Company's business development activities, including managing relationships with key business partners, growth of the Company's e-Commerce and wholesale channels, and new initiatives; and,
  • As a result of the bankruptcy proceedings and wind-down of operations of an LXRandCo retail partner, The Bon-Ton Stores, Inc. ("Bon-Ton"), LXRandCo announced the anticipated closing of locations in 14 Bon-Ton stores. As previously disclosed, all sales personnel at such locations are employees of Bon-Ton and as LXRandCo expects to reclaim all inventory and fixtures from these stores and deploy them to stores with other partners, LXRandCo anticipates no material financial impact from these closures.

"In what is a seasonally soft quarter, the first quarter of 2018 saw strong top-line growth with revenue increasing 62% year-over-year, driven by the contribution of our retail store openings last year, as well as continued growth in our e-commerce business" said Fred Manella, Vice-Chair and Chief Development Officer, LXRandCo. "We continue to see strong demand for new locations from both existing and prospective retail partners but we will be prudent and selective with respect to those opportunities we plan on pursuing.  We have several initiatives underway to enhance our future gross margin, and we expect selling, general and administrative expenses, as a percentage of revenue, to eventually return to their historical levels as the stores we opened last year continue to ramp to full productivity."

LXRandCo's incoming President and Chief Executive Officer commented, "We have an exciting business that remains uniquely positioned for long-term success within the rapidly emerging vintage luxury sector.  Upon formally assuming my new role as President and CEO in the coming weeks, I will immediately begin work with the LXRandCo team to undertake a thorough and complete review of current operations, growth opportunities and financial position, with the objective of evolving the LXRandCo model and strategy to realize the Company's full potential, with a specific focus on disciplined growth, enhancing margin and returning to profitability. I look forward to communicating our path forward once finalized."

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.

Discussion of First Quarter 2018 Results

The following provides an overview of LXRandCo's financial results for the three-month period ended March 31, 2018 compared to the three-month period ended March 31, 2017.

Net Revenue

Net revenue increased by 62.3% to $10.0 million in the three-month period ended March 31, 2018 from $6.1 million in the three-month period ended March 31, 2017. The increase in net revenue was primarily attributable to the increase in sales from LXRandCo operating 88 more stores at the end of the three-month period ended March 31, 2018 compared to the number of stores at the end of the three-month period ended March 31, 2017. LXRandCo's retail network consisted of 135 stores as at March 31, 2018 compared to 47 stores as at March 31, 2017. There were seven new store openings in the three-month period ended March 31, 2018, all of them with an existing retail partner in the United States.  LXRandCo closed five stores in the period, of which four were in the United States and one was in the Netherlands. The increase in net revenue was also due to revenue growth from existing wholesale customers to $0.9 million, as well as an increase in e-Commerce revenue to $0.7 million.  E-Commerce revenue as a percentage of net revenue was 7.0% in the three-month period ended March 31, 2018 compared to 8.1% in the three-month period ended March 31, 2017.

Gross Profit

Gross profit increased by 30.7% to $2.4 million in the three-month period ended March 31, 2018 compared to $1.8 million in the three-month period ended March 31, 2017. The increase was primarily attributable to the increase in net revenue.

Gross profit margin was 23.7% in the three-month period ended March 31, 2018, compared to 29.4% in the three-month period ended March 31, 2017. 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 increase in promotional activity, resulting in a 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 fees that started in fourth quarter of 2017;
  • An increase in the provision for potentially slow-moving inventory given the increase in the size of the omni-channel network in the previous period;
  • An unfavourable foreign exchange impact, mainly linked to a decrease in the value of the US Dollar as a large portion of sales are located in the United States; and,
  • Other factors including changes in product mix, landed cost and shrinkage.

Selling, General &Administration ("SG&A") Expenses

SG&A expenses were $6.2 million in the three-month period ended March 31, 2018, compared to $2.7 million in the three-month period ended March 31, 2017. The amount of related to store-related opening and closing costs during the quarter was not material.

The increase in SG&A was due to several factors including:

  • Expansion of the omni-channel network by 88 stores during 2017, which increased salaries and related costs for in-store staff by $2.7 million (228%) to $3.9 million for the three-month period ended March 31, 2018 versus $1.2 million in the three-month period ending March 31, 2017;
  • Increased headcount relating to head office and support personnel; and
  • Public company costs such as professional fees, directors' fees, and stock-based compensation that were not present in the three-month period ending March 31, 2017.

SG&A expenses were 62% of net revenue in the three-month period ended March 31, 2018, compared to 44% of net revenue in the three-month period ended March 31, 2017.  Compared to the last quarter of the previous year, SG&A expenses are down by 14%, mainly due to a lower number of stores opened in the period with limited store opening costs and a lower stock-based compensation expense. Most of the stores that were opened in the fourth quarter of 2017 are still ramping up, as the Company estimates that a store can take at least 12 months to reach full revenue capacity.

The number of employees decreased by 12 in the three-month period ended March 31, 2018 to 488, compared with 500 employees as at December 31, 2017, and increased by 282 as compared to the number of employees as at March 31, 2017.

Net Loss

Net loss was $4.3 million in the three-month period ended March 31, 2018, compared to a net profit of $3.8 million in the three-month period ended March 31, 2017. The decrease in profitability was largely attributable to the higher SG&A expenses described above as well as various non-recurring gains totalling $5.3 million in the three-month period ended March 31, 2017.

Adjusted Net Loss

Adjusted Net Loss was $4.4 million in the three-month period ended March 31, 2018, compared to adjusted net loss of $0.7 million in the three-month period ended March 31, 2017. This increase was the result of the factors discussed above, primarily higher SG&A expenses.

Adjusted EBITDA

Adjusted EBITDA was ($3.8) million in the three-month period ended March 31, 2018, compared to ($0.3) million in the three-month period ended March 31, 2017. This decrease was primarily due to the factors discussed above.  Adjusted EBITDA Margin was (38.0%) of net revenue in the three-month period ended March 31, 2018, compared to (4.7%) of net revenue in the three-month period ended March 31, 2017. This decrease was primarily due to the factors discussed above.

Outlook

Upon assuming the role of President and Chief Executive Officer, expected on or around May 15, 2018, Mr. Goldsmith will undertake a comprehensive review of LXRandCo's operations and growth strategy with the intention of evolving the Company's business model and strategy to more profitably capitalize on the Company's near three-fold increase in store network since going public, and on opportunities in the rapidly emerging vintage luxury sector.

"Upon review, it is clear to me that the Company's intent to meet the significant unmet demand for its stores led it to do so in an unprofitable and less than efficient manner," said Mr. Goldsmith. "It is my intention to work with the team to identify our successful partner relationships, as well as new partnering opportunities, and to leverage my retail and online experience to develop a balanced action plan with a specific focus on disciplined growth, increased gross margin and profitability across all distribution channels.  The Company expects to publicly communicate any resulting changes to its business model, growth strategy and/or outlook at the Company's upcoming Annual Meeting of Shareholders to be held on June 13, 2018 in Montreal.

Other Executive Changes

The Company also announced today that Todd Howard, Executive Vice President Global Business Development, has left the Company to pursue other opportunities.  Fred Mannella, co-founder and Vice-Chair of LXRandCo, who was recently appointed to the position of Chief Development Officer, will assume Mr. Howard's responsibilities.

"On behalf of LXRandCo's Board of Directors, I would like to thank Todd for his service to our organization and his contribution to the growth of the Company," said Mr. Mannella. "We wish him the very best in his future pursuits."

Consolidated Financial Statements and Management's Discussion and Analysis

The Company's unaudited interim condensed consolidated financial statements for the three-month period ended March 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 first quarter results is scheduled for today, Friday, May 4, 2018 at 8:30 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 6397411 followed by the pound key.  The telephone replay will be available until Friday, May 11, 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


For the Three-Month period ended
March 31,

Consolidated statements of loss and comprehensive loss:

2018


2017





Net revenue

$9,972,514


$6,145,962


Cost of sales

7,613,693


4,341,454

Gross profit

2,358,821


1,804,508


Selling, general and administrative expenses

6,270,727


2,734,716


Amortization and depreciation expenses

270,027


82,992

Results from operating activities

(4,181,933)


(1,013,200)


Finance costs

277,415


358,571


Foreign exchange gain

(176,945)


69,080


Convertible redeemable preferred share dividends


61,308


Non-recurring gain from a step business combination


(2,070,422)


Gain on expiration of warrants


(3,195,459)

Income (loss) before income taxes

(4,282,403)


3,763,722

Income tax expense (recovery)





Current


1,120


Deferred

44,000



44,000


1,120

Net loss for the period

(4,326,403)


3,762,602

Other comprehensive loss





Cumulative translation adjustment

(45,614)


(95,724)

Comprehensive loss for the period

(4,372,017)


3,666,878

 

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


For the Three-Month period ended
March 31,

Reconciliation of net loss to EBITDA and Adjusted EBITDA:

2018


2017





Net loss

($4,326,403)


$3,762,602

Amortization and depreciation expense

270,027


82,992

Finance Costs

277,415


358,571

Income tax expense

44,000


1,120

EBITDA

(3,734,961)


4,205,285

Adjustments to EBITDA:





Foreign exchange loss

(176,945)


69,080


Convertible redeemable preferred share dividends

-


61,308


Non-recurring gain from a step business combination

-


(2,070,422)


Gain on expiration of warrants

-


(3,195,459)


Stock-Based Compensation Expense

88,507


640,626

Adjusted EBITDA

(3,823,399)


(289,582)

Adjusted EBITDA Margin

(38.3%)


(4.7%)

 

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


For the Three-Month period ended
March 31,

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

2018


2017





Net loss

(4,326,403)


3,762,602

Adjustments to net loss:





Foreign exchange gain

(176,945)


69,080


Convertible redeemable preferred share dividends


61,308


Non-recurring gain from a step business combination


(2,070,422)


Change in fair value of warrants


(3,195,459)


Stock-Based Compensation Expense

88,507


640,626


Adjusted net loss

(4,414,841)


(732,265)

 

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


For the Three-Months Ended
March 31,

Selected retail network data:

2018


2017





Number of stores, beginning of period

133


46


Store openings

7


3


Store closures

5


2

Number of stores, end of period

135


47

 

SOURCE LXRandCo, Inc.

For further information: Audrey Lara, Chief Financial Officer, LXRandCo, Inc., +1 (514) 718-9541, audrey.l@lxrco.com; Lawrence Chamberlain, Investor Relations, LodeRock Advisors, +1 (416) 519-4196, lawrence.chamberlain@loderockadvisors.com