LXRandCo Reports Strong Year-Over-Year Revenue Growth and Continued Improvement in Cash Management for Third Quarter 2018

Improved Financial Results Demonstrative of Meaningful Progress on Updated Strategic Plan

MONTREAL, Nov. 14, 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 third quarter and nine-month period ended September 30, 2018.

"Our improved financial results for the third quarter are clear evidence of our meaningful progress executing the updated strategic plan focused on disciplined top-line growth, margin expansion and sustainable cash flow generation," said Steven Goldsmith, President and Chief Executive Officer, LXRandCo Inc. "Importantly, we continued to make strong progress on cash management. Our focus on costs, combined with the closures of the European operations and all locations with a retail partner, contributed to a dramatic decrease in SG&A as a proportion of revenue from the second quarter of this year and we continue to pursue additional opportunities for cost reductions."

"Notably, in the context of these improvements in operating cash flow and SG&A, we delivered solid year-over-year revenue growth of 36%. Gross margin, excluding low-margin sales related to closure of the European operations and exit from product categories other than women's handbags and accessories specific to the quarter, continued to trend favourably."

"We continue to execute on our plan to target the top markets in North America with the right partners. We recently opened six locations with an outstanding new partner, Belk and enter the Holiday season – the busiest period of our year – with a very strong base of 89 stores across the US and Canada with five excellent retail partners. At the same time, we are making solid progress expanding our wholesale business and look forward to accelerating growth in e-commerce sales as we pursue multiple strategies there in earnest."

"LXRandCo remains uniquely positioned for long-term success within the rapidly emerging vintage luxury sector. I continue to be encouraged by our strong, steady progress on our updated strategic plan and look forward to continuing to see that progress reflected in our financial results."

Discontinued Operations

As at September 30, 2018, the Company ceased the operations of its European based subsidiaries, LXR&Co Germany GmbH, LXR&Co UK Limited, and LXRandCo Netherlands B.V. As the cash flows related to the operations of the European based subsidiaries are clearly distinguished, both operationally, geographically and for financial reporting purposes from the rest of the entity, the financial performance within these entities for the comparative periods has been reclassified and presented separately as discontinued operations in the consolidated statements of comprehensive loss and cash flows.

Financial Highlights for the Third Quarter Ended September 30, 2018
(All comparable figures are to the third quarter ended September 30, 2017 unless otherwise stated)

  • Net revenue increased 36% to $9.9 million from $7.2 million;
  • The retail network at September 30, 2018 consisted of 95 stores compared with 86 at September 30, 2017. During the quarter, the Company opened 18 stores, which was offset by the closure of 42 stores as per the Company's updated strategic plan to focus its retail presence in the U.S. and Canada with the right partners;
  • Average revenue productivity for the Company's 44 stores that were open for 12 months or more was approximately $2,092 per square foot;
  • Net e-commerce revenue increased to 7.0% of net revenue from 4.1% of net revenue;
  • Gross profit decreased by 9% to $2.2 million from $2.4 million;
  • Gross profit margin was 22% of net revenue compared with 32% and was negatively impacted by the one-time liquidation of inventory from non-core product categories and a one-time wholesale transaction to liquidate inventory from the closed European stores. Excluding these sales, gross profit margin for the third quarter ended September 30, 2018 would have been 24.9%;
  • Selling, general and administrative expenses were $4.4 million, or 44% of net revenue, compared with $3.5 million, or 48% of net revenue;
  • Net loss was $3.4 million compared with $1.4 million;
  • Adjusted EBITDA (a non-IFRS measure) was $(2.2) million, compared with $(0.5) million; and,
  • Adjusted Net Loss (a non-IFRS measure) was $2.8 million compared with $0.4 million.

Highlights Subsequent to the End of the Third Quarter Ended September 30, 2018

  • Opened six new stores with new partner, Belk, in the US. Belk is a leading U.S. department store company based in Charlotte, N.C. with more than 290 stores located in 16 Southern states and a growing digital presence.

Update on Strategic Review Process

As previously announced, LXRandCo's board of directors has established a special committee of independent directors to identify and evaluate a broad range of strategic and financing alternatives available to the Company. The special committee is reviewing and carefully considering alternatives which are available to it. To date, no decisions have been made that require public disclosure. The Company will keep its shareholders and the public informed of any material developments in this regard.

Discussion of Third Quarter 2018 Results

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.

The following provides an overview of LXRandCo's financial results for the three-month period ended September 30, 2018 compared to the three-month period ended September 30, 2017.

Net Revenue

Net revenue increased by 36% to $9.9 million in the three-month period ended September 30, 2018 from $7.3 million in the three-month period ended September 30, 2017. E-Commerce revenue as a percentage of net revenue was 7% in the three-month period ended September 30, 2018 compared to 4.1% in the three-month period ended September 30, 2017. The increase in net revenue was primarily attributable to the increase in sales from LXRandCo operating 9 more stores by the end of the three-month period ended September 30, 2018 compared to the number of stores at the end of the three-month period ended September 30, 2017. LXRandCo's retail network consisted of 95 stores as at September 30, 2018 compared to a retail network of 86 stores as at September 30, 2017, most of which were opened in that quarter. 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.  

Gross Profit

Gross profit decreased by 9% to $2.2 million in the three-month period ended September 30, 2018 from $2.4 million in the three-month period ended September 30, 2017. This decrease is mainly due to increased inventory overheads on the period, due to the large number of store closures described above.

Gross profit margin was 22% of net revenue in the three-month period ended September 30, 2018, compared to 32% of net revenue in the three-month period ended September 30, 2017. It was significantly impacted by the sample sale organized by the company in the last month of the quarter as well as by a one-time wholesale transaction to liquidate the inventory that was located in European stores that were closed on the period.

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

SG&A expenses were $4.4 million in the three-month period ended September 30, 2018, compared to $3.5 million in the three-month period ended September 30, 2017.

SG&A expenses were 44% of net revenue in the three-month period ended September 30, 2018, compared to 48% of net revenue in the three-month period ended September 30, 2017. This high level of SG&A was due to several factors including higher store staffing expenses resulting from the rapid expansion of LXRandCo's retail network, increased headcount expenses relating to the growth in head office and other support personnel, increased travel, training and other start-up expenses related to the opening of several new stores in the period and non-recurring branding costs. SG&A also grew due to the additional costs incurred as a result of being a public reporting issuer. Such costs include increased professional fees, directors' fees and exchange and public filings costs. The decrease of SG&A as a percentage of revenue is deriving from a closer monitoring of expenses and the roll-out of the new strategic plan of the Company.

The number of employees decreased by 49 to 350 in the three-month period ended September 30, 2018.

Net Loss

Net loss was $3.4 million in the three-month period ended September 30, 2018, compared to a net loss of $1.4 million in the three-month period ended September 30, 2017. The increase in net loss was driven by the factors discussed above, primarily higher SG&A expenses in the period as a result of the retail expansion.

Adjusted Net Loss

Adjusted net loss was $2.8 million in the three-month period ended September 30, 2018, compared to adjusted net loss of $0.4 million in the three-month period ended September 30, 2017. This increase was the result of the factors discussed above, primarily higher SG&A expenses. 

Adjusted EBITDA

Adjusted EBITDA was $(2.2) million in the three-month period ended September 30, 2018, compared to $(0.5) million in the three-month period ended September 30, 2017. This decrease was primarily due to the factors discussed above. Adjusted EBITDA Margin was (22) % of net revenue in the three-month period ended September 30, 2018, compared to (7)% of net revenue in the three-month period ended September 30, 2017. This decrease was primarily due to the factors discussed above.

The Company's results for the third quarter and nine-month period ended September 30, 2018 have not, at this time, been reviewed by the Company's auditors, as is the Company's historical practice, due to certain normal course outstanding audit activities that are still to be completed.

Consolidated Financial Statements and Management's Discussion and Analysis

The Company's unaudited interim condensed consolidated financial statements for the three-month period ended September 30, 2018 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 third quarter results is scheduled for tomorrow, Wednesday, November 14, 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 4256919 followed by the pound key. The telephone replay will be available until Wednesday, November 21, 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 an 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 primarily in major department stores in the United States and Canada; 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 Three-Months Ended

September 30,


For the Nine-Months Ended

September 30,

Consolidated statements of loss and comprehensive loss:

2018


2017 (1)


2018


2017 (1)









Net revenue from continuing operations

$9,945,707


$7,326,078


$28,154,266


$18,855,726

Cost of sales from continuing operations

7,785,841


4,948,362


22,094,692


13,132,231

Gross profit from continuing operations

2,159,866


2,377,716


6,059,574


5,723,495

Selling, general and administrative expenses from continuing operations

4,357,406


3,537,389


16,187,540


7,998,094

Amortization and depreciation from continuing operations

398,727


65,664


1,009,753


211,206

Impairment of Goodwill



3,683,987


Results from operating activities from continuing operations

(2,596,267)


(1,225,337)


(14,821,705)


(2,485,805)

Finance costs

163,440


73,622


922,314


738,921

Debt extinguishment costs






612,939

Foreign exchange loss (gain)

333,319


71,392


(137,305)


74,376

Convertible redeemable preferred share dividends






48,112

Non-recurring gain on loss of control of a subsidiary




Non-recurring gain from a step business combination




(1,465,090)

Excess of fair value over net assets acquired




46,194,600

Non-recurring acquisition costs


40,000



814,785

Gain on expiration of warrants




(2,401,402)

Change in fair value of convertible redeemable preferred shares




226,101

Change in fair value of warrants




257,532

Loss before income taxes from continuing operations

(3,093,026)


(1,410,351)


(15,606,714)


(47,586,679)

Income tax expense (recovery)





Current

1,116


(13,697)


40,065


(8,472)

Deferred

44,000


(177,224)


44,000


(177,224)


45,116


(190,921)


84,065


(185,696)

Net Loss for the period from continuing operations

(3,138,142)


(1,219,430)


(15,690,779)


(47,400,983)

Discontinued operations








Net income (loss) from discontinued operations

(262,846)


(149,037)


(2,732,164)


(538,544)

Net income (loss) for the period

(3,400,988)


(1,368,467)


(18,422,943)


(47,939,527)

Other comprehensive income (loss) from continuing operations








Cumulative translation adjustment

82,041


(1,991)


(18,376)


38,689

Comprehensive loss for the period from continuing operations

(3,056,101)


(1,221,421)


(15,709,155)


(47,362,294)

Net income (loss) from discontinued operations

(262,846)


(149,037)


(2,732,164)


(538,544)

Other comprehensive income (loss) from discontinued operations


14,739



6,322

Comprehensive income (loss) from discontinued operations

(262,846)


(134,298)


(2,732,164)


(532,222)

Comprehensive income (loss) for the period

(3,318,947)


(1,355,719)


(18,441,319)


(47,894,516)

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



For the Three-Months Ended

September 30,


For the Nine-Months Ended

September 30,

Reconciliation of net loss to EBITDA and Adjusted EBITDA:

2018


2017


2018


2017









Net loss

$(3,400,989)


$(1,368,467)


$(18,422,943)


$(47,939,526)

Amortization and depreciation expense

398,726


65,664


1,009,753


211,206

Finance Costs

163,440


73,622


922,314


738,921

Income tax expense

45,116


(190,922)


84,065


(185,696)

Impairment of goodwill



3,683,987


EBITDA

(2,793,706)


(1,420,102)


(12,722,824)


(47,175,096)

Adjustments to EBITDA:








Debt extinguishment costs




612,939

Foreign exchange loss

333,115


71,392


(137,510)


74,376

Convertible redeemable preferred share dividends




48,112

Non-recurring gain on loss of control of a subsidiary




Non-recurring gain from a step business combination




(1,465,090)

Excess of fair value over net assets acquired




46,194,600

Non-recurring acquistion costs


40,000



814,785

Gain on expiration of warrants




(2,401,402)

Stock-based compensation expense

13,809


575,597


102,315


1,064,113

Loss from discontinued operations

262,846


247,452


2,398,013


519,209

Adjusted EBITDA

(2,183,937)


(485,661)


(10,360,006)


(1,713,434)

Adjusted EBITDA Margin

(22%)


(7%)


(37%)


(9%)

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



For the Three-Months Ended

September 30,


For the Nine-Months Ended

September 30,

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

2018


2017


2018


2017









Net loss

$(3,400,989)


$(1,368,467)


(18,422,943)


$(47,939,526)

Adjustments to net loss:




Debt extinguishment costs




612,939

Foreign exchange loss (gain)

333,114


71,392


(137,510)


74,376

Convertible redeemable preferred share dividends




48,112

Non-recurring gain on loss of control of a subsidiary




Non-recurring gain from a step business combination




(1,465,090)

Excess of fair value over net assets acquired




46,194,600

Non-recurring acquisition costs


40,000



814,785

Gain on expiration of warrants




(2,401,402)

Stock-based compensation expense

13,809


575,597


102,315


1,064,133

Loss from discontinued operations

262,846


247,452


2,398,013


519,209

Impairment of goodwill



3,683,987


Adjusted net loss

(2,791,219)


(434,026)


(12,376,137)


(2,477,864)









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



For the Three-Months Ended

September 30,


For the Nine-Months Ended

September 30,

Selected retail network data:

2018


2017


2018


2017









Number of stores, beginning of period

119


61


133


46

Store openings

18


25


41


43

Store closures

42


0


77


3

Number of stores, end of period

95


86


95


86

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