LXRandCo Reports Continued Improvement in Financial Results for Second Quarter 2019

– Second Quarter Highlighted by Continued Improvements in Both Gross Margin and Cost Management –

MONTREAL, Aug. 13, 2019 /CNW/ - LXRandCo, Inc. ("LXRandCo" or the "Company") (TSX: LXR, LXR.WT), a North American omni-channel retailer of branded vintage luxury handbags and accessories, today reported continued improvement in its financial results for the second quarter and six-month period ended June 30, 2019.

"Our second quarter results were again demonstrative of our focus on the quality of our sales with our smaller but much healthier store network, highlighted by continued improvements in both gross margin and cost management," said Steven Goldsmith, President and Chief Executive Officer, LXRandCo. "Our continued progress on our gross margin expansion initiatives resulted in significant improvements on both a year-over-year and sequential basis to 33%.  We also continued to benefit from our cost management program, with selling, general and administrative expenses down 38% from the same period a year ago. Our success in each of these regards contributed to significant improvements in each of our key profitability measures.  Additionally, while cash used in operations for the quarter was higher year-over-year, our continuing focus on operating the business for cash contribution resulted in a significant improvement in cash used in operations in the first half of this year to $3.3 million from $8.7 million in the first half of last year."

"With each quarter, we are seeing strong progress on our strategic priorities of prudent revenue growth, margin expansion and positive cash flow generation, with continued improvement across our key financial metrics, clearly demonstrating the long-term potential of our business to generate value for our shareholders. We have a significantly strengthened foundation for future growth, rooted in our stronger and more profitable network of LXRandCo-branded stores, and exceptional, mutually beneficial partner relationships that provide a long runway for expansion of our store network, as well as opportunities to grow our e-commerce business, leveraging their online strategies, as well as through other online partner initiatives.  The personal luxury resale market continues to rapidly grow and LXRandCo, with its differentiated omni-channel strategy, anchored by the only national shop-in-shop network in the U.S. and Canada, is well positioned to continue to be a leader in this market."

Highlights for the Second Quarter Ended June 30, 2019
(All comparable figures are to the second quarter ended June 30, 2018, unless otherwise stated1)

  • The retail network at June 30, 2019 had 22% fewer stores and consisted of 84 stores compared to 107 (excluding 12 European stores closed in 2018 and subsequently classified as discontinued operations). This decrease of 23 stores is in line with the Company's strategic plan to establish a presence in the 30 largest designated market areas (DMAs) in Canada and the United States. The decrease is mainly the result of the closure of four stores during the fourth quarter of 2018, as well as the transition of 12 retail stores to a wholesale arrangement as part of the Company's retail partner model optimization strategy;
  • Despite the 22% decrease in the number of stores, net revenue was just 8% lower at $8.6 million compared $9.3 million, with average store sales increasing by 13%;
  • Gross profit increased 53% to $2.9 million from $1.9 million;
  • Gross profit margin increased to 33% of revenue from 20%;
  • Selling, general and administrative expenses decreased 38% to $4.0 million, or 47% of net revenue, from $6.5 million, or 70% of net revenue;
  • Net loss improved to $2.2 million from $9.0 million;
  • Adjusted EBITDA (a non-IFRS measure) improved to $(1.2) million from $(4.8) million;
  • Adjusted net loss (a non-IFRS measure) improved to $1.6 from $5.7 million; and,
  • Cash used in operations was $2.3 million compared with $0.7 million.

Highlights for the Six-Month Period Ended June 30, 2019
(All comparable figures are to the six-month period ended June 30, 2018, unless otherwise stated1)

  • Despite the 22% decrease in the number of retail stores at June 30, 2019 (as discussed above for three-month period), net revenue was only 4% lower at $17.3 million compared with $18.1 million, with average sales per store increasing by 17%;
  • Gross profit increased 28% to $5.0 million from $3.9 million. Excluding the impact of the two sample sales to liquidate slow-moving inventory in the first quarter of 2019, normalized gross profit would be $5.3 million;
  • Gross profit margin increased to 29% compared to 21%. Excluding the impact of the two sample sales to liquidate slow-moving inventory in the first quarter of 2019, normalized gross margin is 33%;
  • Selling, general and administrative expenses decreased 24% to $9.0 million, or 52% of net sales, from $11.8 million, or 65% of net sales;
  • Net loss improved to $6.0 million from $12.6 million;
  • Adjusted EBITDA (a non-IFRS measure) improved to $(3.4) million from $(7.9) million;
  • Adjusted Net Loss (a non-IFRS measure) improved to $4.2 million from $9.3 million;
  • Cash used in operations improved to $3.3 million from $8.7 million.

Discussion of Second Quarter and Six-Month Period Ended June 30, 2019, 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 June 30, 2019, compared with the three-month period ended June 30, 2018.

Net Revenue
Despite 22% fewer stores, net revenue decreased only 8% to $8.6 million in the three-month period ended June 30, 2019, from $9.3 million in the three-month period ended June 30, 2018. LXRandCo's retail network consisted of 84 stores as at June 30, 2019, compared to 107 stores as at June 30, 2018 (excluding from the 2018 comparative are 12 European stores closed in 2018 and subsequently classified as discontinued operations). The opening and closings were within the context of the Company's strategic plan, including its intention to prudently expand its retail network in the largest market areas in the United States and Canada and, implement a more profitable retail partner model across its network.

Gross Profit
Gross profit increased 53% to $2.9 million from $1.9 million. Gross profit margin was 33% compared to 20%. The three-month period ended June 30, 2019, reflects an improvement in gross margin from the previous year as a result of reduced licensing fees with two major retail partners, a decrease in inventory obsolescence provisions due to the liquidation of slow-moving inventory during sample sales that took place in the first quarter of 2019, in addition to a significant reduction in inventory shrinkage and freight expense 

SG&A Expenses
SG&A expenses were $4.0 million in the three-month period ended June 30, 2019, compared to $6.5 million in the three-month period ended June 30, 2018. The improvement in SG&A expenses is mainly the result of operating fewer stores throughout the period resulting in decreased store and corporate headcount in addition to the store closure costs that negatively impacted 2018 results.

The number of employees decreased to 161 in the three-month period ended June 30, 2019, compared to 399 as at June 30, 2018. The significant decrease is mainly the result of the discontinued operations in Europe and the smaller retail network. 

Net Loss
Net loss improved to $2.2 million in the three-month period ended June 30, 2019, from a net loss of $9.0 million in the three-month period ended June 30, 2018.  

Adjusted Net Loss
Adjusted net loss improved to $1.6 million in the three-month period ended June 30, 2019, from an adjusted net loss of $5.7 million in the three-month period ended June 30, 2018.

Adjusted EBITDA
Adjusted EBITDA improved to $(1.2) million in the three-month period ended June 30, 2019 from $(4.8) million in the three-month period ended June 30, 2018.

The following provides an overview of LXRandCo's financial results for the six-month period ended June 30, 2019, compared with the six-month period ended June 30, 2018.

Net Revenue

Despite 22% fewer stores, net revenue decreased only 4% to $17.3 million in the six-month period ended June 30, 2019, from $18.1 million in the six-month period ended June 30, 2018. LXRandCo's retail network consisted of 84 stores as at June 30, 2019, compared to 107 stores as at June 30, 2018 (excluding from the 2018 comparative are 12 European stores closed in 2018 and subsequently classified as discontinued operations). The opening and closings were within the context of the Company's strategic plan, including its intention to prudently expand its retail network in the largest market areas in the United States and Canada and, implement a more profitable retail partner model across its network.

Gross Profit

Gross profit increased to $5.0 million from $3.9 million. Gross profit margin was 29% compared to 21%. The six-month period ended June 30, 2019, reflects an improvement in gross margin from the previous year as a result of reduced licensing fees with two major retail partners, a decrease in inventory obsolescence provisions due to the liquidation of slow-moving inventory during sample sales that took place in the first quarter of 2019, in addition to a significant reduction in inventory shrinkage and freight expense. Excluding the impact of the two sample sales to liquidate slow-moving inventory in the first quarter of 2019, normalized gross profit and gross margin would be $5.3 million and 33% respectively.

SG&A Expenses

SG&A expenses were $9.0 million in the six-month period ended June 30, 2019, compared to $11.8 million in the six-month period ended June 30, 2018. The improvement in SG&A expenses is mainly the result of operating fewer stores throughout the period resulting in decreased store and corporate headcount in addition to the store closure costs that negatively impacted 2018 results.

The number of employees decreased to 161 in the six-month period ended June 30, 2019, compared to 399 as at June 30, 2018. The significant decrease is mainly the result of the discontinued operations in Europe and the smaller retail network. 

Net Loss

Net loss improved to $6.0 million in the six-month period ended June 30, 2019, from a net loss of $12.6 million in the six-month period ended June 30, 2018.

Adjusted Net Loss

Adjusted net loss improved to $4.2 million in the six-month period ended June 30, 2019, from an adjusted net loss of $9.3 million in the six-month period ended June 30, 2018.

Adjusted EBITDA

Adjusted EBITDA improved to $(3.4) million in the six-month period ended June 30, 2019, from $(7.9) million in the six-month period ended June 30, 2018.

Consolidated Financial Statements and Management's Discussion and Analysis

The Company's unaudited interim condensed consolidated financial statements for the three-month and six-month periods ended June 30, 2019, 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.

Selected Consolidated Financial Information

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

LXRandCo, Inc.







Condensed consolidated statements of loss







(in Canadian dollars, unaudited)


















For the 3-month period ended June 30,


For the 6-month period ended June 30,





2019

2018


2019

2018










Net revenue




8,558,435

9,286,767


17,314,498

18,078,765

Cost of sales




5,697,725

7,432,632


12,276,123

14,210,982

Gross profit




2,860,710

1,854,135


5,038,375

3,867,783



















Operating expenses









Selling, general and administrative expenses




4,020,531

6,538,602


8,995,432

11,761,569

Amortization and depreciation expenses




289,261

361,957


507,704

608,927

Impairment of goodwill




3,683,987


3,683,987

Results from operating activities




(1,449,082)

(8,730,411)


(4,464,761)

(12,186,700)










Other income and expenses









Finance costs




112,939

496,959


226,280

774,374

Foreign exchange loss (gain)




455,982

(224,860)


1,146,650

(401,779)

Loss on disposition of assets




132,777


132,777

Loss on disposition of subsidiaries




19,542


19,542

Loss before income taxes




(2,170,322)

(9,002,510)


(5,990,010)

(12,559,295)



















Income tax expense (recovery)









Current




8,338

38,661


48,203

38,661

Deferred





44,000





8,338

38,661


48,203

82,661

Net loss from continuing operations




(2,178,660)

(9,041,171)


(6,038,213)

(12,641,956)

Net loss from discontinued operations




(30,396)

(1,654,379)


(38,017)

(2,379,997)

Net loss for the period




(2,209,056)

(10,695,550)


(6,076,230)

(15,021,953)











 

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



For the three-month period ended June 30,


For the six-month period ended June 30,



2019

2018


2019

2018








Reconciliation of net loss to Adjusted EBITDA







Net Loss


(2,209,056)

(10,695,550)


(6,076,230)

(15,021,953)

Add: Amortization and depreciation expenses


289,261

361,957


507,704

608,927

Add: Finance Costs


112,939

496,959


226,280

774,374

Add: Income Tax Expense


8,338

38,661


48,203

82,661

EBITDA


(1,798,518)

(9,797,973)


(5,294,043)

(13,555,991)








Adjustments to EBITDA:







Foreign exchange loss (gain)


455,982

(224,860)


1,146,650

(401,779)

Loss on disposition of assets


132,777


132,777

Impairment of goodwill


3,683,987


3,683,987

Stock-based compensation expense


(69,953)

(74,008)


9,420

14,498

Loss on disposition of subsidiaries


19,542


19,542

Professional fees related to strategic review and private placement


 


 

474,853

Store closing costs


43,603


73,921

Loss from discontinued operations


30,396

1,654,379


38,017

2,379,997

Adjusted EBITDA


(1,186,171)

(4,758,475)


(3,398,863)

(7,879,288)

Adjusted EBITDA as a percentage of net revenue


(13.9%)

(51.2%)


(19.6%)

(43.6%)








Reconciliation of Net Loss to Adjusted Net Loss







Net Loss


(2,209,056)

(10,695,550)


(6,076,230)

(15,021,953)

Adjustments to Net Income:







Foreign exchange loss (gain)


455,982

(224,860)


1,146,650

(401,779)

Impairment of goodwill


3,683,987


3,683,987

Loss on disposition of assets


132,777


132,777

Stock-based compensation expense


(69,953)

(74,008)


9,420

14,498

Loss on disposition of subsidiaries


19,542


19,542

Professional fees related to strategic review and private placement



474,853

Store closing cost


43,603


73,921

Loss from discontinued operations


30,396

1,654,379


38,017

2,379,997

Adjusted Net Loss


(1,596,708)

(5,656,052)


(4,181,050)

(9,345,250)

Adjusted Net Loss as a percentage of net revenue


(18.7%)

(60.9%)


(24.1%)

(51.7%)








Notes

1. 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.

 


Conference Call

A conference call to discuss the Company's second quarter 2019 results is scheduled for today, Tuesday, August 13, 2019, 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 7754105 followed by the pound key.  The telephone replay will be available until Tuesday, August 20, 2019, 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 North American 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, as well as the e-commerce platforms of its retail partners.

Caution Regarding Forward-Looking Statements

Certain statements in this press release are prospective in nature and constitute forward-looking information èor 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.

SOURCE LXRandCo, Inc.

For further information: Nadine Eap, Interim Chief Financial Officer, LXRandCo. Inc., +1 (514) 564-9993 ext: 037, nadine.e@lxrco.com; Lawrence Chamberlain, Investor Relations, LodeRock Advisors, +1 (416) 519-4196, lawrence.chamberlain@loderockadvisors.com