LXRandCo Reports Financial Results for the Fourth Quarter 2019 and the Full Year 2019, and Provides Update on the Possible Impact of Coronavirus (COVID-19) on its Operations

MONTREAL, March 26, 2020 /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 its financial results for the fourth quarter and year ended December 31, 2019, and provided an update on the implications of the outbreak of the coronavirus ("COVID-19") on its operations.

"As originally communicated in our press release of January 23, 2020, we are pleased to have exceeded our fourth quarter revenue growth target of 30% and we are extremely proud of the collective efforts of our entire team. While our retail environment was somewhat challenged in Q4, the strong performance in our wholesale and e-Commerce channels highlighted the merits of having a diversified omnichannel presence, which was reflected in the increase in both our gross profit and gross profit margin for the quarter. On behalf of Company Chair and Office of the President member, Val Sorbie, I wish to thank our dedicated employees and our channel partners for their ongoing support and to extend our very best wishes during the trying times we are all currently experiencing," said Cam di Prata, interim Chief Executive Officer, and member of the Office of the President, LXRandCo.

Set forth below are the financial highlights and a discussion of the Company's financial  results for the three-month period and year ended December 31, 2019, which are to be read in conjunction with the Company's audited consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the period, and an update on the implications of the outbreak of the COVID-19 on our business under the section "Going Concern and Update on COVID-19 Situation" set forth below.

Highlights for the Fourth Quarter Ended December 31, 2019

(All comparable figures are to the fourth quarter ended December 31, 2018, unless otherwise stated1)

  • The retail network at December 31, 2019 consisted of 80 stores compared to 86 in 2018. This decrease was mainly due to the Company's decision to terminate an unprofitable retail partnership in 2019, which resulted in the closure of six stores in the U.S.
  • Net revenue increased by 32.9% to $14.4 million from $10.9 million.
  • E-Commerce revenue increased to 8.1% of net revenue from 4.7%.
  • Gross profit increased by 43.8% to $4.7 million from $3.3 million.
  • Gross profit margin increased to 32.8% compared to 30.3%.
  • Selling, general and administrative expenses decreased 23.9% to $5.8 million, or 40.0% of net revenue, from $7.6 million, or 69.8% of net revenue.
  • Net loss decreased to $2.1 million from a net loss of $3.7 million.
  • Adjusted Net Loss (a non-IFRS measure) decreased to $0.5 million from an Adjusted Net Loss of $2.8 million.
  • Adjusted EBITDA Loss (a non-IFRS measure) decreased to $0.1 million versus an Adjusted EBITDA loss of $2.5 million in 2018.
  • Cash flow from operations for the period was positive, with cash provided (generated) from operations improving by $0.3 million to $0.8 million versus $0.5 million.

Highlights for the Year Ended December 31, 2019

(All comparable figures are to the year ended December 31, 2018, unless otherwise stated1)

  • Net revenue increased 2.7% to $40.1 million from $39.0 million.
  • E-Commerce revenue increased to 9.3% of net revenue from 6.2%.
  • Gross profit increased by 26.6% to $12.4 million from $9.8 million.
  • Gross profit margin increased to 30.9% compared to 25.0%. Excluding the negative impact of two liquidation sales undertaken in February and March 2019, gross margin would have been 32.6%.
  • Selling, general and administrative expenses decreased 21.4% to $19.2 million, or 47.9% of net revenue, from $24.5 million, or 62.7% of net revenue.
  • Net loss decreased to $10.0 million from a net loss of $19.6 million.
  • Adjusted Net Loss (a non-IFRS measure) decreased to $6.3 million from an Adjusted Net Loss of $15.0 million.
  • Adjusted EBITDA (a non-IFRS measure) improved to a loss of $4.7 million from an Adjusted EBITDA loss of $12.7 million in 2018.
  • While cash flow from operations for the year was negative, cash used in operations over the year improved by $2.0 million, coming in at $5.3 million versus $7.3 million.
  • Cash balance at the end of the year was $3.5 million as compared to $2.3 million in 2018.

Discussion of the Three-Month Periods and Years Ended December 31, 2019 and 2018.

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.

Comparison of the Three-Month Period and Years Ended December 31, 2019 and 2018.

Net Revenue

LXRandCo's retail network consisted of 80 stores as at December 31, 2019, compared to 86 stores as at December 31, 2018. In 2019, the Company opened five stores (as compared to 48 in 2018) and closed 11 stores (versus 93 closures in 2018). These store openings and closures were consistent with the Company's objective of optimizing the performance of its retail network across North America. In 2019, approximately 90% and 10% of its net revenue was generated in the U.S. and Canada, respectively, as compared to 89% and 11% in 2018.

In the three-month period ended December 31, 2019, net revenue increased by 32.9% to $14.4 million as compared to $10.9 million in the three-month period ended December 31, 2018. During this period, e-commerce revenue increased to represent 8.1% of total net revenue as compared to 4.7% last year. In the year ended December 31, 2019, net revenue increased by 2.7% to $40.1 million as compared to $39.0 million for the year ended December 31, 2018, with e-commerce revenue representing 9.3% of total net revenue versus 6.3% in 2018. The improvements in revenue for the three-month period and year ended December 31, 2019 reflects the Company's rebalancing of its omni-channel model that remained focused on its core retail network and on enhanced wholesale and e-commerce growth.

Gross Profit

In the three-month period ended December 31, 2019, gross profit increased by 43.8% to $4.7 million as compared to $3.3 million in the three-month period ended December 31, 2018 and increased by 26.6% to $12.4 million over the year ended December 31, 2019 versus $9.8 million in the year ended December 31, 2018. Excluding the impact of two liquidation sales undertaken in February and March of 2019, when the Company was cash constrained, gross profit would have been $12.7 million for the year ended December 31, 2019.

In the three-month period ended December 31, 2019, gross profit margin increased to 32.8% compared to 30.3% in the three-month period ended December 31, 2018. In the year ended December 31, 2019, gross profit margin was 30.9% as compared to 25.0% for the comparable year ended December 31, 2018. The material improvements in gross margin for the three-month period and year ended December 31, 2019 reflect the Company's objective of optimizing its retail operations and, among other things, include the cumulative effects of reduced licensing fees with two retail partners, the termination of an unprofitable retail partnership, a more efficient and disciplined product sourcing strategy, a decrease in inventory obsolescence provisions, and a significant reduction in inventory shrinkage and freight expense.

SG&A Expenses

In the three-month period ended December 31, 2019, SG&A expenses decreased by 23.9% to $5.8 million, compared to $7.6 million in the three-month period ended December 31, 2018. SG&A expenses decreased 21.4% to $19.2 million in the year ended December 31, 2019, compared to $24.5 million in the year ended December 31, 2018. The improvement in SG&A expenses is attributable primarily to the operation of fewer unprofitable stores throughout the period, which resulted in decreased store and corporate headcount costs, lower costs related to the storage and transportation of inventory and fixtures resulting from the store closures undertaken in 2018, and the absence of one-time fees and expenses relating to the strategic review initiative and financing that occurred in 2018.

As of December 31, 2019 and including retail partner employees under the direct supervision of the Company, LXRandCo's total employee headcount decreased to 294 from 320 as at December 31, 2018. The number of employees directly employed by the Company was 164 as of December 31, 2019, as compared to 179 as at December 31, 2018. This decrease in headcount is mainly the result of a streamlined retail network, including the impact of the discontinued operations in Europe.

Net Loss

In the three-month period ended December 31, 2019, the Company's net loss decreased to $1.7 million from a net loss of $3.7 million in the three-month period ended December 31, 2018. Net loss decreased to $10.0 million in the year ended December 31, 2019, as compared to a net loss of $19.6 million in the year ended December 31, 2018.

Adjusted Net Loss

In the three-month period ended December 31, 2019, Adjusted Net Loss decreased to $0.5 million as compared to an Adjusted Net Loss of $2.8 million in the three-month period ended December 31, 2018. Adjusted Net Loss decreased to $6.3 million in the year ended December 31, 2019, as compared to an Adjusted Net Loss of $15.0 million in the year ended December 31, 2018. The financial table on page 13 sets forth the reconciliation of Net Loss to Adjusted Net Loss.

Adjusted EBITDA

In the three-month period ended December 31, 2019, Adjusted EBITDA loss decreased to $0.1 million as compared to an Adjusted EBITDA loss of $2.5 million in the three-month period ended December 31, 2018. Adjusted EBITDA improved to a loss of $4.7 million in the year ended December 31, 2019, from an Adjusted EBITDA loss of $12.7 million in the year ended December 31, 2018. The financial table on page 13 sets forth the reconciliation of Net Loss to Adjusted EBITDA.

Going Concern and Update on COVID-19 Situation

In the preparation of the Company's consolidated financial statements, management is required to identify when events or conditions indicate that significant doubt may exist about the Company's ability to continue as a going concern. Significant doubt about the Company's ability to continue as a going concern would exist when relevant conditions and events, considered in the aggregate, indicate that there is material uncertainty that the Company will not be able to meet its obligations as they become due for a period of at least, but not limited to 12 months from the statement of financial position date. When the Company identifies conditions or events that raise potential for significant doubt about its ability to continue as a going concern, the Company considers whether its plans that are intended to mitigate those relevant conditions or events will alleviate the potential significant doubt. The mitigating effect of management's plans are considered to the extent that: a) it is probable that the plans will be effectively implemented and, if so, b) it is probable that the plans will mitigate the conditions or events that raise significant doubt about the Company's ability to continue as a going concern.

The Company's consolidated financial statements have been prepared on a going concern basis which assumes the continued realization of assets and satisfaction of liabilities and commitments in the normal course of business.

During the year ended December 31, 2019, the Company incurred a net loss of $10.4 million (2018 – net loss of $22.2 million) and had negative operating cash flows of $5.3 million (2018 – $7.3 million). In addition, at December 31, 2019, the Company had a working capital surplus of $1.3 million, which includes its funding obligations under its existing Line of Credit of $8.0 million as it is due in June 2020 (December 31, 2018 – working capital of $9.2 million which excludes its funding obligations under its existing Line of Credit of $5.8 million given it was a long-term liability at that time) and an accumulated deficit of $106.8 million (December 31, 2018 - $96.4 million).

As the Company continues to implement measures to improve profitability by increasing sales and reducing selling, general and administrative expenses (SG&A) and with the World Health Organization's declaration of the coronavirus as a global pandemic and, after assessing (a) the recent escalation of the spread of the COVID-19 in North America, (b) the impact and actions undertaken by our retail partners and the Company in ensuring the well-being and safety of employees and consumers, and (c) the uncertainty as to the duration of the COVID-19's contagion period, management has concluded that there exist material uncertainties related to events or conditions that may cast significant doubt upon the assumptions underpinning the Company's forecasts and plans and accordingly its ability to continue as a going concern. The judgments made by management in reaching this conclusion are based on information available as of the date these consolidated financial statements were authorized for issuance. These consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities other than in the normal course of business. Accordingly, actual results may differ from the Company's forecasts and plans and the variation may be material.

The Company believes the ongoing effects of COVID-19 on its operations, particularly in a prolonged scenario, will have a material negative impact on its financial results and liquidity.  The Company is taking additional actions to improve its liquidity, including accelerating its e-commerce online activities, and initiating capital expenditure and expense reductions.

The Company's activities involve material risk and uncertainty, and the future profitability of the Company is dependent upon a number of factors, including increasing sales, reducing SG&A, the underlying health and viability of its retail partners, general economic conditions and on consumer sentiment in general, and in the near to medium-term, any possible sustained negative effects of the coronavirus on consumer confidence and buying patterns.  While management has been successful in securing financing through share issuances and a Line of Credit in the past, there can be no assurance it will be able to do so in the future or that these sources of funding or initiatives will be available for the Company or that they will be available on terms which are acceptable to the Company.

Consolidated Financial Statements and Management's Discussion and Analysis

The Company's unaudited interim condensed consolidated financial statements for the three-month periods and years ended December 31, 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.









Consolidated statements of loss and comprehensive loss








(in Canadian dollars, except per share amounts, unaudited)





















For the three-month period ended
December 31,


For the year ended
December 31,





2019

2018


2019

2018










Net revenue




14,440,173

10,864,627


40,069,288

39,018,893

Cost of sales




9,710,949

7,575,969


27,694,255

29,245,980

Gross profit




4,729,225

3,288,657


12,375,034

9,772,913






-




Operating expenses









Selling, general and administrative expenses




5,777,456

7,587,249


19,212,602

24,453,744

Amortization and depreciation expenses




331,962

314,179


1,094,133

1,323,932

Impairment of goodwill





3,683,987

Results from operating activities




(1,380,194)

(4,612,772)


(7,931,702)

(19,688,750)

Other income and expenses









Finance costs




133,120

90,360


485,164

1,028,479

Foreign exchange loss/(gain)




459,467

(913,416)


1,467,715

(1,041,004)

Loss on investment in preferred shares




112,683


112,683

Loss before income taxes




(2,085,464)

(3,789,715)


(9,997,263)

(19,676,225)










Income tax expense (recovery)









Current




(16,841)

(87,576)


37,516

(47,511)

Deferred




(44,619)


(619)





(16,841)

(132,194)


37,516

(48,130)

Net loss from continuing operations




(2,068,622)

(3,657,521)


(10,034,779)

(19,628,096)

Net loss from discontinued operations




(385,846)

(112,438)


(382,846)

(2,564,804)

Net loss




(2,454,468)

(3,769,959)


(10,417,625)

(22,192,900)

 





For the three-month period ended

December 31,


For the year ended

December 31,





2019

2018


2019

2018

Reconciliation of Net Loss to Adjusted Net Loss









Net Loss




(2,454,468)

(3,769,959)


(10,417,625)

(22,192,900)

Adjustments to Net Income:









Foreign exchange loss (gain)




459,467

(913,416)


1,467,715

(1,041,004)

Impairment of goodwill





3,683,987

Impairment of property and equipment




80,675


80,675

Write off of property and equipment




555,129


983,027

127,696

Stock-Based Compensation Expense




394,391

323,993


572,620

426,308

Loss on investment in preferred shares




112,683


112,683


Non-recurring professional fees




659,308


474,853

659,308

Store closing cost




24,770

725,084


130,714

725,084

Loss from discontinued operations




385,846

112,438


382,846

2,564,804

Adjusted Net Loss




(522,182)

(2,781,878)


(6,293,167)

(14,966,042)





 

For the three-month period ended

December 31,


For the year ended

December 31,





2019

2018


2019

2018

Reconciliation of net loss to Adjusted EBITDA









Net Loss




(2,454,468)

(3,769,959)


(10,417,625)

(22,192,900)

Add: Amortization and depreciation expense




331,962

314,179


1,094,133

1,323,932

Add: Finance Costs




133,120

90,360


485,164

1,028,479

Add: Income Tax Expense (Recovery)




(16,841)

(132,194)


37,516

(48,130)

EBITDA




(2,006,227)

(3,497,615)


(8,800,812)

(19,888,619)

Adjustments to EBITDA:









Foreign exchange loss (gain)




459,467

(913,416)


1,467,717

(1,041,004)

Impairment of property and equipment




80,675


80,675

Write off of property and equipment




555,129


983,027

127,696

Loss on investment in preferred shares




112,683


112,683

Impairment of goodwill





3,683,987

Stock-Based Compensation Expense




394,391

323,993


572,620

426,308

Professional fees related to strategic review and private placement



659,308


474,853

659,308

Store closing costs




24,770

725,084


130,714

725,084

Loss from discontinued operations




385,846

112,438


382,846

2,564,804

Adjusted EBITDA




(73,941)

(2,509,533)


(4,676,354)

(12,661,761)















 

Conference Call

A conference call to discuss the Company's fourth quarter 2019 results is scheduled for today, Thursday, March 26, 2020, 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 https://event.on24.com/wcc/r/2224381/2DD6373A6152D8CD9F41FE16D5CCF34E.

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 3591329 followed by the pound key.  The telephone replay will be available until Thursday, April 2, 2020 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 partners.

Caution Regarding Forward-Looking Statements

Certain statements in this press release are prospective in nature and constitute forward-looking information 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 and closures, 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, entering into new and/or expanded retail partnerships, 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, Chief Financial Officer, LXRandCo. Inc., +1 (514) 564-9993 ext: 037, nadine.e@lxrco.com