CEO.CA Chairman's Briefing

MONTREAL, Aug. 14, 2020 /CNW/ - LXRandCo, Inc. ("LXRandCo" or the "Company") (TSX: LXR) (TSX: LXR.WT), a North American omni-channel retailer of branded vintage luxury handbags and accessories, today reported its financial results for the second quarter ended June 30, 2020.

"Despite the serious challenges brought on by the COVID-19 outbreak on the health of our personnel and operations, we were satisfied with our performance in the second quarter. While we began the quarter with no stores in operation and a majority of our staff furloughed or on reduced work hours, during the quarter we worked hard to safely re-open nearly two-thirds of our North American store network and launched several new initiatives to accelerate the growth of our e-commerce activities. Despite a revenue drop of over 83%, the Company excelled in inventory management and expense control generating a gross margin exceeding 33% and reducing overall costs in the quarter by over $7.5 million as compared to the prior period. We are proud of our team's dedication and commitment during this critical quarter and we are quietly optimistic that this period of uncertainty will bring about a unique opportunity to "reset" the LXR business model for the long-term," said Cam di Prata, the Company's interim CEO.

Set forth below are the financial highlights and a discussion of the Company's financial  results for the six-month period ended June 30, 2020, which are to be read in conjunction with the Company's unaudited interim condensed 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 due to COVID-19".

Highlights for the Second Quarter Ended June 30, 2020
(All comparable figures are to the second quarter ended June 20, 2019, unless otherwise stated¹)

• The retail network at June 30, 2020 consisted of 59 stores compared to 84 in 2019. This decrease was mainly due to the Company's decision to close 19 unprofitable stores with existing retail partners in 2020. The Company also terminated an unprofitable retail partnership in 2019, which resulted in the closure of six stores in the U.S.
• On May 18, 2020, the Company re-opened its first store since the COVID-19-led complete store shutdown on March 18, 2020 and has been easing gradually into additional store openings on a market-by-market basis. As at June 30, 2020, the Company had 66%, or 39 of its 59 stores in operation.
• Owing largely to the adverse impact of the COVID-19 outbreak and the resulting store shutdowns, net revenue for the period decreased by 83.3% to $1.4 million from $8.6 million.
• E-commerce revenue increased to 56.1% of net revenue from 11.2%.
• Gross profit decreased by 83.2% to $0.5 million from $2.9 million.
• Gross profit margin increased modestly to 33.6% compared to 33.4%.
• Selling, general and administrative expenses decreased by 67.4% to $1.4 million from $4.2 million.
• Net loss for the period decreased by 21.2% to $1.7 million from a net loss of $2.2 million.
• Adjusted Net Loss (a non-IFRS measure) decreased by 41.5% to $0.9 million from an Adjusted Net Loss of $1.6 million.
• Adjusted EBITDA Loss (a non-IFRS measure) decreased by 45.7% to $0.6 million versus an Adjusted EBITDA loss of $1.2 million.
• Despite the significant pressure on revenue and gross profit, cash flow used in operations improved by 69% to a deficit of $0.7 million from a deficit of $2.3 million in the comparable period.

Highlights for the Six-Month Period Ended June 30, 2020
(All comparable figures are to the six-month period ended June 20, 2019, unless otherwise stated¹)

• Owing largely to the adverse impact of the COVID-19 outbreak, net revenue decreased by 56.5% to $7.5 million from $17.3 million.
• E-commerce revenue increased to 23.6% of net revenue from 9.0%.
• Gross profit decreased by 52.4% to $2.4 million from $5.0 million.
• Gross profit margin increased to 31.8% compared to 29.1%.
• Selling, general and administrative expenses decreased by 41.9% to $5.3 million from $9.1 million.
• Net loss for the period decreased by 55.3% to $2.7 million from a net loss of $6.1 million.
• Adjusted Net Loss (a non-IFRS measure) decreased by 30.6% to $2.9 million from an Adjusted Net Loss of $4.2 million.
• Adjusted EBITDA Loss (a non-IFRS measure) decreased by 34.6% to $2.2 million versus an Adjusted EBITDA loss of $3.4 million.
• Despite the significant pressure on revenue and gross profit, cash flow used in operations improved by 73.8% to a deficit of $0.9 million from a deficit of $3.3 million over the comparable period in 2019.

Discussion of the Three-Month Periods Ended June 30, 2020 and 2019.

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.

Net Revenue

LXRandCo's retail network consisted of 59 stores of which 39 were open as at June 30, 2020 due to closures necessitated by COVID-19, compared to 84 stores (all of which were open) as at June 30, 2019. In the three-month period ended June 30, 2020, the Company closed twelve stores (versus one closure in the three-month period ended June 30, 2019). These store closures were consistent with the Company's objective of optimizing the performance of its retail network across North America. Specifically, and where possible, the Company re-deploys inventory from lower performing stores to higher performing ones which may result in a reduction in store count but not necessarily in a reduction in net revenue. In the three-month period ended June 30, 2020, approximately 76.5% and 23.5% of its net revenue was generated in the U.S. and Canada, respectively, as compared to 91.1% and 8.9% in the three-month period ended June 30, 2019. This shift in revenue mix was largely due to the COVID-19 geographic impact of open versus closed stores as compared to last year.

In the three-month period ended June 30, 2020, net revenue decreased by 83.3% to $1.4 million as compared to $8.6 million in the three-month period ended June 30, 2020, with e-commerce revenue representing 56.1% of total net revenue in 2020 versus 11.2% in 2019. The decrease in total net revenue for the three-month period ended June 30, 2020 primarily reflects the foregone sales starting in late March resulting from the temporary closure of the Company's entire retail network and wholesale partner stores in response to the COVID-19 pandemic, which resulted in no revenue from retail and wholesale channels over this period. In May 2020, in partnership with its retail partners, the Company started the gradual reopening of some of its retail stores on a market-by-market basis. As at June 30, 2020, 66% of its store network (i.e. 39 stores out of 59) were in operation with reduced workhour and staffing.

Gross Profit

In line with the 83.3% reduction in net revenue in the three-month period ended June 30, 2020, gross profit decreased by 83.2% to $0.5 million as compared to $2.9 million in the three-month period ended June 30, 2019.

For the three-month period ended June 30, 2020, gross profit margin increased to 33.6% compared to 33.4% in the three-month period ended June 30, 2019. The stability in gross margin for the three-month period ended June 30, 2020 reflected the Company's initiatives to optimize its retail operations, sourcing more efficiently, decreasing inventory obsolescence and reducing inventory shrinkage.

SG&A Expenses

In the three-month period ended June 30, 2020, SG&A expenses decreased by 67.4% to $1.4 million, compared to $4.2 million in the three-month period ended June 30, 2019. This decrease was primarily due to the previously mentioned closure of its retail store network in March 2020 resulting in the partial furloughing of all store  employees and the furloughing and/or reduced work hour arrangements with most of its head office staff, all of which were a result of the COVID-19 outbreak.

As of June 30, 2020, and including certain retail partner employees under the direct supervision (but not legal employees) of the Company, LXRandCo's total employee headcount was 199, a decrease of 99 people from the 298 as at June 30, 2019. The number of employees directly employed by the Company was 95 as at June 30, 2020, as compared to 161 as at June 30, 2019. This decrease in headcount is mainly the result of a streamlined retail salesforce resulting from the store closures discussed above and certain COVID-19 related terminations.

Net Loss

In the three-month period ended June 30, 2020, the Company's net loss decreased by 21.2% to $1.7 million from a net loss of $2.2 million in the three-month period ended June 30, 2019.

Adjusted Net Loss

In the three-month period ended June 30, 2020, Adjusted Net Loss decreased by 41.5% to $0.9 million as compared to an Adjusted Net Loss of $1.6 million in the three-month period ended June 30, 2019. The financial table on page 13 sets forth the reconciliation of Net Loss to Adjusted Net Loss.

Adjusted EBITDA

Despite an 83.3% decline in net revenue, in the three-month period ended June 30, 2020, Adjusted EBITDA loss decreased by 45.7% to $0.6 million as compared to an Adjusted EBITDA loss of $1.2 million in the three-month period ended June 30, 2019. The financial table on page 13 sets forth the reconciliation of Net Loss to Adjusted EBITDA.

Liquidity and Capital Resources

As a result of liquidity pressures stemming from the COVID-19-related store closures, on May 25, 2020, the Company entered into a non-revolving term loan with a Canadian chartered bank under the Government of Canada's Business Credit Availability Program ("BCAP Loan"). The BCAP Loan consists of a non-revolving three-year credit facility for a principal amount of $3.0 million. In addition, the Company also renewed its $12.5 million Line of Credit for an additional three-year term until May 25, 2023. Concurrent with the closing of the BCAP Loan and renewal of the Line of Credit, and at the request of its lenders, the Company also undertook a private placement of Class B common shares, which closed on June 4, 2020 for gross proceeds of $806,250.

As of June 30, 2020, the Company had approximately $2.6 million of liquidity consisting of $0.8 million of cash on hand and $1.8 million of available capacity under its revolving credit facilities and term loan.

Going Concern and Update on COVID-19 Situation

In the preparation of the Company's unaudited interim condensed 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.

Despite the significant progress made to-date in managing the crisis, the Company believes the ongoing effects of COVID-19 on its operations, particularly in a prolonged scenario, or multiple new outbreaks, 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 COVID-19 on consumer confidence and buying patterns.  While management has been successful in securing financing through share issuances and debt financings 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.

Subsequent Events

In early May 2020, since the impact of the COVID-19 pandemic, which led to temporary store closings in March 2020, certain of the Company's retail partners commenced gradual store re-openings in select market locations (albeit with reduced operating hours and staffing levels). Currently, the Company has 40 stores open out of a total 59 in its network, which it anticipates will continue to materially impact its financial results in the third quarter of the year.

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. Where possible, the Company is taking additional actions to improve its liquidity, including accelerating its e-commerce online activities, and initiating capital expenditure and expense reductions and deferrals. 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 COVID-19 on consumer confidence and buying patterns. 

On August 12, 2020, Stein Mart Inc. ("Stein Mart"), a retail channel partner of the Company, filed for creditor protection under Chapter 11 of the Bankruptcy Code in the United States, in which it expects to close a significant portion, if not all, of its brick-and-mortar stores and, in connection therewith, has launched a store closing and orderly liquidation process. Currently, LXRandCo has 28 out of its 40 open stores within the Stein Mart's retail network. The Company is in the process of recovering all of its store inventory from Stein Mart store locations. There are no material receivables or other outstanding assets at risk or material closing costs arising from this filing. While the Company believes that the Stein Mart store closures will have a material impact on future retail revenue, it believes that the impact on profitability will be more muted.

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, 2020, 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)

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

Conference Call

A conference call to discuss the Company's second quarter 2020 results is scheduled for Friday, August 14, 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://produceredition.webcasts.com/starthere.jsp?ei=1353135&tp_key=fcafb1098e.

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 9460086 followed by the pound key.  The telephone replay will be available until Friday, August 28, 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.

Non-IFRS Measures

This press release refers to certain non-IFRS measures. These measures are not recognized under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement IFRS measures by providing further understanding of LXRandCo's performance and results of operations from management's perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of LXRandCo's financial information reported under IFRS. Management uses non-IFRS measures including: "EBITDA," "Adjusted EBITDA," and "Adjusted Net Loss". These non-IFRS measures are used to provide investors with supplemental measures of LXRandCo's operating performance and thus highlight trends in LXRandCo's business that may not otherwise be apparent when relying solely on IFRS measures. Management believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of company performance. Management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of management compensation. For a definition of EBITDA, Adjusted EBITDA, and Adjusted Net Loss, and a reconciliation of these non-IFRS measures to IFRS measures, see the above tables presented.

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, including the Company's capacity to secure additional financing, 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, notably in the context of the current COVID-19 outbreak.

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.

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