MONTREAL, Nov. 13, 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 third quarter ended September 30, 2020.

"While we entered the third quarter with nearly all our stores in operation, the Company experienced the most challenging period in its history as the adverse effects of COVID-19 continued to persist. During the quarter, three of the Company's longest standing retail partners each filed for creditor protection and subsequent liquidation. This materially reduced our store network, eroding a significant part of the Company's retail revenue base. Despite these setbacks, the Company managed to invest in and grow its direct-to-consumer online business, to right-size its cost base and to generate a modest surplus in cash flow from operations. As we navigate through the pandemic in the quarters ahead, we remain focused and committed to rebuilding the Company by addressing the continued strong demand for our products and working with our partners across various channels." 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 three and nine–month periods ended September 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 Third Quarter Ended September 30, 2020
(All comparable figures are for the third quarter ended September 30, 2019, unless otherwise stated)

• During the quarter, the Company's three U.S.-based retail partners—Lord & Taylor, Stein-Mart Stores and Century 21—filed for creditor protection and subsequent liquidation under Chapter 11 of the Bankruptcy Code in the United States (the "U.S. Partner Bankruptcies"). On September 30, 2020, LXRandCo's retail network consisted of eleven stores located in Canada and of which eight were in operation.
• During the period, total net revenue decreased by 65.6% to $2.9 million from $8.3 million due to the adverse impact of COVID-19 and the resulting U.S. Partner Bankruptcies which permanently reduced the Company's store count by 81%.
• E-commerce net revenue as a proportion of total net revenue increased during the period to 31.0% versus 11.9% and is now the Company's core strategic channel on a go-forward basis
• E-commerce net revenue, which includes online revenue from its own e-commerce website ("LXRCO.com"), as well as the e-commerce platforms of certain retail and digital partners, was $0.9 million, a decrease of 10.1%. E-commerce average order value ("AOV") was $1,287 per transaction, an increase of 11.6%.
• LXRCO.com net revenue, which represented 68.7% of e-commerce net revenue, was $0.6 million, an increase of 26% versus the prior period. LXRCO.com AOV increased 17% to $1,271 per transaction.
• Retail net revenue was $2.0 million versus $6.6 million, a decrease of 69.4%. There was no wholesale revenue recorded in the period.
• Gross profit decreased by 69.1% to $0.8 million from $2.6 million.
• Gross profit margin decreased to 28.2% compared to 31.4%.
• Selling, general and administrative expenses ("SG&A") decreased by 34.3% to $2.8 million from $4.3 million.
• The impact on SG&A included a total of $1.2 million of extraordinary charges from the U.S. Partner Bankruptcies—$0.3 million in bad debt expenses and a one-time non-cash expense of $0.9 million attributable to the write-down of store fixtures. Excluding these items, SG&A during the period decreased by 61.3%.
• Net loss increased by 20.6% to $2.8 million from a net loss of $2.3 million.
• Adjusted EBITDA (a non-IFRS measure) improved by 44.3% to a loss of $0.8 million versus an Adjusted EBITDA loss of $1.4 million.
• Despite the significant pressures from COVID-19 and the U.S. Partner Bankruptcies, cash flow used in operations improved by 102.2% to a near break-even level versus a deficit of $2.8 million
• The Company's available cash resources on September 30, 2020 was $1.2 million.

Highlights for the Nine-Month Period Ended September 30, 2020
(All comparable figures are for the nine-month period ended September 30, 2019, unless otherwise stated)

• Total net revenue, which was adversely impacted by COVID-19 and the resulting U.S. Partner Bankruptcies, decreased by 59.5% to $10.4 million from $25.6 million.
• E-commerce net revenue as a proportion of total net revenue increased to 25.7% versus 9.9%.
• E-commerce net revenue was $2.7 million, an increase of 4.5% and e-commerce AOV was $1,236 per transaction, an increase of 15.5%.
• LXRCO.com net revenue, which represented 68.0% of e-commerce net revenue, was $1.8 million, an increase of 49.5%. LXRCO.com AOV was $1,210 per transaction, an increase of 22.5%.
• Retail net revenue was $6.9 million versus $20.7 million, a decrease of 66.5%. Wholesale net revenue was $0.8 million, a decrease of 67%.
• Gross profit decreased by 58.1% to $3.2 million from $7.6 million.
• Gross profit margin increased to 30.8% compared to 29.8%.
• Selling, general and administrative expenses decreased by 39.5% to $8.1 million from $13.4 million.
• The impact on SG&A included a total of $1.6 million of extraordinary charges from the U.S. Partner Bankruptcies—$0.7 million in bad debt expenses and one-time non-cash expenses of $0.9 million attributable primarily to the write-down of store fixtures. Excluding these items, SG&A during the period decreased by 51.2%.
• Net loss for the period decreased by 34.1% to $5.5 million from a net loss of $8.3 million.
• Adjusted EBITDA (a non-IFRS measure) improved by 45.9% to a loss of $2.6 million versus an Adjusted EBITDA loss of $4.8 million.
• Despite the significant pressures from COVID-19 and the U.S. Partner Bankruptcies, cash flow used in operations improved by 86.7% to a deficit of $0.8 million versus a deficit of $6.1 million.

Discussion of the Three-Month Periods Ended September 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

Owing largely to the adverse impact of COVID-19 and the resulting U.S. Partner Bankruptcies, the Company's total net revenue mix changed materially over the period. In the three-month period ended September 30, 2020, total net revenue decreased by 65.6% to $2.9 million from $8.3 million. During this period, approximately 31.0% of total net revenue was generated from e-commerce and 69.0% from retail and wholesale channels (combined), as compared to 11.9% and 88.1%, respectively, in the three-month period ended September 30, 2019. Also, during this period, approximately 80.5% and 19.5% of net revenue was generated in the U.S. and Canada, respectively, as compared to 87.9% and 12.1% in the three-month period ended September 30, 2019. This shift in revenue mix was largely due to the geographic impact of COVID-19 on store closures and the growth in e-commerce revenue, particularly through LXRCO.com, as compared to last year.

E-commerce
E-commerce net revenue as a proportion of total net revenue increased during the period to 31.0% versus 11.9% last period. E-commerce net revenue during the period was $0.9 million, a decrease of 10.1% compared to prior period. Included in e-commerce net revenue—and hindering the Company's growth rate— is online revenue from the retail partners affected by the U.S. Partner Bankruptcies, which given the impact of COVID-19 in 2020, performed at a much lower rate than that of last year thus affecting overall comparative performance. E-commerce AOV during the period was $1,287, an increase of 11.6% versus the comparable period last year.

LXRCO.com net revenue, which represented 68.7% of e-commerce net revenue, was $0.6 million in the three-month period ended September 30, 2020, an increase of 26.8% versus last year. This performance during the third quarter, was due in part to an increased shift in consumer buying patterns from traditional brick-and-mortar channels to online, and to the fact that the Company made several investments in both talent and marketing spend to position LXRCO.com for above-average growth on a go-forward basis. During the period, LXRCO.com's AOV was $1,271, an increase of 17.0% versus the comparable period last year.

Retail and Wholesale
At period end, LXRandCo's retail network consisted of eleven stores of which eight were open due to closures resulting from the COVID-19 pandemic, versus 81 open stores as of September 30, 2019. During the three-month period ended September 30, 2020, the Company closed 48 stores (versus seven for the three-month period ended September 30, 2019). These store closures were necessitated by the U.S. Partner Bankruptcies made in August 2020 and September 2020.

In the three-month period ended September 30, 2020, retail and wholesale net revenue decreased by 73.1% to $2.0 million as compared to $7.3 million in the three-month period ended September 30, 2019. The decrease in total net revenue primarily reflects the lingering adverse economic impact of COVID-19 on the Company's retail and wholesale revenue streams, as well as the material impact from store closures relating to the U.S. Partner Bankruptcies. There was no wholesale revenue recorded in the period as compared to net revenue of $0.7 million last year.

Discontinued Net Revenue from U.S. Partner Bankruptcies
For the three-month period ended September 30, 2020, approximately $1.7 million of the net revenue booked in the period was attributable to the 48 stores of partners affected by the U.S. Partner Bankruptcies (comparable period 2019—$5.8 million). As discussed above, as these partners have or are in process of liquidating their operations, these revenue channels are no longer available to the Company and represent a permanent loss in future revenue for the Company. The Company is planning to replace such revenue, over time, through a combination of increased e-commerce activity and the addition of other retail and/or wholesale channel partners.

Gross Profit

In line with the 65.6% reduction in net revenue in the three-month period ended September 30, 2020, gross profit decreased by 69.1% to $0.8 million as compared to $2.6 million in the three-month period ended September 30, 2019.

For the three-month period ended September 30, 2020, gross profit margin decreased to 28.2% compared to 31.4% in the three-month period ended September 30, 2019. The compression in gross margin primarily reflects the impact of the U.S retail partner bankruptcies on net revenue and one-time increased operational costs brought on by the rapid closures of 48 stores during the period. The gross margin decline is also partially attributable to a small one-time liquidation sale, as part of the Company's inventory optimization strategy, which carried a disproportionate financial impact due to the period's relatively low reported net revenue

SG&A Expenses

Throughout the COVID-19 pandemic, the Company has, where possible, acted proactively in reducing operating costs and right-sizing operations where required given the significant losses in net revenue. For the three-month period ended September 30, 2020, SG&A expenses decreased by 34.3% to $2.8 million, compared to $4.3 million in the three-month period ended September 30, 2019. This decrease was primarily due to  a reduced retail store network, the partial furloughing of store employees and the furloughing and/or reduced work hour arrangements with most of its head office staff, all the result of the COVID-19 outbreak.

Despite these reductions, SG&A expense during the third quarter was adversely impacted by $1.2 million in extraordinary charges relating to the U.S. Partner Bankruptcies, which included $0.3 million attributable to bad debt expenses and expenses of $0.9 million due to the write-down of store fixtures among other dislocation costs. Excluding these non-cash items, SG&A during the period would have decreased by 61.3%, which given its non-cash nature is positively reflected in the Company's third quarter cash flow from operations.

As of September 30, 2020, and including certain retail partner employees under the direct supervision (but not direct employees) of the Company, LXRandCo's total employee headcount was 56, a decrease of 244 people from the 300 as of September 30, 2019. The number of employees directly employed by the Company was 56 as of September 30, 2020, as compared to 171 as of September 30, 2019. This decrease in headcount is mainly the result of a streamlined retail salesforce resulting from impact of store closures, the U.S Partner Bankruptcies and other terminations.

Net Loss

In the three-month period ended September 30, 2020, the Company's net loss increased by 20.6% to $2.8 million from a net loss of $2.3 million in the three-month period ended September 30, 2019.

Adjusted Net Loss

In the three-month period ended September 30, 2020, Adjusted Net Loss decreased by 35.4% to $1.2 million as compared to an Adjusted Net Loss of $1.8 million in the three-month period ended September 30, 2019. The financial table on page 13 sets forth the reconciliation of Net Loss to Adjusted Net Loss.

Adjusted EBITDA

Despite a 65.6% decline in net revenue, in the three-month period ended September 30, 2020, Adjusted EBITDA loss decreased by 44.3% to $0.8 million as compared to an Adjusted EBITDA loss of $1.4 million in the three-month period ended September 30, 2019. The financial table on page 13 sets forth the reconciliation of Net Loss to Adjusted EBITDA.

Liquidity and Capital Resources

As at September 30, 2020, the Company had approximately $1.2 million of liquidity consisting of $0.5 million of cash on hand and $0.7 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.

With the World Health Organization's declaration of the coronavirus disease ("COVID-19") as a global pandemic and, after assessing (a) the spread of 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 and any potential subsequent escalation and/or resurgence of the disease, 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 unaudited interim condensed consolidated financial statements were authorized for issuance. These unaudited interim condensed 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.

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 in an environment where consumer sentiment has been adversely affected by COVID-19, reducing SG&A, the underlying health and viability of its retail partner, 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

During the quarter, three of the Company's long-time U.S.-based retail channel partners filed for creditor protection under Chapter 11 of the Bankruptcy Code in the United States and announced the liquidation of all their assets, prompting the Company to shut all its stores within these banners. This, among other things, has required the Company to (a) incur one-time non-cash expenses of $0.9 million  related to the disposal of store fixtures associated with the permanent closure of 68 stores in the U.S.; and (b) ensure that any and all associated receivables be adequately provisioned for. In October 2020, the Company filed individual proof of claim statements against the three individual retail partners. The filing of these non-secured claims will be part of an extended liquidation process and the value and timing of any future recovery payments cannot be guaranteed.

In October 2020, the Company re-opened two stores in Canada that were closed due to the COVID-19 pandemic. The Company now has ten stores open out of a total of 11.

Consolidated Financial Statements and Management's Discussion and Analysis

The Company's unaudited interim condensed consolidated financial statements for the three-month and nine–month periods ended September 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:

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:

About LXRandCo

LXRandCo is a socially responsible, digital-first omni-channel retailer of branded vintage luxury handbags and other personal accessories. It curates, sources and authenticates high-quality, pre-owned products from iconic brands such as Hermès, Louis Vuitton, Gucci, Prada and Chanel and sells them at attractive prices through its e-commerce website, www.lxrco.com, as well as the online platforms of its partners and online vintage-focused marketplaces across North America. The Company's omni-channel model is also supported by retail 'shop-in-shop' experience centers and by wholesale activities.

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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