LXR REPORTS FINANCIAL RESULTS FOR Q3 and YTD 2022

Stable Total Net Revenue of $5.0 Million in Q3 2022

Cash Earnings of $0.7 Million and Free Cash Flow of $1.2 million in Q3 2022

YTD 2022 Total Net Revenue of $15 Million, up 27%

YTD 2022 E-commerce Net Revenue up 38%, E-commerce Penetration 62%

MONTREAL, Nov. 10, 2022 /CNW/ – LXRandCo, Inc. (“LXR” or the “Company”) (TSX: LXR), a North American socially responsible, digital-first omni-channel retailer of authenticated pre-owned handbags and personal accessories, today reported its financial results for the three-month period ended September 30, 2022 (“Q3 2022”) and the nine-month period ended September 30, 2022 (“YTD 2022”).

Total net revenue for Q3 2022 remained stable at $5.0 million compared to the third quarter in 2021. Total net revenue for YTD 2022 was $14.8 million, 27% higher than that for same period last year. For the last twelve-month (“LTM”) period ending September 30, 2022, total net revenue was $21.2 million representing a 41% increase over the same period last year.

“Despite a strong month of July, where our total net revenue grew 22% and e-commerce net revenue grew 35%, we experienced the effects of a weakening economy in the latter half of Q3 2022, which led to a slowing in consumer demand for our products particularly in Canada and resulted in our posting flat sales growth for the quarter. This however was offset by strong U.S. revenue growth, growth in our e-commerce channel, a strong currency and continued cost containment measures, which generated positive Cash Earnings1 and positive Free Cash Flow2 of $0.7 million and $1.2 million, respectively. For the fourth quarter and going into 2023, given the current economic uncertainty, our priority is to continue growing our revenue responsibly with a focus on costs and achieving near term profitability.” said Cam di Prata, Chief Executive Officer of the Company.

Provided below are the financial highlights and a discussion of our financial results for Q3 2022 and YTD 2022, which are to be read in conjunction with the Company’s unaudited interim condensed consolidated financial statements and the accompanying notes thereto, the Company’s Management’s Discussion and Analysis (“MD&A”) for the period and our most recent Annual Information Form (“AIF”), incorporated by reference herein, and as described from time to time in the reports and disclosure documents filed by the Company with the Canadian securities regulatory agencies and commissions.

_________________________________

1 Cash Earnings (or net cash generated before changes in non-cash working capital), a non-IFRS measure, is defined as Net Profit or Loss plus non-cash charges.

2 Free Cash Flow, a non-IFRS measure, is defined as net cash generated from operating activities excluding net cash used in investing activities.

Overview of Results for the Three-Month Period Ended September 30, 2022 (“Q3 2022”), compared to the Three-Month Period Ended September 30, 2021 (“Q3 2021”)

Selected financial highlights for the period include the following:

  • Total net revenue remained stable at $5.0 million. Revenue growth from the U.S., which accounted for 74% of total revenue, grew 21%. Revenue growth in Canada declined 32%.
  • E-commerce net revenue increased 8% to $2.7 million. E-commerce average order value (“AOV”) was $963 per transaction. E-commerce net revenue as a proportion of total net revenue (“E-commerce penetration”) was 54%.
  • Retail net revenue was $2.3 million versus $2.5 million, a decrease of 7%. At quarter-end, we had nine stores in operation, unchanged from Q3 2021.
  • Gross profit margin was 37.5% compared to 38.4% in Q3 2021. In 2022, we secured a new sourcing partner that provided access to additional inventory on a consignment basis, but at slightly lower gross margins relative to those in our traditional direct sourcing channels. Excluding the impact of this consignment channel partner, gross margin for Q3 2022 was 39.3%.
  • Selling, general and administrative (“SG&A”) expenses increased 12% to $2.3 million, representing 47% of total net revenue, from $2.1 million, or 42% of total net revenue. This net increase in SG&A expense was primarily due to an increase in stock-based compensation, a non-cash expense.
  • Adjusted EBITDA loss (a non-IFRS measure) was $0.3 million versus a loss of $0.2 million.
  • Cash Earnings (a non-IFRS measure) were $0.7 million as compared to $0.1 million in Q3 2021, an improvement of $0.6 million.
  • Free Cash Flow (a non-IFRS measure) was positive with inflows of $1.2 million as compared to negative outflows of $2.2 million in Q3 2021, an improvement of $3.4 million.
Overview of Results for the Nine-Month Period Ended September 30, 2022 (“YTD 2022”), compared to the Nine-Month Period Ended September 30, 2021 (“YTD 2021”)

Despite the economic headwinds experienced in Q3 2022, YTD 2022 revenue performance was strong compared to prior year due primarily to solid revenue growth in our e-commerce channel. This was aided by stable gross margins, a strong currency and continued cost containment measures, which generated near break-even levels in both Cash Earnings (a non-IFRS measure) and Free Cash Flow (a non-IFRS measure) for the period.

Selected financial highlights include the following:

  • Total net revenue increased 27% to $14.8 million. Revenue growth from the U.S., which accounted for 70% of total revenue, grew 34%. Revenue growth in Canada increased 14%.
  • E-commerce net revenue increased 38% to $9.1 million. E-commerce AOV was $1,022 per transaction. E-commerce penetration was 62%.
  • Retail net revenue was $5.7 million versus $5.0 million, an increase of 13%. At quarter-end, we had nine stores in operation, unchanged from YTD 2021.
  • Gross profit margin was 36.1% compared to 36.2% in YTD 2021. Excluding the impact of the consignment partner arrangement referred to in Q3 2022 financial highlights, gross margin for YTD 2022 was 37.1%.
  • SG&A expenses increased by 20% to $7.1 million, representing 48% of total net revenue, from $5.9 million, or 51% of total net revenue. This increase in SG&A expense was primarily due to higher wages and salaries from headcount additions during the year. SG&A expenses in YTD 2021 included the benefits of pandemic-related government wage subsidies. Excluding the benefit of these subsidies, YTD 2022 SG&A increased 17%.
  • Adjusted EBITDA loss (a non-IFRS measure) was $1.4 million versus a loss of $1.8 million.
  • Cash Earnings (a non-IFRS measure) were negative $0.2 million as compared to negative $2.0 million in YTD 2021, an improvement of $1.8 million.
  • Free Cash Flow (a non-IFRS measure) in the period was near break-even as compared to negative outflows of $5.0 million in YTD 2021, an improvement of over $5.0 million.
  • Cash availability on September 30, 2022 was $2.2 million as compared to $3.8 million on December 31, 2021. The decrease in cash of $1.6 million was due to the repayment of third-party debt during the year.
Outlook

Given the current economic environment, and the resulting related uncertainty in consumer spending, our full-year 2022 total net revenue guidance is $20 million to $22.5 million. The Company expects to break-even in Q4 2022.

The above forward-looking statements reflect our expectations as of November 10, 2022, and is subject to substantial uncertainty. Given the current economic environment, our results and expectations for Q4 2022 are inherently unpredictable and may be materially affected by many factors, such as uncertainty regarding the impacts of the COVID-19 pandemic, fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions and customer demand and spending (including the impact of recessionary fears), inflation, interest rates, regional labor market and global supply chain constraints, world events, the rate of growth of the Internet, online commerce, and cloud services, and the various risk factors discussed in “Summary of Factors Affecting Results from Operations” and  “Risk Factors” in our MD&A and AIF.

Selected Consolidated Financial Information

The following table summarizes LXR’s recent results for the periods indicated:

($)

For the three-months ended

September 30,


For the nine-months ended

September 30,


2022

2021


2022

2021







Net revenue

5,006,612

4,987,628


14,783,395

11,615,727

Cost of sales

3,126,631

3,073,058


9,444,101

7,405,610

Gross profit

1,879,981

1,914,570


5,339,294

4,210,117







Operating expenses






Selling, general and administrative expenses                                    

2,345,896

2,087,965


7,091,423

5,903,250

Depreciation of property and equipment

80,885

73,098


231,351

209,035

Amortization of intangible assets

2,034

5,938


10,848

37,808

Loss from operating activities

(548,834)

(252,431)


(1,994,328)

(1,939,976)

Other income and expenses






Finance costs

159,812

117,230


418,231

431,468

Foreign exchange loss (gain)

(1,081,490)

(428,884)


(1,515,211)

15,432

Loss before income taxes

372,844

59,223


(897,348)

(2,386,876)







Income tax expense






Current

2,634


9,960

18,570

Net profit (loss)

370,210

59,223


(907,308)

(2,405,446)

 

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

($)

For the three-months ended

September 30,


For the nine-months ended

September 30,


2022

2021


2022

2021

Reconciliation of Net Profit (Loss) to Adjusted Net Profit (Loss)   






Net profit (loss)

370,210

59,223


(907,308)

(2,405,446)

Adjustments to Net Profit (Loss):






Foreign exchange loss (gain)

(1,081,490)

(428,884)


(1,515,211)

15,432

Gain on disposal of property and equipment


(1,250)

Stock-based compensation

148,481

6,544


310,508

105,781

Information technology non-recurring expense


62,479

Government wage subsidy program

(4,338)


(177,361)

Adjusted Net Loss

(562,799)

(367,455)


(2,049,532)

(2,462,844)



















($)

For the three-months ended

September 30,


For the nine-months ended

September 30,


2022

2021


2022

2021

Reconciliation of Net Profit (Loss) to Adjusted EBITDA






Net profit (loss)

370,210

59,223


(907,308)

(2,405,446)







Adjustments to Net Profit (Loss):






Amortization and depreciation expenses

82,919

79,036


242,199

246,843

Finance costs

159,812

117,230


418,231

431,468

Income tax expense

2,634


9,960

18,570

EBITDA

615,575

255,489


(236,918)

(1,708,565)







Adjustments to EBITDA:






Foreign exchange loss (gain)

(1,081,490)

(428,884)


(1,515,211)

15,432

Gain on disposal of property and equipment


(1,250)

Stock-based compensation

148,481

6,544


310,508

105,781

Information technology non-recurring expense


62,479

Government wage subsidy program

(4,338)


(177,361)

Adjusted EBITDA

(317,434)

(171,189)


(1,379,142)

(1,765,963)

 

The following tables provide a reconciliation of Net Profit or Loss to Cash Earnings and Free Cash Flow for the periods indicated:


For the three-months ended September 30,

($)

2022

2021

Increase

(decrease)

Reconciliation of Net Profit to Cash Earnings and Free Cash Flow  




Net profit

370,210

59,223

310,987

Adjustments to Net Profit (Loss):

Non-cash items:




Depreciation of property and equipment

80,885

73,099

7,786

Amortization of intangible assets

2,034

5,937

(3,903)

Amortization of deferred financing costs

7,202

7,203

(1)

Stock-based compensation expense

148,481

6,544

141,937

Unrealized foreign exchange loss (gain)

108,201

(5,496)

113,697


346,803

87,287

259,516

Cash Earnings

717,013

146,510

570,503

Net change in non-cash working capital balances

470,826

(2,322,046)

2,792,872

Cash flows (used) generated in operating activities                                                         

1,187,839

(2,175,536)

3,363,375

Less: Acquisitions of property and equipment

(4,050)

(15,436)

11,386

Free Cash flow

1,183,789

(2,190,972)

3,374,761






For the nine-months ended September 30,

($)

2022

2021

Increase

(decrease)

Reconciliation of Net Profit (Loss) to Cash Earnings and Free Cash Flow       




Net profit (loss)

Adjustments to Net Profit (Loss):

(907,308)

(2,405,446)

1,498,138

Non-cash items:




Depreciation of property and equipment

231,351

209,035

22,316

Amortization of intangible assets

10,848

37,808

(26,960)

Amortization of deferred financing costs

21,373

21,373

Stock-based compensation expense

310,508

105,781

204,727

Gain on disposal of property and equipment

(1,250)

1,250

Unrealized foreign exchange loss

115,968

10,601

105,367


690,048

383,348

306,700

Cash Earnings

(217,260)

(2,022,098)

1,804,838

Net change in non-cash working capital balances

218,256

(2,983,432)

3,201,688

Cash flows (used) generated in operating activities

996

(5,005,530)

5,006,526

Less: Acquisitions of property and equipment

(14,547)

(40,027)

25,480

Free Cash flow

(13,551)

(5,045,557)

5,032,006







Selected Quarterly Financial Information

The following table summarizes certain of our financial results for the most recently completed eight quarters for which financial statements have been prepared by us as a reporting issuer. This unaudited quarterly information has been prepared in accordance with IFRS. Due to the impact of the COVID-19 pandemic and other factors such as seasonality, the results of operations for any quarter are not necessarily indicative of the results of operations for the full year.

($)




Consolidated statements of loss

Q3-2022

Q2-2022

Q1-2022

Q4-2021

Q3-2021

Q2-2021

Q1-2021

Q4-2020

Total net revenue

5,006,612

5,481,267

4,295,516

6,415,527

4,987,628

4,026,028

2,602,071

3,391,813

E-commerce revenue

2,669,366

3,268,570

3,149,395

3,958,670

2,506,850

2,522,682

1,572,640

1,715,804

E-commerce revenue % of total net

revenue

53.9 %

59.6 %

73.3 %

61.7 %

50.3 %

62.7 %

60.4 %

50.6 %

Gross margin

37.5 %

35.5 %

35.3 %

37.3 %

38.4 %

35.7 %

33.0 %

32.7 %

Adjusted Net (Loss) Income

(562,799)

(696,424)

(790,309)

123,230

(367,455)

(1,085,937)

(1,009,452)

(886,788)

Adjusted EBITDA

(317,434)

(486,244)

(575,464)

298,025

(171,189)

(857,764)

(737,010)

(708,297)

Adjusted EBITDA % of total net

revenue

(6.3 %)

(8.9 %)

(13.4 %)

4.6 %

(3.4 %)

(21.3 %)

(28.3 %)

(20.9 %)










Run rate metrics and growth:









Total net revenue – last 12 months

revenue run-rate

21,198,922

21,179,938

19,724,699

18,031,254

15,007,540

12,877,630

10,281,886

13,777,419

E-commerce revenue – last 12

months revenue run-rate

13,076,001

12,883,485

12,137,597

10,560,842

8,317,976

6,691,499

4,976,771

4,379,723










Free Cash Flow:









Net profit (loss)

370,210

(353,552)

(923,966)

(492,803)

59,223

(1,580,635)

(884,034)

(2,208,618)

Add: non-cash items

346,803

354,340

(11,095)

724,391

87,287

390,704

(94,643)

137,960

Cash Earnings

717,013

788

(935,061)

231,588

146,510

(1,189,931)

(978,677)

(2,070,658)

Add: Net change in non-cash working

capital

470,826

(646,138)

393,568

1,221,311

(2,322,046)

(32,427)

(628,959)

1,435,622

Cash flows provided/(used) in

operating activities

1,187,839

(645,350)

(541,493)

1,452,899

(2,175,536)

(1,222,358)

(1,607,636)

(635,036)

Less: acquisition of property and

equipment

(4,050)

(6,062)

(4,435)

(4,283)

(15,436)

(9,998)

(14,593)

(17,273)

Free Cash Flow

1,183,789

(651,412)

(545,928)

1,448,616

(2,190,972)

(1,232,356)

(1,622,229)

(652,309)










Liquidity:









Cash availability

2,231,325

2,934,437

3,662,768

3,810,767

2,640,169

4,481,560

4,775,470

7,334,425

Working capital

(551,302)

(59,214)

6,833,114

7,052,502

7,083,280

7,033,183

7,133,717

8,949,997










Capitalization:









Shares outstanding

91,425,499

91,425,499

92,783,155

92,783,155

92,783,155

92,783,155

92,783,155

92,783,155

Closing share price

0.11

0.11

0.11

0.14

0.10

0.13

0.12

0.25

Market capitalization

10,056,805

10,056,805

10,206,147

12,989,642

9,278,316

12,061,810

11,133,979

22,731,873

Add: Total debt

4,645,115

6,619,796

6,526,453

5,999,440

6,272,286

5,758,443

4,814,459

5,733,129

Less: Cash

2,007,396

2,884,427

3,570,681

3,695,677

2,603,395

4,315,918

4,653,792

7,289,957

Enterprise value (EV)                              

12,694,524

13,792,174

13,161,919

15,293,405

12,947,207

13,504,335

11,294,646

21,175,045










Subsequent Events

On October 20, 2022, LXR announced it was undertaking a strategic review process to assess the best course of action for the Company’s next phase of development and growth. The Company retained Stifel Nicolaus Canada, Inc. as its exclusive financial advisor to help assess and more fully explore the strategic alternatives available to it, which may include the possibility of raising of growth capital, a sale or merger of the Company or an acquisition by the Company.

Since the onset of the COVID-19 pandemic in March 2020, the Company’s transformation to a digital first strategy has been successful. Total revenue in 2021 increased to $18.0 million, an increase of 31% from $13.8 million in 2020, and our latest twelve months trailing total revenue as at September 30, 2022 was $21.2 million. Year-to-date e-commerce revenue now represents 62% of total revenue (as compared to under 10% in 2019), gross margin increased to 36% from pre-pandemic levels of 32%, and the Company’s annual SG&A expenses have been materially reduced from over $19.2 million in 2019 to a projected level of $9.5 million thus positioning the Company on a path to future profitability.

There can be no assurance that the strategic review process will result in any transaction or other alternative nor any assurance as to its outcome or timing. The Company has not set a timetable for completion of the review process and does not intend to periodically or otherwise disclose developments related to the process unless it determines that such disclosure is necessary or appropriate.

About LXR

LXR is a socially responsible, digital-first omni-channel retailer of authenticated pre-owned handbags and personal accessories. Since 2010, we have been providing consumers with authenticated branded luxury products from Hermès, Louis Vuitton, Gucci, Prada and Chanel, among other high-quality brands, by promoting their reuse and providing an environmentally responsible way for consumers to purchase luxury products. We achieve this through our digital-first strategy by selling directly to consumers through our website at www.lxrco.com and indirectly by powering the e-commerce and other platforms of key channel partners. Our omni-channel model is also supported by retail “shop-in-shop” experience centers and by wholesale activities with select retail partners across North America.

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 LXR’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 LXR’s financial information reported under IFRS. Management uses non-IFRS measures including: “EBITDA,” “Adjusted EBITDA,” “Adjusted Net Loss”, “Cash Earnings”,”Free Cash Flow”, “LTM Total Net Revenue”, “LTM E-commerce Net Revenue” and “Inventory Turns”.

These non-IFRS measures are used to provide investors with supplemental measures of LXR’s operating performance and thus highlight trends in LXR’s core 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 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, Cash Earnings and Free Cash Flow, 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 include, but are not limited to, statements concerning the financial results and condition of the Company, expectations regarding market trends, overall market growth rates and the Company’s growth rates, future objectives and strategies to achieve those objectives, including, without limitation, e-commerce growth and penetration, the state of wholesale demand, new store openings, store productivity, margin improvements, and future acquisitions, 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 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”, “continue” or similar expressions suggesting future outcomes or events and the negative of any of these terms.

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 or closings in North America, entering into new or expanded retail partnerships in North America, the ability of the Company to continue to expand its wholesale activities, the Company’s ability to source products, the Company’s competitive position in the pre-owned 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 activity and market growth rates, currency exchange and interest rates and competitive intensity.

Given the recent rise in global interest rates and inflationary expectations, our results in the future may be materially affected by the overall state of economic growth, customer demand and spending (including the impact of recessionary fears), the level of inflation, interest rates, regional labor market and global supply chain constraints, world events, the rate of growth of online commerce, and cloud services, and various other related factors. In the latter part of Q3 2022, we experienced a slow-down in consumer spending, this trend may continue into Q4 2022 and into 2023.

Generally, and especially given this unprecedented period of uncertainty brought about by the COVID-19 pandemic (including any variant) and geo-political events or acts of terrorism (such as the military conflict between Russia and Ukraine and the political tensions arising from such conflict between Russia, the United States and countries in Europe and elsewhere), 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. By their nature, forward-looking statements involve known and unknown risks and uncertainties and other factors that could cause actual results to differ materially from those contemplated by such statements. Factors that could cause such differences include, but are not limited to, those factors described under the headings “Risk Factors” and “Management’s Discussion and Analysis of LXR – Risk Factors” in LXR’s annual information form (the “Annual Information Form”), and as described from time to time in the reports and disclosure documents filed by the Company with the Canadian securities regulatory agencies and commissions. Such list of risk factors is not exhaustive of the factors that may impact the forward-looking statements. These and other factors should be considered carefully, and readers should not place undue reliance on any of the forward-looking statements in this press release. As a result of the foregoing and other factors, there can be no assurance that actual results will be consistent with these forward-looking statements.

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.

SOURCE LXRandCo, Inc.

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