MONTREAL -- Le Chateau management is vowing to prove doubters wrong by turning around the fashion retailer despite industry challenges that have claimed several other chains.
The future of the struggling 55-year-old Montreal-based company is questioned by industry observers whenever another Canadian retailer has filed for creditor protection or closed its doors.
But chief financial officer Johnny Del Ciancio said Tuesday that the company is confident in its efforts to overcome the pressures that are hurting its financial results.
It has been closing unprofitable stores and renovating others as it introduces a new store concept to locations once leases are up for renewal.
"We feel that the strategy is sound and moving in the right direction -- it's just taking a bit longer than we had anticipated," he said in an interview.
Del Ciancio said stores that have been upgraded are outperforming older locations. Le Chateau expects to retrofit five stores this year, raising the total to 20, or less than 10 per cent of its network. It also expects to close another eight to 10 locations this year.
But retail analyst Randy Harris of Trendex said Le Chateau is moving too slowly.
"They need to pick up the pace," he said after Le Chateau disclosed it had obtained a loan from its founder and majority shareholder.
Instead of tapping banks, founder Herschel Segal is providing a $15-million loan on top of the $10 million the majority shareholder forked over previously.
The loans are secured by the company's property and rank only behind its $80-million revolving credit facility. They will earn the lesser of double the Royal Bank's prime rate or 7.5 per cent.
Le Chateau (TSX:CTU.A) has repeatedly turned to Segal and his wife, Jane Silverstone Segal, who replaced him as chairman and CEO, for financial support.
Industry experts say companies only turn to their owners for funding if the investor can earn greater returns than other investments or as a last resort. Segal is also a leading investor of David's Tea (Nasdaq:DTEA), which recently went public.
Ciancio said it could have pursued other financing options but dealing with Segal was more cost-effective, quicker and had fewer conditions.
Like many fashion retailers, Le Chateau has struggled financially in the face of foreign competition.
The company's net loss more than doubled to $38.7 million last year, marking its fourth consecutive annual loss. Revenues fell 8.9 per cent to $250.2 million.
In the three months ended May 2, sales decreased 4.8 per cent to $50.8 million despite a 25 per cent increase in online business as comparable store sales were down 6.2 per cent.
Its first-quarter loss was slightly lower at $12.4 million. It ended the quarter with no cash in hand and was forced to borrow from its GE Capital credit facility.
