Le Chateau says there is 'significant doubt' it can stay in business

A Le Chateau retail store is shown in Montreal on Wednesday July 13, 2016. (THE CANADIAN PRESS/Ryan Remiorz)

TORONTO — A major Canadian clothing retailer that was struggling even before the COVID-19 pandemic says it's no longer sure if it will be able to remain in business for another year.

Le Chateau, which operates 129 stores in eight provinces as well as some manufacturing operations, issued the dire warning late Monday as it reported its latest quarterly earnings report. Although the results covered a period before the pandemic, the company also noted the significant effects that being ordered to close all of its stores has had on its business.

"There are material uncertainties that cast significant doubt upon [our] ability to continue as a going concern," the company said in a press release accompanying its earnings report.

Those uncertainties predated the pandemic, as the company said it was already in debt and has defaulted on loans. Now, though, the Montreal-based retailer says it needs to obtain new financing to stay afloat.

Although all of Le Chateau's stores had reopened as of last week, the company warned that the pandemic "will have a material and adverse impact" on its business and that it does not expect to fully resume normal operations until 2022.

The company said it is in negotiations with its existing lenders and seeking new sources of financing, while also talking to its landlords about possible rent relief. It announced last week that it is manufacturing up to 500,000 hospital gowns as part of a federal contract.

Le Chateau's fourth-quarter results included a sales decline of 6.5 per cent year-over-year, to $175.9 million, despite a significant increase in online sales. The company recorded a net loss of $51.2 million, up from $6.1 million the previous year, which included a $42-million write-off and write-down of long-term assets.

Despite revealing that its entire operation may not be able to survive another year, Le Chateau has not announced plans to close any stores. This is in sharp contrast to how many other clothiers have handled pandemic-exacerbated downturns, as retailers including The Children's Place, Aldo and Reitmans have announced plans to close stores belonging to some of their brands this year. One analyst has suggested that more than 2,500 big-brand store closures could be announced in Canada this year.

Shares in Le Chateau fell sharply in early trading Tuesday on the TSX but rebounded slightly into the afternoon.