Danier Leather Reports Fiscal 2014 Third Quarter Results and Update on Its Strategic Plan




Apr 23, 2014 - 15:26

TORONTO, ONTARIO--(Marketwired - April 23, 2014) - Danier Leather Inc. (TSX:DL) ("Danier" or the "Company") today announced its unaudited interim consolidated financial results for the 13-week and 39-week periods ended March 29, 2014. The Company also provided an update on the implementation of its previously disclosed strategic plan.

FINANCIAL HIGHLIGHTS ($000s, except earnings per share (EPS), square footage and number of stores):

For the 13 Weeks Ended For the 39 Weeks Ended
Mar. 29, 2014 Mar. 30, 2013 Mar. 29, 2014 Mar. 30, 2013
Sales $ 31,011 $ 37,400 $ 117,221 $ 126,626
EBITDA(1) $ (4,541 ) (224 ) 1,740 8,489
Net Earnings (Loss) (4,286 ) (883 ) (983 ) 4,063
EPS - Basic $ (1.12 ) $ (0.23 ) $ (0.26 ) $ 0.95
EPS - Diluted $ (1.12 ) $ (0.23 ) $ (0.26 ) $ 0.91
Number of Stores 89 89 89 89
Retail Square Footage 281,024 287,567 281,024 287,567

FISCAL 2014 THIRD QUARTER AND NINE MONTHS RESULTS

Sales during the third quarter of fiscal 2014 decreased by 17% or $6.4 million to $31.0 million compared with $37.4 million during the third quarter last year.

Over the same period comparable store sales(2) decreased by 19%. With a longer than usual winter and extreme cold weather (among the coldest winters in history in some parts of Canada), customers were looking for extreme cold weather insulated jackets beyond what Danier had to offer. The weather, along with increased promotional pricing and insufficient quantities of parkas and cold weather related jackets, resulted in significantly lower outerwear sales. Next winter season, Danier plans to adjust its product assortment to ensure a better selection of cold weather outerwear to improve its competitiveness in the outerwear category.

At the same time, Danier's higher margin accessories business continued to grow with sales of handbags increasing more than 30% compared with the corresponding period last year. The continued growth in accessories is largely a reflection of the significant changes and investments made during the second quarter of last year beginning to take full effect.

Year-to-date sales decreased by 7% or $9.4 million to $117.2 million, while comparable store sales decreased by 9%, compared to the corresponding period last year.

During the third quarter of fiscal 2014, the company launched the Danier.com eCommerce click-to-buy store for orders within Canada. At present, sales from the eCommerce business did not have a meaningful impact on revenue as it launched midway through the quarter and is still in its early days. However, preliminary indications and feedback received to date are positive and Danier believes that its transactional website will now allow it to reach a broader range of customers across Canada, including younger customers who are more accustomed to online shopping.

Gross profit as a percentage of revenue during the third quarter decreased by 340 basis points to 43.9% compared with 47.3% during the third quarter last year. Gross profit margin during the first nine months of fiscal 2014 decreased by 170 basis points to 49.8% compared with 51.5% during the first nine months of last year. The decrease in gross margin was mainly due to higher markdowns and increased promotional activity in order to reduce inventory levels. Gross profit margin was also affected by the weakened Canadian dollar relative to the U.S. dollar, as Danier purchases a significant amount of its inventory from foreign vendors with payment terms in U.S. dollars.

Selling, general and administrative expenses ("SG&A") during the third quarter of fiscal 2014 increased by about $0.6 million to $19.4 million, compared with $18.8 million during the third quarter last year. Year-to-date SG&A increased by approximately $0.2 million to $59.8 million compared with $59.6 million during the first nine months of last year. The increase in SG&A is mainly due to severance provisions in connection with senior management changes discussed below, impairment loss on property and equipment, increased store rent and occupancy charges and higher administrative salaries associated with Danier's ongoing investments to support the growth of the higher margin accessories business and further enhancements to merchandise planning and sourcing capabilities, as Danier continues to implement its strategic plan.

Net loss during the third quarter of fiscal 2014 was $4.3 million ($1.12 loss per diluted share) compared with $0.9 million ($0.23 loss per diluted share) during the third quarter last year. For the year-to-date period, net loss was $1.0 million ($0.26 loss per diluted share) compared with net earnings of $4.1 million ($0.91 per diluted share) during the first nine months of last year.

Danier continues to maintain a strong balance sheet with cash of $15.1 million, working capital(3) of $35.8 million, no long-term debt and a book value of $14.33 per outstanding share.

STRATEGIC PLAN UPDATE - SENIOR LEADERSHIP TEAM ENHANCEMENTS

"We are disappointed with the Company's unsatisfactory financial results this past quarter. We are continuing to make a number of changes which we believe will produce meaningful improvements," said Jeffrey Wortsman, President and Chief Executive Officer. "We are continuing to implement our strategic plan and are working tirelessly to ensure that we meet our financial and operational goals."

A critical aspect of the successful implementation of our strategic plan is to attract highly motivated, positive and independent-minded people who bring fresh ideas and expertise to Danier and participate at all levels. To that end, over the past year, Danier has made changes to its senior leadership team, adding a number of key executives who we believe will be invaluable in driving the execution of the Company's strategic plan. The enhanced senior leadership team includes the following:

Elizabeth Margles, Vice President, Marketing and Chief Marketing Officer

Elizabeth joined Danier in February 2014 and is responsible for leading the development and execution of the overall brand and marketing strategies for the retail store business and the recently-launched Danier.com eCommerce business. Elizabeth brings 17 years of retail and fashion brand experience with a proven track record for launching and positioning national and international brands, having created and implemented successful strategies for well-known and luxury brands including Porter Airlines, Joe Fresh and Holt Renfrew. She has also advised U.S. retailers such as J.Crew and Nordstrom on market entry into Canada.

Rodney McBrien, Vice President, Information Technology and Chief Information Officer

Rodney joined Danier in January 2014 and is responsible for setting the direction and managing capital investments for all information technology systems in support of all Danier stores across the country, the Danier.com website (including eCommerce), distribution centres, corporate head office and departments and international sourcing offices. Rodney brings 20 years of consulting and direct leadership experience in all aspects of IT. He joins Danier from IBM Global Services, where he led large-scale system implementation for companies in the retail industry.

Brian Burgess, Executive Vice President, Merchandising, Sourcing and Planning

Brian joined Danier in October 2013 and is responsible for merchandising strategies, product and assortment for all categories including apparel and accessories, and supplier relationships. Brian brings to Danier 17 years of experience in the retail sector and apparel and accessories categories, proven business leadership and a track record for achieving results. Brian developed and led successful strategies for brands and retailers including Hudson's Bay Company, Joe Fresh and TJX Canada.

Michael Watson, Executive Vice President, Retail Operations

Michael joined Danier in January 2013 and his responsibilities include overseeing Danier's human resources, store operations, and logistics and distribution. With more than 20 years' experience in the retail industry, Michael is recognized for his ability to motivate and build strong customer-focused cultures as well as for his operational and business acumen. He has led growth in store operations both in Canada and the United States for brands and retailers such as Hudson's Bay Company, Northern Reflections, The Limited and Bath and Body Works.

Bryan Tatoff, Executive Vice President, Chief Financial Officer and Secretary

Bryan has been with Danier for 17 years in roles of increasing responsibility. Bryan will continue in his current role with responsibility for financial strategy and the implementation of financial plans aligned with Danier's operational and growth strategies. He also maintains responsibility for financial reporting.

As previously disclosed, Danier has been working on implementing its stated business strategy, which includes several key elements. Among other things, Danier is continuing to focus on the growth of the accessories line of business, the introduction of online sales, as well as improved marketing, merchandising and brand messaging activities. Danier's strategy is also focused on increasing leather outerwear and sportswear sales, building brand awareness to drive more traffic to our stores and grow profitable sales, and improving the effectiveness and efficiency of Danier's real estate on a broader company-wide basis.

"We have carefully assembled a high performance team with a proven track record in retail and fashion to drive the business and bring about profitable growth," said Mr. Wortsman. "The team is stronger, more experienced and focused on executing the various elements of our stated business strategy."

While we recognize that change takes time to implement, we believe that the individuals who have joined Danier over the past several months are uniquely qualified and positioned to take us from strategy through to implementation and improved results."

Non-IFRS Financial Measures

The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS"). In order to provide additional insight into the business, the Company has also provided certain non-IFRS data, including "EBITDA", "comparable store sales", and "working capital", each as defined below. These non-IFRS measures are not recognized measures for financial presentation under IFRS. These non-IFRS measures do not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to other financial measures determined in accordance with IFRS.

1 EBITDA is defined as net earnings (loss) before interest expense, interest income, income taxes, impairment loss on property and equipment and amortization. EBITDA is a financial metric used by management and some investors to compare companies on the basis of ongoing operating results before taxes, interest expense, interest income, impairment loss on property and equipment and amortization and its ability to incur and service debt. EBITDA is also used by management to measure performance against internal targets, prior period results and other retailers. EBITDA is calculated as outlined in the following table:

For the 13 Weeks Ended For the 39 Weeks Ended
Mar 29, 2014 Mar 30, 2013 Mar 29, 2014 Mar 30, 2013
$ (000 ) $ (000 ) $ (000 ) $ (000 )
Net earnings (loss) $ (4,286 ) $ (883 ) $ (983 ) $ 4,063
Add (deduct) impact of the following:
Income tax (1,425 ) (200 ) (414 ) 1,633
Interest expense 10 9 49 40
Interest income (44 ) (65 ) (90 ) (168 )
Impairment loss on property and equipment 153 - 153 327
Amortization 1,051 915 3,025 2,594
EBITDA $ (4,541 ) $ (224 ) $ 1,740 $ 8,489

2 Comparable store sales are defined as sales generated by stores that have been open during the full current fiscal year as well as the full prior fiscal year. Comparable store sales is a key performance indicator used by the Company to measure performance against internal targets and prior period results and excludes sales fluctuations due to new stores, store closings and certain permanent store relocations. This measure is also commonly used by financial analysts and investors to compare Danier to other retailers. Comparable store sales is calculated as outlined in the following tables:

For the 13 Weeks Ended
Mar 29, 2014 Mar 30, 2013 % change
$ (000 ) $ (000 )
Comparable stores $ 27,357 $ 33,633 (19 %)
Non-comparable stores & direct-to customer 1,951 1,848 6 %
Alterations revenue 235 308 (24 %)
Sales return provision (increase)/decrease 1,468 1,611 (9 %)
Revenue $ 31,011 $ 37,400 (17 %)
For the 39 Weeks Ended
Mar 29, 2014 Mar 30, 2013 % change
$ (000 ) $ (000 )
Comparable stores $ 110,254 $ 120,675 (9 %)
Non-comparable stores & direct-to customer 6,309 5,108 23 %
Alterations revenue 704 824 (15 %)
Sales return provision (increase)/decrease (46 ) 19 (342 %)
Revenue $ 117,221 $ 126,626 (7 %)

3 Working capital is defined as total current assets minus total current liabilities. Working capital is a key indicator and financial metric used by the Company to measure short-term liquidity for those assets that can easily be converted into cash to satisfy both short-term liabilities and upcoming operating expenses. Working capital is calculated as outlined in the following table:

Mar 29, 2014 Mar 30, 2013
$ (000 ) $ (000 )
Total current assets $ 47,568 $ 53,832
Total current liabilities $ 11,814 $ 12,356
Working capital $ 35,754 $ 41,476

Forward-Looking Statements

This press release may contain forward-looking information and forward-looking statements which reflect the current view of Danier with respect to the Company's objectives, plans, goals, strategies, future growth, results of operations, financial and operating performance and business prospects and opportunities. Wherever used, the words "may", "will", "anticipate", "intend", "estimate", "expect", "plan", "believe" and similar expressions identify forward-looking statements and forward-looking information. Forward-looking statements and forward-looking information should not be read as guarantees of future events, performance or results, and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved. All of the statements in this press release containing forward-looking statements or forward-looking information, if any, are qualified by these cautionary statements.

Forward-looking statements and forward-looking information are based on information available at the time they are made, underlying estimates, opinions and assumptions made by management and management's good faith belief with respect to future events, performance and results and are subject to inherent risks and uncertainties surrounding future expectations generally. For additional information with respect to Danier's inherent risks and uncertainties, reference should be made to Danier's continuous disclosure materials filed from time to time with the Canadian Securities Regulatory Authorities, including the Company's most recent annual information form, quarterly and annual reports and financial statements and notes thereto, and supplementary information, which are available on SEDAR at www.sedar.com and in the Investor Relations section of the Company's website at www.danier.com. Additional risks and uncertainties not presently known to the Company or that Danier currently believes to be less significant may also adversely affect the Company.

Danier cautions readers that such factors and uncertainties are not exhaustive and that should certain risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual events, performance and results may vary significantly from those expected. There can be no assurance that the actual results, performance, events or activities anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. Potential investors and other readers are urged to consider these factors carefully in evaluating forward-looking information and forward-looking statements and are cautioned not to place undue reliance on any forward-looking information or forward-looking statements. Danier disclaims any intention or obligation to update or revise any forward-looking information or forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable laws.

About Danier

Danier Leather Inc. is a leading integrated designer, manufacturer, distributor and retailer of high-quality fashion-oriented leather apparel and accessories. The Company's merchandise is marketed exclusively under the well-known Danier brand name at its 89 shopping mall, street-front and outlet stores as well as the online store at danier.com. Corporations and other organizations can obtain Danier products for use as incentives and premiums for employees, suppliers and customers through Canada Sportswear Corp. For more information about the Company and our products, visit www.danier.com.

DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) & COMPREHENSIVE EARNINGS (LOSS)
(thousands of Canadian dollars, except per share amounts and number of shares) - unaudited
For the 13 Weeks Ended For the 39 Weeks Ended
March 29, 2014 March 30, 2013 March 29, 2014 March 30, 2013
Revenue $ 31,011 $ 37,400 $ 117,221 $ 126,626
Cost of sales (Note 11) 17,389 19,711 58,836 61,420
Gross profit 13,622 17,689 58,385 65,206
Selling, general and administrative expenses (Note 11) 19,367 18,828 59,823 59,638
Interest income (44 ) (65 ) (90 ) (168 )
Interest expense 10 9 49 40
Earnings (loss) before income taxes (5,711 ) (1,083 ) (1,397 ) 5,696
Provision for (recovery of) income taxes (Note 12) (1,425 ) (200 ) (414 ) 1,633
Net earnings (loss) and comprehensive earnings (loss) $ (4,286 ) $ (883 ) $ (983 ) $ 4,063
Net earnings (loss) per share:
Basic $ (1.12 ) $ (0.23 ) $ (0.26 ) $ 0.95
Diluted $ (1.12 ) $ (0.23 ) $ (0.26 ) $ 0.91
Weighted average number of shares outstanding:
Basic 3,839,616 3,861,844 3,837,828 4,292,920
Diluted 3,948,947 4,012,803 3,952,490 4,441,060
Number of shares outstanding at period end 3,834,168 3,852,868 3,834,168 3,852,868

See accompanying notes to the interim consolidated financial statements

DANIER LEATHER INC.
CONSOLIDATED BALANCE SHEETS
(thousands of Canadian dollars) - unaudited
March 29, 2014 March 30, 2013 June 29, 2013
ASSETS
Current Assets
Cash $ 15,129 $ 23,476 $ 24,541
Accounts receivable 1,654 1,340 1,197
Income taxes recoverable 1,419 - 358
Inventories (Note 3) 28,821 28,525 22,810
Prepaid expenses 545 491 803
47,568 53,832 49,709
Non-current Assets
Property and equipment (Note 4) 17,079 16,231 16,034
Computer software (Note 5) 1,808 611 1,143
Deferred income tax asset 1,730 2,108 2,163
$ 68,185 $ 72,782 $ 69,049
LIABILITIES
Current Liabilities
Payables and accruals (Note 7) $ 9,835 $ 9,896 $ 10,101
Deferred revenue 1,834 1,723 1,548
Sales return provision (Note 8) 145 105 99
Income taxes payable - 632 -
11,814 12,356 11,748
Non-current Liabilities
Deferred lease inducements and rent liability 1,410 1,429 1,392
13,224 13,785 13,140
SHAREHOLDERS' EQUITY
Share capital (Note 9) 11,676 11,558 11,533
Contributed surplus 1,010 981 954
Retained earnings 42,275 46,458 43,422
54,961 58,997 55,909
$ 68,185 $ 72,782 $ 69,049
Contingencies, Guarantees and Commitments (Notes 14 and 15)
Approved by the Board of Directors
April 23, 2014
See accompanying notes to the interim consolidated financial statements
DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(thousands of Canadian dollars) - unaudited
For the 13 Weeks Ended For the 39 Weeks Ended
March 29, 2014 March 30, 2013 March 29, 2014 March 30, 2013
Cash provided by (used in)
OPERATING ACTIVITIES
Net earnings (loss) $ (4,286 ) $ (883 ) $ (983 ) $ 4,063
Adjustments for:
Amortization of property and equipment 894 823 2,642 2,324
Amortization of computer software 157 92 383 270
Impairment loss on property and equipment 153 - 153 327
Amortization of deferred lease inducements (18 ) (24 ) (57 ) (81 )
Straight line rent expense 41 47 75 137
Stock-based compensation 58 40 146 86
Interest income (44 ) (65 ) (90 ) (168 )
Interest expense 10 9 49 40
Provision for (recovery of) income taxes (1,425 ) (200 ) (414 ) 1,633
Changes in working capital (Note 13) (3,529 ) (7,144 ) (6,097 ) (4,224 )
Interest paid (99 ) - (107 ) -
Interest received 40 58 101 179
Income taxes recovered (paid) 528 654 (214 ) (682 )
Net cash (used in) generated from operating activities (7,520 ) (6,593 ) (4,413 ) 3,904
FINANCING ACTIVITIES
Subordinate voting shares issued 90 58 164 58
Subordinate voting shares repurchased (275 ) (328 ) (275 ) (10,793 )
Net cash used in financing activities (185 ) (270 ) (111 ) (10,735 )
INVESTING ACTIVITIES
Acquisition of property and equipment (215 ) (393 ) (3,840 ) (3,870 )
Acquisition of computer software (116 ) (117 ) (1,048 ) (155 )
Net cash used in investing activities (331 ) (510 ) (4,888 ) (4,025 )
Decrease in cash (8,036 ) (7,373 ) (9,412 ) (10,856 )
Cash, beginning of period 23,165 30,849 24,541 34,332
Cash, end of period $ 15,129 $ 23,476 $ 15,129 $ 23,476

See accompanying notes to the interim consolidated financial statements

DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(thousands of Canadian dollars) - unaudited
Share Capital Contributed Surplus Accumulated Other Comprehensive Income Retained Earnings Total
Balance - June 29, 2013 $ 11,533 $ 954 $ - $ 43,422 $ 55,909
Net earnings (loss) - - - (983 ) (983 )
Stock-based compensation related to stock options - 146 - - 146
Exercise of stock options 254 (90 ) - - 164
Share repurchases (net of tax) (111 ) - - (164 ) (275 )
Balance - March 29, 2014 $ 11,676 $ 1,010 $ - $ 42,275 $ 54,961
Share Capital Contributed Surplus Accumulated Other Comprehensive Income Retained Earnings Total
Balance - June 30, 2012 $ 15,040 $ 925 $ - $ 49,526 $ 65,491
Net earnings - - - 4,063 4,063
Stock-based compensation related to stock options - 86 - - 86
Exercise of stock options 88 (30 ) - - 58
Share repurchases (net of tax) (3,570 ) - - (7,131 ) (10,701 )
Balance - March 30, 2013 $ 11,558 $ 981 $ - $ 46,458 $ 58,997

See accompanying notes to the interim consolidated financial statements

DANIER LEATHER INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the 13-week and 39-week periods ended March 29, 2014 and March 30, 2013
(unless otherwise stated, all amounts are in thousands of Canadian dollars) - unaudited
  1. Reporting Entity:

Danier Leather Inc. and its subsidiaries ("Danier" or the "Company") comprise a vertically integrated designer, manufacturer, distributor and retailer of leather apparel and accessories. Danier Leather Inc. is a corporation existing under the Business Corporations Act (Ontario) and is domiciled in Canada. The Company's subordinate voting shares (the "Subordinate Voting Shares") are listed on the Toronto Stock Exchange (the "TSX") under the symbol "DL". The address of its registered head office is 2650 St. Clair Avenue West, Toronto, Ontario, M6N 1M2, Canada.

Under an accounting practice common in the retail industry, the Company follows a 52-week reporting cycle which periodically necessitates a fiscal year of 53 weeks. Fiscal 2014 (ending June 28, 2014) and Fiscal 2013 (ended June 29, 2013) each comprise a 52-week fiscal year. The 52-week reporting cycle is divided into four quarters of 13 weeks each.

  1. Significant Accounting Policies:
  1. Statement of Compliance

These unaudited interim condensed consolidated financial statements ("unaudited interim financial statements") have been prepared on a going concern basis in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"). The unaudited interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting and using accounting policies and methods consistent with those used for the Company's audited annual consolidated financial statements and notes thereto for the fiscal years ended June 29, 2013 and June 30, 2012 (the "2013 Financial Statements"), except for the following new accounting pronouncements which have been adopted. Certain information, in particular the accompanying notes, normally included in the audited annual consolidated financial statements prepared in accordance with IFRS, has been omitted or condensed. Accordingly, these unaudited interim financial statements do not include all the information required for annual consolidated financial statements and, therefore, should be read in conjunction with the 2013 Financial Statements.

  1. On June 30, 2013, the Company adopted IFRS 7, Financial Instruments: Offsetting Financial Assets and Financial Liabilities ("IFRS 7"). Amendments to IFRS 7 increased the disclosure requirements for transactions involving transfers of financial assets. The amendments had no impact on the Company's disclosures as it has no transfer of financial assets.
  1. On June 30, 2013, the Company prospectively adopted IFRS 13, Fair Value Measurement ("IFRS 13"). This standard provides a standard definition of fair value, sets out a framework for measuring fair value and provides for specific disclosures about fair value. IFRS 13 defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The Company determined that the adoption of IFRS 13 had no measurement impact on the Company's unaudited interim financial statements. The Company has included the disclosures required by this standard in Note 16.

The unaudited interim financial statements for the 13-week and 39-week periods ended March 29, 2014 (including comparatives) were approved by the Board of Directors on April 23, 2014.

  1. Basis of Measurement

The unaudited interim financial statements have been prepared on a going concern basis under the historical cost convention except for the following items which are measured at fair value:

  • Financial instruments at fair value through profit and loss; and
  • Liabilities for cash-settled share-based payment plans.
  1. Functional and Presentation Currency

These unaudited interim financial statements are presented in Canadian dollars ("$" or "C$"), the Company's functional currency. All financial information is presented in thousands, except per share amounts, which are presented in whole dollars, and number of shares, which are presented as whole numbers.

  1. Seasonality of Interim Operations

Due to the seasonal nature of the retail business and the Company's product lines, the results of operation for any interim period are not necessarily indicative of the results of operation to be expected for the full fiscal year. Generally, a significant portion of the Company's sales and earnings are typically generated during the second fiscal quarter, which includes the holiday selling season. Sales are usually lowest and losses are typically experienced during the period from April to September.

  1. Estimates, Judgments and Assumptions

The preparation of these unaudited interim financial statements in accordance with IFRS requires management to make certain estimates, judgments and assumptions in applying the Company's accounting policies which have an effect on the reported amounts and disclosures made in these unaudited interim financial statements and accompanying notes. These estimates, judgments and assumptions are based on historical experience, knowledge of current events and conditions, expectations of the future and other relevant factors that are believed to be reasonable under the circumstances. Estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Significant estimates, judgments and assumptions applicable to the preparation of these unaudited interim financial statements are described in the Company's 2013 Financial Statements. Estimates made by management depend upon subjective or complex judgments about matters that may be uncertain, and changes in those estimates could materially impact these unaudited interim financial statements. Illiquid credit markets, volatile equity, foreign currency and energy markets and declines in consumer spending have combined to increase the uncertainty inherent in estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from the estimates, judgments and assumptions made by management.

  1. Future Changes in Accounting Policies

A number of new standards and amendments to standards and interpretations are not yet effective for the 13-week and 39-week periods ended March 29, 2014. Accordingly, they have not been applied in preparing these unaudited interim financial statements. New standards and amendments to standards and interpretations that are currently under review include:

IFRS 9 - Financial Instruments

On November 12, 2009, the IASB issued a new standard, IFRS 9, Financial Instruments ("IFRS 9"), which will ultimately replace IAS 39, Financial Instruments: Recognition and Measurement ("IAS 39"). The replacement of IAS 39 is a multi-phase project with the objective of improving and simplifying the reporting for financial instruments and the issuance of IFRS 9 is a part of the first phase.

On November 19, 2013, the IASB published IFRS 9, Hedge Accounting, which is a part of the third phase of its replacement of IAS 39. The new requirements allow entities to better reflect their risk management activities in the financial statements. As part of the amendments, entities may change the accounting for liabilities that they have elected to measure at fair value, before applying any of the requirements in IFRS 9. This change in accounting would mean that gains caused by a worsening in an entity's own credit risk on such liabilities would no longer be recognized in profit or loss.

Because the impairment phase of the IFRS 9 project is not yet completed, the IASB decided that a mandatory effective date of January 1, 2015 would not allow sufficient time for entities to prepare to apply IFRS 9. Accordingly, the IASB determined to apply a later mandatory effective date, which will be determined when IFRS 9 is closer to completion. However, entities may still choose to apply IFRS 9 immediately. IFRS 9 must be applied retrospectively; however, hedge accounting is to be applied prospectively (with some exceptions). At the present time, Danier does not expect to apply IFRS 9 earlier than the date required by the IASB.

IAS 32 - Financial Instruments: Presentation ("IAS 32")

The IASB issued an amendment to IAS 32 which provides further guidance on the requirements for offsetting financial instruments. The amendments to IAS 32 are effective for annual periods beginning on or after January 1, 2014 and must be applied retrospectively.

IAS 36 - Impairment of Assets: Recoverable Amount Disclosures for Non-Financial Assets ("IAS 36")

The IASB issued amendments to IAS 36 which reduces the circumstances in which the recoverable amount of assets or cash generating units is required to be disclosed, clarifies the disclosure required and introduces an explicit requirement to disclose the discount rate in determining impairment or reversals where the recoverable amount (based on fair value less costs of disposal) is determined using a present value technique. The amendments to IAS 36 are effective for annual periods beginning on or after January 1, 2014 and must be applied retrospectively. The amendments to IAS 36 will apply to Danier's 2015 fiscal year, which commences on June 29, 2014.

IFRIC 21 - Levies ("IFRIC 21")

The IFRS Interpretations Committee ("IFRIC") of the IASB issued IFRIC 21 which addresses the accounting for a liability to pay a levy to a government. IFRIC applies to levy liabilities within the scope of IAS 37 - Provisions, Contingent Liabilities and Contingent Assets, and to levy liabilities when the timing and amount is uncertain. IFRIC 21 is effective for years beginning on or after January 1, 2014 and must be applied retrospectively. The amendments to IFRIC 21 will apply to Danier's 2015 fiscal year, which commences on June 29, 2014.

The extent of the impact of adoption of the above noted standards and interpretations on the financial statements of the Company have not yet been determined.

A number of other standards have been adopted by the IASB but currently have no impact on the Company.

  1. Inventories:
March 29, 2014 March 30, 2013 June 29, 2013
Raw materials $ 1,225 $ 3,168 $ 2,594
Work-in-process 75 106 222
Finished goods 27,521 25,251 19,994
$ 28,821 $ 28,525 $ 22,810
13 Weeks Ended 39 Weeks Ended
March 29, 2014 March 30, 2013 March 29, 2014 March 30, 2013
Cost of inventory recognized as an expense $ 17,210 $ 19,491 $ 58,341 $ 60,838
Write-downs of inventory due to net realizable value being lower than cost $ 676 $ 557 $ 1,466 $ 987
Write-downs recognized in previous periods that were reversed - - $ 8 $ 27
  1. Property and Equipment:
39 Weeks Ended March 29, 2014
Land Building Roof HVAC Leasehold Improvements Furniture & Equipment Computer Hardware Total
Cost
At June 29, 2013 $ 1,000 $ 6,063 $ 308 $ 840 $ 22,679 $ 9,957 $ 3,348 $ 44,195
Additions - - - - 2,335 1,377 128 3,840
Disposals - - - - (2,451 ) (188 ) - (2,639 )
At March 29, 2014 $ 1,000 $ 6,063 $ 308 $ 840 $ 22,563 $ 11,146 $ 3,476 $ 45,396
Accumulated amortization and impairment losses
At June 29, 2013 - $ 2,508 $ 216 $ 625 $ 15,322 $ 6,754 $ 2,736 $ 28,161
Amortization for the period - 116 11 37 1,408 752 318 2,642
Impairment losses - - - - 153 - - 153
Disposals - - - - (2,451 ) (188 ) - (2,639 )
At March 29, 2014 - $ 2,624 $ 227 $ 662 $ 14,432 $ 7,318 $ 3,054 $ 28,317
Net carrying value
At March 29, 2014 $ 1,000 $ 3,439 $ 81 $ 178 $ 8,131 $ 3,828 $ 422 $ 17,079
At June 29, 2013 $ 1,000 $ 3,555 $ 92 $ 215 $ 7,357 $ 3,203 $ 612 $ 16,034
Capital work in progress included above
At March 29, 2014 - - - - $ 162 $ 67 - $ 229
39 Weeks Ended March 30, 2013
Land Building Roof HVAC Leasehold Improvements Furniture & Equipment Computer Hardware Total
Cost
At June 30, 2012 $ 1,000 $ 6,063 $ 308 $ 793 $ 22,208 $ 9,088 $ 3,386 $ 42,846
Additions - - - - 2,584 1,228 58 3,870
Disposals - - - - (1,941 ) (383 ) - (2,324 )
At March 30, 2013 $ 1,000 $ 6,063 $ 308 $ 793 $ 22,851 $ 9,933 $ 3,444 $ 44,392
Accumulated amortization and impairment losses
At June 30, 2012 - $ 2,354 $ 201 $ 578 $ 15,875 $ 6,321 $ 2,505 $ 27,834
Amortization for the period - 116 11 35 1,249 622 291 2,324
Impairment losses - - - - 277 50 - 327
Disposals - - - - (1,941 ) (383 ) - (2,324 )
At March 30, 2013 - $ 2,470 $ 212 $ 613 $ 15,460 $ 6,610 $ 2,796 $ 28,161
Net carrying value
At March 30, 2013 $ 1,000 $ 3,593 $ 96 $ 180 $ 7,391 $ 3,323 $ 648 $ 16,231
At June 30, 2012 $ 1,000 $ 3,709 $ 107 $ 215 $ 6,333 $ 2,767 $ 881 $ 15,012
Capital work in progress included above
At March 30, 2013 - - - - - - - -

The Company conducted an impairment test for its property and equipment and determined there was an impairment at three of its stores, in the aggregate amount of $153 for the 13-week and 39-week periods ended March 29, 2014 ($NIL and $327 for the 13-week and 39-week periods ended March 30, 2013, respectively). The recoverable amount of the cash generating unit ("CGU") was estimated based on value-in-use calculations, as this was determined to be higher than fair value less costs to sell. These calculations use cash flow projections based on actual performance during the past 12 months which are then extrapolated over each CGU's remaining lease term and then discounted using an estimated discount rate. The key assumptions for the value-in-use calculations include discount rates, growth rates and expected cash flows. Management estimates discount rates using pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the CGUs. Changes in revenues and direct costs are based on past experience and expectations of future changes in the market.

The pre-tax discount rate used to calculate the value-in-use range was 12% (11% during the 13-week and 39-week periods ended March 30, 2013), and was dependent on the specific risks in relation to the CGU. The discount rate was derived from retail industry comparable post-tax weighted average cost of capital.

If management's cash flow estimate were to decrease by 10%, the impairment would have increased by $85. Similarly, if the discount rate were to increase by 100 basis points, the impairment would have increased by $29.

  1. Computer Software:
39 Weeks Ended
March 29, 2014 March 30, 2013
Cost
Beginning of period $ 4,684 $ 3,994
Additions 1,048 155
Disposals (480 ) -
End of period $ 5,252 $ 4,149
Accumulated amortization
Beginning of period $ 3,541 $ 3,268
Amortization for the period 383 270
Disposals (480 ) -
End of period $ 3,444 $ 3,538
Net carrying value
End of period $ 1,808 $ 611
Beginning of period $ 1,143 $ 726
Capital work in process included above - -
  1. Bank Facilities:

The Company has an operating credit facility for working capital and for general corporate purposes to a maximum amount of $25 million that is committed until June 25, 2016 and bears interest at prime plus 0.75%. The Company also has a revolving term credit facility ("term capex facility") to be used exclusively for capital expenditures in the amount of $4 million that is committed until June 25, 2016 and bears interest at prime plus 0.75%. At the end of each quarter, repayments equal to 6.25% of the aggregate principal amount of all borrowings under the term capex facility must be paid.

Standby fees of 0.50% are paid on a quarterly basis for any unused portion of the operating credit facility and term capex facility. The operating credit facility and term capex facility are subject to certain covenants and other limitations that, if breached, could cause a default and may result in a requirement for immediate repayment of amounts outstanding. Security provided includes a security interest over all personal property of the Company's business and a mortgage over the land and building comprising the Company's head office/distribution facility.

The Company also has an uncommitted letter of credit facility to a maximum amount of $10 million and an uncommitted demand overdraft facility in the amount of $0.5 million to be used exclusively for issuance of letters of credit for the purchase of inventory. Any amounts outstanding under the overdraft facility will bear interest at the bank's prime rate. In addition, the Company has a US$4.05 million foreign exchange line available to hedge foreign currency exposure not exceeding 12 months. The foregoing facilities and exchange line are secured by the Company's personal property from time to time financed with the proceeds drawn thereunder.

  1. Payables and Accruals:
March 29, 2014 March 30, 2013 June 29, 2013
Trade payables $ 1,896 $ 1,355 $ 1,840
Accruals 5,679 4,974 4,981
RSU/DSU liability 1,738 2,676 2,516
Commodity and capital taxes 522 891 764
$ 9,835 $ 9,896 $ 10,101
  1. Sales Return Provision:

The provision for sales returns primarily relates to customer returns of unworn and undamaged purchases for a full refund within the time period provided by Danier's return policy, which is generally 14 days after the purchase date. Since the time period of the provision is of relatively short duration, all of the provision is classified as current. The following transactions occurred during the 13-week and 39-week periods ended March 29, 2014 and March 30, 2013 with respect to the sales return provision:

13 Weeks Ended 39 Weeks Ended
March 29, 2014 March 30, 2013 March 29, 2014 March 30, 2013
Beginning of period $ 1,613 $ 1,716 $ 99 $ 124
Amount provided during the period 145 105 1,902 1,950
Utilized or released during the period (1,613 ) (1,716 ) (1,856 ) (1,969 )
End of period $ 145 $ 105 $ 145 $ 105
  1. Share Capital:
  1. Authorized
1,224,329 Multiple Voting Shares
Unlimited Subordinate Voting Shares
Unlimited Class A and B Preference Shares
  1. Issued
Multiple Voting Shares
Number Consideration
Balance March 30, 2013 1,224,329 Nominal
Balance June 29, 2013 1,224,329 Nominal
Balance March 29, 2014 1,224,329 Nominal
Subordinate Voting Shares
Number