Vancouver-based RYU Apparel Inc. releases interim financial statements—and the results aren't pretty

RYU Apparel Inc. might have been hoping to replicate the success of lululemon athletica.

Both are athletic apparel companies hatched with flagship stores on West 4th Avenue in Vancouver's trendy Kitsilano neighbourhood.

And both brands were initially led by Vancouver entrepreneurs, Chip Wilson and Marcello Leone, who had success in another business.

Both companies expanded by adding local outlets and both hoped that their technical athletic clothing would be a success south of the border.

But unlike lululemon, which focused first on women's yogawear, RYU Apparel took aim at male athletes, whom it felt were underserved.

The name, RYU, is an acronym for Respect Your Universe, which became the company's slogan.

RYU Apparel originally targeted mixed martial artists but under Leone's direction, it expanded in 2015 into a broader performance and lifestyle brand.

Another difference, and this is a big one: RYU Apparel found itself in the midst of a pandemic just as it was trying to gain a foothold in the United States.

In 2018 and 2019, it "underwent an omni-channel expansion plan", growing to nine retail locations and sinking heaps of money into a new digital platform.

But so far, things haven't worked out nearly as well as planned.

"The Company intended to build the brand to have a 70:30 'bricks and clicks' business model by the year 2022," it stated earlier this year, "but subsequent to year-end, the Company revised its business plan to instead focus on growing its e-commerce operations and close some of its retail stores."

COVID-19 hurt many retailers

On March 9, two days before the World Health Organization announced that COVID-19 was a pandemic, Leone resigned as president and CEO of RYU Apparel Inc. Cesare Fazari, a long-time investor, became interim CEO and Leone became executive chairman and remained on the board.

Then on April 21, Leone resigned from these positions and Fazari became chairman and permanent CEO. 

"RYU's business model over the past five years has been a hybrid of physical retail storefronts and e-commerce," the company said at the time. "Under Mr. Fazari's leadership, RYU will evolve its business model to focus primarily on on-line sales in addition to key retail locations in major markets including Vancouver, Toronto, New York and Southern California.

"With a renewed focus on on-line sales, RYU will establish greater customer reach and accessibility while providing our customers with the highest quality apparel and accessories at the best value."

On April 28, the company temporarily closed its three Metro Vancouver retail outlets, including the flagship store on West 4th Avenue, along with other stores in Toronto, Brooklyn, and Venice, California.

In July, it postponed a previously announced private placement to raise $10 million.

And today, RYU Apparel reported a comprehensive loss of nearly $1.14 million on revenues of $756,182 from January to March. The biggest expense, salaries and benefits, added up to $1.13 million.

That was still a marked improvement over the first quarter in 2019, when RYU Apparel posted a comprehensive loss of more than $5 million.

According to the quarterly report, it had $2.25 million in assets at the end of March, including $1.3 million in inventory and $198,941 in accounts receivable. That contrasted with nearly $13.9 million in liabilities, including nearly $4.9 million in accounts payable.

"The Company has incurred losses and has had negative cash flows from operations from inception that have primarily been funded through financing activities," it stated in the footnotes to the financial statements. "The Company will need to raise additional capital during the next twelve months and beyond to support current operations and planned development.

"These factors indicate the existence of a material uncertainty that may cast significant doubt as to the Company’s ability to continue as a going concern," it continued. "Management intends to finance operating costs over the next twelve months with cash on hand and through the private placement of common shares."

The second-quarter numbers, when they're released, may be even worse because many retailers closed stores for an extended period in mid-March after the pandemic was declared.

Because RYU Apparel was slow to file its first-quarter financial statements, securities regulators in B.C. and Ontario imposed a cease trade order and a management cease trade order earlier this year.

RYU Apparel anticipates that these orders will be revoked now that the quarterly report has been released. Once that happens, it will apply to the TSV Venture Exchange to allow a resumption in trading its shares.

These shares were only worth $0.08 on the TSX Venture Exchange when they stopped trading. The company's market capitalization stands at $5.44 million.

Lululemon shares, on the other hand, ended the day at US$377.48 on NASDAQ. The yogawear company worth US$49 billion.

That's another big difference between lululemon and RYU Apparel.