Swedish clothier KappAhl Q3 2017/2018 -Strong sales in May resulted in a good quarter

“….Sales for the quarter started cautiously but gradually increased. Attractive campaigns and an efficient supply chain have contributed to fewer clearance sales and a sound gross margin…”

  • Sales increased by 2.1 per cent in the quarter. During the period September-May they decreased by 4.0 per cent.
  • The gross margin for the quarter was 64.5 (63.7) per cent. Accumulated for the period September-May it was 62.7 (62.7) per cent.
  • The operating profit was SEK 121 (119) million for the quarter and SEK 216 (310) million for September-May.

After the close of the quarter

  • The Board of Directors appointed Göran Bille as Acting President & Chief Executive Officer. Here is his comment on the quarter’s results:

In the third quarter of 2017/2018 KappAhl’s sales increased by 2.1 % to SEK 1242 (1217) million. This is compared with a strong quarter in the previous year as well. Successful campaigns and inventory levels similar to the previous year contributed to a gross margin of 64.5 (63.7) %. Continued sound cost control in operations contributed to an operating profit of SEK 121 (119) million and an operating margin of 9.7 (9.8) % in the quarter.

Sales for the quarter started cautiously but gradually increased. Attractive campaigns and an efficient supply chain have contributed to fewer clearance sales and a sound gross margin. We are pleased with increased market shares in Norway and that operations in Poland continue to make a positive contribution in their new form.

Our activities to increase KappAhl’s attractiveness to the customer – the right range for the right customer and services that are equally simple and fast in store or online – are continuing. The spring range was well-coordinated when the unusually cold winter weather rapidly changed to high summer. The pre-summer campaigns were very well received. Inventories are similar to the previous year and we see that our revised purchasing procedures give us new opportunities to work seasonally with purchasing.

KappAhl’s eCommerce has increased by about 40 per cent compared with the previous year and is thereby approximately 4.5 percent of total sales. The omni-channel services are also showing increased contributions to sales. More than half of our eCommerce is delivered via Click&Collect and contribute to extra sales in stores. The percentage of eCommerce orders made in store is also increasing. The determined work of guiding and following our customers in the ongoing change in behaviour includes both development of technology and services. Our new customer service increases service to our customers and is actively and positively contributing to our sales.

Newbie continues to perform well. As a result of the opening of another two stores Newbie in Great Britain is now a full-scale pilot that we will evaluate in the next few months to make a decision on continued expansion.

During the quarter KappAhl joined the Sustainable Apparel Coalition (SAC). Through active membership here we can harmonise our working methods for sustainability with other actors in the fashion industry as regards increased transparency and an increased pace of development of sustainable working methods and solutions.

Net sales and profit

KappAhl’s net sales for the quarter amounted to SEK 1242 (1217) million, an increase of

2.1 per cent. This is explained by the change in comparable stores, 2.7 %; the effect of new and closed stores, -2.6 %; and currency translation differences totalling 2.0 %.

Gross profit for the quarter was SEK 801 (775) million, which corresponds to a gross margin of 64.5 (63.7) %.

Selling and administrative expenses for the quarter were SEK 680 (656) million.

Operating profit was SEK 121 (119) million. This is equivalent to an operating margin of 9.7 (9.8) %, Depreciation was SEK 43 (33) million.

Net financial income was SEK 0 (-9) million for the quarter. Profit before tax was SEK 121 (110) million and profit after tax was SEK 94 (81) million. Earnings per share for the quarter were SEK 1.22 (1.05).

The progress in the third quarter shows us that KappAhl is back on track. A range that continues to be attractive, well-coordinated campaigns and a well managed supply chain will lead to maintained high quality of sales. We continue to develop the organisation, purchases and logistics to be effective and agile. We develop both physical stores and digital channels to create attractive offers to our customers and to strengthen the brand. All with good cost control. Our aim is sound profitability through being our customer’s preferred choice.

Inventories

At the close of the period inventories amounted to SEK 692 million (682), an increase of 1.5 %, compared with the previous year and is mainly attributable to changes in USD.

Cash flow

KappAhl’s cash flow from operating activities before changes in working capital was SEK 158 (133) million. Cash flow from changes in working capital was SEK

134 (189) million and is mainly due to increased operating liabilities. The cash flow from investing activities was SEK -36 (-64) million, which in the first place was affected by investments in the new store concept and IT related investments. Cash flow from financing activities was SEK -239 (-106) million and is mainly attributable to reduced overdraft facilities.

Financing and liquidity

At the close of the period Kappahl had net interest-bearing liabilities of SEK 267 million compared with net financial assets of SEK 139 million as at 31 May 2017. The net interest-bearing liabilities/EBITDA ratio was 0.5 (-0.3) at the close of the period. The equity/assets ratio decreased to 57.2 (65.7) %.

Cash and cash equivalents amounted to SEK 54 (205) million as at May 31, 2018. At the period close there were unutilised credit facilities of about SEK 725 (981) million.

Store network and expansion

At the close of the period the total number of stores were 369 (357). Of these, 178 were in Sweden, 99 in Norway, 62 in Finland, 25 in Poland and 5 in Great Britain.

The work of seeking attractive store locations in existing markets is proceeding, but priority is given to optimising store areas for the Group as a whole.

Four stores were opened during the quarter and two were closed.

 

 

 

Parent company

Parent company net sales for the quarter were SEK 4 (7) million and pre-tax profit was SEK -1 (-13) million. The parent company did not make any investments during the period.

www.kappahl.com