Auditors warn over financial health of Temperley, but CEO is upbeat
Temperley’s latest set of accounts have shown mounting losses and also a warning from the company’s auditor about its future viability. Although those losses only cover the 2018 year and we don't have anything more recent, they’re still a sign of just how tough the environment has been for the company and its 20-year-old brand in recent periods.
Since the period that the accounts cover has ended, the company has raised £1.9 million in funding, although in the recently-filed accounts, auditor RSM still warned that “material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern”.
But it's unclear whether that warning is simply a legal obligation on the part of the auditor given the figures in the accounts, or actually a sign that the company really could go under. For instance, the Telegraph reported CEO Luca Donnini saying: “We are looking with confidence to approach a break-even point in 2020 and profitability in 2021, as we improve execution, product lines, supply chain and commercial results.”
That confidence comes as the label, which has a higher profile than many small fashion businesses due to celebrity clients such as the Duchess of Cambridge, Emma Watson and Keira Knightley, has been focusing on an operational transformation programme since 2016. This is intended to reposition it within the market, concentrate its wholesale customer base and focus it on operational improvements. This programme continued in 2018 and 2019 (under Luca Donnini who took over last May) with the consolidation of its bridal offering at its flagship in Mayfair. And late last year it opened a directly operated store in the Dubai Mall, replacing the underperforming franchise operation that had existed in the region for the previous five years.
It also continued to fine-tune its offering to achieve economies of scale "through narrower but deeper seasonal collections and a greater focus on daywear over eveningwear to broaden our customer base.” And it focused on retail and e-commerce as key areas for growth, forging an online partnership with Farfetch while consolidating its UK retail offering under the House of Temperley banner.
In the accounts, management said it now feels that the business has the "right operational structure, personnel and trading plans in place to leverage the brand’s popularity in a competitive market."
That's all good news of course, but in the year that these accounts cover, the company said it suffered from difficult prevailing retail trading conditions and revenues fell 15%. It made an additional provision against slow-moving stocks in 2018 to the value of £400,000, which contributed to the gross margin falling from 51% to 43%. And the company said it had net liabilities of £16.6 million at the end of the financial year, up from £13.3 million 12 months earlier.
Turnover in 2018 was £9.69 million compared to £11.37 million a year earlier. The operating loss widened to £3.24 million from £1.5 million and the pre-tax and post-tax loss grew to £3.34 million from £1.53 million.
It was the combination of the operating loss figure and the larger net liabilities that led the auditor to cast that significant doubt on the firm’s ability to continue as a going concern so we’ll be watching any developments this year with interest.
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