IC Group's top brands struggle with eroding margins
today Dec 19, 2016
In the first quarter of the 2016-17 fiscal year, closed at the end of September, Danish fashion corporation IC Group reported a revenue rise of nearly 2%, reaching DKK851 million. However, the profitability of the group's three leading labels — Peak Performance, Tiger of Sweden and By Malene Birger — has declined in the period, and the group's operating margin has fallen from 19.3% to 15.9%.
At the end of the 2015-16 fiscal year, closed on 30th June, the IC Group's revenue reached DKK2.665 billion, equivalent to €358 million. At the time, the figure was regarded as disappointing by the management team, but the group's improvement in profitability, with an operating income of DKK243 million, up 17% compared to the previous fiscal year, was a result which bode well for the future.
The group’s performance in the first quarter of the new fiscal year was inconsistent though. The quarter is the most important for winter sports label Peak Performance, which racked up sales of DKK348 million (+2% at constant exchange rates), of which DKK274 million came from multi-brand and franchised stores. Operating income was DKK62 million, and the operating margin fell from 22.7% to 17.8%, a downturn the label attributed to its investment in new store openings.
As for Tiger of Sweden, revenue in the first quarter grew by over 5% at constant exchange rates, reaching DKK289 million, DKK194 million of which came from multi-brand and franchised stores. With an operating income of DKK55 million, the label's operating margin remains stable at 19%.
By Malene Birger is having a harder time: in the quarter, its revenue fell by over 3%, down to DKK99 million, of which DKK75 million were generated through the wholesale channel and franchised stores. Its operating income plummeted to DKK4 million, the operating margin falling from 12.5% to 4%, notably due to extensive promotional sales.
The IC Group's other segment, comprising the fast fashion brand Saint Tropez and a majority shareholding in Designers Remix, generated a revenue of DKK115 million. It was the only part of the group's business to improve its operating margin, rising from 8.8% to 11.3%, thanks to an increase in gross margin.
At the end of the first quarter, the IC Group achieved its revenue growth objective of +6%, but it has now revised downwards to 8% its initial 9% forecast for the year's operating margin.
The management's main concern is the weak in-store traffic. In the first quarter, all of the group's brands suffered a decline in sales in like-for-like terms. However, the situation is not stopping the IC Group from opening new shops: the plan is to open between 15 and 20 stores in the year, focusing on Germany for Tiger of Sweden, while London is the target for By Malene Birger.
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