KappAhl womenswear "not attractive enough" in Q3 as sales fall
“Weak womenswear offer undermined the quarter.” That was the headline statement of KappAhl’s Q3 results so we knew it wasn't going to be good even before we dived deep into the earnings report.
The Swedish fashion retailer, which also owns the Newbie kidswear chain, said Q3 was “challenging” and that while childrenswear sales rose “and continue to report strong business,” womenswear turnover fell and the quarter saw “a very weak close” in Nordic markets.
On the plus side, the share of sales made online continued to increase, but there's no getting away from the fact that KappAhl still lags many of the most dynamic players in the fashion market. The percentage of its business accounted for by e-commerce only reached 6.2% at the end of the quarter, up from 5.6% a year earlier.
Looking at the latest results in detail, sales fell 3.3% to SEK1.2 billion (€114m) in Q3 (the three months up to May) and comparable sales fell 5.6%, which was a shock given that they'd earlier been growing steadily, despite the tough market. Total sales had risen 4.3% in Q1 and 6.3% in Q2, but the third-quarter drop meant they were up only 1.6% for the first nine months of the financial year.
The gross margin for the third quarter was 60.8%, down from 64.5%, and operating profit fell to just SEK6 million from SEK121 million a year earlier.
The figure was dented by non-recurring costs of SEK43 million for its earnings-improvement programme and when adjusted to remove that amount, the figure was a still-weak SEK49 million. Profit after tax was also SEK6 million, down from SEK94 million a year ago.
New CEO Elisabeth Peregi, who took over in early April, clearly has a challenge on her hands and part of that will be convincing shoppers that they should pay full price. The company said that “heavy competitive pressure” led to more markdowns than in the previous year. But even that didn't seem to shift as much product as it wanted as the company still has inventory levels that are higher than planned, although this mainly consists of summer goods that are still in season.
As mentioned, turnover in Nordic markets was weak, although the Polish market continued to see rising sales. The company didn't only blame external factors for its problems, saying that its womenswear wasn't attractive enough this season. “We have simply not been sufficiently relevant to our important women customers,” it admitted.
So what is the company doing to improve its performance? For a start, it has cut costs, reducing about 50 administrative staff positions and identifying 20 stores that aren't profitable enough and will therefore close. It has also been negotiating rent terms.
And its new CEO said short-term and long-term plans have been drawn up to address its issues. “In the short term we will do what we must to improve the initial position, a painful but necessary process. We see that the earnings improvement programme will be more extensive than the SEK100 million previously decided. What we know for sure is that a continued major focus will be on adapting our store rents and store space to today's visitor levels.”
And the long term? “We will use and sharpen KappAhl’s strengths – our attractive store network, competent staff, strong customer base and ability to build strong brands – and implement changes where required.” The focus will be on components such as the business model, the womenswear range, and omnichannel, she explained.
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