Decline in revenues
Operating earnings (EBIT) clearly below the prior-year level
New guidance already announced for the 2016/17 financial year
Medium-term business targets confirmed
Vienna/Bregenz, September 9, 2016: Wolford AG, which is listed on the Vienna Stock Exchange, reported a revenue decline of 18% to 27.74 million in the first quarter of the current financial year (May 2016 to July 2016). The drop in revenue equaled 16.9% when adjusted for currency effects, in particular the decrease in value of the British pound. Operating earnings (EBIT of -8.28 million vs. -3.04 million in Q1 2015/16) and earnings after tax ( -8.22 million vs. -2.55 million in Q1 2015/16) were also considerably below the prior-year quarter and managements expectations. Against this backdrop and in the light of the ongoing market weakness in August, the company already revised its forecast for the entire financial year on August 31, 2016, but reaffirms its medium-term business targets.
Difficult market environment
The weak first-quarter revenue development can be mainly attributed to the difficult market environment. Negative events in important core markets (e.g. political uncertainty before elections in the USA, fear of terrorism in France and Germany, the BREXIT decision) resulted in clearly lower customer frequency in central shopping locations. In particular, this impacted Wolfords high margin retail business, where revenue fell by 9% compared to the previous year.
A good half of the revenue decrease of 6.2 million in the first quarter was due to the new delivery timing in the wholesale business. The new scheduling calls for a large part of the fall/winter collection to be delivered first in September. Accordingly, the first-quarter figures did not include revenues from so-called pre-season orders totaling 3.19 million which are now shifted to subsequent quarters. On balance, revenue of the wholesale segment fell by 32% in the first quarter of 2016/17. Wolfords own online business matched the same strong level of the previous year.
Weak customer frequency in core markets
The company suffered from a double-digit revenue decrease in its core markets i.e. in the USA, Great Britain, Germany, France, Switzerland and Italy. A single-digit drop in revenue was reported for Belgium, Austria and the Netherlands. Revenue also fell in Central and Eastern Europe, not least as a consequence of the difficult situation on the Russian market.
Clearly negative EBIT and earnings for tax
The revenue decline was also reflected in the operating earnings of Wolford AG. Moreover, the company was faced with negative currency effects as a result of the drop in value of the British pound. This was accompanied by general salary increases which largely offset the effect of a moderate reduction in the number of employees. The Wolford Group employed an average of 1,557 employees (FTE) in the first quarter of 2016/17, compared to 1,583 in the prior-year period.
Wolfords operating earnings (EBIT) totaled -8.28 million in the first three months of the current financial year, compared to -3.04 million in the first quarter of the previous year. EBIT in the prior-year period benefited from the sale of non-core rental apartments (other operating income to the amount of 1.09 million). Adjusted for this special effect, EBIT in the first quarter of 2016/17 was 4.14 million below the previous year.
First-quarter earnings before tax amounted to -8.44 million, compared to the prior-year level of -3.33 million. The income tax expense totaled 0.22 million (previous year: 0.77 million), whereby deferred taxes assets in the first quarter of the current financial year were 0.89 million lower than in the prior-year period. Accordingly, earnings after tax amounted to -8.22 million (previous year: -2.55 million). Earnings per share equaled -1.67, down from -0.52 in the first quarter of 2015/16.
Equity ratio of 41%
Equity of the Wolford Group at the balance sheet date amounted to 59.94 million, comprising a drop of 12.53 million from the first quarter of the previous financial year. The equity ratio was 41% at the reporting date (previous year: 48%), and net debt totaled 35.59 million (previous year: 25.98 million). The higher level of debt was primarily due to the build-up of inventories as a result of the later delivery timing for the fall/winter collection.
Stronger foundation for medium-term revenue growth
Notwithstanding the weak business results generated in the first quarter, Wolford has continued over the past months to resolutely implement its planned measures designed to enhance profitability, strengthening the foundation for systematically increasing revenues in the future. Most recently, the sales organization for the EMEA region was completely restructured and a new B2B platform for EMEA went live. The company not only expects these measures to generate substantial efficiency gains in its sales activities but also higher revenues in the wholesale segment.
On September 7, 2016, Wolford presented its new shop concept on time at the Berlin store, which met with a very positive response. Wolford will also be showcasing a new look in the most important department stores in the German capital. A new wholesale furniture concept will be rolled out throughout the entire EMEA region in November of this year. The launch of the new B2C platform will take place at the end of September as scheduled.
In the light of the companys business development over the last few months, Wolford will also accelerate selected measures to improve earnings. For this reason, restructuring costs are expected to be somewhat higher than originally forecast.
In order to achieve our medium-term margin targets, the speedier implementation of the approved measures will take precedence over the short-term objective of generating positive operating results at the end of this financial year, explains Wolford CEO Ashish Sensarma.
Against the backdrop its first-quarter results and the ongoing market weakness, Wolford already revised its outlook for the current 2016/17 financial year.
The Wolford Group now anticipates stagnating or slightly lower revenue for the 2016/17 financial year compared to the prior-year performance, and negative operating earnings in the lower single digit million euro range. Implementation of the package of measures aimed at sustainably increasing revenue and profitability and the creative realignment of the company are proceeding on schedule. In addition, the cost-cutting drive is being further accelerated, which should have a perceptible impact on earnings starting in the upcoming 2017/18 financial year. For this reason, the company reaffirms its medium-term planning targets.
The Report on the First Quarter of 2016/17 can be viewed and downloaded in the Investor Relations section of the companys website at company.wolford.com:
Axel Dreher (COO/CFO)
Maresa Hoffmann (Specialist for Investor Relations & Corporate Communications)
Tel.: +43 5574 690 1258 | investor(at)wolford(dot)com | company.wolford.com
About Wolford AG
Wolford AG, which has its headquarters in Bregenz on Lake Constance (Austria), has 16 subsidiaries and markets its products in more than 60 countries via 262 mono-brand points of sales (company-owned and partner-operated), around 3,000 distribution partners, and online. Listed on the Vienna Stock Exchange since 1995, in the 2015/16 financial year (May 1, 2015 April 30, 2016) the company had around 1,570 employees and generated revenues of 162.4 million. Founded in 1950, Wolford has since grown to become the leading global brand for luxurious legwear, exclusive lingerie, and high-quality bodywear.