Revenue decline of 7.5% despite catch-up effects in the third quarter
As expected, positive Q3 results are not sufficient to compensate for accumulated losses
Medium-term planning is being revised
Vienna/Bregenz, March 17, 2017: Wolford AG, which is listed on the Vienna Stock Exchange, generated revenue of 119.05 million in the first nine months of the current financial year (May 2016 January 2017), comprising a year-on-year decline of 7.5%. The revenue drop equalled 6.2% when adjusted for currency effects, in particular the decrease in value of the British pound.
The decline in revenue is mainly due to the weak first half-year, which was characterized by a difficult market environment as well as internal problems relating to demand and sales planning. Wolford was no longer able to compensate for the revenue shortfall in the third quarter despite the 4.0% third-quarter year-on-year revenue increase. Revenue in Q3 2016/17 rose due to delayed delivery dates, a stable Christmas business and a slight upward revenue trend in January 2017.
Accordingly, operating results (EBIT) in the third quarter rose to 3.53 million, up from the figure of 2.44 million in the prior-year quarter. However, this was not sufficient to compensate for the considerable losses posted in the first half-year. EBIT in the first nine months of the current financial year totaled -4.72 million compared to +2.16 million in the previous year.
Weak market environment and internal mistakes
Wolford-owned retail stores reported a 6.6% drop in revenue in the first nine months, accompanied by a revenue decrease equaling 7.3% in its wholesale business. On balance, Wolfords own online business expanded by 4.4% from the prior-year level.
In addition to a weak market environment, the revenue decrease was also due to internal mistakes in reorganizing goods management for the retail sector, which in turn led to flawed demand planning and management of sales space in the first half-year. Together with delayed delivery dates for the fall/winter collection, this resulted in a considerable decline in revenue as well as costly post-production and significantly higher inventories. Moreover, in the meantime, the company has drawn appropriate organizational consequences and completely adjusted its system of delivering merchandise. Starting in June 2017 Wolford will supply products to its own retail stores as well as wholesale customers on a monthly basis, except for the months of May and December.
Negative EBIT and earnings before tax
Operating earnings (EBIT) totaled -4.72 million in the first nine months of the current financial year, compared to a positive EBIT of 2.16 million in the previous year. EBIT was shaped by the weak revenue development and one-off restructuring expenses to the amount of 1.00 million for the reorganization of sales operations and the bundling of administrative tasks.
In the meantime, the setting up of a centralized EMEA sales platform in Bregenz and Antwerp has been completed, and initial positive cost effects are already perceptible. As a result, personnel expenses remained stable in the first nine months despite severance payments related to the elimination of administrative positions in the European sales regions. The Wolford Group had an average of 1,555 employees (FTE) in the first nine months of 2016/17, compared to 1,574 people in the prior-year period.
However, additional special effects had a negative impact. As a result of provisions allocated for a legal conflict with a former partner in Switzerland and a risk provision for disputed claims against American customs authorities, operating expenses climbed from 3.18 million to 4.73 million.
Catch-up effects in the third quarter
Revenue in the third quarter of 2016/17 rose by 1.96 million to 51.43 million. The year-on-year revenue increase of 4.0% can be attributed to delivery dates changed from Q2 to Q3, a stable Christmas business and a slight upturn in revenue in January 2017. Accordingly, operating results (EBIT) also climbed in the third quarter to 3.53 million from the prior-year level of 2.44 million.
Equity ratio of 40%
Equity of the Wolford Group at the balance sheet date amounted to 61.65 million (January 31, 2016: 75.21 million). As a consequence, the equity ratio was 40% (January 31, 2016: 52%). Net debt as at January 31, 2017 rose to 32.46 million compared to the prior-year level of 17.37 million, which corresponds to a gearing ratio of 53% (January 31, 2016: 23%). This increase is mainly attributable to the development of operating earnings as well as higher financial liabilities, in particular to finance inventories.
The fundamental strategy pursued by Wolford to increase revenue and enhance profitability is still valid. The reasons for the revenue and earnings decline in the first half-year were analyzed and the underlying problems were rectified to a large extent. In addition, Wolford initiated numerous measures to sustainably reduce costs while focusing simultaneously on sales initiatives designed to increase revenue.
Nevertheless, in this financial year the company will not be able to compensate for the losses generated during the first half-year. As already announced, Wolford anticipates an operating loss between -8.0 million and -10.0 million excluding potential valuation effects which could arise within the context of preparing the consolidated year end financial statements.
At present the management is revising its medium-term planning, primarily focusing on creating the pre-requisites enabling the company to be profitable once again. At the same time, Wolford is working on a sustainable financing structure based on a corresponding long-term financing of assets. The company will announce details on this as soon as possible.
The report for the first three quarters of the 2016/17 financial year can be downloaded under company.wolford.com, Investor Relations.
Axel Dreher (COO/CFO)
Maresa Hoffmann (Specialist Investor Relations & Corporate Communications)
Tel.: +43 5574 690 1258 | investor(at)wolford(dot)com | company.wolford.com
Über die Wolford AG:
Founded in 1950, Wolford AG is headquartered in Bregenz, on lake Constance. It operates 16 subsidiaries and markets its products in about 60 countries via around 262 monobrand boutiques (owned and partner operated) and through 16 online stores. Listed on the Vienna Stock Exchange since 1995, it generated 162,4 million Euro in sales in FY 2015/2016; with about 1.570 employees Wolford is a leading global fashion brand for high quality sustainable legwear, lingerie and bodywear. Wolford designs and manufactures its products exclusively in Europe (Austria and Slovenia) meeting the highest environmental standards in the textile industry as underscored by the on going partnership with bluesign Technologies AG.