Clarks problems mount as UK, US stores are "real drag on performance"
Clarks is continuing to struggle with the company’s 2018/19 results release showing that UK and Irish sales fell by as much as £36.7 million to £561.1 million in the year to February, while Europe and US shop sales were also weak, although the smaller Asia operation was more buoyant.
Total group turnover dropped to £1.468 billion from £1.539 billion, while on the profits front, it swung to a loss. A year ago its group operating profit had been £29.3 million but this time it was a loss of £75.7 million. The loss after tax was £82.9 million, much wider than the £33.1 million loss of a year earlier.
The year was an extremely challenging one for the company and it listed a number of issues for this. For a start, profitability in the spring and summer 2018 season was hurt by a second round of Brexit-linked exchange rate movements. Retail performance also declined significantly as British and American consumers continued to abandon physical shops in favour of online. And its e-store didn’t help as the performance here “is behind the rest of the market”. Meanwhile, those consumers who continued to shop with the firm also continued to “trade down to lower price points”.
The company didn't mince its words in assessing the situation in its shops and said that the US and UK retail estates have become “a real drag on business performance”. It said the external environment in which it operates continues to be extremely volatile, both because of the UK's not-yet-happened exit from the EU, and the US-China trade war. These issues have led to significant footfall declines “resulting in material shortfalls in retail channel performance in both the US and the UK.”
As a result, it has conducted a fundamental and comprehensive review of its property portfolio and is preparing to take rapid action to exit the worst-performing sites as quickly as possible.
But the company said the business has become “increasingly less profitable” over the last five years so there's clearly more going on that just recent geopolitical issues. Clarks said it's “under significant stress” as it has been unable to keep pace with changes in consumer behaviour as well as other problems. It also has higher costs and overheads compared to many rivals.
It’s taking urgent action to stabilise the business, reduce the cost base, arrest its decline and secure profitability for the 2019/20 year, as well as investing in areas to drive future growth. These areas include digital of course, and Asia.
With the footwear category remaining a promising one, the group has stepped up its investment in growth markets like Asia, which makes sense given that during the year being reported on, sales in the Asia-Pacific region grew 2.1%, driven by digital marketplace growth. It sold more pairs of shoes in the region and value sales rose to £185.8 million from £180.6 million.
It's also seeking to diversify its portfolio through growth in the Cloudsteppers concept with pop-up stores in China being used to boost brand awareness of this athleisure offering.
Its good Asian performance compared to Europe where volume sales dropped and turnover in the region fell to £667.3 million from £722.8 million. The reduction in the number of shoes sold was caused by a combination of factors including a general decline in store visits and website visits, plus pressures on its wholesale trading partners. And while the company managed to increase the volume of sales in America, its net turnover in the region dropped to £606 million from £639.8 million.
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