KappAhl hails improvements despite tough Q4

By

Sandra Halliday

Published
Oct 12, 2017

“Improved performance” was how fashion retailer KappAhl headlined its Q4 and full-year results statement on Thursday. It said the year “was yet another step towards [its] financial targets – to achieve an operating margin of 10% and a sales increase of 4% over a business cycle.” 

But the upbeat tone couldn’t disguise the fact that Q4’s figures weren’t as good as they might have been. In fact, the quarter’s sales were flat at SEK1.248 billion, impacted by closures as well as openings, by currency exchange issues and by weak comparable sales growth, even though they rose 4.1% to SEK4.916 billion for the year as a whole.

So if Q4’s sales stagnated, why was CEO Danny Feltmann so upbeat? Well, profitability clearly improved with the company saying that the gross margin increased by 2.7 percentage points to 60.7% during the quarter and by 0.4  percentage points to 62.2% for the year. And the operating margin rose to 11.1% from 7.9% in Q4 and to 9.1% from 7.4% for the year.

That means the company is making more money from every sale and that’s the kind of result that’s guaranteed to put a smile on any CEO’s face.

So let’s look at those profit figures. The company’s net profit rose 82% to SEK141 million in Q4 and soared to SEK364 million from SEK245 million for the year. Operating profit was up 40% in the three-month period to SEK139 million and hit SEK448 million from SEK 350 million in the 12 months.

But the year clearly ended on a challenging note. The company said Q4 saw a difficult backdrop with “an increasing number of aggressive offers, creating tough competition.” 

However, its strategy for maintaining sales “at the best possible margins” and achieving an improved inventory mix at the close of the quarter paid off. At quarter-end, its inventory level was SEK 94 million, down 11.4%.

HIGHLIGHTS

So what went well for its in the latest quarter and year? The company said that cost controls and its restructuring programme in Poland had a positive effect on full-year earnings. And several changes set in motion earlier bore fruit with adjustments to the range, as well as price and campaign tweaks that boosted income and the gross margin. 

It has also increased its spending on store conversions, IT and improving its customer relations and said its new range strategy, Scandinavian Feminine for womenswear, has been launched. It’s now working on a strategy for menswear. 

Childrenswear is proving to be strong for the company too and its Newbie Store chain is continuing to expand. It has launched Newbie to Finland and is also moving into Poland and the UK with the babywear concept.

During the year, KappAhl also increased its share of sustainability-labelled fashion to 53% from 38% and it has invested heavily in sustainable denim. It also unveiled Make it Feel Right, six films on sustainability aimed at guiding its customers to a more sustainable wardrobe.