Warpaint profit warning as UK stays soft, despite US and EU growth surge
Warpaint London, which owns the W7 and Technic Cosmetics brands among others, said on Monday that sales in its international territories, especially the US and EU, have remained strong and it expects to see significant growth in these areas for the second half of the financial year ending on December 31.
But that piece of good news couldn't disguise the bad news that came along with it and the company’s shares fell by over 40% as the company said that the UK market “remains challenging.” That’s a problem as Britain accounted for 44% of group sales in the first half of the year and it “has seen further softening recently, with retailers reducing stock levels and Christmas orders.”
This reduction in previously anticipated UK sales “will have an impact on group performance for the full year that will not be completely offset by better than anticipated performance in our major overseas sales territories,” it warned.
Based on current expectations the board expects revenue for the year to be in the range of £48 million to £52 million and pre-tax profit (excluding one-off items of around £2.5 million), to range from £8.5 million to £10 million.
“The reported level of profitability for the full year will be crucially dependent on the precise product and geographic mix of sales for the remainder of the year, the busiest period of the year for the group,” it said. But it added: “Sales in our international territories have remained strong and we continue to see significant growth in these areas.”
As at 30 September, group sales to the US were up 60% year-on-year in GBP, or up 74% in dollars. And EU sales excluding the UK were up 13%. It was also “pleased to have recently made our first domestic sales in China from our newly established Chinese trading subsidiary and to have made the first sales into Russia.”
Did investors overreact in sending its shares plunging? Perhaps. The company clearly remains strong as it grows its share of international sales with the UK issues being largely beyond its control. So its price plunge could have been linked more to general market unease than fears around the company’s ability to survive and prosper longer term.
Management remains upbeat. Joint CEOs Sam Bazini and Eoin Macleod said: "Whilst the current UK market conditions are challenging, we are seeing strong growth in our overseas sales. We remain well positioned to take advantage of any improvement in UK market conditions and will continue our strategy of growing and diversifying our international sales. Warpaint is a profitable and cash generative business that is well positioned for continued growth and the maintenance of our progressive dividend policy."
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