Wolford cost savings almost make up for revenue fall, co stays upbeat

By

Sandra Halliday

Published
Mar 15, 2019

Wolford reported another revenue decline on Friday but also said that its cost saving program had partially compensated for the lost sales. The high end intimates company, which is listed on the Vienna stock exchange but is controlled by China’s Fosun, said its revenue was down 9% in the first nine months of the current financial year.

That 9% figure was on a currency-neutral basis, but revenue dropped by 9.4% to €108.2 million in actual terms. It was a drop of €11.2 million but cost savings have softened the blow and it said a new restructuring programme has identified more than €10 million of extra savings.

Those two facts meant that operating earnings ‘only’ fell by around €1 million, although the figures on this front could hardly be said to be good and added up to a percentage decline of 70%. In the nine-month period, the company lost €2.31 million on an EBIT basis, compared to a loss of €1.36 million a year earlier. Net earnings were a worse loss of €4.2 million, compared to a loss of €2.6 million a year ago, the wider number being caused by tax payments in arrears.

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But it's the revenue figures that are most closely watched with the decline being made up of a 7.8% drop in the company's own retail stores and an 11.4% fall in its wholesale business. However, its online segment managed a 10.2% revenue rise.

The company said that “similar to physical stores of other fashion retailers, Wolford is suffering from the ongoing global phenomenon of declining customer frequencies. Moreover, Christmas sales were considerably below [the] prior year level [as] German fashion retailers together reported a 4% drop in revenue.”

INVESTMENT AND COST SAVINGS

It also said that its restructuring program so far, “including streamlining of corporate processes, has clearly had a positive impact.” Staff costs in the first nine months “showed a sustainable year-on-year decrease of €4.6 million to €46.6 million.” Other operating expenses also fell substantially by €2.6 million to €39.5 million. 

But the company continues to invest money and has made “substantial investments in its new brand identity and achieved important milestones in this regard.”

Last year it rolled out its new VM concept and introduced new imagery, while it opened a pilot store in Amsterdam at the beginning of this year, featuring a completely new shop concept. The new brand identity “is designed to make the brand attractive, above all for younger consumers.”

Despite having been able to reduce its net debt, the board said it has launched “a new restructuring program in light of the fact that previous cost savings have been insufficient to fully compensate for the revenue decline.”

It has identified “considerable cost-savings potential” in its procurement process, among other areas. All activities including the purchasing of external services “will be bundled under a centralised purchasing management.”

But the firm can’t counteract falling revenue by cost savings forever and it’s continuing to work on revenue expansion, especially in new markets, with its recent China initiative a key part of this. As of last month, it has Fosun Fashion Brand Management Company (FFBM) as its new partner in China to fully support its growth there.

“We are intensively working on laying the foundation for renewed growth, precisely where future growth is expected,” said CEO Axel Dreher on Friday, with medium-term revenue in China set to be comparable with Wolford’s current core markets of the USA (20% share of revenue) and Germany (15%).

But that doesn’t mean the news will be particularly good in the short term. The board anticipates it will make a loss in the current financial year as the firm continues to work through its turnaround plan.