Interim report for the period 1 July 2016 to 31 March 2017

May 17, 2017, 8:05

Consolidated revenue for Q1-Q3 2016/17 amounted to DKK 2,256 million (DKK 2,156 million) corresponding to a growth rate of 4.6% or 5.6% measured in local currency. Revenue increased in both the wholesale channel as well as the retail channel – in the latter channel driven by new stores and e-commerce. The gross margin amounted to 56.3% compared to 56.7% last financial year. Costs increased by DKK 88 million mainly driven by sales-related costs as well as non-recurring costs. The consolidated operating profit for Q1-Q3 2016/17 amounted to DKK 228 million (DKK 269 million) resulting in an EBIT margin of 10.1% compared to 12.5% for Q1-Q3 2015/16.

 

We now expect to realize a revenue growth rate of 3-4% measured in local currency (previously 5-6%) and an EBIT margin of 4-5% (previously 6-7%) for the financial year 2016/17. At present, we expect to realize a minor revenue reduction and an improved EBIT margin for the financial year 2017/18.

Segment performance for Q3

  • Peak Performance generated revenue for Q3 2016/17 of DKK 299 million (DKK 264 million) corresponding to a growth rate of 13.3% (13.6% measured in local currency) driven by both the wholesale channel as well as the retail channel. The operating profit amounted to DKK 34 million (DKK 38 million) corresponding to an EBIT margin of 11.4% (14.4%). The reduced margin was driven by both the gross margin as well as the cost ratio.
  • Tiger of Sweden generated revenue for Q3 2016/17 of DKK 254 million (DKK 260 million) thus corresponding to a decrease of 2.3% (1.8% measured in local currency). Revenue from the wholesale channel declined due to lower in-season selling as well as conversion of franchise stores during Q1 2016/17. Revenue from the retail channel increased by 10.5% driven by both new and existing stores as well as e-commerce. The operating profit amounted to DKK 33 million (DKK 38 million) and was negatively impacted by non-recurring costs of DKK 5 million in connection with changes to the management team which exceeded the positive development of the gross margin. The EBIT margin thus amounted to 13.0% (14.6%).
  • By Malene Birger generated revenue for Q3 2016/17 of DKK 93 million (DKK 97 million) corresponding to a decline of 4.1% (4.0% measured in local currency). This revenue reduction was primarily attributable to lower order intake on the spring collection whereas the retail revenue increased. The operating profit amounted to DKK 6 million (DKK 9 million). The EBIT margin declined to 6.5% (9.3%) due to higher costs whereas the gross margin improved.
  • Revenue from the Group’s Other brands increased by 2.2% (1.9% measured in local currency) to DKK 92 million for Q3 2016/17 (DKK 90 million). Growth was primarily driven by Saint Tropez. The operating loss amounted to DKK 2 million (loss of DKK 6 million) resulting in a negative EBIT margin of 2.2% (negative EBIT margin of 6.7%).

Group performance for Q3

  •  Consolidated revenue amounted to DKK 739 million (DKK 710 million) corresponding to a growth rate of 4.1% (4.4% measured in local currency). Growth was generated in the retail channel where new stores and high e-commerce growth contributed. The Group’s total number of stores has not changed during Q3 2016/17.
  • The gross profit increased to DKK 411 million (DKK 404 million) whereas the gross margin declined to 55.6% (56.9%) which was mainly attributable to higher discounts and inventory write-downs for the period.
  • Capacity costs increased by DKK 46 million to DKK 363 million compared to Q3 2015/16. Approx. half of the cost increase is related to non-recurring costs, including DKK 19 million in respect of the completed structural changes of the Group’s central functions. The remaining part of the cost increase was in general attributable to sales-related costs.

      

  • The consolidated operating profit for Q3 2016/17 amounted to DKK 48 million (DKK 87 million) corresponding to an EBIT margin of 6.5% compared to 12.3% for Q3 2015/16.

  

Segment performance Q1-Q3

  •  Revenue from Peak Performance for Q1-Q3 2016/17 increased by 10.7% (11.6% in local currency) to DKK 914 million (DKK 826 million) driven by both the wholesale channel as well as the retail channel, particularly from the retail channel where new stores especially in the Nordic region and strong e-commerce growth contributed. The operating profit amounted to DKK 145 million (DKK 137 million) corresponding to an EBIT margin of 15.9% (16.6%).
  • Tiger of Sweden generated revenue of DKK 763 million for Q1-Q3 2016/17 (DKK 755 million) thus corresponding to an increase of 1.1% (2.4% measured in local currency). Growth was driven by a positive effect of approx. DKK 18 million caused by a shift in deliveries in Q1 as well as new stores opened during 2015/16 and e-commerce. The operating profit amounted to DKK 94 million (DKK 98 million) corresponding to an EBIT margin of 12.3% (13.0%).
  • By Malene Birger’s revenue for Q1-Q3 2016/17 declined by 2.9% to DKK 269 million (DKK 277 million). Measured in local currency, this amounted to a revenue decline of 1.7%. This development was driven by lower order intake as well as a negative development in physical stores during H1 2016/17. The operating profit amounted to DKK 10 million (DKK 22 million).
  • Revenue from the Group’s Other brands increased by 3.4% (3.4% measured in local currency) to DKK 307 million for Q1-Q3 2016/17 (DKK 297 million). Revenue increases were reported in both brands, in particular in Designers Remix. The operating profit amounted to DKK 15 million (DKK 8 million), and the EBIT margin amounted to 4.9% (2.7%) due to a higher gross margin.

Group performance Q1-Q3

  •  Consolidated revenue amounted to DKK 2,256 million (DKK 2,156 million) corresponding to a growth rate of 4.6% (5.6% measured in local currency). Growth was generated in both the wholesale channel as well as the retail channel where new stores and high
    e-commerce growth contributed. The Group opened a net amount of 8 stores in Q1-Q3 2016/17.
  • The gross profit amounted to DKK 1,269 million (DKK 1,222 million) corresponding to a gross margin of 56.3% (56.7%). The reduced margin is primarily attributable to larger discounts compared to last financial year.
  • Capacity costs increased by DKK 88 million to DKK 1,041 million compared to Q1-Q3 2015/16. This increase was mainly driven by sales-related costs, primarily for new stores, as well as to a certain degree the non-recurring costs in respect of the previously mentioned structural changes and changes to the management team in Tiger of Sweden.
  • The consolidated operating profit for Q1-Q3 2016/17 amounted to DKK 228 million (DKK 269 million) corresponding to an EBIT margin of 10.1% (12.5%).
  • The working capital amounted to DKK 503 million corresponding to an increase of DKK 45 million compared to last financial year. This increase was primarily driven by higher inventories as well as trade receivables which was partly offset by a higher debt level. The working capital constituted 18.2% of the trailing twelve months revenue compared to 17.3% for the same period last financial year.

Updated outlook for the financial year 2016/17

Analysis carried out during the past two to three months has uncovered operational challenges in respect of the distribution as well as inventory overbuying leading to increased discounted sales. As a consequence of the decision to reduce the amount of discounted sales, primarily in Tiger of Sweden’s wholesale distribution, a significantly negative effect on consolidated revenue is expected.

On the basis of the above, we now expect a revenue growth rate of 3-4% measured in local currency (previously 5-6%) for the financial year 2016/17. Based on the current exchange rates on the Group’s primary sales currencies (SEK, NOK and GBP), this corresponds to a reported revenue growth rate of approx. 2-3% (previously 4-5%).

In addition to the above-mentioned negative effect on revenue, the decision to reduce discounted sales also entails inventory write-downs, which subsequently will have a negative effect on earnings. A number of initiatives to clean-up various parts of the wholesale and retail distribution at Tiger of Sweden and By Malene Birger will also have a negative effect on earnings. Therefore, the EBIT-margin, before considering the effect of non-recurring costs attributable to the implementation of the new structure in IC Group, is expected to attain a level of 5-6% (previously 7-8%).

The non-recurring costs attributable to the implementation of the new structure are still estimated to amount to approx. DKK 30 million leading to improved earnings of approx. DKK 30-40 million with effect from financial year 2017/18.

The EBIT margin is subsequently expected to attain a level of 4-5% (previously 6-7%) for the financial year 2016/17.

Investments for the financial year 2016/17 are expected to attain a level of 3-5% of the annual revenue (unchanged). These investments are undertaken to maintain existing assets – including store furniture and equipment – as well as in connection with new store openings.

Preliminary outlook for the financial year 2017/18

At present, we expect to realize a minor revenue reduction and an improved EBIT margin for the financial year 2017/18 compared to the expected, realized EBIT margin for the financial year 2016/17 after costs for structural changes (4-5%). This is based on an expected moderate revenue and earnings growth in Peak Performance, a revenue reduction and considerable earnings decline in Tiger of Sweden as well as a flat performance in By Malene Birger.

Copenhagen, 17 May 2017

IC Group A/S

Peter Thorsen                                   

Interim Group CEO                         

 

Alexander Martensen-Larsen

Group CFO

Information Meeting

IC Group will host an information meeting for investors, analysts and other stakeholders on Wednesday 17 May 2017 at 10.00 a.m.

The information meeting will be held in English via audio cast and telephone, and it will be possible to raise questions online using the chat function or telephone. To participate in the information meeting online, please use the link below which is also available on our corporate website icgroup.net under Investors: http://edge.media-server.com/m/p/xjxauhyr

To participate in the telephone conference, please dial in using the below-listed telephone numbers:

+45 3271 1660 (Denmark)
+1 646 254 3367 (USA)

+44 (0) 20 3427 1901 (UK)

Please direct any questions regarding this announcement to:
Jens Bak-Holder

Head of Investor Relations

+45 21 28 58 32