Rising gross margin and improving operating profit

Nov 07, 2012, 7:40

Consolidated revenue for Q1 2012/13 amounted to DKK 1,197 million corresponding to an increase of 2% compared to last financial year. The Premium segment generated a growth rate of 11% and thus realised growth for the fourth consecutive quarter. The Group’s gross margin amounted to 57.9% which is an improvement of 0.9 percentage points. The operating profit amounted to DKK 166 million corresponding to an increase of 13%. The total Group performance for the quarter under review is as expected. In order to enhance earnings further, a number of initiatives have been and will be implemented of which the purpose is to reduce the Group’s complexity and cost base.

With this interim report for Q1 2012/13 the Group introduces its new segment reporting which reflects the corporate strategy based on three segments.

  • Revenue from the Premium segment increased by 11% to DKK 682 million (DKK 612 million) which was driven by growth initiatives in both the core markets and new markets. At the same time this segment reported an increase of 30% of its operating profit which amounted to DKK 132 million (DKK 101 million).
  • Revenue from the Mid Market segment suffered a setback of 14% to DKK 386 million (DKK 451 million) which was driven by a revenue consolidation of the core markets. The Mid Market operating profit was consequently reduced by 54% to DKK 16 million (DKK 34 million).
  • Revenue from the Fast Fashion segment increased by 15% to DKK 129 million (DKK 112 million) and at the same time the Fast Fashion operating profit rose by 59% to DKK 18 million (DKK 12 million).
  • Total consolidated revenue for Q1 2012/13 amounted to DKK 1,197 million (DKK 1,175 million) corresponding to an increase of 2% compared to last financial year.
  • Gross profit amounted to DKK 693 million (DKK 670 million). The Group thus generated a gross margin of 57.9% (57.0%) which is an improvement of 0.9 percentage points compared to last financial year.
  • Capacity costs amounted to DKK 527 million (DKK 523 million) corresponding to an increase of 1%. After having adjusted for provisions for bad debts of DKK 14 million, the cost rate for Q1 2012/13 thus amounted to 42.9% (44.5%) corresponding to a reduction of 1.6 percentage points compared to last financial year.
  • Operating profit amounted to DKK 166 million (DKK 147 million). The Group thus generated an EBIT margin of 13.9% (12.5%).
  • The Management will continue to work on initiatives which reduce the Group’s complexity and cost base. The ongoing initiatives are expected to lead to a total full year earnings effect of minimum DKK 100 million compared to 2011/12 and have full effect in 2014/15.
  • Order intake for the spring collection 2013 recorded an increase of 3% for the Premium segment, a reduction of 12% for the Mid Market segment and an expected increase of 21% for the Fast Fashion segment. The total order intake is expected to remain unchanged for the spring collection 2013 reported in local currencies compared to last year.

Unchanged outlook for 2012/13

Management still expects volatile market conditions for the financial year 2012/13. The Group thus expects a same-store setback and pressure on the Group’s wholesale customers, primarily in the Mid Market segment. However, the pressure on the Group’s gross margin is expected to abate in 2012/13 as a consequence of normalised discounts and sales activities in the industry. Furthermore, the new sourcing structure and continuous optimisation are expected to affect the gross margin favourably.

Based on this, the Management still expects the consolidated revenue for the financial year 2012/13 to be lower compared to the financial year 2011/12, however, the consolidated operating profit for the financial year 2012/13 is expected to attain the same or a higher level compared to the financial year 2011/12.

Investments for the financial year 2012/13 are still expected to attain the same level as the financial year 2011/12, primarily for an expansion of the distribution in the Premium segment.

Chief Executive Officer of IC Companys A/S Niels Mikkelsen commented;
A clear focus on growth in the Premium segment and consolidation in the Mid Market and Fast Fashion segments means that we can reduce the Group’s complexity and cost base. In total the Group has and will implement earnings-improving initiatives of at least DKK 100 million compared to the financial year 2011/12 which all support our ambitions for the Group.

IC Companys A/S

Niels Mikkelsen
Chief Executive Officer

Chris Bigler
Chief Financial Officer