2014 First Quarter Update 8 May 2014
Overview 1Q14 sales ↓9%; brand sales ↓7% Continued weakening consumer demand in Greater China Impact of weakening currencies in SEA Economic headwinds on demand in SEA Poor performance of women range Gross margin ↓2.9 pp Price discounting to reduce inventory in slow selling categories Impact of the devaluation of SEA currencies which has increased the costs of merchandise Strong inventory control 66 days of costs, ↓16 days from year end. Total inventory including inventory at vendors and China franchisees ↓ 17% compared to last year end and 4% compared to same date last year Reducing loss making stores Store number ↓75 in 1Q, with 54 of these reductions in China Operating cash flow remains strong Free cash flow from operations at same level as last year (192m in 1Q14 vs 196m in 1Q13) Strong emphasis will continue to be placed on cash generation and returning surplus cash to shareholders through dividends 8 May 2014 Giordano 2014 First Quarter Update 2
Operations Highlights – Group Sales down 9%, margin down 2.9pp, reflecting tough market condition; Strict control on inventory and store portfolio quality 1Q14 1Q13 Variance (In HK$ millions) Sales 1,380 1,514 -9% Gross profit 785 905 -13% Gross margin 56.9% 59.8% -2.9pp Global brand sales [1] 1,813 1,942 -7% Comparable store sales [2] -6% -2% Net cash and bank balances [3] 1,296 1,303 -1% Inventory days on costs (days) [4] 66 63 +3 Number of outlets [3] 2,567 2,624 -57 [1] Global Brand Sales are total retail sales, at constant exchange rates, in self-operated (include e-shop) and franchised stores and stores operated by subsidiaries and associates/jointly controlled entities. [2] Comparable Store Sales are total brand sales, at constant exchange rates, from existing stores and e-shop that have been opened/operated by subsidiaries and associates/jointly controlled entities in the prior period. [3] At the end of the period. [4] Inventory held at period end divided by cost of sales and multiplied by number of days in the period. 8 May 2014 Giordano 2014 First Quarter Update 3
Sales Growth and Contribution by Region Sales continued weakening in Greater China. Weakening currencies and economic headwinds affected sales in SEA. ME delivered 8% growth. 1,514 (HK$ millions) 1,600 1,380 1,400 473 (31%) Mainland China 1,200 420 (31%) 11% / 12%* 1,000 Mainland China Hong Kong & Taiwan Hong Kong & Taiwan 448 (30%) Rest of Asia Pacific 800 402 (29%) 10% / 10%* Middle East Wholesale sales to overseas & others 600 % to group sales in brackets Rest of Asia Pacific 400 377 (25%) 320 (23%) 15% / 6%* 200 Middle East 155 (11%) 144 (9%) 8% / 8%* Wholesale sales to overseas 83 (6%) 72 (5%) 15% 0 1Q13 1Q14 * Sales growth excludes exchange effects 8 May 2014 Giordano 2014 First Quarter Update 4
Brand Sales Growth for the last 8 quarters 6% 5% 4% 4% 3% 2% 2% 0% -1% -1% 0% 0% -2% -2% -1% -2% -2% -2% -2% -2% -3% -4% -6% 1Q14 1Q13 Variance Global brand sales (HK$ millions) 1,813 1,942 -7% -6% Comparable store sales growth -6% -2% -7% -8% 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2QTD14 (up to 4 May) Total Brand Sales Growth Comparable Store Sales Growth 8 May 2014 Giordano 2014 First Quarter Update 5
Gross Profit Reconciliation Rises in pricing offset cost increases but not enough to prevent margin dilution. Volume ↓12% (HK$ millions) Volume Average cost Average price 12% 6% 12% 1,200 10% 2% 1,000 767 800 (58) (12) (109) (17) 600 905 785 -120m ( 13%) (59.8%) 400 (56.9%) 200 0 1Q13 Increase in Currency Price Volume Stock provision 1Q14 Gross profit merchandise depreciation increase decrease and exchange Gross profit cost loss on purchase difference 8 May 2014 Giordano 2014 First Quarter Update 6
Inventory and Turnover Days Inventory remains at healthy level (Days) (HK$ millions) 82 600 90 80 66 500 63 70 400 60 50 300 40 518 436 427 200 30 20 100 10 0 0 Mar 2013 Dec 2013 Mar 2014 Inventory Turnover Days on Cost of Sales (HK$ million) Mar 2013 Dec 2013 Mar 2014 Inventory balance held by the Group 427 518 436 Inventory held by franchisees in Mainland China 116 94 75 Finished goods at suppliers (not yet shipped) 8 27 18 Total system inventory 551 639 529 8 May 2014 Giordano 2014 First Quarter Update 7
Brand Sales Growth by quarter – Mainland China 10% 5% 5% 0% -3% -3% -2% -5% -5% -7% -5% -8% -8% -8% -6% -10% -10% -9% -10% -12% -13% -13% -15% -15% -20% 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2QTD14 (up to 4 Total Brand Sales Growth Comparable Store Sales Growth May) 8 May 2014 Giordano 2014 First Quarter Update 8
Performance Review by Region – Mainland China Negative growth due to closure of shops and weak external demand 1Q14 1Q13 Variance (In HK$ millions) Total sales [1] 420 473 -11%/-12% [2] Retail self-operated stores 310 347 -11% Wholesale sales to franchisees 110 126 -13% Total brand sales [3] 515 605 -15% Self-operated stores 310 357 -13% Franchised stores 205 248 -17% Comparable store sales [4] -10% -7% Gross profit 215 258 -17% Gross margin 51.2% 54.5% -3.3pp Number of outlets [5] 1,107 1,207 -100 Self-operated stores 513 528 [6] -15 Franchised stores 594 679 [6] -85 [1] Total Sales are total retail sales in self-operated stores and total wholesale sales to franchisees, translated at average exchange rates. [2] Sales Growth excludes exchange effect. [3] Total Brand Sales are total retail sales, at constant exchange rates, in self-operated stores (include e-shop) and franchised stores. [4] Comparable Store Sales are total brand sales, at constant exchange rates, from existing stores and e-shop that have been opened/operated in the prior period. [5] At the end of the period. [6] 12 stores in Hangzhou switched from franchised stores to self-operated stores in 2H13. 1Q13 store number has been restated to include this change in order to have fairly comparable figures in the two periods. 8 May 2014 Giordano 2014 First Quarter Update 9
Gross Profit Reconciliation – Mainland China Higher cost product mix offset by heavy discounting to clear excess inventories (HK$ millions) Average cost Average price Volume 8% 0% 12% 300 250 (15) (1) 4 200 (31) 150 258 (54.5%) 215 -43m ( 17%) 100 (51.2%) 50 0 1Q13 Cost Price Volume Stock provision 1Q14 Gross profit increase decrease decrease and exchange Gross profit difference 8 May 2014 Giordano 2014 First Quarter Update 10
2014 Strategies – Mainland China Right merchandise at right place Turnaround the business Fast AD strategy and enhance the marketing brand position Store portfolio upgrade 8 May 2014 Giordano 2014 First Quarter Update 11
2014 Strategies – Mainland China Right merchandise at right place 1. Multi-brand strategies LUXURY M E N PREMIUM VALUE BUDGET
2014 Strategies – Mainland China Right merchandise at right place 2. Channel development Department stores • Main focus for the main brand • On Unisex floor surrounded by local budget brands and sportswear brands low footfall, poor brand image and positions • Multi-branding Channel Development Priority E-strategy • Sales grew 15% in FY13, expects more growth in FY14 • Eshop specific merchandise • Collaborate with Alibaba in “online to offline” (O2O) applications (e.g. click and collect, TigerAnywhere (in-store terminal) x Alipay, store locator system, etc) Shopping Malls • Supply > Demand low footfall with a proliferation of local brands • High fixed rent • Proceed with caution only open shops in malls anchored by international brands and offer reasonable rent Street stores • Very poor channel because of high rent very low profitability/ loss making • Will exit loss making stores in FY14 and FY15
2014 Strategies – Mainland China Right merchandise at right place 2. Channel development – Department store strategy Liberation of Giordano brand DEPARTMENT STORE by Beau Monde (5 opened yet, plan 12 more within 1H) Unisex floor Better products of Giordano Women Giordano Men Men’s fashion Strong product range of Giordano Junior Men’s fashion Giordano Women Women’s fashion Giordano Junior Kids’ fashion New brand – Eula Eula Women’s fashion Move away from the unisex floor to Shoes/Cosmetics better floors in department stores
Proposition: modern-contemporary, stylish Italian inspired down-to-earth designs in affordable prices Market positioning: Target customers: New women of modern metropolis China. New middle class – Generation 2, born after mid-80s, aged 28-35, confident, independent, expressive Distribution channels: A to B+ grade department stores/shopping malls collocate with international brands Product category: inspired by Italian art (futurism), lifestyle, fashion and style icons and translated to warm, outgoing, stylish and down-to-earth design all seasons design elements: roses, dots and stripes; warm color (black, red, white, grey)
2014 Strategies – Mainland China Fast Marketing Coming fast marketing campaigns… 1Q14 Fast marketing campaign
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