2014 First Quarter Update 8 May 2014

Transcription

1 2014 First Quarter Update 8 May 2014

2 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

3 Operations Highlights Group Sales down 9%, margin down 2.9pp, reflecting tough market condition; Strict control on inventory and store portfolio quality (In HK$ millions) 1Q14 1Q13 Variance Sales 1,380 1,514-9% Gross profit % 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] Number of outlets [3] 2,567 2, [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

4 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. (HK$ millions) 1,600 1,400 1,514 1,380 1, (31%) Mainland China 11% / 12%* 420 (31%) 1, (30%) Hong Kong & Taiwan 10% / 10%* 402 (29%) Mainland China Hong Kong & Taiwan Rest of Asia Pacific Middle East Wholesale sales to overseas & others % to group sales in brackets (25%) Rest of Asia Pacific 320 (23%) 15% / 6%* Middle East 144 (9%) 155 (11%) 8% / 8%* 72 (5%) Wholesale sales to overseas 83 (6%) 15% 1Q13 1Q14 * Sales growth excludes exchange effects 8 May 2014 Giordano 2014 First Quarter Update 4

5 Brand Sales Growth for the last 8 quarters 6% 5% 4% 3% 4% 2% 0% -2% -4% -6% -8% 2% -1% -1% 0% 0% -2% -1% -2% -2% -2% -2% -2% -3% 1Q14 1Q13 Variance -6% Global brand sales (HK$ millions) 1,813 1,942-7% Comparable store sales growth -6% -2% -7% 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

6 Gross Profit Reconciliation Rises in pricing offset cost increases but not enough to prevent margin dilution. Volume 12% (HK$ millions) 1,200 Average cost 12% Average price 6% Volume 12% 1,000 10% 2% (58) (12) (109) (17) (59.8%) -120m ( 13%) 785 (56.9%) Q13 Gross profit Increase in merchandise cost Currency depreciation loss on purchase Price increase Volume decrease Stock provision and exchange difference 1Q14 Gross profit 8 May 2014 Giordano 2014 First Quarter Update 6

7 Inventory and Turnover Days Inventory remains at healthy level (HK$ millions) Mar 2013 Dec 2013 Mar 2014 Inventory Turnover Days on Cost of Sales (Days) (HK$ million) Mar 2013 Dec 2013 Mar 2014 Inventory balance held by the Group Inventory held by franchisees in Mainland China Finished goods at suppliers (not yet shipped) Total system inventory May 2014 Giordano 2014 First Quarter Update 7

8 Brand Sales Growth by quarter Mainland China 10% 5% 5% 0% -5% -10% -15% -3% -5% -8% -9% -3% -6% -7% -12% -8% -13% -5% -10% -8% -13% -10% -15% -2% -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

9 Performance Review by Region Mainland China Negative growth due to closure of shops and weak external demand (In HK$ millions) 1Q14 1Q13 Variance Total sales [1] %/-12% [2] Retail self-operated stores % Wholesale sales to franchisees % Total brand sales [3] % Self-operated stores % Franchised stores % Comparable store sales [4] -10% -7% Gross profit % Gross margin 51.2% 54.5% -3.3pp Number of outlets [5] 1,107 1, Self-operated stores [6] -15 Franchised stores [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

10 Gross Profit Reconciliation Mainland China Higher cost product mix offset by heavy discounting to clear excess inventories (HK$ millions) 300 Average cost 8% Average price 0% Volume 12% 250 (15) (1) (31) (54.5%) -43m ( 17%) 215 (51.2%) Q13 Gross profit Cost increase Price decrease Volume decrease Stock provision and exchange difference 1Q14 Gross profit 8 May 2014 Giordano 2014 First Quarter Update 10

11 2014 Strategies Mainland China Right merchandise at right place AD strategy Turnaround the business and enhance the brand position Fast marketing Store portfolio upgrade 8 May 2014 Giordano 2014 First Quarter Update 11

12 2014 Strategies Mainland China Right 1. Multi-brand strategies merchandise at right place LUXURY M E N PREMIUM VALUE BUDGET

13 Channel Development Priority 2014 Strategies Mainland China Right 2. Channel development merchandise at right place 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 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

14 2014 Strategies Mainland China Right 2. Channel development Department store strategy merchandise at right place DEPARTMENT STORE Unisex floor Men s fashion Giordano Men Men s fashion Women s fashion Giordano Women Giordano Junior Kids fashion Women s fashion Shoes/Cosmetics Eula Liberation of Giordano brand by Beau Monde (5 opened yet, plan 12 more within 1H) Better products of Giordano Women Strong product range of Giordano Junior New brand Eula Move away from the unisex floor to better floors in department stores

15

16

17 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)

18 Fast Marketing 2014 Strategies Mainland China Coming fast marketing campaigns 1Q14 Fast marketing campaign

19 Store Development Priority 2014 Strategies Mainland China Store portfolio 1. Reduce loss making shops and improve profitability 2. Shop development strategy Shop classification upgrade Damaging Giordano brand Change to Beau Monde Change to outlet Loss making Close Core locations More than 50% of our shops Increase number of shops Renovation upgrade Department store strategy Image stores Image stores (Giordano Ladies, BSX)

20

21 2014 Strategies Mainland China Store portfolio upgrade Concepts Idea came from mini department store Each brand has its own renovation elements to highlight its brand image Elements of mini department store: Zoning (Giordano Men, Women, Junior, BSX, BM) Corridor Different color signature and renovation Variety of choice First Concepts was opened on Guangzhou Beijing Road in late April

22 2014 Strategies Mainland China 1. Speed up consolidating ADs AD strategy 2. Develop super ADs Be the business partner/consultant of AD Invest in teams to support merchandizing Focus on Top 10 ADs (48% of total AD stores) Redirect subsidies to investment subsidies i.e. marketing and renovation Support AD gross margin (1Q up 2.5pp)

23 Brand Sales Growth by quarter Hong Kong 20% 16% 15% 10% 5% 0% 6% 8% 8% 7% 4% 3% 1% 0% 0% 0% 2% 2% 5% 3% -5% -5% -7% -10% 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2QTD14-8% Total Brand Sales Growth Comparable Store Sales Growth 8 May 2014 Giordano 2014 First Quarter Update 23

24 Performance Review by Region Hong Kong Intense competition and adverse weather in CNY weakening 1Q sales (In HK$ millions) 1Q14 1Q13 Variance Total sales [1] % Comparable store sales [2] -7% +3% Gross profit % Gross margin 66.5% 65.9% +0.6pp Number of outlets [3] [1] Total Sales are total retail sales translated at average exchange rates. [2] Comparable Store Sales are total brand sales, at constant exchange rates, from existing stores that have been opened/operated in the prior period. [3] At the end of the period. 8 May 2014 Giordano 2014 First Quarter Update 24

25 2014 Strategies Hong Kong 1. Shop portfolio: No shop expansion except MTR shops Extend shop area for Giordano Junior Open a mini department store in Macau in May 2. Fast marketing: Continuous fast marketing campaigns Aberdeen collection by Giordano ( ACBG ) in April Giordano x Lowe Alpine 8 May 2014 Giordano 2014 First Quarter Update 25

26

27

28 Brand Sales Growth by quarter Taiwan 20% 15% 15% 10% 6% 12% 5% 0% 4% -3% 1% -5% -10% -15% -20% -3% -9% -9% -10% -7% -12% -14% -11% -14% -15% -15% -16% 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2QTD14 Total Brand Sales Growth Comparable Store Sales Growth 8 May 2014 Giordano 2014 First Quarter Update 28

29 Performance Review by Region Taiwan 1Q sales depressed by weak market conditions but seeing recovery in 2Q after launch of localized products (In HK$ millions) 1Q14 1Q13 Variance Total sales [1] % / -11% [2] Comparable store sales [3] -10% -14% Gross profit % Gross margin 57.7% 61.0% -3.3pp Number of outlets [4] [1] Total Sales are total retail sales translated at average exchange rates. [2] Sales growth excludes exchange effect. [3] Comparable Store Sales are total brand sales, at constant exchange rates, from existing stores that have been opened/operated in the prior period. [4] At the end of the period. 8 May 2014 Giordano 2014 First Quarter Update 29

30 2014 Strategies Taiwan 1. Products Going back to basic, e.g. Polo Innovative products, e.g. G-Cool + products using high technology fiber 2. Shop renovation Target >15 stores to be renovated 3. Fast marketing Continue brand differentiation by executing cross-over marketing campaigns and developing local products 8 May 2014 Giordano 2014 First Quarter Update 30

31 H E L L O TAIWAN Related products: Polo

32 Gross Profit Reconciliation Hong Kong and Taiwan Strong product mix but volume declined due to weak market demand (HK$ millions) 350 Average cost 15% Average price 12% Volume 19% (19) (54) (2) (63.8%) -33m ( 12%) 253 (62.9%) Q13 Gross profit Cost increase Price increase Volume decrease Stock provision and exchange difference 1Q14 Gross profit 8 May 2014 Giordano 2014 First Quarter Update 32

33 Brand Sales Growth by quarter Rest of Asia Pacific 20% 15% 14% 13% 10% 5% 0% -5% -10% -15% 6% 1% 10% 3% 8% 8% 4% 6% 3% 3% 1% 0% SMIT: SG -17% ID -9% MY -8% TH -10% SMIT: SG -18% ID -1% MY -7% TH -2% -10% -12% SMIT: SG -10% ID +12% MY -8% TH +11% 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2QTD14 1% -5% SMIT: SG -9% ID -1% MY -9% TH +1% Total Brand Sales Growth Comparable Store Sales Growth 8 May 2014 Giordano 2014 First Quarter Update 33

34 Performance Review by Region Rest of Asia Pacific Sales depressed by severe currency decline and weak household spending and consumer demand in SEA (In HK$ millions) 1Q14 1Q13 Variance Total sales [1] % / -5% [2] Comparable store sales [3] -12% +8% Gross profit % Gross margin 61.9% 65.5% -3.6pp Number of outlets [4] [1] Total Sales are total retail sales translated at average exchange rates. [2] Sales growth excludes exchange effect. [3] Comparable Store Sales are total brand sales, at constant exchange rates, from existing stores that have been opened/operated in the prior period. [4] At the end of the period. 8 May 2014 Giordano 2014 First Quarter Update 34

35 Gross Profit Reconciliation Rest of Asia Pacific Cost increases recovered by price increases but not sufficient to preserve overall margin decline (HK$ millions) 300 Average cost 20% Average price 8% Volume 13% 250 8% 12% (9) (13) (32) (22) (65.5%) -49m ( 20%) 198 (61.9%) Q13 Gross profit Increase in merchandise cost Cost increase due to local currency depreciation Price increase Volume decrease Exchange difference 1Q14 Gross profit 8 May 2014 Giordano 2014 First Quarter Update 35

36 2014 Strategies Singapore 1. A team from the Group is assisting to re-shape Singapore operations 2. Products Overbought the wrong category in 1Q, now focus on core shirts and shorts Inventory reduction progress on track 4. Shop renovation Target 35% of stores to be renovated 3. Fast marketing 8 May 2014 Giordano 2014 First Quarter Update 36

37 2014 Strategies Indonesia, Malaysia, Thailand 1. Market slowdown in retail sector in these economies 2. Products Identify merchandise drivers and local fast marketing campaigns to grow sales 3. Shop expansion Continuous expansion in each country 4. Fast marketing Shared campaigns: Market-specific campaigns: Indonesia Malaysia Thailand Indonesian Young Illustrator HAHAN 8 May 2014 Giordano 2014 First Quarter Update 37

38 Brand Sales Growth by quarter Middle East 12% 10% 8% 6% 4% 2% 0% 8% 6% 1% 1% -1% 1% -1% KSA +12% UAE +11% OTH -6% 3% 0% 10% 4% KSA +2% UAE +9% OTH -6% KSA +3% UAE +9% OTH -11% 3% -2% -4% -6% -8% -2% -4% -1% -6% -7% 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2QTD14-2% KSA -6% UAE +7% OTH -13% Total Brand Sales Growth Comparable Store Sales Growth 8 May 2014 Giordano 2014 First Quarter Update 38

39 Performance Review by Region Middle East Growth momentum continued from last quarter (In HK$ millions) 1Q14 1Q13 Variance Total sales [1] % / +8% [2] Comparable store sales [3] +4% -6% Gross profit % Gross margin 60.6% 61.1% -0.5pp Number of outlets [4] [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] Comparable Store Sales are total brand sales, at constant exchange rates, from existing stores that have been opened/operated in the prior period. [4] At the end of the period. 8 May 2014 Giordano 2014 First Quarter Update 39

40 Gross Profit Reconciliation Middle East Increase in prices offset cost increases due to changes in product mix (HK$ millions) 120 Average cost 9% Average price 10% Volume 2% (6) (5) (61.1%) +6m ( 7%) 94 (60.6%) Q13 Gross profit Cost increase Price increase Volume decrease Stock provision 1Q14 Gross profit 8 May 2014 Giordano 2014 First Quarter Update 40

41 2014 Strategies Middle East 1. Shop expansion Target 5% increase in store number mainly in UAE and Saudi Arabia 2. More Engagement with social media Planned PR exercise: media round table Much aggressive focus on digital and social media Radio and press advertisement to promote new lion polo and country polo

42 Jointly Controlled Company South Korea (In HK$ millions) 1Q14 1Q13 Variance Total sales [1] % / +5% [2] Comparable store sales [3] +4% +4% Gross profit % Gross margin 54.0% 56.6% -2.6pp Number of outlets [4] [1] Total Sales are total retail sales translated at average exchange rates. [2] Sales growth excludes exchange effect. [3] Comparable Store Sales are total brand sales, at constant exchange rates, from existing stores that have been opened/operated in the prior period. [4] At the end of the period. 8 May 2014 Giordano 2014 First Quarter Update 42

43 ACTIONS Continuous control on inventory Tightened on cost headcount freeze and postpone salary review Closure of unprofitable and brand damaging shops in China Roll out Beau Monde budget brand. Store expansion in SEA Reshape merchandise more generous fitting and simplicity in design, new team for women 8 May 2014 Giordano 2014 First Quarter Update 43

44 Outlook 1Q14 sales & GP margin declined, profitability is significantly lower vs 1Q13 2QTD14 healthier merchandise portfolio in store, sales are strengthening. Expect the drop in profitability will be narrowed in the second quarter of the year. Impact of currency depreciation in Asia and rent increases in HK will be less in 2H vs 1H. Aligning shop locations, store design, merchandise & brand image, China is now underway but profit enhancement will take time to materialize. Shop penetration will continue, including Malaysia, Thailand, IndoChina. Overall outlook of 2H is uncertain with volatility of external economic factors in different markets. Cash generation remains our priority. 8 May 2014 Giordano 2014 First Quarter Update 44

45 Q&A 8 May 2014 Giordano 2014 First Quarter Update 45

46 Summary of Total Sales and Comparable Store Sales Growth by Market Total sales [1] Comparable store sales [2] (HK$ millions) 1Q14 1Q13 Variance 1Q14 1Q13 Mainland China % -10% -7% Hong Kong % -7% +3% Taiwan % -10% -14% Singapore % -17% -1% Indonesia % -9% +21% Malaysia % -8% +6% Thailand % -10% +22% Australia % -20% -6% India % Flat +19% UAE % +9% -10% Saudi Arabia % +2% -4% Other Middle East regions % -6% -2% Retail & Distribution total 1,297 1,442-10% -9% -3% Wholesale sales to overseas franchisees % +3% +4% Group total 1,380 1,514-9% -6% -2% [1] Total Sales are total retail sales in self-operated stores and total wholesale sales to franchisees, translated at average exchange rates. [2] 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. 8 May 2014 Giordano 2014 First Quarter Update 46

47 Global Retail Network Number of outlets Giordano & Junior Giordano Ladies As at 31 March 2014 BSX Others Total As at Dec-13 Change Mainland China 1, ,107 1, Hong Kong & Macau Taiwan Singapore Indonesia Malaysia Thailand Australia India UAE Saudi Arabia South Korea Other markets Group total 2, ,567 2, May 2014 Giordano 2014 First Quarter Update 47