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A closer look at Primark’s stance on responsible fashionEXCLUSIVE CASE STUDY
Wool and cotton price hit all-time highs as demand exceeds production

ANALYSISProfitable farms, higher demand from local apparel producers and retailers, higher consumer’s confidence levels and a profitability rebound based on growing margins are the main reasons why wool and cotton fibres are enjoying historic highs.

Thus, while the price of wool has risen to its highest point since April 2013 and is currently priced at circa 13 dollars per kilo, an intensified use of fine wool for high end fashion has proved a boon for countries such as Australia.

Wool price from strength to strength as production becomes profitable

Many have pinpointed how the global wool industry has changed recently as more wool is being grown and therefore available in the retail market. Stuart McCullough, managing director of The Woolmark Company explained in an interview with ‘Fibre2Fashion’ that "In the last decade, the (wool) price has gone up and that has been the biggest change.”

“Farmers are now becoming profitable. This is a big and important change as they are now making money; that’s because a decade ago they were not making any. They are keeping the industry alive," concluded McCullough.

Another trend noticed by analysts is how textile buyers are progressively moving away from China and going back to Western countries such as Italy. "Before, given (brands) were paying much less, they turned a blind eye to quality," said to Reuters Giovanni Germanetti, director general of Italian yarn and textile producer Tollegno 1900. For Germanetti, the return of clients responds to their seeking for better value for money.

On a related note, Alessandro Brun, professor at the MIP Milan Politecnico, said brands are also motivated by concerns over product traceability, and want to avoid potential reputational risk.

Growing interest from apparel producers in fine wool lifts Australian’s production…and prices

The wool market is enjoying quite an upwards ride in Australia, as the fibres trading on the Eastern Market Indicator (EMI) price has seen seven consecutive weeks of climbing prices per kilogramme per week.

On average, the current price range for EMI is above 25 percent higher than a year ago. Providing greater detail, Chris Wilcox, the chief executive of the National Council of Wool Selling Brokers of Australia, reported the EMI has jumped 181 U.S. dollar cents per kilo in United States dollar terms since the Christmas recess and by 219 U.S. dollar cents per kilo since the start of the 2016/17 season. Wilcox highlighted that ultra fine and superfine wool had received the major gains.

In this regard, Australian Wool Exchange senior market analyst Lionel Plunkett said the record prices had brought previously unwilling sellers to market, pushing the amount of wool being held in storage to historical lows.

“The lack of wool on hold has severely limited any large increases in weekly quantities, enabling the market to gradually rise without any extra supply pressure and this sale was no exception,” Plunkett said, adding that “With clearance rates consistently in the 90 per cent region the amount of wool on hold will continue to stay at these levels.”­­

The FashionUnited Wool Price Index shows how the raw material’s prices fluctuate over time

Cotton prices set to rebound as demand exceeds production for the first time in years

But wool is not the only fibre that has experienced a recent price rebound. While cotton prices had been declining for several years, they began to pick up again in 2016, when consumption exceed production for the first time in 6 years.

According to data analysed by FashionUnited Business Intelligence, cotton has reached price levels – over 82 dollars per pound - not seen since July 2014.

As indicated in theFashionUnited Cotton Price Index , cotton prices have gained 2.8 percent in India and 3.9 percent in Pakistan, only rising 1.1 percent in China where spinners were anticipating a lower level in cotton prices after the return of official sales from state reserves as of March, 6th.

One growth driver extensively highlighted by market experts consulted by FashionUnited is Meanwhile, more conscious consumers demand textiles sustainably manufactured, pushing manufacturers to source organic cotton, more costly but with a much smaller environmental impact.

The global organic cotton market was worth USD 15.76 billion in 2014/15 and shows stable growth, according to Textile Exchange. As more people are beginning to factor in sustainability when buying clothing and other products, using organic cotton can give companies an edge over their competitors.

Looking into how these moves will affect consumers, Citi senior analyst Craig Woolford said at the beginning of the year that the recent decline in clothes prices won't last because cotton and wool prices are rising.

The FashionUnited Cotton Price Index reveals how the popular fibre’s price evolves on a monthly basis.

Photo: via Wikimedia author: Kimberly Vardeman

Burberry H2 retail sales up 3 percent

Burberry has reported retail sales growth of 3 percent underlying and 19 percent at reported FX to 1,268 million pounds (1,625 million dollars) for the period ended March 31, 2017. Comparable sales rose 3 percent for the second half.

“In an uncertain environment, we continue to take action to strengthen the brand and reposition Burberry for growth. The outperformance of fashion and the strong customer response to new products underline our renewed creative momentum. I am delighted that Marco and Julie have now joined the business,” said Christopher Bailey, Chief Creative and Executive Officer, Burberry in a statement.

Highlights of comparable sales by region

The company reported low single-digit growth in Asia Pacific with Mainland China delivering high single-digit percentage growth, accelerating through the half, but Hong Kong declined, experiencing negative footfall only partially offset by improved conversion. Korea, Burberry’s third largest market in Asia, declined, which the company said was due to both the macro environment and its actions to reduce promotional activity.

Burberry saw double-digit percentage growth in EMEIA with positive performance in the UK and improved trading in Continental Europe, particularly France, while the company said, Middle East remained challenging. Americas witnessed a mid single-digit percentage. The company said, while relative strength of the US dollar drove a strong increase in sales from US customers abroad, demand at home reduced (both domestic and tourist).

Digital growth, Burberry added, reflected strategic focus and investment. With strong traffic and improved conversion, mobile delivered the majority of the growth, up 50 percent year-on-year. Enhanced local website in China posted positive results with a near doubling of direct to consumer sales.

Wholesale declined 13 percent in H2

In line with guidance, the company said, wholesale revenue was down 13 percent underlying or down 1 percent at reported FX, with over half of the decline from beauty. Burberry added that reflecting the rationalisation of distribution in key markets and distributor de-stocking, beauty revenue declined by about 20 percent underlying.

Primarily reflecting the planned expiry of the Japanese Burberry licences, as the company moved to direct retail operation, licensing revenue declined by 38 percent underlying.

Burberry expects total underlying wholesale revenue in the first half of FY 2018 to be down by a mid single-digit percentage, which reflects some expected business disruption for Beauty. Excluding this, underlying wholesale revenue is expected to be broadly unchanged year-on-year against 217 million pounds (278 million dollars) reported in H1 2016/17. Total underlying licensing revenue for FY 2018 is expected to be up 20 percent year-on-year.

Picture:Burberry website

Destination Maternity Q4 comparable sales drop 7.8 percent

Destination Maternity Corporation’s fourth quarter comparable sales decreased 7.8 percent following a 3.5 percent decline for the fourth quarter of fiscal 2015. Pretax loss was 7.8 million dollars, compared to 5 million dollars in the same quarter of fiscal 2015. Comparable sales decreased 5.3 percent for the full year, compared to a decrease of 1.5 percent for the fiscal year ended January 30, 2016.

Commenting on the annual trading, Anthony M. Romano, Chief Executive Officer & President, stated in a media release, "In a challenging year that saw several headwinds pressure sales, we achieved increased adjusted EBITDA before other charges reflecting improvement in gross profit margin and a reduction in expenses. While the year included several headwinds, including business exits from Sears and Gordmans, certain Macy's store closures, Kohl's business wind down, mall traffic declines, and cancelled fourth quarter orders due to the Hanjin bankruptcy, we continued to advance our key strategies."

Fourth quarter net sales declined to 100.2 mn dollars

Net sales were 100.2 million dollars compared with 118.3 million dollars for the comparable prior year quarter. The company said, this decrease was primarily driven by the wind down of the Kohl's, Sears and Gordmans relationships and by a decline in comparable sales.

Gross margin was 51 percent, up 120 basis points over the comparable prior year quarter gross margin of 49.8 percent. Adjusted EBITDA before other charges was 2.1 million dollars compared to 3.2 million dollars for the fourth quarter of fiscal 2015. GAAP net loss was 32.8 million dollars or 2.39 dollars per share and included the 27.8 million dollars non-cash income tax charge, or 2.02 dollars per share, related to the valuation allowance against net deferred tax assets. This compared to a GAAP net loss of 3.1 million dollars or 0.22 dollar per share, for the fourth quarter of fiscal 2015.

Adjusted net loss was 3.2 million dollars or 0.23 dollars per share, compared to 1.5 million dollars or 0.11 dollar per share, for the fourth quarter of fiscal 2015.

FY16 net sales were down to 433.7 mn dollars

Net sales were 433.7 million dollars compared with 498.8 million dollars for the fiscal year ended January 30, 2016. The decrease in sales, the company said, was primarily driven by the wind down of the Kohl's, Sears and Gordmans relationships, and by a decline in comparable sales.

Gross margin increased 310 basis points to 52.4 percent compared to 49.3 percent for the fiscal year ended January 30, 2016. Adjusted EBITDA before other charges was 23.3 million dollars compared to 22.8 million dollars for the fiscal year ended January 30, 2016. GAAP net loss was 32.8 million dollars or 2.39 dollars per share, and included the 27.8 million dollars non-cash income tax charge, or 2.02 dollars per share, related to the valuation allowance against net deferred tax assets. This compared to a GAAP net loss of 4.5 million dollars or 0.33 dollar per share, for the fiscal year ended January 30, 2016.

Adjusted net loss was 1.9 million dollars or 0.14 dollar per share, compared to adjusted net loss of 0.2 million dollars or 0.01 dollar per share, for the fiscal year ended January 30, 2016.

Picture:Facebook/Motherhood Maternity

Fast Retailing H1 operating profit increases 31.5 percent

Consolidated operating profit for the first half of fiscal 2017 expanded 31.5 percent to 130.6 billion yen (1.19 billion dollars) at the Fast Retailing Group. Revenue increased 0.6 percent year on year to 1.0175 trillion yen. Revenue at Uniqlo Japan increased by 0.3 percent to 455.1 billion yen (4.1 billion dollars), while operating profit rose to 68.7 billion yen (0.63 billion dollars) or 7.3 percent.

The company said profit rose considerably following the reporting of a 15.4 billion yen (0.14 billion dollars) foreign exchange gain under finance income and costs. As a result, profit attributable to owners of the parent jumped 106.7 percent year on year to 97.2 billion yen (0.89 billion dollars).

Uniqlo Japan same-store sales up 0.1 percent

Same-store sales, including online sales, increased 0.1 percent year-on-year. The total number of Uniqlo Japan stores declined by a net 14 stores year-on-year to 791 excluding 41 franchise stores at the end of February 2017. Of this total, two stores shifted from directly operated stores to employee franchise stores.

The company attributed rise in same-store sales to a number of factors such as the Uniqlo anniversary sale in November 2016 generating strong sales and strong performance of core winter ranges such as Heattech innerwear, cashmere sweaters and Blocktech outerwear and 2017 spring summer ranges getting off to a strong start in February.

On the profit front, the gross profit margin improved 2.1 points year-on-year. E-commerce sales increased by 11.7 percent to 28.2 billion yen (0.25 billion dollars), constituting 6.2 percent of total sales.

Uuniqlo International too reported rises in both revenue and operating profit in the first six months of fiscal 2017, with revenue expanding by 0.9 percent to 392.8 billion yen (3.6 billion dollars) and operating profit expanding by 65.9 percent to 48.7 billion yen (0.4 billion dollars). While revenue increased in local-currency terms, the effect of the stronger yen compared to the previous year pushed yen-based revenue down by an average 11 percent, resulting in the segment's more subdued 0.9 percent rise in overall revenue.

On the profit side, profit contributions from Mainland China and Southeast Asia were strong. The operation in Mainland China reported strong sales and a large rise in profit on the back of an improved gross profit margin and the selling, general and administrative expense ratio, while Uniqlo Southeast Asia achieved strong growth in same-store sales. The first Uniqlo global flagship store was opened on the Orchard Central Store, in Singapore in September 2016.

Elsewhere, Uniqlo USA recorded a considerable reduction in operating losses following the successful implementation of operational changes. The company said, first two Uniqlo Canada stores, opened in Toronto in September 2016, continue to enjoy great success. Store numbers for the segment as a whole had expanded by 139 year-on-year to 1,029 stores at the end of February 2017.

Global Brands revenue up 0.5 percent, GU profit down

Global Brands revenue expanded 0.5 percent to 168.1 billion yen (1.54 billion dollars), but operating profit declined 29.7 percent to 10 billion yen (0.09 billion dollars), largely due to a contraction in profit at the company’s low-priced GU casual fashion brand.

The company said, GU profit declined after 2016 fall winter ranges proved less popular than initially expected, leading to aggressive discounting of excess inventory and contraction in the gross profit margin. In addition, the performance was being compared to an extremely buoyant first-half period in fiscal 2016 when operating profit expanded by 60 percent year-on-year. However, strong sales of individual product items such as big sweatshirts, baggy pants, loungewear, and sports sneakers helped stem the overall decline in first-half same-store sales at 1.1 percent.

In March 2017, the group extended GU's international store network, which currently spans Shanghai and Taiwan, by opening the first GU store in Hong Kong and it aims to continue expanding the GU operation by accelerating store openings in Japan and actively promoting new store development in international markets.

Looking at other labels in the Global Brands segment, France-based Comptoir des Cotonniers fashion brand reported a decline in revenue on sluggish sales, but generated a steady operating profit on active cost-cutting. Also France-based Princesse tam.tam label and US-based J Brand premium denim label continued to generate a loss, while fashion brand Theory performed well to generate a rise in profit in the six months to February 2017.

Fiscal 2017 expected to witness large rise in profit

The company’s estimates for Fast Retailing performance in fiscal 2017 remain unchanged from initial forecasts announced in October 2016, which include a large expansion in full-year profits. Detailing those forecasts, Fast Retailing is expecting to achieve consolidated revenue of 1.8500 trillion yen (3.6 percent rise), operating profit of 175 billion yen (1.6 billion dollars) or up 37.5 percent and profit attributable to owners of the parent of 100 billion yen (0.91 billion dollars), up 108.1 percent. That would translate into expected net earnings per share of 980.74 yen (9.0004 dollars).

Uniqlo Japan is expected to report rising revenue and profit in fiscal 2017, and an approximate 1.8 percent year-on-year gain in same-stores sales including e-commerce. Uniqlo International is expected to report strong profit gains in fiscal 2017. Uniqlo Greater China, Southeast Asia & Oceania, and South Korea are forecast to generate higher profits, while profit is expected to hold steady in Europe, and operating losses are expected to contract sharply in North America (US and Canada).

Global Brands is expected to generate gains in revenue and profit in fiscal 2017. Following the sharp fall in first-half profit at GU, the company now expects GU will report a decline in profit for the full year through August 2017. However, it expects GU to report rising revenue and profit in the second half on the back of fresh efforts to advertise the newsworthy elements of GU spring fashion items more effectively, and order additional production of strong-selling items more efficiently.

In terms of store numbers, the overall Fast Retailing Group network is expected to expand to a total of 3,316 stores by the end of August 2017. This total breaks down into 837 Uniqlo Japan stores (including franchise stores), 1,104 Uniqlo International stores and 1,375 Global Brands stores.

The company has scheduled an annual dividend for fiscal 2017 of 350 yen (3.21 dollars), split evenly into an interim dividend of 175 yen (1.60 dollars) and a year-end dividend of 175 yen per share.

In short
H1 revenue up 1.0175 trillion yen
Operating profit up 130.6 bn yen
  • Fast Retailing expects to achieve consolidated revenue of 1.8500 trillion yen (3.6 percent rise), operating profit of 175 billion yen (1.6 billion dollars) or up 37.5 percent.
  • Uniqlo Japan is expected to report rising revenue and profit in fiscal 2017, and an approximate 1.8 percent year-on-year gain in same-stores sales including e-commerce.

Picture:Facebook/Uniqlo.US

LVMH shares toast strong Q1 sales with record high

ANALYSISThis is being a great week for the world´s largest luxury goods group. On Tuesday, shares in LVMH hit a record high following the announcement of a 15 percent year-on-year increase in first quarter sales.

After the company announced first-quarter organic revenue up by 13 percent, LVMH shares rose as much as 2.9 percent to an intraday record high of 213.50 euros. This was the steepest intraday advance in more than a month.

The stock also became the top performer on France's benchmark CAC-40 index, which was otherwise down 0.4 percent.

LVMH stock hits record high and casts a halo effect on other luxury shares

"What was truly impressive though is that all divisions were up double-digit, which was last seen in Q1, 2011," Deutsche Bank analysts said in a note. They currently recommend buying the stock. The German bank´s take on the French luxury goods giant echoed the general market sentiment: although LVMH warned that its business environment remained uncertain due to general political and macroeconomic concerns, analysts focused more on the strong sales.

LVMH´s good news had a hale effect on other luxury peers such as Kering, Hermés or Richemont, which saw their stock up by 1.1 percent, 0.9 percent, and 0.8 percent respectively.

Data collated by CNBC shows that LVMH shares are up around 17 percent so far in 2017. The results "also raise the bar for other stocks reporting in coming weeks" and including Prada and Kering.

"There is a better consumer environment for luxury, and LVMH is gaining share," said Mario Ortelli, an analyst at Sanford C Bernstein.

Foto: Louis Vuitton Web

Prada FY16 revenues decline 9 percent

Prada net revenues for the year ended January 31, 2017 declined 9 percent at constant and 10 percent at current FX to 3,184.1 million euros (3,375 million dollars), compared to the same period in 2015.

“The Prada Group has delivered a satisfactory set of results in-line with market expectations for 2016, a challenging year of transition for the company. The retail strategy has shifted from geographical expansion to network rationalisation and digital integration. I am confident that our creative vision combined with investment in online and offline engagement with our customers put us firmly on the path to sustainable growth,” said Patrizio Bertelli, Prada CEO in a statement.

Retail sales dropped 13 percent, wholesale rose 15 percent

Sales at the company’s retail channel fell 13 percent at constant and 14 percent at current FX to 2,634.9 million euros (2,793 million dollars). The company said there was a progressive improvement in the trend in the second half of the year, especially in the final months.

Wholesale channel sales increased by 15 percent at constant and 13 percent at current FX to 504.4 million euros (534 million dollars), owing to, the company said, encouraging results from new partnerships with leading etailers. Licensed business grew by 3 percent with both eyewear and fragrances witnessing positive trends, generating royalties of 45 million euros (47 million dollars).

Prada said, trading conditions in Europe were mixed for most of the period and ended the year with a decline of 5 percent at constant FX. Growth in the UK was driven by local consumption and tourists taking advantage of the weaker sterling while continued outperformance in Russia generated double-digit growth over the year.

The rest of Europe continued to be impacted by the decline in tourist flows, particularly in France, which in the final quarter of the year however saw significant signs of improvement. Despite an overall negative performance of 12 percent decline at constant FX, Asia Pacific, the company said, was very dynamic in the second half of the year. China recovered in the third quarter and began to deliver rapid growth. Hong Kong and Macau have significantly reduced levels of sales contractions seen in recent years, with notable recoveries towards the end of the year.

Sales in the Americas were down 12 percent at constant FX, impacted by falling tourist flows in the United States. Prada saw positive performances in Brazil and Mexico. After five years of consecutive growth, sales in Japan declined 13 percent at constant FX as the stronger yen discouraged Chinese tourists, while the Middle East declined 10 percent at constant FX.

Financial highlights of the year

The company added that implementation of rationalisation program to streamline operational and management processes significantly mitigated the impact on margins of the decline in revenue. Prada maintained a high gross margin of 72 percent and optimised its cost structure, reducing operating expenses by 10 percent year-on-year and creating a leaner, more efficient business.

EBITDA amounted to 653.4 million euros (692 million dollars), 20.5 percent of revenues and EBIT amounted to 431.2 million euros (457 million dollars), 13.5 percent of revenues against 14.2 percent in FY 2015.

Net income amounted to 278.3 million euros (295 million dollars), 8.7 percent of revenues compared to 9.3 percent in FY 2015. The board has proposed to the Shareholders’ Meeting, called for 31st May, a dividend of 12 euro cents per share, up 9 percent compared to the 2015 dividend.

In short
Sales decline 3184.1 mn euros
Net income down 278.3 mn euros

Picture:Facebook/Prada

Zalora's deal, a boost for ailing Abercrombie & Fitch's shares

ANALYSISBoth business and stock trading at Abercrombie & Fitch have been a reason for concern for the company. Its just announced deal with Zalora, a leading Asian e-commerce platform, has been coined by many in the market as a much needed boost.

Market sources consulted by FashionUnited point out that this move clearly responds to Abercrombie & Fitch’s attempt to meet consumer demands for new, fully digital shopping experiences. It has been precisely this urge to resonate with its largest target audience that has encouraged the US teen apparel retailer to ink a wholesale deal with Zalora, Asia’s leading online fashion hub.

On the back of the news, shares of Abercrombie jumped about 3 percent. “We believe this news finally instilled some positive sentiment among investors for this Zacks Rank #4 (Sell) stock, which slumped 59.4 percent in the last one year, considerably underperforming the Retail–Apparel/Shoe industry’s decline of 19.7 percent,” sums up the analyst at Zacks who follows A&F.

From Zacks explain that this underperformance “could be largely attributable to a tough retail landscape, mounting competition and foreign currency headwinds, which have been hurting Abercrombie’s performance for a while now.”

Zalora will start selling Abercrombie & Fitch collections next week

As announced by both parties earlier this week, Zalora will start selling Abercrombie’s Hollister brand merchandise via its online stores from next week. It’s worth mentioning that A&F’s sister brand Hollister is the company’s best performing brand at present.

“We believe that this collaboration is likely to benefit Abercrombie substantially as it will have an access to over 600 million online customers of Zalora, given the latter’s solid network and popularity,” concludes Zacks in a market’s research published Tuesday.

Zalora was launched five years ago and is present in 11 countries, including Singapore, Indonesia, Malaysia & Brunei, the Philippines, Hong Kong and Taiwan.

Zalora’s partnership is anticipated to give Abercrombie & Fitch a top line boost similar to that the brand experienced last summer, when started selling in Europe through Zalando. “Hence, we believe that alliance with ZALORA, and similar ventures should help Abercrombie cushion its top line amid a challenging and competitive retail scenario.”

Abercrombie is undertaking an overarching effort to enhance its online business, which has taken a toll on its net sales, which declined about 7 percent to 1,036.4 million dollars in the fourth quarter. Meanwhile, direct-to-consumer and omni-channel business contributed 31 percent to the top line in the same period.

During the past five years, ANF’s revenue has declined at an average annualised rate of about -4.4 percent. This rate got just worse, with a broader decrease (-6.9 percent) during the company’s most recent quarter.

Comparing profitability, analysts at Zacks point out that currently, Abercrombie & Fitch Co. net profit margin for the 12 months is at 0.23 percent. Comparatively, its peers have a net margin 3.16 percent, and the sector’s average is 11.94 percent. In that light, it seems in good position compared to its peers and sector.

Image:Abercrombie&Fitch, Facebook Official