Interim Report May 1, 2009 – July 31, 2009
Operating loss of SEK 39.4 M
First quarter (May 1, 2009 – July 31, 2009)
• Net sales amounted to SEK 316.9 M (352.7), down 10.1% on the year-earlier period. Sales in the Group’s comparable stores declined 14% (decrease: 13).
• Loss after tax amounted to SEK 35.1 M (profit: 6.5). A loss per share before dilution of SEK 0.93 (earnings: 0.22).
• Operating cash flow after investments was negative SEK 14.0 M (pos: 41.1).
• Hakon Invest AB holds 68.5% of the share capital in Hemtex AB on completion of its mandatory takeover offer.
• Proceeds from the completed rights issue amounted to SEK 164 M before issue expenses.
• The operating result was charged with nonrecurring costs of SEK 8.6 M (0.0).
Sales for the first quarter (May – July) of the 2009/2010 fiscal year declined by 10.1% and an after-tax loss of SEK 35.1 M (profit: 6.5) was reported. Reasons for the weak performance included the economic recession, which reduced consumers’ willingness to spend, a negative trend for SEK in relation to USD and nonrecurring costs for consultant services. Another significant reason was the implementation of the necessary change in Hemtex’s price strategy , resulting in a significantly shorter retail sale period compared with the year-earlier period.
During the first quarter, the gross profit margin decreased to 46.8% (52.1), primarily because of the planned discontinuation of older products, but also because of a less favorable currency exchange trend compared with the corresponding period in the preceding year. At the end of the quarter, inventories were five percent lower than at the corresponding date in the preceding year. The summer sale and clearance of older products were highly successful, which created space for our new autumn product range.
Change initiatives continue at Hemtex and are the top priority for me and the other members of executive management. In the short term, the challenge is to reverse the declining sales trend, and all efforts will be directed at this goal in the coming quarter. Already this autumn, a number of measures will be implemented in our stores. Above all, the product range will be improved and concentrated, with a 40% smaller product range compared with the corresponding period in 2008. This has strongly focused our customer offering and made our stores more exciting. In conjunction with the launch of the autumn collection, we also began our new advertising campaign, “Fewer sales – Better prices”, which communicates our changed price strategy and lower prices. In terms of sales, the autumn collection has had a positive start.
The concentration of the product range is also a measure that will gradually allow us to carry out more effective purchasing and simpler distribution, storage and store processing. The reduction of the product range and other measures are part of the new business plan now in use in the organization.
In 2008/2009, a decision was made to close five stores, and about ten additional stores will be closed during the current fiscal year. During the most recent quarter, the store in Hamar, Norway was closed. At the same time, we are capitalizing on the recession and lower rents to expand in favorable locations where such opportunities exist. However, we do not foresee a net increase in stores during the 2009/2010 fiscal year. The goal remains that planned measures will improve the operating margin to 13–15% within three years.
The recently implemented rights issue, which contributed SEK 164 M to Hemtex, has provided the scope to carry out the important adaptations required to create favorable profitability within the company. Hemtex has a strong brand and a strong retail network, with dedicated and skilled personnel. I am highly confident that, with the far-reaching program of adaptation that is now being implemented in our operations, we can regain lost sales and profitability. The feedback we have received from our employees and customers indicates that we are definitely moving in the right direction.
President and Chief Executive Officer