Interim report May 1, 2009 - October 31, 2009
Operating loss of SEK 87.0 M
Six months (May 2009 – October 2009)
• Net sales amounted to SEK 585.3 M (661.8), down 12% compared with the preceding year. Sales in the Group’s comparable stores decreased by 13% (neg: 19).
• Loss after tax amounted to SEK 76.7 M (loss: 0.3). A loss per share before dilution of SEK 1.95 (loss: 0.01).
• Operating cash flow after investments was negative SEK 79.7 M (neg: 54.3).
• The operating result was charged with nonrecurring costs of SEK 20.5 M (0.0)
Second quarter (August 2009 – October 2009)
• Net sales amounted to SEK 268.4 M (309.1), down 13% from the preceding year. Sales in the Group’s comparable stores decreased by 12% (neg: 25).
• Loss after tax amounted to SEK 41.5 M (loss: 6.7). A loss per share before dilution of SEK 1.01 (earnings: 0.23).
• Implementation of the business plan continues. The aim is that this will eventually improve the operating margin to 13-15%. The range of products has been reduced by 40% and nine stores were closed. The operating result was charged with nonrecurring costs of SEK 11.9 M (0.0)
Hemtex has faced many challenges in the home-textiles market in the past year. Firstly, the purchasing appetite of consumers declined in the wake of the economic slowdown and, secondly, essential changes to our price strategy and communications had a short-term adverse impact on sales. Accordingly, sales for the second quarter (August-October) of the 2009/2010 fiscal year declined 13% and we reported an after-tax loss of SEK 41.5 M (loss: 6.7). The gross profit margin was 59.4% (59.7) and inventories at the end of the quarter were slightly more than 10% lower than a year earlier.
Naturally, work aimed at enhancing sales is our highest priority. We have reduced our product range by up to 40%, which has clarified our customer offering and made our stores more exciting. However, our new autumn collection failed to meet expectations and, in connection with the launch, we initiated a new advertising campaign under the “Fewer sales – Better prices” slogan, to communicate our changed price strategy and lower prices. The concentration of the product range will also gradually enable us to carry out more effective purchasing, simplify distribution and improve storage and store management.
In addition, we noted that the competition in the Swedish home-textiles market has intensified, while interest in home textiles has found its way to younger age groups. These trends mean two things for Hemtex: we must direct a clearer message to our consumers and we must offer a smarter product range. For this reason and in line with the new business plan, we will reveal a new image in 2010 in the form of a gradually changed product range and a new identity. In May, we will be presenting new products that will be based on three distinct styles. A completely new product line will be launched later in the autumn when Hemtex opens three new model stores in Stockholm, Gothenburg and Malmö – all designed in accordance with Hemtex’s new concept.
To provide greater space for the new product range, we will be conducting a stocktaking of store inventories in December, with the aim of identifying older products with a low market value and to provide a basis for a correct assessment of the need for obsolescence. These older products will then be donated to the charitable organization Human Bridge.
Work on consolidating the store operations and reducing the number of stores is continuing. Nine stores were closed during the second quarter, of which five were proprietary stores and four owned by franchisees. Only one new store was opened, in Liljeholmen in Stockholm. Although we are capitalizing on the recession and lower rents to expand in favorable locations where such opportunities exist, we will see a net decrease in stores during the 2009/2010 fiscal year. Hemtex had 213 stores at the beginning of December, corresponding to a year-on-year decline of seven stores. The process of reviewing the store portfolio will result in a continued slight decrease in the number of stores during forthcoming quarters.
In order to enhance the store perspective and increase the efficiency of coordination efforts in the company, we will be establishing a Store Council in the New Year. In the Council, store managers from across Sweden work together with company management and will function as a quality-assurance body, ensuring that all activities in the company are commercially viable.
The downsizing and changes made to the product range, the new price and product strategy, the consolidation of the store structure and stricter cost control are all actions included in our new business plan, the aim of which is to improve the operating margin to 13-15% within three years.
Hemtex has a strong brand and is the leader in its segment. Strong leadership combined with strong owners is essential in efforts to develop the operations and implement the necessary adjustments. After only a month in my new role, it is apparent that Hemtex is facing major new challenges, although I can also see the potential inherent in the Group. Now it is time to take forceful actions and utilize our power of initiative to turn the negative trend around and recapture lost sales and profitability. In other words, our objective is clear: we must offer an attractive and well-defined product range to a broad target group. Put simply, everyone should afford to have a comfy home.
President and Chief Executive Officer