Paul Smith swings to loss as Covid dents sales
Paul Smith Group Holdings, the holding company that owns the Paul Smith trademarks, has filed its annual results for the year to June 30 2020 and said that the final quarter of that year was hit hard by the pandemic.
In the first three quarters of the period, turnover had been rising and was heading for an annual increase. But it made very few sales in the final quarter that was marked by the first wave of Covid and its associated lockdowns. That meant group turnover for the year actually fell by 18% to £177 million.
The gross margin was also adversely affected and the operating result was a loss for the year of £21 million. It had seen an operating profit of £5.7 million in the previous 12 months. That loss included some significant exceptional costs such as a decrease in investment property valuations. But this was partly offset by government job support assistance totalling a little over £4 million. The net loss was £21.6 million after a profit of £3.6 million in 2019.
Paul Smith said the challenges of the pandemic were severe across all of its trading markets with its customers, partners, suppliers and employees all affected. Its main aim in facing this was to protect its teams and its cash flow as well, which it managed to achieve.
So what actually happened as far as sales were concerned? Retail sales for the year fell 23% overall and 24% on a like-for-like basis. Prior to the Covid outbreak, they'd been broadly flat on a like-for-like basis, dented by Hong Kong retail sales being particularly week following the continuing pro-democracy protests there.
Retail sales for AW19 specifically were up 1% overall, although they were down 1% on a like-for-like basis. But the impact of the pandemic is clear when you look at retail sales for SS20 as they fell 51% like-for-like.
The company said AW20 provided slightly better news with a fall of only 34% and an e-commerce sales rise of 49%. In fact, e-commerce, as would be expected took on greater importance throughout the financial year and after it. E-sales rose to 27% of the company’s total retail sales over the period, up from 24% a year earlier. The company expects this percentage to increase further based on current trends and its continued investment in digital.
Of course, physical retail remains important and the company has now reopened most of its shops. However, one shop in London, one in Paris, its Las Vegas Store and three in New York weren't reopened as they were nearing the end of their leases. But the company has opened one new location in Los Angeles recently.
Looking back at the last year on the wholesale front, sales to department stores, multi-brand shops and online retailers globally fell 10% to £71.7 million. Wholesale had been performing well before lockdown and looked good both in terms of deliveries and sell-through. It's franchise partners had opened new stores and it continued to develop opportunities with department stores and pureplay e-tailers. Forward orders had continued to grow throughout the year and SS20 orders were 10% up year-on-ear, even though it had lost a major US department store customer (Barneys, after that business was bought and its stores were closed). AW20 orders were also up 3% on the previous comparable season.
But with the company unable to stage its regular Paris show for SS21 and many wholesale customers unable to travel to its showrooms, forward orders confirmed since the year end for SS21 are 35% down year-on-year. The initial reaction to its collections has been "overwhelmingly positive”, but very low retail footfall, a build-up of stock in the market and ongoing uncertainty about the future means the company expects the environment to remain challenging.
Yet it has £44 million of additional funding in place from its shareholders and is working to get back to the positive growth trend it enjoyed pre-virus.
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