Seraphine issue profit warning despite soaring sales, new year starts slowly

By

Sandra Halliday

Published
Feb 23, 2022

Maternity-wear specialist Seraphine delivered a profit warning on Wednesday, despite it seeing strong sales growth in the second half of its financial year. Sales in the 17 weeks up to the end of January rose 45% on a constant currency basis. 

And in North America, those sales were up as much as 69%. But February so far has been a "soft month across all markets and channels” with the retail store trading environment “remaining extremely challenging”.

Management is expecting e-commerce demand to recover next month, as it’s traditionally a stronger period due to the launch of new spring and summer collections, but full-year revenue will be below current expectations, albeit only “marginally”.

Profit will be more heavily affected, however. The company added that it has seen “a number of margin and costs challenges” recently identified, which means that FY22 Adjusted EBITDA pre-IFRS 16 should now be “significantly below current expectations” at around £4.5 million. 

So what exactly were those challenges? For a start, customer acquisition costs were impacted in February by weaker demand; and “an underestimation of the level of sales tax and duties incurred on outbound and returned goods” in its new markets of Canada and Switzerland had an effect.

There was also higher than anticipated promotional activity at the end of December and in January to clear the increased mix of seasonal product resulting from the delayed stock issues in the summer. This dented the gross margin.

Inflation in warehousing and transport costs since the beginning of the calendar year had to be taken into account as well.

Management is taking actions to turn these issues around, including eliminating duty charges on customer returns from non-EU markets via bonded warehousing; registering for and collecting sales taxes at checkout in Canada, as already implemented in the US; and negotiating a new long-term agreement with its third-party logistics supplier. It has also closed the Madison Avenue retail store and changed the Soho, New York, store lease to a turnover based rent. That should all have a positive impact during the current FY23.

And this year, it expects sales growth of 25%-30% while EBITDA margins should start to rebuild.