Tom Tailor strategic reset helps business boost profits

By

Barbara Santamaria

Published
May 2, 2017

German fashion retailer Tom Tailor had reason to celebrate on Tuesday after revealing that its new strategy to boost efficiency has helped it achieve a solid start to the new fiscal year.

Despite a programme of store closures, country withdrawals and a portfolio restructuring, consolidated sales remained stable at €218.9 million , and while consolidated gross profits fell to €116.2 million from €118.9 million, EBITDA increased to €8.7 million from €6.3 million. EBIT also improved to -a loss of €1.6 million, compared to a loss of €5.9 million in the previous year.

The results come on the back of the company’s Reset programme, which focuses on implementing cost and process optimisation initiatives to realign the business with a digital-first approach.

"After a solid start to the year, we are on target both in terms of business performance and our realignment," said Heiko Schäfer, the CEO. "At the same time, we are working at high pressure on strengthening our brands and preparing ourselves for the time after the Reset program's conclusion. The first quarter's results clearly mirror Reset's impact. However, we still have a lot of work to do."

The quarter saw the casualwear Tom Tailor brand perform well with sales up to €152.3 million from €151.1 million, supported by a 1.4% increase in the retail segment to €64.8 million. This was mainly driven by a positive trend in some international markets, while operations in Germany were impacted by the ongoing restructuring. Additionally, an accelerated stock clearance process squeezed the gross margin slightly, down from 52.9% to 52.3%.

The Tom Tailor wholesale segment, which accounts for 40% of the group’s sales, remained flat at €87.5 million. The division’s gross margin was in line with prior year’s levels, reaching 46%.

Meanwhile, the group’s Bonita brand, which caters to consumers aged 40-plus, reported a sales decrease to €66.6 million from €67.8 million as a result of store closures. Gross margin decreased to 63.1% from 66.2% due to the reduction of old inventories and the sell-off the Bonita men inventories.

In the first quarter, Tom Tailor decreased net debt from €246.4 million to €202.8 million, and increased cash flow from operating activities by €16.3 million to minus €3.7 million.

"We are making very good progress in the implementation of our Reset initiatives, and want to complete the restructuring as quickly as possible," said Thomas Dressendörfer, CFO. "We are quite satisfied with the decreasing net debt and the lower inventories. However, 2017 is still a transitional year. In some areas it's simply going to take some time, until improvements become visible."

Sales for 2017 are expected to be below last year’s level due to a new licensing agreement with Kids Fashion Group for the production and distribution of Tom Tailor’s childrenswear line, but management expects to see a sharp increase in EBITDA over the year.