KappAhl Q1 sales edge up but times are still tough

By

Sandra Halliday

Published
Dec 19, 2018

Under-pressure Swedish retailer KappAhl was reasonably upbeat on Wednesday as it reported higher Q1 sales, and said it outperformed the market, although margins dipped, profits fell and it had to invest more time and money in driving sales upwards.

Sales rose 2.4%, but comparable sales were down 1.8% and “slowing consumption meant a continued high tempo of costly sales activities,” its latest interim CEO Peter Andersson (who’s also CFO) said.

Sales rose to SEK1.194 billion (€116 million/£104 million) but the gross margin was 63.3%, down from 64.6%, and operating profit fell to SEK52 million from SEK90 million, with net profit down 36% to SEK41 million.

Despite Andersson’s generally upbeat tone, he said that “we are less pleased with the women’s range, which was not sufficiently attractive to customers and the warm autumn weather that did not favour sales of outerwear.”

But on the plus side, he said that sales rose on Black Friday, that Norway saw good sales over the quarter and the “performance continues to be positive” in Poland. Kidswear “continued to sell very well and positive sales growth in menswear is in sight,” he added.

And e-tail continues to be encouraging. In Q1, it rose by 39% and there’s plenty of growth potential still ahead as it remains just a 7% chunk of KappAhl’s total sales.  And in a boost to its store operations, more than half of its e-commerce orders were fulfilled via click & collect “and also contributed to extra sales in stores.”

That last point is particularly good news with big implications for the firm’s omnichannel approach as it’s continuing to add to its store estate. It opened five new KappAhl stores in the quarter and upgraded another nine, while it also added seven new Newbie stores. 

Making sure the stores feel welcoming for modern customers is hugely important as Andersson said that “the customers shop less frequently but [are] more purposeful when they do shop. This means that average purchases are increasing but also that KappAhl must be more relevant to each customer.”

But meeting this need added to its costs during the period (as did the effect of exchange rates) with selling and administrative expenses for the quarter up to SEK704 million from SEK663 million.

Sales campaigns also pushed costs upwards, but at least they achieved the desired results. The autumn campaign, “aimed at strengthening the brand in the longer term with role models Lena Olin and Bahar Pars, has had positive feedback from our customers and a high recognition factor in our marketing,” Andersson said. 

The company is working hard to turn itself around and in particular to respond more quickly to trends. Efforts to increase supply chain flexibility have included moving some production from Asia to Europe and it said that “a successful example of this is the first of our News collections that is in stores just now, delivered in 10 weeks from design idea to store.”

But despite the optimistic tone, there’s no denying times are tough and the company ended the quarter with higher inventory levels (up to SEK804 million from SEK697 million a year earlier). While much of that consists of new goods for the current season, it’s “also a consequence of the quarterly sales targets not being achieved,” the company said, although it added that its inventory position is better than it was this time two years ago.