IC Group, the Danish parent company of Peak Performance, has downgraded its projections for sales and earnings for the full year to the end of June, due to a sudden deterioration in sales at its own stores and the accelerated clean-up of the wholesale business at Peak Performance.
The IC Group's chief executive, Mats Ryder, explained in a conference call last month that the company's retail sales had been buoyant in the first half of the year, but that they suddenly started deteriorating in the third fiscal quarter, starting in January. The situation worsened markedly toward the end of the quarter and the slump continued into the fourth fiscal quarter, in April. He added that this pressure in the retail market, with weaker traffic and sell-out, also affected the group's in-season wholesale business. Another issue is that exchange rate changes are affecting reported sales, chiefly due to the lower exchange rate of the Norwegian crown against its Danish counterpart.
IC Group now expects its turnover to be at about the same level as in the fiscal year to June 2015, and the operating profit (Ebit) margin to reach about 9 percent. This compares with previous guidance, issued in February, that the group's sales should grow by 4 percent and the operating margin should reach about 10 percent. While investments were planned to reach 3 to 4 percent of sales, they have been reduced to 3 percent.
Asked with some insistence to substantiate the group's remarks on declining retail sales, Ryder said that traffic had shrunk by 15 percent in the group's own stores in the third fiscal quarter. The situation clearly worsened around and after the end of the quarter, since traffic numbers were down by 16 percent for March and April. Comparable store sales tumbled by 17 percent in March alone. The entire group's retail sales slipped by about 13 percent in March.
Peak Performance's sales were down by 7.4 percent to 264 million Danish kroner (€35.5m-$39.9m) for the three months to the end of March, down by 6.9 percent in constant currencies. As projected, efforts by the Swedish ski, outdoor, golf and fashion brand to improve the quality of its retail distribution have reduced its wholesale revenues. Peak Performance's retail sales were also affected by reduced traffic at physical stores, as well as a tightened discount policy in its own stores. The brand's comparable store sales were off by 5.5 percent for the quarter.
The Swedish brand's sales tumbled by 9.5 percent in the Nordics for the quarter, with flat sales in Denmark but declines in Sweden, Norway and Finland. Sales were impacted by unfavorable exchange rates in Norway and wider economic uncertainties in Finland. Peak Performance's sales in other European markets dipped by 3.4 percent, while they remained flat in other parts of the world.
As previously reported, Peak Performance has been leading a bold strategic plan to upgrade the brand, its ranges and stores. It was started under the leadership of Nicolas Warchalowski, former chief executive of Haglöfs, who took on the same job at Peak Performance in October 2014.
The Swedish brand's sales were down by 5.2 percent to DKK 908 million (€122.1m-$137.2m) for the trailing 12-months period to the end of March, with declines in all four quarters. But Ryder said emphatically that IC Group managers were strongly supportive of the strategy and he was certain that Peak Performance's sales were bottoming out in the current fiscal year. IC Group's chief executive said the group was confident and determined to push ahead with the changes at Peak Performance, insisting that the measures and their timing were right.
The clean-up efforts are apparently paying off in terms of profitability, as Peak Performance's operating profit (Ebit) firmed up by DKK 2 million to DKK 38 million (€5.1m-$5.7m) for the third fiscal quarter, implying an increase of 1.8 percentage point to 14.4 percent in its operating margin. For the 12 months to the end of March, Peak Performance brought in operating profit of DKK 99 million (€13.3m-$15.0m), amounting to an operating margin of 10.9 percent, up by 1.9 percentage point.
The entire IC group's sales were down by 1.3 percent to DKK 710 million (€95.5m-$107.3m) for the third fiscal quarter, down by 0.5 percent in constant currencies. Sales moved up by 6.6 percent for Tiger of Sweden and dropped by 8.5 percent for By Malene Birger. Yet IC Group was unsatisfied with the pace of retail development at Tiger of Sweden, which led to the departure of the brand's chief executive, David Thunmarker. Ryder himself is taking over at Tiger of Sweden on an interim basis.
Supported by favorable exchange rate changes, the Danish group's gross margin was up by 3.1 percentage points to 56.9 percent for the quarter and its operating margin jumped by 3.3 percentage points to 12.3 percent, which was driven by the improvement of the gross margin.
Measures to improve the IC Group's gross margin, including some price increases, had a clear impact in the first three quarters of the fiscal year. While the group's sales advanced by 0.5 percent to DKK 2,156 million (€290.0m-$325.8m) for the nine months, which was an increase of 1.4 percent in constant currencies, its gross margin was up by 2.0 percentage points to 56.7 percent and its operating margin amplified by 1.9 percentage point to 12.5 percent.
