Desigual sees first-half profits rise as sales decline slows down
Desigual’s restructuring plan launched in 2015 is starting to bear fruit, with the company founded by Thomas Meyer posting a promising set of results for the first half of the year. In the six months ended June, the Spanish brand saw Ebitda improve to €27.2 million ($30m), which represents a 22.1% increase on the same period last year.
This was despite the continued fall in sales, with revenues dropping by 10% to 290.7 million ($323.5m) during the same period, down from €323 million in the first half of 2018. But the decline was smaller than last year’s, when revenues dropped by 14.5% compared with the first half of 2017. Desigual has been struggling with falling sales for several years, however the brand seems to be on the path to recovery and has now set its sights on a single-digit decline rather than double-digits.
“The company has performed better than expected in the first half of 2019,” Alberto Ojinaga, managing director of the company since 2018, told FashionNetwork.com. “In the year to date, we have made clear progress in our transformation plan,” he continued, highlighting a positive improvement in the brand’s sales of Spring/Summer 2019 collections and gains “in most sales channels and geographies”. The results come after a very tough 2018, after which the business decided to delay the publication of its annual report to avoid diverting attention from the presentation of its new identity in June.
“2018 was a difficult year for Desigual, marked by a series of key events. First Thomas Meyer's acquisition of a 10% stake in the business from Eurazeo in August. Then, the reshuffle of the board of directors and reorganisation of the executive committee,” the chief executive continued, adding that the company has emerged with a younger management team. Since sales stagnated in the first half of 2015, Desigual has experienced four consecutive years of sales decline.
So Desigual ended last year with revenues of €654.6 million, down 14.3% on the previous year, in line with the 14.5% decrease it announced in the first half of the year. Meanwhile, Ebitda stood at €63.5 million, down by 10%. The numbers reveal how much the firm has deteriorated since it posted record revenues of €964.5 million in 2014, when its patchwork fashion was embraced by shoppers and it hoped to make €1 billion in sales. Ojinaga still wants to see the company to rise back to its former glory, but he insists that time will be key to reap the rewards of the company’s transformation plan. And he added that an IPO is not a priority at the moment, despite a floatation being one of the key aspirations of the French fund.
Instead, the clothing retailer is focusing on growing its online channel, which accounted for 12.7% of sales last year and grew by 7.3% in the first half of 2019 to represent 14.1% of total sales. “Currently, 25% of revenues come from the online channel or from sales outside of Europe. Our goal is for it to represent up to 60% of sales in five years,” said the executive. To support this ambition, Desigual has enhanced its logistics infrastructure, and manages four fulfillment sites in Spain, the US and Hong Kong.
In fact, Desigual invested €62 million between 2016 and 2018 to improve its logistics processes, IT capabilities and distribution network. The ultimate goal was to support the retailer’s omnichannel capabilities by implementing the RFID system in over 30 stores - the number will rise to all Desigual stores next year. Additionally, in 2019 the company wants to invest an additional €30 million to refit its stores, improve its structure and secure partnerships with online retailers. “We’ll strive to strengthen our strategic partnerships with key e-tailers such as Zalando and El Corte Inglés,” said Alberto Ojinaga.
“We are bolstering our distribution network, prioritising the online channel and other formulas like franchises to expand in markets such as Latin America and Asia,” Alberto Ojinaga continued. Indeed, Desigual has a five-year plan in Japan, where it will open a new store in Ginza, Tokyo and a series of franchised openings in other cities. Japan is one of the brand’s largest markets, after Spain, Italy, France and Germany. And in contrast to other markets, first-half sales grew by 4.7% there.
If only the rest of the world could respond to Desigual like Japanese consumers. The brand remains immersed in its restructuring plan, and has closed dozens of stores since 2015 in a bid to cut costs and position itself for long-term sustainable growth. Last year it closed 31 stores, ending the period with a total of 510 stores worldwide, including 386 directly-operated shops and 124 franchises. The number contrasts to the store portfolio it had in 2015, which included 552 stores across the world. Additionally, Desigual has redefined its corporate identity and product, saying it will be “more innovative in design, offering better quality without raising prices and emphasising the accessories category.” Whether this is the right strategy for the brand will only become apparent in 2020, when Desigual’s transformation plan comes to an end.
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