Jimmy Choo powers ahead globally, but US dept stores remain a problem
It won’t be long before Jimmy Choo joins the Michael Kors family but for now, the company remains an independent entity and how is it faring as an indie? It’s doing well, very well.
The company reported its half-year results on Thursday with the period to June 30 seeing continued growth ahead of the market and margin improvement “despite a challenging operating environment”.
And it managed to achieve that growth both by doing what it does best (making luxury women’s shoes for special occasions) and by continuing to diversify.
Luxury shoes remain the group's core product offering, representing 74% of its revenue, but 23% of revenue came from accessories during the six months, up from 22% a year earlier as it gradually adds to its accessories offer.
In women's shoes, growth continued to be driven by the launch of key new styles in both the seasonal fashion and core ranges. The bridal collection, launched at the end of 2016 included an extended range of its Cinderella heels, characterised by their Swarovski crystals, to include new heel heights and colours.
Classics like the Romy pump also continued to perform strongly in the period, but so did newcomers and it also saw good growth in sales of sandals and luxury trainers. Its new product launches included the Bridget round toe shoe, the Edina wedge sandal, inspired by the Icons capsule collection, and the Ren 35, a “modern fashion twist on the classic Jimmy Choo caged sandal.”
The brand’s popular Lockett bags continued to contribute to the accessories collection’s strong growth and the brand grew its product range further with the launch of the new Artie shoulder bag.
But men's remained the fastest growing category, helped by increased editorial coverage in the period. It now represents 9% of global revenue with the company having continued to increase the number of stores selling men's products. It currently has 86 dual gender stores globally, up from 71 at end of last year.
So what did all that mean in terms of the bottom line? The company said its revenue rose 16.5% overall to £201.6 million, which is great news, although favourable currency movements accounted for a lot of that.
Still, 4.5% currency-neutral growth and a 3.5% rise in retail comparable sales (“with growth across virtually all regions”) is always encouraging for a brand about to enter new ownership.
It’s no exaggeration to say that pre-tax profit surged - how else could we describe a 174.2% increase to £18.1 million? But pre-tax profit can be misleading as it doesn’t take into account one-off charges that affected the previous period. A better measure is adjusted profits on an Ebitda basis and that was impressive too. The 19.5% increase to £37.4 million and the margin up 50bps to 18.6% showed the company is thriving.
And there was significant improvement in net debt driven by a strong focus on working capital optimisation.
Retail sales did particularly well with 6.7% currency-neutral growth to £65.8 million, and licensing revenue rose 24.3% to £8.7 million as new fragrances and its Safilo-made sunglasses resonated with consumers.
But wholesale dipped 1.6% on a currency-neutral basis. However, it rose 10.4% in total to £65.8 million. This was despite the expected reduction in purchasing by US department stores in the face of weaker footfall in the US generally.
In the second half the company is planning to implement Electronic Data Interchange (EDI) with key wholesale accounts in the US, which will support faster stock replenishment and should mean improved sell-through of collections.
RETAIL FOCUS & OMNICHANNEL
Unlike some luxury brands, wholesale clearly remains a key channel for Choo. But the company is nonetheless focusing most heavily on its own stores. It store investment programme continued in H1 with six new directly operated stores (DOS), eight renovations and relocations and five closures. That gave it 151 DOS in total, with ‘New Concept Stores’ now representing over half of the retail network. That’s up from 40% a year ago and overall, the group is making “good progress” towards its medium-term target of 200 DOS, opening and converting 20 to 30 stores a year.
It’s also making progress opening flagship stores in key locations around the world, with seven of 2017’s targeted 10 stores already open. New Bond Street and Sloane Street in London, plus Milan, Paris, Beverly Hills, Madison Avenue and Harbour City Hong Kong are already open, with the final three flagship stores expected to be opened in Asia by the end of the calendar year.
Then there’s the new joint venture in the UAE. This became effective last month, after the first half had ended, and covers six stores that were formerly franchised. Also on the franchise front, in H1 the company opened four franchise doors in Brazil, Russia and South Korea, including two travel retail doors, and its closed two franchise doors in Indonesia and Australia.
Of course online is increasingly important too and the company said that it has continued to move forward with the rollout of omnichannel services in its UK stores since the second half last year and its US stores during H1 this year. It said it’s seeing “strong demand from clients, supporting our revenue growth. This has resulted in a significant improvement in trend, especially in the USA.”
Choo also invested in further developing e-tail in H1and has now successfully moved its fulfilment operations in-house, having previously outsourced these. All of this is “fuelling revenue growth,” it said.
But all that effort would be wasted if not for a strong marketing programme that is keeping the brand at the forefront of consumers’ minds. Its marketing strategy is centred around the brand's strong visual merchandising, with spend typically weighted towards the second half of the year, but also around red carpet events and social media.
H1 saw activities supporting its major celebrity links with strong placements on the red carpet at key events such as the Golden Globes, Oscars and Cannes Film Festival, where Jimmy Choo “continues to have an unrivalled success with more dressings than any other brand across shoes.”
And celebrities and style influencers are also important to the firm’s marketing through social channels. It said that strengthened by collaborations with celebrities, stylists and influencers, its social channels are helping attract new clients while ensuring existing clients remain engaged with the brand.
In the first half, its total YouTube views continued to increase and now stand at 23.5 million, up from 22.2 million for 2016. It has also seen a strong increase in Instagram followers, up 22% to 6.7 million.
All of that is helping the brand to strike a chord with luxury consumers worldwide. Its currency-neutral growth in EMEA was 5.9% in H1, despite disrupted tourist traffic and temporary store closures. And in Asia excluding Japan it was 8.2% with Japan itself up a healthy 11% as local shoppers bought into its new men’s offer enthusiastically.
The Americas dipped 2.7% currency-neutral but in total was up 11.6%. Its business in the Americas continued to be adversely impacted by department stores' reduced purchasing. However, despite the adverse impact of softer luxury demand in the region as a whole, in the US specifically, its retail stores reported growth versus the prior period, helped by the progressive rollout of omnichannel services.
So all in all, it’s an impressive report and one that must be undeniably encouraging for the management team at Michael Kors, which will soon own the brand.
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