Koovs cash runs low, seeks £50m funding, is upbeat despite sales fall prediction
London-listed fashion e-tailer Koovs has delivered a trading update, unveiled a strategic plan to “deliver scale and profitability” and has also announced that it wants to raise £50 million as its cash reserves are low.
The company, which is based in London but targets the Indian market with Western-style fashion, was upbeat on Thursday. But it couldn’t disguise the fact that times are tough and its future remains unclear.
Sales are a big issue at present. The company had earlier said that H1 gross sales were flat at £7.9 million and on Thursday it added that H2 sales would be down, which means that for the full year they would fall from £18.6 million to £14.5 million due to its “cash conservation plan” (more of which later).
That will also lead to a full-year loss on an Ebitda basis of £14.4 million, although that is, at least an improvement on the £19.6 million loss of a year earlier. And the company's trading margin has continued to increase to 11%, up 4% from a year earlier.
While the firm had been growing its sales at an impressive speed, they have slowed down, and profits have remained out of reach with analysts having frequently questioned its long-term future in a market where profits could stay elusive for some time.
But the firm stressed that over £70 million has been invested to date in Koovs' “journey to becoming India's leading affordable fashion brand” and “the board actively continues the previously announced dialogue with potential new investors.”
That board has now “determined that a total of up to £50 million of further investment will be required to fund the acceleration plan.” And it said that “a significant part of this investment will be devoted to marketing and brand, where Koovs has clear evidence of a strong correlation between cash investment and sales achieved.”
As mentioned, in the immediate term, and pending a first round of new investment into Koovs, the “board will continue to focus on cash preservation.” As of March 1, the company had cash balances of £3.5 million, with future monthly outgoings forecast to be £0.75 million per month.
That puts it perilously close to a situation where it could run out of cash and also puts future investors in a stronger position give the urgency of the situation.
Koovs said that “the exact timing and amount of fundraises will balance the board's desire to provide short-term working capital and to invest quickly, in scale, to take advantage of the opportunities presented, with the obvious need to limit dilution of existing investors as much as possible.”
WHY SO UPBEAT?
So is Koovs’ continuing upbeat stance justified? It has to be said that it has faced some major unexpected challenges given India’s demonetisation debacle and in more ’normal’ conditions, might have been doing better by now.
CEO Mary Turner said: "We are extremely excited about the opportunity which lies ahead of us. Growth is already returning to India's e-commerce market following the introduction of demonetisation and the Goods and Services Tax, and we believe that the strong fundamentals underpinning the market's long-term growth remain undeniable.”
And Koovs certainly has strength in that market. A recent RedSeer survey showed that it “continues to outperform other platforms on product variety and quality” and it has a big fan base with 2.4 million social media followers including 1.9 million on Facebook and 500,000 on Instagram.
It also delivers its products faster than local rivals and is boosting own label product, which is good news for the margin. In FY17, 40% of sales were Koovs Private Label, and four exclusive collections were launched with Manish Arora, Hattie Stewart, Gauri & Nainika and Henry Holland.
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