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Improved inventory situation at KappAhl
23
Dec '11
KappAhl AB announced its report for first quarter 2011/2012.
Highlights:
• KappAhl's net sales for the period amounted to SEK 1,193 (1,341) million, a decrease of 11 per cent.
• The operating profit was SEK 16 (146) million.
• The gross margin was 58.4 (63.4) per cent and the operating margin was 1.3 (10.9) per cent.
• Profit/loss after tax was SEK -11 (95) million, which is equivalent to SEK -0.15 (1.27) per share.
• Cash flow from operating activities was SEK 30 (157) million.
• A rights issue of SEK 600 million was completed during the quarter.

CEO - Johan Åberg comments:-
The trend in the fourth quarter has largely continued during the autumn. Customers have been cautious, which we can see not only from our own figures, but also from visitor statistics from many shopping centres, and in financial statistics. At the same time our weak performance continues in the market, mainly due to our women's range. It will take one or more quarters before the improvement in the range has an impact.

It is worth noting that some of the measures taken are already having an effect. The cost savings can be seen clearly and we are starting to see positive changes in inventories.

It is a well-known fact that reducing inventories is a difficult balancing act, in that for a period you have to buy in less than you sell. Renewal of the range may suffer and clearance goods compete with the new arrivals. This has had a negative effect on earnings during the quarter.

Geographically we can note that the fast establishment rate in Poland and the Czech Republic is now clearly burdening earnings. As already communicated, expansion will be somewhat slower for some time to come.

COMMENTS ON THE FIRST QUARTER:-
Market
In the last year the market for retail fashion has been increasingly weak. This is mainly due to consumers becoming more careful in their consumption. In the last year the media have been heavily coloured by negative economic news, which affects consumers' willingness to spend.

It is true that disposable income has developed well, but at the same time rising mortgage rates have taken part of the scope for consumption. In addition, according to HUI Research AB (HUI), more money has been spent on purchases of cars and services. Market development in the next year will probably continue to be weak.

Net sales and results
KappAhl's net sales for the quarter amounted to SEK 1,193 (1,341) million, a decrease of 11.0 per cent. This is explained by: the effect of new and closed stores, +3.2 per cent; change in comparable stores, -13.9 per cent and translation differences totalling -0.3 per cent. The weak sales are largely due to the women's range not meeting our customers' expectations. In comparable stores the trend is very weak.

Gross profit for the quarter was SEK 697 (850) million, which corresponds to a gross margin of 58.4 (63.4) per cent. The gross margin was negatively affected by the initially high inventory level leading to a higher than normal percentage of clearance sales, and by higher purchasing costs. The high percentage of clearance sales also means a negative impact on sales of new goods.

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