With turnover and gross profit dropping double digits for its latest six months, women’s footwear retailer Daphne International Holdings says it will continue rationalising its store network until the company is out of the red.
It closed 466 stores during the period, leaving it with 5464 outlets – a 17.3 per cent drop.
Daphne’s interim results for the period ended June 30 show that its turnover dropped by 22.3 per cent to HK$3400.8 million (US$438.5 million), resulting in a loss of HK$163.6.
This is mainly attributed to a material year-on-year decrease in the number of points-of-sale as well as a fall in same-store sales.
Gross profit decreased 29 per cent to $1884.2 million, mainly because of an increase in the sales proportion of aged products. Running costs were 18.3 per cent lower, broadly in line with the drop in the group’s turnover, but an operating loss of $249.5 million was recorded compared with a profit of $11 million in the same period last year.
Daphne says difficult market conditions will probably persist for a while, with the National Commercial Information Centre of China noting that merchandise sales of the top 100 mainland retailers had a year-on-year decrease of 3.8 per cent in the first half of the year.
Sales diluted
The company says the trend toward sports fashion in recent years has also diluted sales of women’s footwear. Competition in the mass segment of women’s footwear also become intense since the second quarter with frequent rainstorms and flooding in China further dampening already soft consumer sentiment and slow store traffic.
In the first quarter this year the group’s same-store sales growth grew for its core brands (Daphne and Shoebox), but the bad weather drove sales into negative territory in the second quarter.
With aggressive efforts to clear aged inventory during the second quarter, gross profit margin for the half-year fell by 5.9 per cent, leading to a negative operating margin of 7.6 per cent (the margin was 1 per cent for the same period last year).
Other brands business contributed about 11 per cent (up from 9 per cent) of the group’s total revenue for the six months. The group has exclusive distribution rights for AEE, Aerosoles, Aldo and Step Higher in China, Hong Kong and Taiwan.
Other brands turnover was flat at $388.8 million (2015: $389 million), with the growth of eCommerce turnover offsetting the decrease in revenue from the mid- to high-end brand portfolio. Overall gross profit margin of other brands business dropped by 7.1 points to 56.9 per cent, resulting in other brands business having an operating profit of $1.7 million (2015: $5 million).
As well as continuing store rationalisation, the group will give priority to optimising inventory for the rest of the year.