Here is a great company that has been able to generate record figures in spite of the very difficult market situation in its two main markets – the U.K. and the U.S. – thanks to an excellent management, economies of scale and major investments previously done throughout the supply chain.
C&J Clark’s sales for the financial year ended last Jan. 31 rose by 6.6 percent to £1.12 billion (€1.32bn-$1.83bn), according to the company’s annual report. Pre-tax profit grew by 15.6 percent to £86.8 million (€101.8m-$141.9m) in what was referred to as an extremely difficult retail environment. Both figures were the highest the company has ever recorded. The company pointedly noted that it made a profit even comes after paying £14 million in anti-dumping duties.
Excluding the effect of Ravel, a chain that was closed in 2007, sales from continuing operations were 8.3 percent higher for the year. It got a boost from the weaker pound against the dollar and the euro. At constant currencies, revenues would have risen by 2.3 percent, or by 4.0 percent excluding the phase-out of Ravel. Group operating profits before exceptional charges rose by 9.5 percent to £93.3 million (€109.4m-$152.6m), but excluding the losses sustained through the closure of Ravel, they fell by 2.9 percent. If exchange rates had remained the same, operating profits from continuing operations would have been up by 5.0 percent.
Net profit grew by 19.9 percent to £62.0 million (€72.7m-$101.4m). Cash flow from operating activities was £69.5 million (€81.5m-$113.6m) versus £88.2 million the year before.
Clarks International, the company that groups its operations outside North America, saw its sales increase by 8.2 percent to £771.1 million (€904.2m-$1,260.8m), with a 4.8 percent rise in operating profit to £74.4 million (€87.2m-$121.6m).
In its home market of the U.K., Clarks’ wholesale business suffered significantly from the difficult economic situation and from the bankruptcies of Stead & Simpson and Stylo’s Barratt/Priceless chains, but its retail business performed relatively well. Clarks used promotional events at its 400-odd own stores in the U.K., including the 40 it has refitted into its «global» model. Comparable store sales in the domestic market grew by 2.3 percent, significantly better than the drop of 1.6 percent recorded by the British Retail Consortium. Average margins fell by 2.2 percentage points, but the company said that the returns on its large investment in U.K. retail remained strong.
The wholesale division had mixed results. The loss of Stead & Simpson combined with lower orders from Brantano, a major account, as well as a slight decline from independent retailers, hurt sales volumes. This resulted in a 12.0 percent drop in wholesale sales, and an 11.8 percent drop in the related profits. Outside the domestic market and excluding North America, volumes sold increased by 14.5 percent to 6.9 million pairs. Sales jumped by 21.1 percent to £170.8 million (€200.3m-$279.3m) thanks to a more premium product mix and a favorable exchange rate versus the euro. Aggregate profits rose by 36.2 percent. Volumes increased by 14.7 percent in the rest of Europe, led by Spain with strong performances also in Germany and the Benelux countries.
The region comprising China, Hong Kong and Korea was singled out by Clarks for sales increases of 21.0 percent in volume and almost 30 percent in profitability. Clarks continues to open branded franchises globally. For the year ended Jan. 31, 65 stores were opened for a total of 150. In October the company went live with a multi-channel retailing capability on the internet, starting just in the U.K. market. Its sales were £3.4 million (€4.0m-$5.6m), and the company hopes for £20 million for the current year.
Clarks is currently working on a joint venture with a major Indian retail organization, and is working to establish and build up a local sourcing base. It expects this venture to get under way toward the end of 2009, with sales starting with the next spring/summer season. Clarks is also looking at Brazil, piloting a distribution model based on wholesale and shop-in-shop investment with a key local partner, the Paqueta Group.
The economic situation affect the group more seriously in North America, where Clarks had a drop in comparable store sales, especially from September on. All the gains from the first half were wiped out by a bad fourth quarter, and the division ended up with sales down by 2.4 percent to $631.5 million. Operating profits dropped by 33.1 percent to $42.8 million. In the North American wholesale segment, gross margin were down by 2.7 percentage points.
The Bostonian dress shoe brand performed relatively well in the U.S. through the year, with sales volumes stable and profits only marginally below 2007-08 at $4.4 million. Clarks did see a sharp drop-off in Privo, its athletic-inspired casual category, and acknowledged that the company did not get the product offering right in that category, as the market shifted more toward casuals and dress casuals. It’s now working to rejuvenate the brand by taking it back to its original fun-casuals inspiration.
North America retail followed the same pattern, with a good first half showing a comparable sale increase of 3.8 percent. But for the full year, same-store sales dropped by 1.5 percent. This still was a good result compared with the 4.4 percent drop in the U.S. industry composite index for footwear retailers. Total retail sales increased by 4.1 percent with the help of a net increase of 14 stores. The company has decided to postpone construction of a new distribution center in Hanover, Pennsylvania, and a renewal of its IT systems.
Cash flow was improved by a reduction of £4.8 million (€5.6m-$7.8m) in capital expenditure due to opening fewer new stores in North America and the U.K., a slightly smaller program of refitting stores, and a lesser commitment to IT capital projects. Although year-end net borrowings of £29.5 million (€34.6m-$48.2m) were above the £19.2 million reported last year, the implied gearing of 10.2 percent remained comfortably low and was well in line with expectations.
The company believes that its brand positioning and excellent retail standards put it in a good position to weather the current economic downturn and even emerge from it stronger, though it sees this recovery as starting only well into 2010. Clarks said that it will probably get worse before it gets better. Currency hedging of activities will continue to protect the group through much of 2010.
So far in the current fiscal year, Clarks is satisfied with the performance of its British stores, but the negative trends in the U.S. are continuing. It expects roughly flat sales volumes in U.K. retail for the year. It warned that the first half will probably see a drop in profit, but that the company should be capable of improving the results in the second half.