For the first time in many years, the large Swedish-based retailer of footwear and accessories recorded a net profit in the first half of its current financial year, ended last Feb. 28, thanks to a variety of factors. It had a net profit of 4.0 million Swedish kronor (€368,000-$494,000) for the period, compared with a loss of 27.4 million SEK in the same period a year ago. The gross margin improved from 56.4 to 57.2 percent, and EBITDA, or operating earnings before amortization and depreciation, rose to 31.9 million SEK (€3.5m-$4.7m) from 6.3 million SEK.
However, while the company had posted a profit in the 1st quarter because of the Christmas selling period, it remained in the red during the 2nd quarter, where it suffered a net loss of 8.8 million SEK (€960,000m-$1.3m), down from 39.8 million SEK in the year-ago period. The gross margin rose to 53.8 percent from 53.4 percent and EBITDA amounted to a positive 4.5 million SEK (€490,000-$660,000) as against a negative 22.8 million SEK.
The improved profitability occurred in spite of a big decline in the turnover for the first half – down to 527.1 million SEK (€57.3m-$77.1m) from 573.0 million - and stable sales of 256.6 million SEK (€27.9m-$37.5m) for the 2nd quarter. Wedins had 14 fewer stores in operation in the quarter than one year ago, but their sales were up by 7 percent on a same-store basis during the first half.
The Swedish retail group has been restructured into three distinct groups of stores, with new financial goals for each of them. The Wedins shoe stores, which emphasize attractive pricing and a good price/quality ratio, represented 45 percent of the total turnover in the first half, and the more up-market Rizzo stores represented 21 percent. Accent, a new division responsible for handbags and other accessories, represented 34 percent. Sweden represented 78 percent of the total revenues, and Norway, Finland and Denmark the balance.
The management wants to keep gross margins more or less stable going forward, while pushing sales based on this clearer positioning in the market. In particular, store employees will constantly feed the head office with information about new trends in order to respond to the demand quickly.
The relatively weak results of the latest quarter were partly attributed to a certain slowdown in the growth of the shoe market in Sweden, which increased by an estimated 5 percent, scoring better than in many other countries, but down from the 9.5 percent increase that it enjoyed throughout 2006. The decline was partly due to mild weather at the start of the quarter, but a noticeable uptick was recorded torward the end of the period. Rizzo scored better than the market in the quarter, however, with a sales increase to 51.6 million SEK (€5.6m-$7.5m), in contrast with Wedins, whose sales were flat overall at 108.1 million SEK (€11.8m-$15.8m).
Wedins still contributed an operating loss of 22.8 million SEK (€2.5m-$3.3m) for the period, but the two other segments were positive. For the group as a whole, reduced operating costs contributed to the improved profitability. In particular, the group did not have to deal with new restructuring charges, which amounted to 21.0 million SEK in the same quarter one year ago.
The outlook is encouraging. The product ranges offered in the various stores for the 3rd quarter ending June 30 have been well-received, also at Wedins, which opened its new flagship store in Stockholm in March.