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Escada Sees Transition Year Ahead

Closing out its fiscal year with a decline in sales and earnings, Escada said it sees a "year of transition" ahead and is forecasting stable or a low,...

BERLIN — Closing out its fiscal year with a decline in sales and earnings, Escada said it sees a “year of transition” ahead and is forecasting stable or a low, one-digit increase in sales as well as positive aftertax profits.

This story first appeared in the December 21, 2007 issue of WWD.  Subscribe Today.

The Germany fashion house’s preliminary figures for the year ended Oct. 31 were in line with its most recent projections in September. Group sales slid 1.2 percent to 686.8 million euros, or $923.1 million, with Escada brand sales down 5.6 percent to 461.8 million euros, or $620.7 million. Adjusted for currency effects, group sales were up 1 percent, and Escada brand sales were down 2.4 percent. All dollar figures are converted from the euro at the average rate for the period.

Due to the year’s net loss, management is proposing the Supervisory Board refrain from paying a dividend for fiscal 2006-2007.

Escada Sport increased sales slightly, but overall the Escada brand business was weaker in all markets except Russia. Primera, which includes Laurèl, Biba, Apriori and Cavita, increased sales 8.9 percent, due to the ongoing expansion of Biba, with 85 new stores opened last year, and Laurèl’s solid wholesale business.

Earnings before interest, taxes, depreciation and amortization were flat at Primera and down 12.5 percent to 48.1 million euros, or $64.6 million, at Escada. Group results before taxes, a loss of 8.6 million euros, or $11.6 million, were severely impacted by one-time expenses of 39.9 million euros, or $53.6 million, for the rationalization of company-owned stores and the termination of real estate and employee contracts, the company said.

“We are not satisfied with Escada’s business performance,” said Escada chief executive officer Jean-Marc Loubier on a conference call Thursday. “The results are not acceptable. We failed to benefit from the dynamic growth of the luxury goods market, which is placed at 9 percent, but this just shows how urgent it was that we tackle the group’s structural problems. Escada has been too complex to be able to perform quickly, and we’re paying for it now.”

While Loubier acknowledged Escada faces a long road ahead, he added, “I believe we are on the right track.” He emphasized that improvements have already been implemented via the “Escada Excellence” strategy program.

“We now have two collections [Escada Main Line and Escada Sport] addressing two different target groups,” the ceo explained. “The aim is more balanced collections and the ongoing improvement of the delivery timetable.”

Escada’s still fledgling accessories business is expected to get a boost from the launch of the Margaretha bag for spring-summer 2008. And Loubier again reiterated how central leather goods are to a luxury brand’s success.

Escada’s retail network is being actively restructured. The economic potential of each store now is being accessed, an IT system has been installed, there is a sharper focus on sales area productivity and a subsidiary has been founded in China to exert more control in what for Escada is presently a weak market but one, he said, with enormous potential.