LONDON — British luxury retailer Matchesfashion has been hit hard by COVID-19 and Brexit, its Companies House filings revealed — and the company warned that if things worsen, it could breach its covenants.
The company saw a 9 percent decline in revenues to 392.1 million pounds, or $536.6 million, for the year ended Jan. 31, 2021. Losses in the period widened to 36.6 million pounds from 5.9 million pounds.
Adjusted earnings before interest, taxes, depreciation and amortization totaled a loss of 23.5 million pounds, or $32.16 million, compared with EBITDA of 4.5 million pounds in the previous year.
While its competitors such as Farfetch and Mytheresa saw revenues surge last year as shoppers shifted online during lockdowns, Matchesfashion said waves of lockdown throughout 2020 led to lower demand for apparel associated with events and social gatherings. For example, occasion wear and vacation wear account for about 30 percent of sales in a normal year. The company’s total wedding edit in 2020 was about half what it was in 2019.
Supply was also delayed due to receiving products later than usual as brands were impacted by supply chain disruptions, which led to a narrower full-price selling window, causing Matchesfashion to sell at hugely discounted prices at the end of the season.
But Matchesfashion said it took action to reduce the level of finished goods available for resale and to target a higher level of in-year sell-through. Inventory levels at the end of the period were reduced to 79.6 million pounds from 144.2 million pounds, and sell-through rates increased 3 percent to 93 percent for the spring 2020 season, and were up 6 percent to 81 percent for the fall 2020 season.
Brexit impacted the way that the business operates with its customers and suppliers as well. Matchesfashion said around 70 percent of the goods sold by the business are of EU origin, with many of the non-EU origin goods also shipped from Europe to its single distribution center in the U.K., which caused additional custom checks and transit procedures. Brexit has also led to additional taxes and duties being payable on exports of merchandise to EU customers.
Following the wider losses, Matchesfashion went through a series of management shake-ups. In September, Printemps chief executive officer Paolo de Cesare succeeded Ajay Kavan, who made a surprise exit from Matchesfashion in March after just 12 months on the job, as CEO. Natalie Kingham left Matchesfashion in July after more than a decade and only seven months after her promotion in December 2020 to the newly created role of global fashion officer. She reported to Elizabeth von der Goltz, who joined the company as chief commercial officer last February from Net-a-porter.
The filings also revealed that a total of 225 employees were furloughed during the pandemic.
As society begins a slow return to some form of normality, Matchesfashion said it has been adjusting inventory levels and the number of brands it retails, actions that are starting to help it return to a full-price model. The initial results of the fall 2021 season have been encouraging, showing strong double-digit growth, and a significant increase in full-price selling.
It added that its owner, Apax Partners, remains confident about the potential of the company, and committed new funds to the business earlier this year. Matchesfashion raised 45 million pounds from Apax last year to help pay brands and creditors as well as fund operating expenses. In February 2021, it received 40 million pounds of new funding from loans “by an indirect parent and subsequent investment in equity into the group” to fuel future growth.
Looking ahead, Matchesfashion projects that there might be “a severe but plausible downside case” with an assumed average reduction in sales receipts for the period from June 1, 2021, to Jan. 31, 2022, of 10 percent, and a 9 percent reduction in customer demand for the year ended Jan. 31, 2023.
If that actually happens, Matchesfashion said it is at risk of breaching its banking covenants in January 2022.
The filings said, “based on the base case and downside case, financial projections management do not currently expect the borrowing group to achieve compliance with the covenant at January 31, 2022.”
It added that the management has a number of options to address this, including, with the support of the group’s investors, to renegotiate a waiver with lenders, or for the covenant breach to be corrected through the issuance of new equity as permitted under the terms of the senior facilities agreement.
“Whilst management are confident a resolution will be found, in the event that one is not found prior to the end of May 2022, when the first post-waiver covenant would be reported on, then non-compliance would be a default event under the senior facilities agreement and lenders constituting the majority would have the right to take positive steps to recover amounts owing to them should the loan remain unpaid,” the filings added.