PARIS — As retailers brace for a drop-off in business in the U.S. and Europe, SMCP, the group behind Sandro, Maje, Claudie Pierlot and De Fursac, has reduced store expansion plans — a central element of its growth strategy — by half for the coming year and predicted first quarter sales will be down by slightly more than 20 percent.
Offering reassurance on its liquidity position, SMCP said it has more than 200 million euros available to “weather the storm,” after drawing on a revolving credit facility, and also secured an extra 50 million euros in credit last week.
“Beyond these very challenging times, I remain fully confident in the strength of our unique business model, which relies on a portfolio of strong international brands, well-balanced geographically,” said Daniel Lalonde, chief executive officer of the contemporary fashion company, noting the tangible impact of the coronavirus outbreak worldwide.
“In this context, SMCP’s sales and profitability are meaningfully impacted,” the group said. Measures to protect cash flow and mitigate the impact include reducing operating expenses, postponing nonessential investments, adjusting inventory levels and collections while keeping e-commerce running. The channel accounted for 15 percent of group sales last year.
The group expects to lower capital expenditure by 30 to 40 percent this year, partly by cutting down the rate of store expansion, with half the number of store openings than usual this year.
SMCP’s strategy has been based on a fast pace of expansion, adding around 80 to 90 stores a year. Openings deemed to be of the highest priority will be pushed back to the second half of the year, while others will be held until 2021.
Investment in digital means, however, will remain a priority as the group carries on with plans to bulk up omnichannel services.
SMCP has reined in all nonessential costs, Lalonde said, and is renegotiating rents in Asia and Europe. Capsule collections originally scheduled for this summer may be held until later in the year or even next summer and buying budgets have been lowered. The company is also seeking to centralize more inventory.
The group has reopened nearly all of its stores in Greater China, 70 percent of which were closed at the height of the COVID-19 outbreak there. In Europe and the U.S., most stores have been closed since mid-March, while distribution centers continue to feed e-commerce operations.
SMCP has seen a “meaningful increase” in Internet sales in China since the crisis, with e-commerce growth in the country above 50 percent year-to-date, Lalonde said in a conference call with journalists. The company has been proactive on WeChat in the country, guiding customers with choices and directing them toward web sites for purchases, he explained.
As for Europe and North America, where stores have closed more recently, e-commerce is fully operational, but has seen “a more modest pickup,” he added. Teams in distribution centers have been reduced to adapt to lower volumes of business as well as for health and security measures, the executive added.
In Europe, the company runs its own logistics center, which has been operating with smaller teams, but relies on external parties for delivery, while in the U.S., logistics are run externally, in the New York region. In Europe and the U.S., the logistics systems are “operational” at this point, he said.
Analysts at RBC Europe noted they expect demand for apparel to be subdued in the near term amid a backdrop of economic uncertainty as people stay home, citing a notable reduction in app downloads and daily app sessions compared to the previous year for a number of apparel retailers.
“We expect demand to remain weak for apparel, being discretionary in nature, as restraints on leisure activity reduce the stimulus to buy fashion and the impact of a global shutdown on the economy,” the analysts said.
In China, traffic at SMCP stores dropped 80 to 90 percent during the peak of the COVID-19 crisis there, when most stores shuttered. Now, all but four stores are open and traffic is down between 50 and 60 percent.
“It’s moving in the right direction, it’s improving,” said Lalonde.
Net profit for the year was up 2.8 percent to 51.6 million euros as one-off refinancing charges related to changes in accounting rules weighed on the performance. Excluding the financial charges, profit was up 14.1 percent.
Adjusted earnings before interest, taxes and amortization margin was 15.4 percent, down from 16.9 percent the previous year, impacted by disruption from Hong Kong protests as well as a higher proportion of off-price sales.
Sales for the year were up 11.3 percent to 1.13 billion euros, with faster growth from abroad, Asia in particular, as the company continued expanding internationally. Sales in its home market, France, were down 0.7 percent at a constant scope, to 384.6 million euros, while they grew 25.8 percent in the Asia Pacific region to 259.2 million euros. SMCP also touted its accessories and e-commerce activities as contributing to growth.
On the sourcing front, the group has secured all of its spring collections and 60 percent of the fall ones.
The company declined to provide financial guidance for the year, given the uncertainty of the climate.
SMCP was listed on the Paris Stock Exchange in 2017 and is controlled by Chinese textile conglomerate Ruyi Group, and acquired men’s wear label De Fursac, last year.