Brazilian fashion retailer Restoque expects profits and revenues to rise sharply this year and in 2019 as a major restructuring bolsters its fortunes, investor relations director Rafael Camargo told WWD.
“We have improved our operations,” he said, adding that a $190 million debt refinancing in the past 12 months has also pared its once ballooning debt. “We had a large improvement in our sales and store productivity and have increased margins by 6 percent.”
Restoque — which posted big losses at the height of Brazil’s recession in 2016 — closed over 26 stores, shuttered two factories and dismissed 700 workers to turn around its fortunes, analysts said.
The now 255-store chain, which markets the high-end Le Lis Blanc, Bo.Bô, John John and Rosa Chá apparel and accessories brands, is now a much a leaner enterprise. So much so, that it has become a business study case for how retailers should fend off recessions.
“They were not the worst losers in the recession but have one of the best business cases” in the high-end luxury market, said BTG Pactual analyst Luiz Guanais. Restoque managed to improve productivity and overall operations more than many in the high-street boutique space, where it competes with the likes of Grupo Nohda, which operates premium designer trademarks Patricia Bonaldi, PatBo, Apartamento03 and Lucas Magalhães — and designer label Osklen.
“In the past three quarters, same-store sales are up 5 percent, while in early 2017 they were negative,” said Guanais. “Margins have vastly improved and are now at 65 percent, versus 57 percent last year.”
As business strengthens amid a firming economy, Restoque’s operating profits should jump 34 percent to 330 million reals, or $88 million, and revenues should rise 10 percent to 1.4 billion reals, or $372 million, next year, according to Guanais.
That compares with a net operating loss of $16.5 million on declining revenues in 2016, when 40,000 multisegment retailers closed in the nadir of Brazil’s four-year recession.
After completing its $190 million bond restructuring, Restoque expects to end the year with net debt of $248 million, or roughly two times earnings before interest, taxes, depreciation and amortization, or EBITDA, said Camargo. He added that will go down to zero after 2019 so the company does not need to raise additional funds for expansion.
Guanais, however, did not rule out additional debt rollover efforts by Restoque as it continues to improve its debt profile and slash funding costs.
He said the retailer is unlikely to seek new merger and acquisition partners after talks to merge with InBrands failed in 2016.
Farther north in Mexico, though, the market is buzzing with M&A talk involving department stores, hypermarkets and Grupo Axo, an expansionist franchiser of major U.S. brands including Tommy Hilfiger and Calvin Klein.
Leading department store Liverpool is actively seeking an acquisition, according to investment bankers and analysts, who say the company could resurrect efforts to buy Chile’s Ripley, which it failed to take over in 2017, or target its compatriot Almacenes Paris. It could also sell its 50 percent stake in Central American retailer Regal Forest, majority-owned by Grupo Unicomer, among other alternatives.
Meanwhile, hypermarket operator Chedraui is expected to make acquisitions to expand its footprint in northern Mexico with rival Casa Ley a possible target, said Actinver brokerage analyst Carlos Hermosillo. Coppel, the country’s largest department-store network, could also opt for acquisition-led growth after cancelling a $2 billion initial public offering in October, he added.
Axo, in turn, is seen buying more rivals following its purchase of footwear chain Tennix in September, said a banker at Rion M&A consultancy in Mexico City.