Marimekko Corporation, Interim Report, 6 November 2019 at 8.30 a.m.

INTERIM REPORT OF MARIMEKKO CORPORATION, 1 January–30 September 2019: Net sales grew by 15 percent and comparable operating profit improved by 24 percent in Q3

This release is a summary of Marimekko’s interim report for the January-September period of 2019. The complete report is attached to this release as a pdf file and it is also available on the company’s website at company.marimekko.com under Releases & publications.

The third quarter in brief

  • Net sales rose by 15 percent to EUR 34.5 million (Q3/2018: 29.8). Sales grew in all market areas. Retail and wholesale sales in Finland as well as increased licensing income and wholesale sales in the Asia-Pacific region especially contributed to growth. 
  • Operating profit was EUR 7.8 million (6.2). Comparable operating profit improved by 24 percent and was EUR 7.8 million (6.3).
  • Earnings were boosted by sales growth, whereas higher fixed costs had a weakening impact on results.

January-September in brief

  • Net sales rose by 10 percent to EUR 90.7 million (1–9/2018: 82.1). Growth in net sales was generated primarily by retail sales in Finland, wholesale sales in EMEA as well as wholesale sales and licensing income in the Asia-Pacific region.
  • Operating profit was EUR 14.1 million (16.5). Operating profit for the comparison period included a nonrecurring taxable capital gain of EUR 6.0 million on the sale of the company’s head office. Comparable operating profit rose by 33 percent to EUR 14.1 million (10.6).
  • Operating profit was boosted by sales growth and improved relative sales margin. Higher fixed costs had a weakening impact on results.

Financial guidance for 2019 (as revised on 14 October 2019)

The Marimekko Group's net sales for 2019 are forecast to be higher than in the previous year and comparable operating profit is also expected to be higher than in the previous year, amounting to approximately EUR 17 million.

In its half-year financial report of 15 August 2019, the company estimated that the Group’s net sales for 2019 would be higher than in the previous year and that comparable operating profit would also be higher than in the previous year, amounting at the most to approximately EUR 15 million


Key figures



(EUR million)
 
 

7–9/
2019


7–9/
2018
 

Change, %
 

1–9/
2019
 

1–9/
2018


Change, %


1–12/
2018
Net sales34.529.81590.782.110111.9
International sales14.812.71741.536.91248.3
  % of net sales4342 4645 43
EBITDA11.06.86223.518.42720.2
Comparable EBITDA*11.06.95923.512.68714.7
Operating profit7.86.22614.116.5-1417.7
Comparable operating profit7.86.32414.110.63312.2
Operating profit margin, %22.720.7 15.520.1 15.8
Comparable operating profit margin, %22.721.2 15.512.9 10.9
Result for the period6.44.93110.912.8-1513.7
Earnings per share, EUR0.790.60311.341.58-151.70
Comparable earnings per share, EUR0.790.60311.341.04291.15
Cash flow from operating activities*10.92.8 21.26.5 12.2
Return on investment (ROI), %   17.348.5 47.6
Equity ratio, %*   39.873.3 70.0
Gross investments0.40.3311.31.1211.3
Personnel at the end of the period   4374214445
  outside Finland   100 982102
Brand sales**64.454.917176.8197.9-11248.4
  outside Finland39.533.119111.4139.6-20167.2
  proportion of international sales, %6160 6371 67
Number of stores   147150 153

The change percentages in the table were calculated on exact figures before the amounts were rounded to millions of euros. Reconciliation of key figures to IFRS can be found in the table section of this interim report. The figure for comparable earnings per share takes account of similar items as comparable operating profit; tax effect included.

* IFRS 16 had an impact on the change in comparable EBITDA, cash flow from operating activities, and equity ratio. The figures for gross investments do not include the impact of IFRS 16.

** Brand sales are given as an alternative non-IFRS key figure. Brand sales, consisting of estimated sales of Marimekko products at consumer prices, are calculated by adding together the company’s own retail net sales and the estimated retail value of Marimekko products sold by other retailers. The estimate, based on Marimekko’s realised wholesale sales and royalty income, is unofficial and does not include VAT. The key figure is not audited. Brand sales for the January-September period of 2018 were boosted by sales of licensed products available worldwide for a limited time.



Tiina Alahuhta-Kasko, President and CEO, in conjunction with the report:

“In the third quarter, Marimekko’s net sales increased in all market areas. A particularly good sales trend was seen in our most important markets: Finland and the Asia-Pacific region. The upward trend in sales boosted our comparable operating profit.

“In the July-September period of 2019, our net sales grew by 15 percent to EUR 34.5 million (29.8). In Finland, sales increased by 14 percent, with both retail and wholesale sales growing. The 17-percent growth in international sales came mainly from the Asia-Pacific region, where net sales were boosted especially by increased licensing income and wholesale sales. Thanks to the upward trend in sales, our comparable operating profit improved by 24 percent to EUR 7.8 million (6.3).

“Our net sales in the January-September period of 2019 rose by 10 percent to EUR 90.7 million (82.1). Sales in Finland grew by 10 percent and international sales by 12 percent. Our comparable operating profit improved by 33 percent to EUR 14.1 million (10.6) due to sales growth and a stronger relative sales margin.

“Our long-term growth strategy focuses on appealing to a broader global target audience, with fashion, bags and accessories as communicational spearheads. We started to modernise our collections and brand several years ago, with the aim of offering more interesting products to both new and existing customers as well as growing our brand awareness and desirability in our key markets. To this effect, we launched new kinds of fascinating product concepts during the past quarter.

“In August, we introduced the Marimekko Kioski collection, in which our most iconic prints meet unisex streetwear. Streetwear is currently a major trend in the world of fashion. The concept premiered at Dover Street Market in Ginza, Tokyo, a multibrand store favoured by fashion opinion leaders, and many of the items were sold out in hours. Marimekko Kioski appeals to a new, younger customer base and has been welcomed with equal enthusiasm in other markets, too.

“In early autumn, we also launched a new leather bag line inspired by the timeless design language of our classic bag styles. With bags and accessories, we can offer our current customers even more complete looks and outfits, and they also provide a convenient way to acquaint new customers with our brand. Bags and accessories play a key role in the global fashion business and they often account for a significant share of a brand’s net sales.

“Building international brand awareness is a prerequisite for international growth. In this work, different brand collaborations are important for Marimekko. Our competitive advantages in these collaborations are our easily recognisable prints and our empowering values. In September, Marimekko received a lot of visibility in the United States as our prints were part of an anniversary collection by Target, one of the biggest retail chains in the country and renowned for its designer partnerships. The Anniversary Collection featured reissued limited-edition products from Target’s 20 designer collaboration collections from the past 20 years. In the Asia-Pacific region, an agreement signed in summer 2019 increased our licensing income in the third quarter.

“On 14 October 2019, we raised our estimate of the comparable operating profit for the full year, due mainly to stronger-than-estimated sales growth and improved sales outlook in Finland as well as a better-than-estimated trend in relative sales margin.

“As for the rest of the year, it should be borne in mind that, according to our estimate, most of our earnings this year were generated during the second and third quarters, contrary to the usual trend. This was also the case last year. The total value of nonrecurring promotional deliveries, which boosted wholesale sales in Finland in 2018, will be substantially lower this year and the major deliveries will take place in the final quarter. We also estimate that more expenses will occur in the remainder of the year than in 2018. In the final quarter, holiday sales make up a big share of our sales, so we are now focusing on ensuring a successful holiday season.”


Market outlook and growth targets for 2019

Uncertainty in the global economy is forecast to continue, partly because of the unpredictability of the political situation. The trade war between China and the United States and the unstable situation in Hong Kong, for example, have an impact on consumers’ purchasing behaviour. Consumer demand forecasts vary among Marimekko’s different market areas.

Finland, Marimekko’s important domestic market, represents about half of the company’s net sales. Sales in Finland are expected to grow on the previous year. Domestic wholesale sales in 2018 were boosted by nonrecurring promotional deliveries. In 2019, the total value of promotional deliveries will be substantially lower than last year, and the major deliveries will occur in the final quarter of the year.

The Asia-Pacific region is Marimekko's second-largest market and it plays a significant part in the company's internationalisation. Japan is clearly the most important country in this region to Marimekko. The other countries' combined share of the company's net sales is still relatively small, as operations in these countries are at an early stage compared with Japan. Japan already has a very comprehensive network of Marimekko stores. Sales growth is supported by developing the operations of existing stores, optimising the product range and increasing online sales. This year, net sales in the Asia-Pacific region are forecast to grow. The company sees increasing demand for its products in this area especially in the longer term.

Marimekko has become aware of cases of grey exports and has taken due action. The control of the cases has a weakening impact on the company’s sales and earnings.

The key drivers of the company's growth are its own e-commerce and other online sales channels, partner-led retail in Asia, and increasing the sales per square metre of existing stores in Finland and the international markets. The main thrust in new openings is on retailer-owned Marimekko stores and other wholesale channels. The aim is to open approximately 5 new Marimekko stores and shop-in-shops in 2019.

Licensing income in 2019 is estimated to be markedly higher than in the previous year.

More costs than in 2018 are expected to occur in the remainder of the year. The expenses of marketing operations for the full year 2019 are forecast to be higher than in 2018 (EUR 6.3 million*). Total investments are estimated to grow significantly relative to the previous year (EUR 1.3 million). Most of the investments will be used to revamp the company’s headquarter premises and the store network as well as to improve IT systems to underpin digital business. The estimated effects of the long-term bonus system targeted at the company’s Management Group are also expected to exert a drag on the company's results. The effects will depend on the trend in the price of the company’s share during the year.

Due to the seasonal nature of Marimekko’s business, the major portion of the company’s net sales and earnings have historically been generated during the last two quarters of the year. In 2018, contrary to the historical trend, most of the company’s earnings were generated during the second and third quarters, which according to Marimekko’s revised outlook is expected to be the case in 2019 as well. In the final quarter of the year, holiday sales make up a significant share of net sales.

* The classification method for marketing expenses has changed in 2019; to maintain comparability, the figures for 2018 have been restated accordingly.



Further information:

Tiina Alahuhta-Kasko, President and CEO, tel. +358 9 758 71
Elina Anckar, CFO, tel. +358 9 758 7261


MARIMEKKO CORPORATION
Corporate Communications

Anna Tuominen
Tel. +358 40 584 6944
anna.tuominen@marimekko.com


DISTRIBUTION:
Nasdaq Helsinki Ltd
Key media

Marimekko is a Finnish lifestyle design company renowned for its original prints and colours. The company’s product portfolio includes high-quality clothing, bags and accessories as well as home décor items ranging from textiles to tableware. When Marimekko was founded in 1951, its unparalleled printed fabrics gave it a strong and unique identity. Marimekko products are sold in about 40 countries. In 2018, brand sales of the products worldwide amounted to EUR 248 million and the company's net sales were EUR 112 million. Roughly 150 Marimekko stores serve customers around the globe. The key markets are Northern Europe, North America and the Asia-Pacific region. The Group employs about 450 people. The company’s share is quoted on Nasdaq Helsinki Ltd. www.marimekko.com

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