Marimekko Corporation, Interim Report, 4 November 2020 at 8.00 a.m.
INTERIM REPORT OF MARIMEKKO CORPORATION, 1 January–30 September 2020: Marimekko increased its net sales and improved its results in the third quarter in challenging circumstances thanks to wholesale sales and adjustment measures
This release is a summary of Marimekko’s interim report for the January-September period of 2020. 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
January-September in brief
Financial guidance for 2020 (as revised on 18 September 2020)
The Marimekko Group's net sales for 2020 are expected to be lower than in the previous year and comparable operating profit is estimated to be approximately at the same level as or lower than the year before.
In its half-year financial report on 13 August 2020, the company stated that the coronavirus pandemic will have a significant negative impact on Marimekko’s net sales and profitability in 2020, but as the situation was changing rapidly, it was not possible to give any precise estimate of the impacts of the pandemic on business.
Risks and uncertainties related to the coronavirus pandemic are described in the Major risks and factors of uncertainty section of this interim report.
|(EUR million)||7–9/ 2020||7–9/ 2019||Change, %||1–9/ 2020||1–9/ 2019||Change, %|| 1–12/ 2019|
|% of net sales||40||43||44||46||43|
|Comparable operating profit||10.5||7.8||34||14.4||14.1||2||17.1|
|Operating profit margin, %||27.7||22.7||16.7||15.5||13.6|
|Comparable operating profit margin, %||27.7||22.7||16.7||15.5||13.6|
|Result for the period||8.0||6.4||25||10.3||10.9||-5||13.0|
|Earnings per share, EUR||0.98||0.79||25||1.27||1.34||-6||1.61|
|Comparable earnings per share, EUR||0.98||0.79||25||1.27||1.34||-6||1.61|
|Cash flow from operating activities||12.6||10.9||15||12.2||21.2||-42||29.0|
|Return on investment (ROI), %||20.7||17.3||17.9|
|Equity ratio, %||44.6||39.8||40.2|
|Net debt / EBITDA (rolling 12 months) *||0.15||-||0.35|
|Gross investments **||0.4||0.4||-8||1.2||1.3||-6||2.6|
|Personnel at the end of the period||428||437||-2||450|
|Brand sales ***||81.5||64.4||27||209.1||176.8||18||250.8|
|proportion of international sales, %||62||61||70||63||62|
|Number of stores||151||147||151|
The change percentages in the table were calculated on exact figures before the amounts were rounded to millions of euros. The figure for comparable earnings per share takes account of similar items as comparable operating profit; tax effect included.
* Due to the adoption of IFRS 16, the ratio of net debt to EBITDA at year end was reported for the first time at the end of the financial year 2019. The key figure is calculated based on comparable rolling 12-month EBITDA.
** 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 realized wholesale sales and licensing income, is unofficial and does not include VAT. The key figure is not audited.
Tiina Alahuhta-Kasko, President and CEO, in conjunction with the report:
“Wholesale sales and prompt adjustment measures helped Marimekko increase its net sales and improve its results in a challenging operating environment. Continued strong online sales supported retail sales as the pandemic kept affecting customer numbers of brick-and-mortar stores.
“The coronavirus pandemic continues to heavily impact the fashion industry and specialty retail sector across the world. In managing this exceptional crisis, in addition to an ability to react quickly and an internationally attractive and relevant brand, Marimekko’s strengths have been a comprehensive range of lifestyle products and a diverse business and distribution channel model. With the pandemic, consumers have become increasingly interested in home decoration, which has resulted in robust growth in sales of our home products. The relaxed feel of our ready-to-wear collection – now more evident than before – also appeals to consumers in these unusual circumstances. While the pandemic has understandably reduced footfall in retail stores, we have managed, to a large extent, to offset the decline in retail sales with online sales. We have also achieved strong growth in our wholesale sales.
“In the July-September period of 2020, our net sales grew by 10 percent despite the challenging situation and amounted to EUR 38.0 million (34.5). Net sales were boosted especially by a favorable trend in wholesale sales in Finland and EMEA. Our retail sales declined moderately considering the circumstances, as online sales continued to grow well. Net sales in Finland increased by 17 percent: wholesale sales grew significantly, partly due to nonrecurring promotions, and retail sales remained on a par with the comparison period. Our international sales rose by 2 percent thanks to successful wholesale sales. Prompt adjustment measures and net sales growth improved our comparable operating profit, which increased by 34 percent to EUR 10.5 million (7.8). The result was supported by subsidies granted in various countries to mitigate the negative business impacts of the coronavirus pandemic.
“In the January-September period of 2020, our net sales fell by 5 percent due to the impacts of the coronavirus pandemic and amounted to EUR 86.2 million (90.7). The majority of the Marimekko stores around the world were temporarily closed in the first or second quarter because of the pandemic. Net sales were weakened especially by a decline in retail sales in Finland and North America as well as a decrease in wholesale sales in the Asia-Pacific region. Some of the decline in net sales was offset by booming online sales as well as a strong trend in Finnish wholesale sales, which was partly due to nonrecurring promotional deliveries. Thanks to a reduction in fixed costs, our comparable operating profit rose to EUR 14.4 million (14.1).
“The coronavirus pandemic has expedited the transformation of consumers’ purchasing behavior and intensified structural changes in our sector, such as digitalization. It has accelerated the shift to digital sales channels among customers — including new customer groups — and this will influence Marimekko’s distribution channel choices in the future. The pandemic has also increased surplus inventories in the industry, and the recession created by the pandemic has made consumers more price sensitive. These changes in the operating environment pose challenges to the profitability of the fashion industry, which also puts Marimekko’s operations under increasing pressure.
“During the year, we have successfully navigated the crisis and adjusted our operations to the exceptional circumstances through significant, and partly temporary, savings in fixed costs. At the same time, we must look after our long-term competitiveness and financial position. To strengthen these aspects and to respond even better to the requirements of the new operating environment, we unfortunately had to conduct consultative negotiations with our personnel in order to reorganize and streamline our operations in Finland and carry out corresponding processes in our organizations in Scandinavia, North America and Australia. Our new, even more customer-centric organization based on omnichannel thinking will improve our operating capabilities in this transforming market.
“The pandemic situation continues to be of concern in many of our markets, with new waves of infections being reported. This increases uncertainty in the final quarter of the year, which includes not only the holiday sales season but also other significant sales campaigns for Marimekko. We have systematically invested in the development of our digital business, and successful online sales are especially important in 2020. The line between e-commerce and physical stores is constantly blurring, and in the post-pandemic reality, stores need to fulfill their new role even more strongly in the eyes of consumers as meaningful meeting places and experiential platforms for what a brand has to offer. Our flagship store, which expanded to Helsinki’s Pohjoisesplanadi this fall, is an excellent example. We will continue our determined efforts to develop a seamless omnichannel customer experience, and we will launch our revamped online store in early 2021.
“With disruption come also new opportunities and I firmly believe that our new organization and our long-term growth strategy are strongly positioned to capture the future growth opportunities for the sustainable, timeless and unique Marimekko lifestyle that the current megatrends support.”
Market outlook and growth targets for 2020
The coronavirus that spread rapidly all over the world during the first quarter of 2020 created the worst crisis experienced by the global fashion industry and specialty retail sector in decades. It has taken uncertainty over the global economy to a completely new level and has an impact on consumers’ purchasing behavior. The exceptional circumstances can have an impact on Marimekko’s sales, profitability and cash flow. Furthermore, the global crisis may affect the operational reliability of the company’s value chain. The duration of the pandemic, new infection waves and the way the crisis is handled by different countries influence the depth of the economic recession in different markets.
Finland, Marimekko’s important domestic market, traditionally represents about half of the company’s net sales. The outlook for the domestic market and the company’s consolidated net sales and earnings are influenced by the trend in customer numbers in retail stores during the rest of the year and whether online sales continue to perform well. Several of Marimekko’s significant sales campaigns take place in the final quarter of the year. Domestic wholesale sales in 2020 are boosted by nonrecurring promotional deliveries, the total value of which is substantially higher than last year. A vast majority of the deliveries take place in the second half of the year.
The Asia-Pacific region is Marimekko’s second-largest market and it plays a significant part in the company’s internationalization. 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 earlier stage than in Japan. Japan already has a very comprehensive network of Marimekko stores. All Marimekko stores in Asia are partner-owned. Possible new infection waves and the speed of recovery from the pandemic in different countries can affect especially the company’s sales outlook for the coming year in the Asia-Pacific region. Despite the pandemic, the company continues to see increasing demand for its products in the region in the longer term.
In 2019, Marimekko became aware of cases of grey exports and has taken due action. The control of the cases has a clear weakening impact on the company’s sales and earnings in 2020.
Licensing income in 2020 is forecast to be higher than in the previous year thanks to better-than-expected estimated development.
The importance of e-commerce in the company’s business has continued to grow in 2020, and online sales are expected to perform well in the final quarter of the year as well. The full-year outlook for retail sales essentially depends on the return of customer flows to stores during the rest of the year in each market as well as possible new infection waves which may require temporary closures of Marimekko’s own retail stores. Full-year wholesale sales will be supported by nonrecurring promotional deliveries in Finland. The company’s aim is still to open approximately 10 new Marimekko stores and shop-in-shops in 2020. The main thrust in new openings is on retailer-owned Marimekko stores.
At the outset of the coronavirus crisis, Marimekko quickly made contingency plans in its supply chains to ensure continuous production and logistics, and the plans are continually updated. The exceptional circumstances have so far only had a minor impact on the supply chain. Instead, continued strong growth in demand for products in the online store and wholesale delivery problems caused by the pandemic posed challenges to Marimekko’s logistics in the early part of the year. Net sales and earnings for the rest of the year essentially depend on maintaining the operational reliability of distribution centers and logistics in the pandemic situation. As a result of growth in online sales, the company expects full-year logistics costs to increase noticeably on 2019.
To secure profitability and cash flow, Marimekko drew up an ambitious fixed-cost saving program and promptly started to implement it in the early part of the year. Fixed costs are expected to continue to decrease during the remainder of the year compared with 2019. Marketing expenses are estimated to be substantially lower than in the previous year (2019: EUR 7.4 million). The company expects its total investments to be lower than in the previous year (2019: EUR 2.6 million). The estimated effects of the long-term bonus system targeted at the company’s Management Group will depend on the trend in the price of the company’s share during the year.
Tiina Alahuhta-Kasko, President and CEO, tel. +358 9 758 71
Elina Anckar, CFO, tel. +358 9 758 7261
Tel. +358 40 584 6944
Nasdaq Helsinki Ltd
Marimekko is a Finnish lifestyle design company renowned for its original prints and colors. 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 2019, brand sales of the products worldwide amounted to EUR 251 million and the company's net sales were EUR 125 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