INTERIM REPORT OF MARIMEKKO CORPORATION, 1 January–31 March 2020: Marimekko’s net sales and comparable operating profit declined in Q1 due to the coronavirus pandemic

Marimekko Corporation, Interim Report, 14 May 2020 at 8.00 a.m.

INTERIM REPORT OF MARIMEKKO CORPORATION, 1 January–31 March 2020: Marimekko’s net sales and comparable operating profit declined in Q1 due to the coronavirus pandemic

This release is a summary of Marimekko’s interim report for the January-March 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 first quarter in brief

• Net sales fell by 8 percent to EUR 24.9 million (27.1). The trend in net sales was especially affected by reduced wholesale sales in the Asia-Pacific region and EMEA. In the Asia-Pacific, the decline in wholesale sales was mainly due to an exceptional delivery pattern in the comparison period: a part of wholesale deliveries for the final quarter of 2018 took place in the first quarter of 2019. Moreover, some expected wholesale reorders were not placed in the Asia-Pacific region due to the coronavirus pandemic. In Finland, both retail and wholesale sales increased. Licensing income was lower than in the comparison period when license revenue came mostly from North America.
• After the company’s retail business moved online in March, demand for products in the online store clearly exceeded expectations. Due to this and logistic challenges posed by the pandemic, deliveries were postponed until the second quarter of the year so that a total of about EUR 1 million in retail and wholesale sales was left unrecognized as revenue for the first quarter. 
• Operating profit decreased by 53 percent to EUR 1.2 million (2.6); comparable operating profit was also EUR 1.2 million (2.6). 
• Reduced sales and a decline in relative sales margin had a weakening impact on results. Earnings were boosted by lower fixed costs. The decline in relative sales margin was attributable, in particular, to increased logistics costs due to moving the company’s retail business online in March as well as to nonrecurring expenses resulting from the relocation of the company’s main warehouse.

Financial guidance for 2020

On 25 March 2020, Marimekko withdrew its earlier financial guidance for 2020 solely due to the estimated impacts of the coronavirus pandemic. The coronavirus pandemic will have a significant negative impact on Marimekko's net sales and profitability in 2020. As the situation is changing rapidly, it is not possible at the moment to give any precise estimate of the impacts of the pandemic on business. Marimekko will define its guidance for 2020 once a more reliable estimate of the impacts can be made.

Key figures

(EUR million)	1–3/2020	1–3/2019	Change, %	1–12/ 2019
Net sales	24.9	27.1	-8	125.4
International sales	11.3	14.3	-21	54.3
% of net sales	45	53		43
EBITDA	4.4	5.7	-23	29.7
Comparable EBITDA	4.4	5.7	-23	29.7
Operating profit	1.2	2.6	-53	17.1
Comparable operating profit	1.2	2.6	-53	17.1
Operating profit margin, %	4.9	9.6		13.6
Comparable operating profit margin, %	4.9	9.6		13.6
Result for the period	0.2	1.9	-91	13.0
Earnings per share, EUR	0.02	0.24	-91	1.61
Comparable earnings per share, EUR	0.02	0.24	-91	1.61
Cash flow from operating activities	-4.5	3.0		29.0
Return on investment (ROI), %	18.3	18.0		17.9
Equity ratio, %	41.3	43.4		40.2
Net debt / EBITDA (rolling 12 months) *	0.56	-		0.35
Gross investments **	0.5	0.5	-6	2.6
Personnel at the end of the period	441	426	4	450
outside Finland	89	94	-5	98
Brand sales ***	73.7	59.6	24	250.8
outside Finland	55.2	40.1	38	156.6
proportion of international sales, %	75	67		62
Number of stores	149	148	1	151

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.

* 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 realised wholesale sales and royalty 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:

“The year got off to a promising start for Marimekko, but the rapid spread of the coronavirus pandemic in all of our markets in March had a significant impact on our sales and profitability for the entire first quarter.

“At the beginning of 2020, hardly anyone could have imagined the situation in which we have been living these past few months. Early this year, the coronavirus epidemic closed stores in mainland China and Hong Kong and then rapidly spread around the globe and, in March, suppressed customer flows in Marimekko’s other markets as well.

“In the first quarter, our net sales decreased by 8 percent to EUR 24.9 million (27.1). In Finland, both retail and wholesale sales grew and net sales increased by 6 percent. However, international sales fell by 21 percent as especially wholesale sales declined in the Asia-Pacific region as well as in EMEA, and licensing income was lower than in the comparison period when license revenue came mostly from North America. In the Asia-Pacific region, the decrease in wholesale sales was mainly due to an exceptional delivery pattern in the comparison period; in addition, some expected replenishment orders were not placed during the period due to the coronavirus pandemic.

“Our comparable operating profit decreased to EUR 1.2 million (2.6) due to reduced sales and a weaker relative sales margin. During the first quarter, we changed the partner responsible for the operations of our main warehouse, located in Finland, in order to enhance our competitiveness and the agility of our logistics processes as well as to support the internationalization of our business operations, e-commerce in particular. The relocation of the main warehouse resulted in some nonrecurring costs, as expected, and furthermore, logistics costs increased in March when our own retail business moved online. These were the main reasons behind the decrease in relative sales margin in the first quarter. On the other hand, our earnings were boosted by lower fixed costs.

“The health of our personnel and customers is a top priority for us at Marimekko. Consequently, in March, when the coronavirus pandemic spread, we decided to temporarily close our own retail stores in Finland, Scandinavia, Germany, the United States and Australia. Due to the clearly weaker consumer demand outlook, we had to take extremely regrettable measures in our retail store chain and our retail support function to adjust the number of personnel to the amount of work available. The aim of these measures was to secure our company’s financial position and, as a result, our jobs over the long term, to the greatest extent possible. After the end of the period under review, we have in May gradually been able to start reopening stores with elevated safety measures in place and start cancelling temporary layoffs.

“In March, we moved our promotions online. During the past few years, we have invested in the long-term development of our digital business. The e-commerce competitiveness we have achieved as a result of this is one of our strengths in this exceptional situation. Online demand for our products clearly exceeded our expectations, which, combined with the logistics challenges posed by the pandemic, postponed deliveries until the second quarter so that a total of about EUR 1 million in retail and wholesale sales was left unrecognized as revenue for the first quarter.  

“We work determinedly to manage the crisis resulting from the coronavirus pandemic and plan our upcoming measures based on different scenarios. We have launched an ambitious program to cut fixed costs and reassessed our investments to support cash flow and have been negotiating with the landlords of our own retail stores for rent reductions and payment schedules. We are also working actively to adjust purchases, product flow and inventories to the new situation. In addition, we are making contingency plans in our supply chain to ensure the continuity of production and logistics. In preparation for a possible prolongation of the crisis, we have secured additional funding for our company. We support the Asian partner-led Marimekko stores that are open in the recovery from this crisis, make preparations for the safe reopening of our own retail stores as soon as possible, and take care of all of our stakeholders in line with our values. While tackling new challenges in the rapidly changing circumstances, we continue our determined efforts to build our company’s future, which still seems bright over the long term. The competitiveness that we have created together with our personnel over the past few years and our strong balance sheet and solvency provide a solid foundation that helps us in facing this exceptional crisis.

“Throughout Marimekko’s history, doing things together has been a major strength of our corporate culture. During the past few months, this unique team spirit has been tangible and I would like to thank all Marimekko employees for their incredible work and agility in adapting to the constantly changing circumstances. I am convinced that Marimekko will emerge from this crisis as a strong company.”

Market outlook and growth targets for 2020

The coronavirus that spread rapidly all over the world during the first quarter of 2020 has taken uncertainty over the global economy to a completely new level. Consequently, consumer confidence and consumer demand forecasts have significantly weakened in all of Marimekko’s market areas. The exceptional circumstances and the resulting changes in consumers’ and partners’ purchasing behavior 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 and the way the crisis is handled by different countries affect the pace of economic recovery and, at the moment, there is no clear outlook on how things will develop in different markets.

Finland, Marimekko’s important domestic market, traditionally represents about half of the company’s net sales. To take care of the health of its personnel and customers, Marimekko decided in March to temporarily close its own retail stores in Finland. Marimekko’s online store has since served as the company’s own responsible distribution channel in Finland, and demand for products in the webstore has clearly exceeded expectations. Domestic wholesale sales in 2020 will be boosted by nonrecurring promotional deliveries, the total value of which will be substantially higher than last year. A vast majority of the deliveries will take place in the second half of the year. The outlook for Marimekko’s domestic market and the company’s consolidated net sales and earnings essentially depends on when stores can safely be reopened and the trend in customer numbers thereafter. The first of Marimekko’s own stores in Finland will reopen in the week beginning on 18 May with elevated safety measures in place.

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. The Marimekko stores in mainland China and Hong Kong were closed or open with shortened hours until the end of March. The stores have now returned to normal opening hours. In many other Asian countries, stores were temporarily closed due to the pandemic in mid March or in April. The stores in Japan are still temporarily closed. The temporary closure of partner-owned Marimekko stores in Asia and the impacts of the pandemic on consumer sentiment affect the company’s outlook for wholesale sales for the remainder of the year. Marimekko’s own retail stores in Australia were also temporarily closed at the end of March. Despite the pandemic, the company continues to see increasing demand for its products in the Asia-Pacific 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 will have a clear weakening impact on the company’s sales and earnings.

Licensing income in 2020 is estimated to be markedly lower than in the previous year.

The importance of e-commerce in the company’s business has continued to grow in 2020. In addition, Marimekko will focus on the safe reopening of its own retail stores as soon as possible and on recovering from the exceptional circumstances as well as support its partners in their similar efforts. The temporary closure of the company’s own retail stores in Finland, Scandinavia, Germany, the United States and Australia will have a significant impact on the company’s net sales and profitability in the second quarter of the year. The outlook for the full year 2020 essentially depends on the duration of the Marimekko stores’ temporary closure and the return of customer flows in each market after the stores are reopened. The company’s wholesale partners’ and customers’ recovery from the crisis impacts not only their orders for the winter 2020 and especially the spring 2021 collections but also their replenishment orders, and so Marimekko’s current full-year outlook as well. Moreover, full-year sales will be substantially 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, higher-than-expected demand for products in the online store and wholesale delivery problems caused by the pandemic have posed challenges to Marimekko’s logistics. The company expects an increase in logistics costs in the second quarter of the year as, in this exceptional situation, sales are concentrated online more strongly than normally.

To secure profitability and cash flow, Marimekko drew up an ambitious fixed-cost saving program and promptly started to implement it. The impacts of the program will be significantly stronger in the second quarter. The impacts on personnel expenses of the temporary layoffs that began in the company’s retail organization in different markets after the end of the review period will also be evident in the second quarter of the year. The company has re-evaluated its earlier investment plans and expects its total investments to be lower than in the previous year (EUR 2.9 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.

Media and investor conference

A conference for media and institutional investors will be held in English on 14 May at 2.00 p.m. EET. A live webcast of the conference can be followed at https://marimekko.videosync.fi/2020-q1-results, and a recording of the webcast will be available at the same address later. Questions can be asked during the live webcast in writing.

Further information:

Tiina Alahuhta-Kasko, President and CEO, tel. [phone]
Elina Anckar, CFO, tel. [phone]

MARIMEKKO CORPORATION
Corporate Communications

Anna Tuominen
Tel. [phone]
[e-mail]

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 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

 

Attachment

• Marimekko_Interim_report_January-March_2020

© OMX, source OMX