New Look grew to become one of the biggest fashion retailers in Ireland, only to see its performance collapse over the past three years due to falling sales, rising rents, and ongoing financial woes at its British parent. In 2020, it sought to appoint an examiner to its Irish business, but it was rejected by the High Court after a number of landlords argued the business was not, in fact, insolvent.

It has now just filed accounts for the year ending March 31, 2021. They reveal how the company performed following the failed examinership and its success in renegotiating a number of rents.

First, the good news. While the company did not succeed in appointing an examiner, it has had substantial success in cutting deals with its landlords, something it was advised to do by the High Court. Indeed, it has made a provision in its accounts for a €10.9 million gain as a result of reduced rents. This is classified as a “modification of rights of use assets”.

Now for the bad news. Sales fell by €35 million to €17.2 million, a 67 per cent decline the company attributed to the various Covid-19 enforced closures.

On an operating basis, it was actually profitable, posting an operating profit of €1.6 million. There are two things to consider when assessing this number. The first is that it came after the company wrote off a debt of €5.2 million to its British parent following a formal restructuring period. The second is that the company’s administrative expenses fell drastically – from €46 million to €16 million as a result of closures and further cost-cutting.

Despite this, and the receipt of €3.8 million in government supports (both wage subsidy and retail grants), the company remained loss-making. For the year ending March 2021, it made a pre-tax loss of €3.3 million. This was down on a figure of €23 million for the previous year, a number that was swelled by massive impairments on goodwill arising. A key reason the operating profit turned to pre-tax loss was a €5.4 million interest and finance bill. The company closed out the year with retained losses of €29.2 million. Headcount, meanwhile, fell from 508 to 440.

Tommy Hilfiger’s battle to remain profitable

PVH, formerly known as the Phillips-Van Heusen Corporation, is an American clothing company that owns brands such as Tommy Hilfiger, Calvin Klein, Warner’s, Olga and True & Co. The company also licences brands such as Kenneth Cole New York and Michael Kors.

In Ireland, its main operation is through Tommy Hilfiger, which has a number of outlets and concession stores across the country.

PVH has just filed accounts in Ireland for the 15-month period ending May 2, 2021. It was a period heavily impacted by Covid-19, with rolling restrictions and closures (it took the decision to shutter its landmark shop on Dublin’s Grafton Street for good). And this is reflected in the numbers. Revenues fell 38 per cent to €15.9 million, while pre-tax profits fell from €642,000 to €239,000. However, it is worth noting that it would have been loss-making if it had not received state wage supports, with the company receiving €840,000 in government grants.

The directors of the company also gave a detailed update on how it has navigated Covid-19 and gave its view on the future of retail in Ireland.

“The pandemic has had a significant impact on the operations of the company during the period ending 2 May 2021 and on the financial results registered during the period with an adverse impact on the company’s profitability, cash flows and financial position,” the company said.

It then outlined the steps it had taken during the period. This included:

• Availing of the wage subsidy supports
• Warehousing tax debts for the year
• Availing of an 18-month waiver of property rates.

It also implemented a “PVH group-wide cost-saving initiative aimed at reducing the company’s operating expenses with an emphasis on addressing the immediate cash flow challenge for any periods of store closure”.

The accounts state that management has compiled financial projections for the next 15 months and that those are based on existing sales trends following the introduction of social distancing restrictions in stores. However, they also factor in a severe but plausible downside scenario of another potential period of full store closure for a period of three months.

“The forecasts convey that in the severe but plausible downside scenario, were a period of enforced closure to happen for the duration of October 2021, November 2021 and December 2021, the company would require additional financial support from the wider group,” it said, noting that the group had agreed to provide financial support if required.

Headcount fell during the period from 241 to 195.

A note in the accounts also points to a group restructuring. On May 3, 2021, the business, assets and liabilities of the group companies Calvin Klein Stores Ireland Limited and Phillips-Van Heusen Ireland Limited were transferred to PVH Brands Ireland by way of a transfer of trade, assets and liabilities. The impact of that transfer is not seen in these numbers but will be reflected when it files accounts next year.

How Gucci restructured here

The Italian luxury goods company Gucci has a relatively modest presence in Ireland, operating a concession store in Brown Thomas and employing just 12 people. Like Tommy Hilfiger, its sales were decimated as a result of the pandemic.

For the year ending February 2020, it had sales of €5.6 million. The following year, this fell 59 per cent to €2.3 million. Pre-tax profits fell from €231,000 to €178,000, meaning that its gross margins improved by 10 per cent to 49 per cent.

The company’s balance sheet is intriguing. Despite its small presence, it has accumulated retained losses of €430 million. However, this is offset by a capital contribution from its parent for €433 million, leaving it with net assets of €2.5 million.

The company gave a commentary on the impact of the pandemic on the luxury goods market. It stated:

“As a fashion and lifestyle company, every new season confronts the brand with the risk that the new collections may be received less positively than anticipated. Constant market observation and regular attendance of international fashion events ensure that trends are identified early on, to serve as a basis for the collection development.”

However, it said that the ongoing Covid-19 pandemic “doesn’t put into question the drivers of the development of the luxury industry and its medium/long term growth potential”.

It added:

“To limit the dilution of recurring operating margin, the company has implemented an action plan aimed at adapting its cost base and containing its working capital requirement. The group is overseeing the company’s response and is considering additional measures that can be introduced to mitigate the dilution of the company’s recurring operating margin, whilst protecting its market position and preserving growth potential and capacity to bounce back in the short and medium term.”

Further reading

Pent-up demand, unwinding supports and new institutions: How to rebuild an economy after a pandemic