(Filed Under Financial and General Interest News). Wolford AG reported a first quarter loss of 8.22 million euros (about $9.22 million at current exchange rates), compared to a loss of 2.55 million euros in the same period last year, as sales dropped 18% to 27.74 million euros (about $31.1 million).

In North America the sales decline was even worse, at 22%, and the company “decided to forgo a re-launch for the time being,” of the U.S. version of a “new store concept” it had announced earlier this summer for Beverly Hills. Conversely, in a letter introducing the latest results, company executives revealed “our new shop concept can first be experienced in Berlin as of September 7, 2016, and will also be visible in Shanghai as of September 15.”

In the quarter, North American sales dropped to 5.2 million euros, (about $5.8 million), down from 6.7 million euros (about $7.5 million) for the three months ended July 31, 2015. Accelerated cost-cutting measures may have an additional impact on the company’s North American operations which have not been profitable on an EBIT basis (earnings before interest and tax) for the last two full years.

The company, which operates 24 Wolford boutiques, 3 factory outlets and seven “concession shop-in-shops” in North America, as well as selling to other retailers, said of the worldwide slide, “Negative events in important core markets (i.a. political uncertainty in the USA, fear of terrorism in France, Brexit) have led to weak consumption and declining customer traffic.”

The quarterly loss follows a big loss in the last full year. For its fiscal year, ended April 30, 2016, Wolford reported a loss of 6.189 million euros (about $6.85 million) on worldwide sales of 164.4 million euros (about $182 million).

The poor results in the most recent quarter could lead to another annual net loss. “The management board expects revenue for the entire 2016/17 financial year to stagnate or drop slightly below the prior-year level, and possibly negative operating results in the lower single-digit million euro range.”

Wolfed argued, “The implementation of the program of measures designed to sustainably increase revenue, enhance profitability and carry out a creative realignment of the company is proceeding on schedule.” It added that a “cost-cutting drive is being accelerated.”

The company currently claims on its website that it sells its products “in about 70 countries via more than 260 monobrand stores (own and partner-operated), approximately 3,000 trading partners and online.”

North America is a prominent segment of the company’s business, accounting for 19% of revenues in the last fiscal year. Asia and Oceania accounted for only 6% of sales, with Europe making up about 75%.

Yet, despite its significant presence in North America, the territory is actually not profitable for the company, and so might suffer disproportionately from any cost-cutting efforts. According to the 2015/2016 annual report, although North American sales last year were 31.932 million euros (about $35.3 million) the company generated a loss before interest and taxes (EBIT) of 511,000 euros (about $566,000). In the 2014/2015 year the company reported a loss before interest and taxes of 723,000 euros on sales of 28.551 million euros in the region. Further, Wolford cut the average number of employees in North America last year to 97, down from 113 the year before. In the most recent quarter the company reported the number of North American employees averaged 105.

The firm pointed to a worldwide weakness at its stores in the latest quarter. “In particular, Wolford’s high margin retail business reported a 9% drop in revenue in the first quarter of the 2016/17 financial year in comparison to the prior-year period.”

Looking ahead, the company said “The market environment will continue to be difficult in the foreseeable future.”

According to last year’s annual report, “legwear” makes up 53% of Wolford’s sales; ready-to-wear 29%; lingerie 14%; accessories 3% and “trading goods” 1%. — NM

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Published 09-09-2016 by Nick Monjo