Daphne'S Self Redemption: Closing 805 Stores And Laying Off 8000 People

Daphne International Holdings Ltd (0210.HK) announced that its share price fluctuated narrowly in the 2015 fiscal year after a net loss of HK $379 million from the profit and loss account.

Daphne international points out

Further deterioration of the retail environment led to a weak consumer sentiment, an exceptionally warm winter temperature, an online promotion of dilute physical stores, a sharp discount from peers, an earlier competition, a more intense competition, a stock market volatility, and an increase in domestic consumption by mainland consumers, which affected domestic demand. All these factors led to a sharp setback in the group's sales last year.

In the 2015 fiscal year, group turnover fell 19.1% to HK $8 billion 379 million 100 thousand, compared with HK $10 billion 355 million 600 thousand in the 2014 fiscal year.

Have Daphne

The sales of the core brand business of the two brands and shoe brands dropped by more than 19% to HK $7 billion 521 million 100 thousand, accounting for 90% of the group's turnover. The same year sales of the same store plummeted 18.5% compared with the previous year, and the performance was getting worse and worse. The decline in the first quarter to the fourth quarter (15.9%, 17.7%, 19.7% and 20.2%) gradually expanded.

The new price structure has pushed the average selling price down by 4.6% annually.

However, the group revealed in the earnings report that the sales of core brand businesses in the same quarter have narrowed to the median figure since the first quarter of 2016, but the group pointed out that there are still many uncertainties in the two quarter as the key quarter of the spring and summer new product launch, which is still challenging.

Sales of other brands, which own private brand love and exclusive distribution ALDO brand, dropped slightly from 0.7% to HK $832 million 700 thousand.

Manufacturing revenues plummeted 88.1% to HK $25 million 400 thousand per year, up from HK $214 million the previous year.

In the fourth quarter, Daphne international speeds up the integration of the store portfolio. The number of core brand outlets has exceeded the total of the first three quarters, reaching 405 (384 Direct stores and 21 franchised stores).

The total number of core brands in the year was 805 (692 Direct stores and 113 franchised stores), and the total number of stores was 12.6% lower than that in 2014.

As of December 31, 2015, the total number of core brand stores decreased to 5597, including 5056 Direct stores and 541 franchised stores.

At the beginning of expansion, 80% fell to only 10%.

In the first quarter, the group will further end 150 stores. Under this background, the first quarter sales decline may be between 10%-15%, but the profit is expected to be better than the same period in 2015.

Due to the integration of key brand stores and personnel, the operating cost increased significantly last year, and the production line migrated from the coastal area to the new inland production base with low cost. The operating cost also rose with inflation. The core brand operating profit rate was positively negative, and the 2.4% of the previous year fell to -4.7%.

Daphne international recorded a loss of HK $497 million 600 thousand in the whole year, with a profit of HK $262 million 400 thousand in the previous year.

Net loss was HK $378 million 900 thousand, net profit of HK $176 million the previous year.

However, thanks to the improvement of sales mix, product design optimization, product cost reduction and new pricing strategy increased gross margin by 100 basis points, up from 55.4% in the previous year to 56.4%.

As of December 31st, the group employed 18 thousand employees in mainland China, Taiwan and Hongkong, which were significantly reduced by 8000 from 26 thousand in the same period of the previous year, mainly affected by jobs in factories, stores and logistics offices.

The group said that this year it will further integrate the store network, streamline manpower, improve supply chain, strengthen inventory management, enhance product differentiation and expand e-commerce, so as to be able to meet the current "new normal" situation in China.

Daphne International (0210.HK) rose 0.99% on Wednesday to HK $1.02.

So far this year, the stock has fallen by 21.5%.