Global fashion giants report varied economic outcomes by February 2024

Strong: Growth in Both Sales and Profits

Adastria Co, Ltd (TYO: 2685)

Japanese fashion company Adastria’s fiscal 2024 (FY24) ended on February 29, 2024, the performance of which was reported in April. The consolidated financial results included a 13.6 per cent year-on-year increase in net sales to ¥275.596 billion (~$1.79 billion), an operating profit increase of 56.4 per cent to ¥18.015 billion (~$0.12 billion), an ordinary profit increase of 52.9 per cent, and a net income attributable to owners of the parent increase of 79.2 per cent to ¥13,513 million (~$87.78 million). Market-wise, sales increased by approximately 74 per cent in Mainland China, 26 per cent in Hong Kong, and 46.4 per cent in Taiwan; sales of apparel and sundry goods-related businesses grew by 11.5 per cent year-on-year in Japan. The sales increase was attributed mainly to a strong business climate, accurate responses to a hot summer, a mild winter, and other weather conditions, the sale of merchandise that reflected prevalent trends, the successful launch of hit products, revisions in prices due to more added value, and marketing and promotional activities that included TV commercials and loyalty programme points.

Following the end of the pandemic, the Japanese economy is getting healthier with the normalisation of economic and social activities. Despite the revival, there is still uncertainty about the business climate due to the rising costs of raw materials and energy, high inflation, and interest rates, rising personnel expenses, labour shortage, foreign exchange rate movements, and geopolitical risks. Amid such conditions, the Tokyo Stock Exchange-listed company's FY25 outlook forecasts a 5.2 per cent increase in consolidated net sales to ¥290 billion (~$1.88 billion), a 6.5 per cent increase in gross profit to ¥162.3 billion (~$1.05 billion), a 5.5 per cent increase in operating profit to ¥19 billion, a 3.3 per cent increase in ordinary profit, and a 6 per cent decrease in net income attributable to owners of the parent to ¥12.7 billion for the fiscal ending on February 28, 2025. For FY26, the targets are ¥310 billion in sales, ¥22.4 billion in operating profit, and an ROE of at least 15 per cent.

Onward Holdings (TYO: 8016)

Another of Japan's fashion textile companies, Onward Holdings, which is listed on the Tokyo Exchange, reported a strong performance for FY24, ending February 29, 2024. The results were announced in April 2024.

Onward Holdings reported consolidated net sales of ¥189,629 million (~$1,219 million), marking a 7.7 per cent growth over the previous year. The consolidated operating profit reached ¥11,260 million ($72.37 million), an increase of 115.9 per cent. Consolidated recurring profit was ¥10,126 million (~ $65 million), up 90.4 per cent year-on-year. Additionally, profit attributable to owners of the parent was ¥6,611 million (~$42.49 million), which represented a significant 116 per cent growth.

As the Onward Group accelerates growth by reinforcing and expanding its business base through the development of new businesses and mergers and acquisitions, it has adopted EBITDA (operating profit + depreciation and amortisation) as a key performance indicator. This facilitates earnings comparisons between companies regardless of differences in accounting standards. In FY24, the company's EBITDA amounted to ¥16,052 million ($103.16 million), growing 54.7 per cent year-on-year.

Arezzo (BVMF: ARZZ3)

The Brazilian fashion company Arezzo announced its fourth-quarter and full-year results for 2023 in March, with the reporting period ending on December 31, 2023.

The company posted R$6.1 billion (~$1.2 billion) in annual sales, marking a 16.4 per cent increase over the previous year. In the fourth quarter, sales reached R$1.8 billion (~$0.35 billion). The net income on a quarterly basis rose 22.5 per cent to R$126 million (~$24.78 million), reflecting an increase of 100 basis points in an 8.8 per cent margin. On an annual basis, the net income was R$420 million (~$82.6 million), with an 8.7 per cent margin.

All brands, including Vans (+27 per cent), AR&CO (+26 per cent) with a 38.4 per cent market share, Arezzo (+14 per cent), and Anacapri (+21 per cent), registered growth. Among channels, e-commerce was the main highlight, showing approximately 25 per cent growth and reflecting the company’s strong omni-channel capabilities. The company achieved a 23 per cent increase in revenues from customers shopping both online and offline.

In early 2024, the company announced an association agreement with SOMA Group, creating the largest brands platform in Latin America. This association will enable increased penetration in the AB+ segment—a R$97 billion market.

The company, headquartered in São Paulo, operates over 1,000 owned and franchised stores.

Moderate: Growth in Either Sales or Profits

H&M (STO: HM-B)

Swedish fashion giant H&M's first quarter of FY24 spanned from December 1, 2023, to February 29, 2024. The quarter's net sales for the group dropped from SEK 54,872 million (~$5,077 million) in Q1, FY23, to SEK 53,699 million (~$4,968 million) – a decrease of 2.1 per cent. However, the gross profit increased by 7 per cent to SEK 27,655 million (~$2,559 million) compared to SEK 25,886 million (~$2,395 million) in the first quarter of the previous year, reflecting a margin of 51.5 per cent against 47.2 per cent.

Operating profit amounted to SEK 2,077 million (3.9 per cent of sales), compared to SEK 725 million (1.3 per cent of sales) in the same quarter of the previous year. Adjusted for the result from investments in associated companies and JVs of SEK (-)14 million (compared to SEK 999 million in Q1, FY23), the operating profit was SEK 2,091 million, against a loss of SEK 274 million, corresponding to an improvement in profit of SEK 2,365 million. The profit after tax increased to SEK 1,201 million (from SEK 540 million), translating into SEK 0.75 (from SEK 0.33) per share.

Cash flow from operating activities amounted to SEK 3,967 million (down from SEK 4,986 million), and financial net cash amounted to SEK 6,585 million (down from SEK 10,424 million).

The company also reported an accelerated upgrading of its stores globally in 2024, with the refurbishment of around 250 stores including those in New York, London, Berlin, and Stockholm. The company's top priority is to strengthen sales, and its target of a 10 per cent operating margin for the full-year 2024 thus remains in place.

Weak: No Growth in Sales and Profits

Levis Strauss & Co (NYSE: LEVI)

The San Francisco-headquartered US denim company reported weak performance for the first quarter of FY24, announced in April. The performance included net revenues of $1.6 billion, dropping 8 per cent on both a reported and constant-currency basis compared to Q1 FY23. This decline was a consequence of the shift in wholesale shipments from Q2 to Q1 in FY23 due to the US ERP implementation. The shift negatively impacted Q1 FY24 by approximately $100 million (6 per cent of revenues). Excluding the impact of the exit from the Denizen business and Russia, net revenues would have been flat compared to the previous year. In the Americas, net revenues decreased by 11 per cent on both a reported and constant-currency basis; in Europe, they fell by 7 per cent on a reported basis and 8 per cent on a constant-currency basis; while in Asia, net revenues were in line with the previous year on a reported basis and up 5 per cent on a constant-currency basis.

For the quarter that ended on February 25, 2024, the operating margin was 0.03 per cent, down from 9.3 per cent in Q1, FY23. The adjusted EBIT margin declined by 200 basis points to 9 per cent from 11 per cent last year on a reported basis, due to lower net revenues. However, the gross margin was up 240 basis points to 58.2 per cent (55.8 per cent last year), primarily due to lower product costs and a favourable mix shift. The net loss was $11 million, compared to a net income of $115 million, and the adjusted net income was $103 million compared to $135 million.

Updating its FY24 guidance, the NYSE-listed company expects reported net revenues to increase by 1 to 3 per cent year-on-year and adjusted diluted EPS to be between $1.17 and $1.27, versus the earlier projection of $1.15 to $1.25.

Fibre2Fashion News Desk (WE - SB)