NAIROBI, KENYA, SEPTEMBER 3 ― Fashion retailer Deacons (East Africa) Plc has recorded a Ksh229.5 million loss after-tax for the six months period ended June 30, 2018, sinking deeper in the red on the back of falling revenues.
This comes as the retailer continues to struggle in re-aligning its business after parting ways with South Africa’s Mr Price.
“Following the sale of the Mr Price (MRP) Franchised Business, the net sales for the Group decreased by 20.7 per cent for the remaining business while the overall decrease (factoring in discontinued operations) was 65 per cent,” Deacons reported in its half-year financials.
Revenues for the period dropped to Ksh387.1 million from Ksh1.1 billion recorded in a similar period last year.
The Nairobi Securities Exchange listed firm however managed to reduce its expenses by almost half from Ksh523.9 million to Ksh264.5 million, a 49.5 per cent reduction.
This came with the downsized business and the cost rationalization programme that was implemented in May 2017.
Loss of revenue from discontinued operations (MRP) amounted to Ksh529 million.MRP formed over 50 per cent of the Group’s business.
The firm has also blamed low revenues on the slow economic start in 2018 as the Country recovered from the 2017 election cycle.
Performance was largely affected by cash constraints leading to a drop in stock levels across most stores. This resulted in suppressed margins and reduced newness of product.
“Overall retail trading environment during the period under review was characterized by extraordinary and exceptional events that adversely affected the business,” Deacons management noted.
The retail space reduced from 190,341 square feet in 2017 to 69,614 in 2018 because of MRP discontinued operations and closure of non performing units.
“The non-performance of major anchor tenants reduced traffic into the malls with 98 per cent of our stores operating in malls whose anchor tenants are experiencing stocking challenges,” it said.
The firm’s aggressive sale offers in quarter two reduced the average gross margins to 25 per cent but enabled the business to flush out stock and improve liquidity.
The F & F brand has, however, continued to register encouraging results indicating that its value proposition was well received and has great potential to grow into a chain of stores, the group noted.
The latest developments have seen the company issue a profit warning for the year based on preliminary assessment of the unaudited financial statements of the Group for the half year period.
“The projected earnings of the Group for the current financial year are expected to potentially decrease by at least 25 per cent compared to the reported earnings for the financial year ended 31 December 2017,” Deacons said.
This is largely due to slow economic start in 2018 as the Country recovered from the 2017 election cycle, operational costs for the Mr Price stores for the first four months of 2018 and loss of revenue from the discontinued Mr Price operations.
The firm has also pegged the projected profit drop to suppressed margins and reduced newness of product which was largely affected by cash constraints coupled with non-performance of major anchor tenants which has reduced traffic into the malls.
According to the firm, 98 per cent of its stores operate in malls whose anchor tenants are experiencing stocking challenges.
The board has since launched a mid-term turnaround strategy geared to advancing the Group’s performance.
“This will be achieved through the restructuring of the capital base of the company with the support of major shareholders in order to grow the Deacons house brand, optimise the Company’s successful brands and reduce operational expenditure,” the board said.
It noted that cost cutting measures already in place are bearing positive results. The Board has also appointed a Corporate Finance Advisory Firm and an Investment Bank to advice on the overall strategy of the business with a view to managing the risks facing the Company.
“The board is optimistic that the foregoing initiatives among others will provide a good foundation to revitalize the business,” it said.
The directors do recommend the payment of an interim dividend.