Mar 5, 2021
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Stella McCartney losses widened pre-pandemic, says recovery will be "gradual"

Mar 5, 2021

Stella McCartney’s full year results on Friday showed falling sales and wider losses for the 2019 financial year. However, given the year of change that the firm saw in 2019, it’s unclear just how much we can read from the figures.

Stella McCartney - Fall-Winter2020 - Womenswear - Paris - © PixelFormula

Perhaps more relevant was the fact that the firm said its business was “materially impacted” by the Covid-19 outbreak in early 2020 and it expects the recovery in its sales levels over the medium term to be “gradual”. This is particularly disappointing given that prior to the outbreak, it said it was making “good progress” in delivering against its strategy.

It added that its digital sales performance has been good in the past year and it has continued to operate in all markets without interruption because of that. But online sales can't fully offset the decrease in demand seen during the period that physical shops were closed. This time next year we should perhaps expect a bigger sales drop and wider losses, although the company hasn’t said as much.

It doesn’t seem to think Brexit will be an issue going forward, saying less than 5% of its global revenue occurs through its physical stores depending on cross-border movement of goods to the UK. Additionally the vast majority of its goods are made within the EU or the UK so will benefit from the tariff and quota-free deal struck as part of the UK’s EU exit.

And it’s clear that it has sufficient funds to get through the crisis period, based on the commitment from its parent company, Anin Star Holding Limited, to continue to make the money it needs available.

That parent company took full control during the financial year being reported on as part of the deal announced in spring 2018 for Stella McCartney to buy the remaining 50% of Stella McCartney Limited shares from Kering that she didn’t already own. The transaction completed in July 2019 with Anin Star, of which McCartney owned 100% at the time, acquiring all of the shares. Since then, a subsidiary of LVMH has acquired 49% of the parent firm.

So what actually happened in the 2019 financial year? The company saw sales falling to £38.19 million, from £42.59 million a year earlier. The 10% decline compared with a 0.2% increase in the previous 12 months. And it saw a pre-tax and post-tax loss of £31.92 million compared to a £10.88 million pre-tax loss and £10.98 million post-tax deficit in the previous year.

It's perhaps unsurprising that this happened given that 2019 saw a “substantial” increase in the cost of sales and administrative expenses. And it being the year in which its ownership change completed is likely to have had an impact.

In fact, the change of ownership changed the company’s revenue model. Until 2018, it had received royalties on wholesale sales from fellow group companies. But from 2019, this has been replaced by an arrangement between Stella McCartney Ltd and Stella McCartney Italia SRL to share residual profits or losses between the two entities.

It looks like we may have to wait until next year to get a clearer picture of what's happening, although as mentioned, that will also include the full impact of the pandemic so will be somewhat skewed. Hopefully, by the time those results are released, the company will also have plenty of more upbeat news to share about 2021 trading and the post-pandemic recovery later this year.

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