Retail in Asia

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Daphne announces financial results

daphne

Hong Kong-listed women’s footwear label Daphne International announced the unaudited condensed consolidated interim results of the company and its subsidiaries for the six months ended 30th June 2020.

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With the group’s large-scale business transformation actions and the adoption of the “asset-light” business model last year, the network of the group’s stores has been scaled down significantly from 2,820 stores at the beginning of last year to 425 at the end of last year. Affected by this structural change, the group’s turnover decreased by US$153.63 million to US$27.37 million for the six months ended 30th June 2020, compared with US$181 million in the same period last year. This was mainly due to the year-on-year decrease of 87% in the number of sales points of the group, and the serious impact of the COVID-19 epidemic on the operation of stores and the consumer market.

During the period under review, the group’s gross profit also fell to US$8.52 million due to the decrease in sales and its gross profit margin fell to 31.1%.

In the first half of 2020, the operating loss was US$17.73 million, compared with the operating loss of US$48.19 million in the same period last year. The loss attributable to shareholders was US$18.23 million. Basic loss per share was US$1.11 cents, compared with the basic loss of US$3.05 cents per share for the same period in 2019. The board of directors does not recommend the payment of an interim dividend for the six months ended 30th June 2020.

The overall retail market was seriously affected by the COVID-19 epidemic and the retail of women’s shoes was no exception. In the first quarter when the epidemic was at its height, the overall customer traffic recorded by the retail industry dropped rapidly, bringing offline sales activities to a halt. During that period, certain landlords granted certain rent reductions to the group’s directly-managed stores and partnership stores.

The concessions offset a small portion of the operating costs of its physical stores. At the same time, the group also provided appropriate discounts to its business partners and franchisees to help them tide over the difficulties. In the second quarter, China’s economy showed signs of a recovery on the back of the gradual stabilisation of the
epidemic. Most of the group’s stores across the country have gradually reopened since April. This, coupled with the logistics sector’s return to normal, contributed to a gradual recovery in the business of the brick-and-mortar stores in the second quarter. Nevertheless, the retail market remained gloomy amid weak consumer sentiments.

The group continued with the strategic transformation of its business by switching over to the “asset-light” business model, shifting the focus back to its core brands business, completely withdrawing from the business of retailing at physical stores under the mid range and high-end brands (including such operations in mainland China and Taiwan), and closing all the points-of-sale of its other brands business.

In the first half of 2020, the group recorded 132 net closures of POS, including the closure of 67 POS of its core brands business and the closure of 65 POS of its other brands business. As of 30th June 2020, the group had a total of 293 POS. All of them belonged to its core brands business.

The group’s core brands business is the offline business of retailing footwear products and accessories under its own brands “Daphne” and “Shoebox” in mainland China. In the first half of 2020, the group continued to adjust the network of its sales channels to pursue an “assetlight” business model. During the period under review, the group’s core brands business recorded 67 net closures of POS (including the closure of 24 directly-managed/partnership stores and 43 franchised stores). The number of POS decreased by 19% compared with that as at 31st December 2019. The same-store sales at the group’s core brands business fell by about 50% year-on-year.

The weak samestore sales performance, coupled with the further shrinkage of the sales network, resulted in a year-on-year decrease of approximately 92% in the turnover at the group’s core brands business to US$13.52 million.

The COVID-19 epidemic triggered off exponential growth in the “stay-at-home” economy. To capitalise on the trend, the group increased commitment to its online sales channel. For instance, it stepped up the strategic planning for its e-commerce business.

In the first half of the year, the group not only consolidated its advantage in traditional e-commerce platforms but also actively explored new approaches to sales and marketing. For example, it tapped into a surge in internet traffic to adapt itself to the gradual shift from offline to online consumption. Through its collaborations with such social platforms as “Tik Tok” and “Kuaishou” for the sharing of short videos, the group was able to suit the preferences of adolescents in social networking and increase its exposure in the social media, thus advertising its brand name on online platforms that register high volume of traffic.

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The group also fully explored the potential of “live commerce” to bring a much more interactive shopping experience to consumers. Such move also made up for a decrease in offline sales which had been impacted by the epidemic. Moreover, the group has stepped up its effort to develop “online-only items” which are reserved for online sales in order to take advantage of the sales trend on the online marketplaces. The group launched “Must-buy KOL Items” in the first half of the year according to the latest fashion trend. The products met with overwhelming responses from consumers. The group’s e-commerce business remained profitable thanks to the contribution from the sales of “online-only items”.