Giordano International Limited · HKEX:709

Giordano International — Q1 2014 Earnings Presentation

47 slides from Giordano International's earnings presentation, May 8, 2014

  1. Slide 1: 2014 First Quarter Update

    2014 First Quarter Update 8 May 2014

  2. Slide 2: Overview

    Overview  1Q14 sales ↓9%; brand sales ↓7%  Continued weakening consumer demand in Greater China  Impact of weakening currencies in SEA  Economic headwinds on demand in SEA  Poor performance of women range  Gross margin ↓2.9 pp  Price discounting to reduce inventory in slow selling categories

  3. Slide 3: Operations Highlights – Group

    Operations Highlights – Group Sales down 9%, margin down 2.9pp, reflecting tough market condition; Strict control on inventory and store portfolio quality (In HK$ millions) 1Q14 1Q13 Variance Sales 1,380 1,514 -9% Gross profit 785 905 -13% Gross margin 56.9% 59.8% -2.9pp Global brand sales [1] 1,813

  4. Slide 4: Sales Growth and Contribution by Region

    Sales Growth and Contribution by Region Sales continued weakening in Greater China. Weakening currencies and economic headwinds affected sales in SEA. ME delivered 8% growth. (HK$ millions) 1,514 1,600 1,380 1,400 473 (31%) 1,200 Mainland China 11% / 12%* 420 (31%) 1,000 Mainland China Hong Kong &

  5. Slide 5: Brand Sales Growth for the last 8 quarters

    Brand Sales Growth for the last 8 quarters 6% 5% 4% 4% 3% 2% 2% 0% -1% -1% 0% 0% -2% -2% -2% -1% -2% -2% -2% -2% -4% -3% 1Q14 1Q13 Variance -6% -6% Global brand sales (HK$ millions) 1,813 1,942 -7% Comparable store sales growth -6% -2% -8% -7% 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2QTD14 (up to 4

  6. Slide 6: Gross Profit Reconciliation

    Gross Profit Reconciliation Rises in pricing offset cost increases but not enough to prevent margin dilution. Volume ↓12% (HK$ millions) Average cost Average price Volume 12% 6% 12% 1,200 10% 2% 1,000 767 800 (58) (12) (109) (17) 600 905 400 (59.8%) -120m (13%) 785 (56.9%) 200 0 1Q13 Increase

  7. Slide 7: Inventory and Turnover Days

    Inventory and Turnover Days Inventory remains at healthy level (HK$ millions) (Days) 600 82 90 80 500 63 66 70 400 60 50 300 518 40 200 427 436 30 20 100 10 0 0 Mar 2013 Dec 2013 Mar 2014 Inventory Turnover Days on Cost of Sales (HK$ million) Mar 2013 Dec 2013 Mar 2014 Inventory balance held by the

  8. Slide 8: Brand Sales Growth by quarter – Mainland China

    Brand Sales Growth by quarter – Mainland China 10% 5% 5% 0% -3% -3% -2% -5% -5% -7% -5% -8% -8% -8% -6% -10% -10% -9% -10% -12% -15% -13% -13% -15% -20% 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2QTD14 (up to 4 Total Brand Sales Growth Comparable Store Sales Growth May) 8 May 2014 Giordano 2014 First

  9. Slide 9: Performance Review by Region – Mainland China

    Performance Review by Region – Mainland China Negative growth due to closure of shops and weak external demand (In HK$ millions) 1Q14 1Q13 Variance Total sales [1] 420 473 -11%/-12% [2] Retail self-operated stores 310 347 -11% Wholesale sales to franchisees 110 126 -13% Total brand sales [3] 515 605

  10. Slide 10: Gross Profit Reconciliation – Mainland China

    Gross Profit Reconciliation – Mainland China Higher cost product mix offset by heavy discounting to clear excess inventories (HK$ millions) Average cost Average price Volume 8% 0% 12% 300 250 (15) (1) 4 200 (31) 150 258 (54.5%) 215 100 -43m (17%) (51.2%) 50 0 1Q13 Cost Price Volume Stock provisi

  11. Slide 11: 2014 Strategies – Mainland China

    2014 Strategies – Mainland China Right merchandise at right place Turnaround the business Fast AD strategy and enhance the marketing brand position Store portfolio upgrade 8 May 2014 Giordano 2014 First Quarter Update 11

  12. Slide 12: 2014 Strategies – Mainland China: Multi-brand strategies

    2014 Strategies – Mainland China Right merchandise at right place 1. Multi-brand strategies LUXURY MEN PREMIUM VALUE BUDGET

  13. Slide 13: Channel Development Priority

    2014 Strategies – Mainland China Right merchandise at right place 2. Channel development Department stores • Main focus for the main brand • On Unisex floor surrounded by local budget brands and sportswear brands  low footfall, poor brand image and positions • Multi-branding Channel Development Pri

  14. Slide 14: Department store strategy

    2014 Strategies – Mainland China Right merchandise at right place 2. Channel development – Department store strategy Liberation of Giordano brand DEPARTMENT STORE by Beau Monde (5 opened yet, plan 12 more within 1H) Unisex floor Better products of Giordano Women Men’s fashionGiordano Men Men’s fashi

  15. Slide 15: Slide 15

  16. Slide 16: -« < ~= a a | at A a A = ji ~

    -« 5 < ~= a a | at A a A = ji ~

  17. Slide 17: Market positioning and target customers

     Proposition: modern-contemporary, stylish Italian inspired down-to-earth designs in affordable prices  Market positioning:  Target customers: New women of modern metropolis China. New middle class – Generation 2, born after mid-80s, aged 28-35, confident, independent, expressive  Distribution c

  18. Slide 18: 2014 Strategies – Mainland China: Fast marketing

    Fast 2014 Strategies – Mainland China Marketing Coming fast marketing campaigns… 1Q14 Fast marketing campaign

  19. Slide 19: Store Development Priority

    2014 Strategies – Mainland China Store portfolio upgrade 1. Reduce loss making shops and improve profitability 2. Shop development strategy Shop classification • Change to Beau Monde Damaging • Change to outlet Giordano brand Store Development Priority • Loss making Close • More than 50% of our sho

  20. Slide 20: Map

    ta /) Map! i] /

  21. Slide 21: “Concepts”

    2014 Strategies – Mainland China Store portfolio “Concepts” upgrade  Idea came from mini department store  Each brand has its own renovation elements to highlight its brand image  Elements of mini department store:  Zoning (Giordano Men, Women, Junior, BSX, BM)  Corridor  Different color signa

  22. Slide 22: 2014 Strategies – Mainland China: AD strategy

    2014 Strategies – Mainland China AD strategy 1. Speed up consolidating ADs 2. Develop super ADs  Be the business partner/consultant of AD  Invest in teams to support merchandizing  Focus on Top 10 ADs (48% of total AD stores)  Redirect subsidies to investment subsidies i.e. marketing and renovat

  23. Slide 23: Brand Sales Growth by quarter – Hong Kong

    Brand Sales Growth by quarter – Hong Kong 20% 16% 15% 10% 8% 6% 8% 5% 5% 7% 4% 2% 3% 1% 3% 0% 0% 2% 0% 0% -5% -7% -5% -10% -8% 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2QTD14 Total Brand Sales Growth Comparable Store Sales Growth 8 May 2014 Giordano 2014 First Quarter Update 23

  24. Slide 24: Performance Review by Region – Hong Kong

    Performance Review by Region – Hong Kong Intense competition and adverse weather in CNY weakening 1Q sales (In HK$ millions) 1Q14 1Q13 Variance Total sales [1] 239 261 -8% Comparable store sales [2] -7% +3% Gross profit 159 172 -8% Gross margin 66.5% 65.9% +0.6pp Number of outlets [3] 84 84  [1] To

  25. Slide 25: 2014 Strategies – Hong Kong

    2014 Strategies – Hong Kong 1. Shop portfolio:  No shop expansion except MTR shops  Extend shop area for Giordano Junior  Open a mini department store in Macau in May 2. Fast marketing:  Continuous fast marketing campaigns  Aberdeen collection by Giordano (“ACBG”) in April  Giordano x Lowe Alp

  26. Slide 26: merenrersts

    merenrersts GIORDANO GREENIE & HOYEE GY AGERODEEN

  27. Slide 27: Cedar Ridge Jacket Men's

    CEDAR RIDGE JACKET MEN'S GWA-07 OVERVIEW G IF isue alpine

  28. Slide 28: Brand Sales Growth by quarter – Taiwan

    Brand Sales Growth by quarter – Taiwan 20% 15% 15% 12% 10% 6% 5% 1% 4% 0% -3% -5% -3% -9% -9% -10% -7% -10% -12% -14% -11% -15% -14% -15% -15% -16% -20% 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2QTD14 Total Brand Sales Growth Comparable Store Sales Growth 8 May 2014 Giordano 2014 First Quarter Update

  29. Slide 29: Performance Review by Region – Taiwan

    Performance Review by Region – Taiwan 1Q sales depressed by weak market conditions but seeing recovery in 2Q after launch of localized products (In HK$ millions) 1Q14 1Q13 Variance Total sales [1] 163 187 -13% / -11% [2] Comparable store sales [3] -10% -14% Gross profit 94 114 -18% Gross margin 57.7

  30. Slide 30: 2014 Strategies – Taiwan

    2014 Strategies – Taiwan 1. Products  Going back to basic, e.g. Polo  Innovative products, e.g. G-Cool+ products using high technology fiber 2. Shop renovation  Target >15 stores to be renovated 3. Fast marketing  Continue brand differentiation by executing cross-over marketing campaigns and dev

  31. Slide 31: Hello Taiwan

    HELLO TAIWAN Related products: Polo

  32. Slide 32: Gross Profit Reconciliation – Hong Kong and Taiwan

    Gross Profit Reconciliation – Hong Kong and Taiwan Strong product mix but volume declined due to weak market demand (HK$ millions) Average cost Average price Volume 15% 12% 19% 350 42 300 250 (19) (54) (2) 200 150 286 (63.8%) 253 -33m (12%) (62.9%) 100 50 0 1Q13 Cost Price Volume Stock provision

  33. Slide 33: Brand Sales Growth by quarter – Rest of Asia Pacific

    Brand Sales Growth by quarter – Rest of Asia Pacific 20% 15% 14% 13% 10% SMIT: 10% SG -10% ID +12% 6% 6% MY -8% 8% 8% 4% TH +11% 5% 1% SMIT: 1% 3% 3% 3% SG -18% 0% ID -1% 1% MY -7% 0% TH -2% -5% -5% -10% SMIT: SMIT: -10% SG -17% SG -9% ID -9% ID -1% MY -8% MY -9% TH -10% -12% TH +1% -15% 2Q12 3Q12 4

  34. Slide 34: Performance Review by Region – Rest of Asia Pacific

    Performance Review by Region – Rest of Asia Pacific Sales depressed by severe currency decline and weak household spending and consumer demand in SEA (In HK$ millions) 1Q14 1Q13 Variance Total sales [1] 320 377 -15% / -5% [2] Comparable store sales [3] -12% +8% Gross profit 198 247 -20% Gross margin

  35. Slide 35: Gross Profit Reconciliation – Rest of Asia Pacific

    Gross Profit Reconciliation – Rest of Asia Pacific Cost increases recovered by price increases but not sufficient to preserve overall margin decline (HK$ millions) Average cost Average price Volume 20% 8% 13% 300 8% 12% 27 250 (9) (13) (32) 200 (22) 150 247 (65.5%) -49m (20%) 198 100 (61.9%) 5

  36. Slide 36: 2014 Strategies – Singapore

    2014 Strategies – Singapore 1. A team from the Group is assisting to re-shape Singapore operations 2. Products  Overbought the wrong category in 1Q, now focus on core shirts and shorts  Inventory reduction progress on track 4. Shop renovation  Target 35% of stores to be renovated 3. Fast marketin

  37. Slide 37: 2014 Strategies – Indonesia, Malaysia, Thailand

    2014 Strategies – Indonesia, Malaysia, Thailand 1. Market slowdown in retail sector in these economies 2. Products  Identify merchandise drivers and local fast marketing campaigns to grow sales 3. Shop expansion  Continuous expansion in each country 4. Fast marketing  Shared campaigns:  Market-s

  38. Slide 38: Brand Sales Growth by quarter – Middle East

    Brand Sales Growth by quarter – Middle East 12% KSA +12% UAE +11% 10% 10% OTH -6% 8% 8% KSA +3% 6% UAE +9% OTH -11% 6% 4% 4% 3% 3% 2% 1% 1% 1% KSA +2% UAE +9% 0% OTH -6% -1% -1% 0% -2% -1% -2% -2% -4% -4% KSA -6% -6% UAE +7% OTH -13% -6% -8% -7% 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2QTD14 Total B

  39. Slide 39: Performance Review by Region – Middle East

    Performance Review by Region – Middle East Growth momentum continued from last quarter (In HK$ millions) 1Q14 1Q13 Variance Total sales [1] 155 144 +8% / +8% [2] Comparable store sales [3] +4% -6% Gross profit 94 88 +7% Gross margin 60.6% 61.1% -0.5pp Number of outlets [4] 195 187 +8 [1] Total Sales

  40. Slide 40: Gross Profit Reconciliation – Middle East

    Gross Profit Reconciliation – Middle East Increase in prices offset cost increases due to changes in product mix (HK$ millions) Average cost Average price Volume 9% 10% 2% 120 100 14 3 (5) 80 (6) 60 88 +6m (7%) 94 40 (61.1%) (60.6%) 20 0 1Q13 Cost Price Volume Stock provision 1Q14 Gross profit i

  41. Slide 41: 2014 Strategies – Middle East

    2014 Strategies – Middle East 1. Shop expansion  Target 5% increase in store number mainly in UAE and Saudi Arabia 2. More Engagement with social media  Planned PR exercise: media round table  Much aggressive focus on digital and social media  Radio and press advertisement to promote new lion po

  42. Slide 42: Jointly Controlled Company – South Korea

    Jointly Controlled Company – South Korea (In HK$ millions) 1Q14 1Q13 Variance Total sales [1] 396 369 +7% / +5% [2] Comparable store sales [3] +4% +4% Gross profit 214 209 +2% Gross margin 54.0% 56.6% -2.6pp Number of outlets [4] 236 260 -24 [1] Total Sales are total retail sales translated at avera

  43. Slide 43: Actions

    ACTIONS  Continuous control on inventory  Tightened on cost headcount freeze and postpone salary review  Closure of unprofitable and brand damaging shops in China  Roll out Beau Monde budget brand.  Store expansion in SEA  Reshape merchandise more generous fitting and simplicity in design, new

  44. Slide 44: Outlook

    Outlook  1Q14 sales & GP margin declined, profitability is significantly lower vs 1Q13  2QTD14 healthier merchandise portfolio in store, sales are strengthening. Expect the drop in profitability will be narrowed in the second quarter of the year.  Impact of currency depreciation in Asia and rent

  45. Slide 45: Q&A

    Q&A 8 May 2014 Giordano 2014 First Quarter Update 45

  46. Slide 46: Summary of Total Sales and Comparable Store Sales Growth by Market

    Summary of Total Sales and Comparable Store Sales Growth by Market Total sales[1] Comparable store sales[2] (HK$ millions) 1Q14 1Q13 Variance 1Q14 1Q13 Mainland China 420 473 -11% -10% -7% Hong Kong 239 261 -8% -7% +3% Taiwan 163 187 -13% -10% -14% Singapore 85 106 -20% -17% -1% Indonesia 96 103 -7%

  47. Slide 47: Global Retail Network

    Global Retail Network As at 31 March 2014 As at Number of outlets Giordano Giordano Change BSX Others Total Dec-13 & Junior Ladies Mainland China 1,054 26 27  1,107 1,161 -54 Hong Kong & Macau 53 13 18  84 88 -4 Taiwan 170 14 15  199 201 -2 Singapore 44 4   48 52 -4 Indonesia 147 5  29 181 179

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