Global Brands Group Holding Limited reported a core operating loss grew more than 2.5 fold to $63 million in the six months ended June 30, as increased spending on new brands such as Cole Haan, Quiksilver, Spyder, Juicy Couture and Aquatalia drove up operating costs by 11.8 percent.
Global Brands reported sales of $1.35 billion for the six months ended 30 June, 2014 compared to $1.33 billion for the same period in 2013. Gross profit grew 2.8 percent to $400 million, or 29.6, up 40 basis points compared with the first half of 2013.
The company said that while macro economic conditions continued to improve during the first six months of 2014, the extreme winter weather in the US, the Group’s largest market, affected sales volumes in the first quarter.
Extending America's affordable luxury brands worldwide
Li & Fung, one of the world's largest sourcing and logistics providers, spun off Global Brands to shareholders in July as part of a major restructuring. Although list on the Hong Kong Stock Exchange, Global Brands derives 81 percent of its sales from the United States, where 70 percent of its nearly 3,000 employees are located. Its Vice Chairman, American Bruce Rockowitz, is keen to grow sales to both Europe and Asia in coming years by licensing classic American brands and extending them into new markets segments and product categories. During the first half, apparel accounted for 61 percent of sales, up from 56 percent in the year earlier period, while non-apparel, including footwear, declined to 39 from 44 percent of sales.
During the first half, Global Brands bought rights to a number of brands in preparation for its spin-off, including Cole Haan and Quiksilver within its Licensed Brands division, and Spyder, Juicy Couture and Aquatalia in its Controlled Brands division. It also entered a joint venture with Iconix Europe to market such brands as Ocean Pacific, Danskin and Start.
Licensed Brands, which generated 85 percent of the revenues during the quarter, sells products under license from fashion, entertainment characters, accessories, home and footwear brands, while Controlled Brands focuses on fashion, accessories and footwear brands that the company owns outright or controls under long-term global licensing agreements. Sales grew 2.0 percent and total margin reached 30.1 percent, up 110 basis points from the first half of 2013 thanks to a higher share of sales of products based on licensed entertainment characters as well as higher margin footwear.
At Controlled Brands, sales dipped 1.9 percent despite 20 percent growth at Frye, the American leather boot brand Global Brands plans to extend into apparel and other categories. Gross margins fell 350 basis points to 27.3 percent due largely to the impact of severe winter weather on U.S. retail sales in the first quarter.
Segment operating expense increased by 32.5 percent to $84 million, compared to the same period last year due to investments associated with Spyder, Juicy Couture and Aquatalia. The segment recorded a core operating loss of $31 million, compared with a loss of $ 2 million in the first half of 2013, but is expected to perform better in the second half as its brands ship product for the back-to-school and holiday shopping seasons.
On a consolidated basis the acquisitions pushed up operating costs 11.8 percent to $463 million. EBITDA fell 22.7 percent to $34 million, or 2.5 percent of sales, compared to $44 million, or 3.3 percent of net sales in the first half of 2013. Non-recurring expenses related to its spin-off and listing, as well as operating costs associated with acquisitions also effected results during the period.
“We believe that there are further excellent opportunities for the Group in the affordable luxury sector, the area within which we primarily operate,” said CEO and Vice Chairman Bruce Rockowitz. “Many brands within this sector are born in the United States, and this is true for the majority of the brands that we control or license. Many of these brands have little to no international exposure, despite their presence and success within the US. There is also the potential for some Asian brands to enter Western markets. Both of these scenarios present a clear opportunity for the Group to leverage our unique global platform.”