Hong Kong-based Global Brands Group (GBG) has sold its kids apparel business in China and is preparing to embark on a substantial restructuring programme as it revealed falling sales and a net loss in the first six months of the year.
Group revenue on a like-for-like basis was down 4.1% in the six months ended 30 September to US$699m, primarily due to a decrease in the company’s China kids and home business.
Revenue from GBG’s men’s and women’s fashion division edged up 1.8% to $265m, but total margin dropped by 22.2% to $81m. Kids sales, meanwhile, were down 11.9% to $142m, with total margin down by 12.5% to $27m as a result of lower sales in China and Europe due to challenges in retail environment.
The company moved to a net loss of $284m in the period from earnings of $26m a year earlier. Total margin narrowed to 26.8% from 31.4% in the year-ago period as a result of higher royalty and heavier discounting.
Compared to the same period last year, operating costs jumped by 48.9% to $321m, mainly due to gains related to the sales of Frye’s intellectual property, and Sean John Asia, and the US home business.
Global Brands Group says it is now implementing a “substantial” restructuring programme in order to reduce operating expenses and drive efficiencies throughout the company. This will involve simplifying company processes, from design to product development and sourcing, while crafting plans to move these functions “closer to the needlepoint”. There are also plans to use new technologies such as 3D design and virtual sampling, to accelerate the product design and development process.
“As we embark on our new journey, I believe that our unique competitive strengths, our global platform and the scale of our distribution capabilities, will enable us to take advantage of the opportunities ahead,” says CEO Rick Darling. “We will continue to grow our portfolio organically, further build on the strengths of our brands, and expand our CAA-GBG Brand management business, particularly in Asia, while ensuring the strength of our balance sheet.”
Darling, however, warned on what he said will be a challenging environment ahead, in which the company will need to continue to innovate.
“Trade tensions between the US and China continue to affect our industry in the US Brexit uncertainty has emerged as a growing concern in the UK and Europe,” he explains. “Raw material prices are rising globally. The US retail scene, while strong, is shifting with new winners and losers. The direct-to-consumer segment continues to grow both online and physically and has created many new brands that are emerging to grab market share.”
In a separate announcement, Global Brands Group revealed the sale of its GBG Stallion Holdings business – the wholly-owned subsidiary of which, GBG Stallion (Shanghai) Retailing Co. Ltd is a distributor of kids’ clothing lines in China – to Grafham Holdings in a deal worth $20m.
The company says the business was underperforming and it therefore wanted to eliminate its exposure to operating losses as a result. It will also release resources, allowing the group to focus on its remaining core businesses.
Grafham will have absolute control over the GBG Shanghai business with effect from 1 October 2018. The company is headquartered in the British Virgin Islands and is a part of Fung Investments, the private investment arm of the families of Dr Victor Fung Kwok King and Dr. William Fung Kwok Lun, the controlling shareholders of the Fung Group.