Warpaint London profits fall, EU business expands, more deals in the offing
Warpaint London, the listed beauty specialist that owns the W7 and Technic brands, reported its 2019 results on Wednesday and while profits fell, it said group revenue rose 1.6% to £493 million with international revenue up 8.3% to £26.6 million.
UK revenue accounted for 46% of the total, down from 49% a year earlier, as global sales grew. In fact, the two core brands delivered continued export sales growth of 8.6% year-on-year, with the EU seeing growth of 26.5%.
But the gross profit margin fell to 33.5% from 35.5% due to the impact of lower-margin US sales and adverse exchange rates. However, excluding the US business and on a constant currency basis, the gross profit margin improved to 39% from 36.9%.
Reported profit before tax was £1.8 million, down from £4.7 million. Profit was hit by increased investment in marketing and those lower margins.
Chairman Clive Garston called the performance "satisfactory" and said the current trading year ahead had a positive start. He also highlighted the fact that since the end of the year, “the W7 range has been successfully launched into Tesco, and early results are encouraging”.
As announced in February, a core range of 100+ W7 products are being displayed in 56 Tesco stores across the UK and “active discussions are taking place with other major retailers”.
But Garston also said that “the Covid-19 pandemic is casting a giant shadow and Warpaint is not immune to it. Trading for the first two months of the current year was at the upper end of the board's expectations, but since then there has been a substantial reduction in sales as a result of lockdowns, which have caused the closure of many of [its] customer's retail outlets in the UK and in other markets”.
The company has modelled a number of scenarios for trading this year and next and said it has erred on the side of being conservative. But it believes “Warpaint has sufficient financial strength to withstand such disruption for at least the next 12 months”.
Looking more closely at 2019's performance, sales of its branded colour cosmetics accounted for 80% of revenue and W7 accounted for 46% of the total.
Tough trading conditions on the UK high street continued with “certain retailers struggling to survive in their present form”. As a consequence of this, UK revenue of W7 was down 5%. The ongoing Brexit uncertainty and a winter election adversely affected spending patterns, shopping behaviour and consumer attitudes.
It has now implemented a strategy in the UK “which we believe will increase sales of the W7 brand in the medium term, we are seeing the green shoots of this strategy with the recent successful launch of the W7 brand into Tesco. However, this has now been impacted by the effect of the coronavirus pandemic”.
While the UK was challenging, the W7 brand continued to grow in Europe increasing sales by 21%. But in the US, overall sales were down 11% on a like-for-like basis, partly due to the collapse of Forever 21 in September 2019.
In the rest of the world sales were down 18%, with falls in Puerto Rico, China and New Zealand, but there were increased sales in other markets, notably Australia, Peru and South Korea.
The impact of Covid-19 has been “significant”, resulting in the cancellation, reduction or deferment of orders. More recently though, the firm has seen a gradual improvement in orders from customers in all regions. However, overall performance is still well below its pre-Covid-19 expectations, and it remains too early to provide guidance.
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