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Financial guidance for 2020

On 25 March 2020, Marimekko withdrew its earlier financial guidance for 2020 solely due to the estimated impacts of the coronavirus pandemic. As Marimekko stated on 14 May 2020 in its interim report, the coronavirus pandemic will have a significant negative impact on Marimekko’s net sales and profitability in 2020. As the situation is changing rapidly, it is still not possible to give any precise estimate of the impacts of the pandemic on business.

Risks and uncertainties related to the coronavirus pandemic are described in the Major risks and factors of uncertainty section of this half-year report.

Key figures

The change percentages in the table were calculated on exact figures before the amounts were rounded to millions of euros. The figure for comparable earnings per share takes account of similar items as comparable operating profit; tax effect included.

* Due to the adoption of IFRS 16, the ratio of net debt to EBITDA at year end was reported for the first time at the end of the financial year 2019. The key figure is calculated based on comparable rolling 12-month EBITDA.

** The figures for gross investments do not include the impact of IFRS 16.

*** Brand sales are given as an alternative non-IFRS key figure. Brand sales, consisting of estimated sales of Marimekko products at consumer prices, are calculated by adding together the company’s own retail net sales and the estimated retail value of Marimekko products sold by other retailers. The estimate, based on Marimekko’s realized wholesale sales and royalty income, is unofficial and does not include VAT. The key figure is not audited.

Tiina Alahuhta-Kasko, President and CEO, in conjunction with the report:

“Marimekko was able to adjust its operations quickly in the exceptional situation caused by the coronavirus, and our result in the second quarter was a good achievement considering the difficult circumstances.

“During the period under review, the global fashion industry and specialty retail sector faced the worst crisis seen in several decades. The coronavirus pandemic brought discretionary consumption to a halt, which has led to serious financial difficulties for many players and has already toppled several significant companies in our industry. Dramatically, due to the pandemic, the doors of most Marimekko stores around the world closed temporarily. Nevertheless, thanks to our loyal customers and highly competent personnel, our wholesale sales, online sales and licensing income helped us restrict the decline in our net sales to 20 percent. In the April-June period of 2020, our net sales amounted to EUR 23.3 million (29.1). Net sales were weakened especially by a decline in retail sales in Finland, North America and Scandinavia as well as a decrease in wholesale sales in the Asia-Pacific region. Net sales in Finland fell by 32 percent, while international sales only decreased by 3 percent.

“Wholesale sales overall were nearly at the same level as in the comparison period, which supported net sales, and I wish to take this opportunity to thank our long-term partners for their strong cooperation during the crisis. Net sales were also boosted by a better-than-expected trend in licensing income in the Asia-Pacific region, which speaks to the appeal of our brand. Substantial growth in online sales offset some of the lost sales from our own stores: retail sales only declined by 37 percent in spite of the fact that the majority of our own retail stores were closed for most of the second quarter due to the pandemic.

“Our comparable operating profit was at a good level considering the difficult circumstances, although it fell to EUR 2.7 million (3.7) in the second quarter due to reduced sales and a weaker relative sales margin. The relative sales margin was negatively affected in particular by higher logistics costs resulting from a significant increase in online sales as well as discounts being bigger than in the comparison period. At the same time, however, the relative sales margin was supported by increased licensing income and good product margins. We quickly initiated an ambitious cost saving program in the early stages of the coronavirus pandemic. The effects of this program were clearly evident during the review period and our result was improved by a substantial reduction in fixed costs.

“We have developed our digital business for many years now. When our stores were temporarily closed, we had the agility to move our sales and marketing promotions online, including our popular annual springtime Friendship Sale promotion in Finland. Strong growth in the online demand for our products continued in the second quarter too and, working together with our recently-started new logistics partner, we were not able to increase the delivery capacity of our online store as quickly as necessary. We truly regret that our customers had to wait for their orders longer than usual. After the end of the review period, we have managed to rectify the situation and the delivery times of our online store have returned to normal. Nevertheless, the postponement of deliveries due to capacity challenges meant that approximately EUR 0.7 million in retail sales were left unrecognized as revenue for the second quarter.

“In the January-June period of 2020, our net sales fell by 14 percent to EUR 48.2 million (56.3) and our comparable operating profit declined to EUR 3.9 million (6.3) due to the impacts of the exceptional circumstances.

“Digitization and changes in consumer values — particularly the increased significance of sustainability — have been shaking up the global fashion industry for several years now, and we expect that the transformations driven by these megatrends will be considerably accelerated by the pandemic. Since 2018, at the core of Marimekko’s long-term strategy has been the pursuit of strong profitable growth through speaking to a broader global audience. Our strategy is based on the view that the industry’s megatrends present excellent growth opportunities for the Marimekko lifestyle, which is sustainable, timeless and stands out from the competition. Our mission — empowering people and bringing joy to their everyday lives — and our values are now more meaningful than ever, which is also reflected in the growing international interest in our brand.

“At the beginning of June, we announced that the visionary Rebekka Bay will take up the post of Creative Director at Marimekko in September to support our creative community in developing the appeal of our collections even further. For us at Marimekko, sustainability represents a comprehensive approach to our operations and value creation, and we will publish our new and even more ambitious sustainability strategy later this year. The pandemic has accelerated the shift to digital sales channels among customers — including new customer groups — and this will also influence Marimekko’s distribution channel choices in the future. We will continue our strong investment in e-commerce, which is becoming more and more significant, along with a seamless omnichannel customer experience.

“To strengthen our future competitiveness, it is important for us to simultaneously develop further the efficiency, flexibility and agility of our entire value chain and see to it that our organization structure, competencies, job contents and working methods respond in the best possible way to this dramatic transformation in consumer behavior, driven by digitization and other external dynamics intensified with the pandemic. Therefore, in order to reorganize and streamline our operations, we unfortunately have to initiate consultative negotiations in Finland and corresponding processes in our organizations in Scandinavia, North America and Australia. With these unfortunate but necessary measures, we aim to secure the financial position of our company in the long term.

“The first half of 2020 has been completely exceptional and characterized by rapidly changing circumstances. We have learned tremendously and successfully developed new operating methods and capabilities that will be useful if the pandemic is prolonged or other crises of a similar nature happen in the future. I want to extend my warmest thanks to everyone at Marimekko for their persistence, excellent work and unique team spirit during a very challenging period. I am convinced that, even if ensuring our competitiveness in a market undergoing a great transformation occasionally requires very unfortunate measures, we will emerge from this crisis even stronger than before.”

Market outlook and growth targets for 2020

The coronavirus that spread rapidly all over the world during the first quarter of 2020 created the worst crisis experienced by the global fashion industry and specialty retail sector in decades. It has taken uncertainty over the global economy to a completely new level and has an impact on consumers’ purchasing behavior. The exceptional circumstances have an impact on Marimekko’s sales, profitability and cash flow. Furthermore, the global crisis may affect the operational reliability of the company’s value chain. The duration of the pandemic, possible new infection waves and the way the crisis is handled by different countries influence the depth of the economic recession in different markets.

Finland, Marimekko’s important domestic market, traditionally represents about half of the company’s net sales. To take care of the health of its personnel and customers, Marimekko decided in March to temporarily close its own retail stores in Finland. The stores, with a few exceptions, were reopened in stages in May and June with elevated health and safety measures in place and with limited opening hours. Demand for products in Marimekko’s online store increased significantly over the spring and summer. Domestic wholesale sales in 2020 will be boosted by nonrecurring promotional deliveries, the total value of which will be substantially higher than last year. A vast majority of the deliveries will take place in the second half of the year. The outlook for Marimekko’s domestic market and the company’s consolidated net sales and earnings essentially depend on the trend in customer numbers in retail stores during the rest of the year and whether there will be new major coronavirus infection waves in the fall.

The Asia-Pacific region is Marimekko’s second-largest market and it plays a significant part in the company’s internationalization. Japan is clearly the most important country in this region to Marimekko. The other countries’ combined share of the company’s net sales is still relatively small, as operations in these countries are at an earlier stage than in Japan. Japan already has a very comprehensive network of Marimekko stores. All Marimekko stores in Asia are partner-owned. The Japanese stores were closed in stages during April and they started to reopen their doors gradually in mid May. The Marimekko stores in mainland China, Hong Kong, South Korea and Taiwan were open in the second quarter, mainly with normal hours. The stores in Thailand closed temporarily in mid March and were reopened in mid May. The temporary closure of Marimekko stores in Asia, possible new infection waves and the impacts of the pandemic on consumer sentiment affect the company’s outlook for wholesale sales in the region. At the end of the period under review, all Asian Marimekko stores were open, partly with limited hours. Some of Marimekko’s own retail stores in Australia have been closed again due to regulations made after the end of the review period. Despite the pandemic, the company continues to see increasing demand for its products in the Asia-Pacific region in the longer term.

In 2019, Marimekko became aware of cases of grey exports and has taken due action. The control of the cases will have a clear weakening impact on the company’s sales and earnings in 2020.

Licensing income in 2020 is forecast to be approximately at the same level as in the previous year thanks to better-than-expected estimated development.

The importance of e-commerce in the company’s business has continued to grow in 2020, and online sales are expected to perform well in the second half of the year as well. The full-year outlook for retail sales essentially depends on the return of customer flows to stores during the rest of the year in each market as well as possible new infection waves which may require temporary closures of Marimekko’s own retail stores. The company’s wholesale partners’ and customers’ recovery from the crisis can impact their replenishment orders during the remainder of the year, and so Marimekko’s full-year outlook as well. Full-year wholesale sales will be substantially supported by nonrecurring promotional deliveries in Finland. The company’s aim is still to open approximately 10 new Marimekko stores and shop-in-shops in 2020. The main thrust in new openings is on retailer-owned Marimekko stores.

At the outset of the coronavirus crisis, Marimekko quickly made contingency plans in its supply chains to ensure continuous production and logistics, and the plans are continually updated. The exceptional circumstances have so far only had a minor impact on the supply chain. Instead, continued strong growth in demand for products in the online store and wholesale delivery problems caused by the pandemic posed challenges to Marimekko’s logistics in the early part of the year. As a result of growth in online sales, the company expects full-year logistics costs to increase on 2019.

To secure profitability and cash flow, Marimekko drew up an ambitious fixed-cost saving program and promptly started to implement it. The effects of the program were clearly evident especially in the second quarter, when the majority of Marimekko’s own retail stores were temporarily closed and the company achieved substantial savings in personnel expenses and rents, among other things. Fixed costs are expected to decrease in the second half of the year as well, but more moderately than in the early part of year. Marketing expenses are estimated to be substantially lower than in the previous year (2019: EUR 7.4 million). The company expects its total investments to be lower than in the previous year (2019: EUR 2.6 million). The estimated effects of the long-term bonus system targeted at the company’s Management Group will depend on the trend in the price of the company’s share during the year.

Media and investor conference

A conference for media and institutional investors will be held in English on 13 August at 2.00 p.m. EET. A live webcast of the conference can be followed at https://marimekko.videosync.fi/2020-q2-results, and a recording of the webcast will be available at the same address later. Questions can be asked during the live webcast in writing.

Further information:

Tiina Alahuhta-Kasko, President and CEO, tel. +358 9 758 71
Elina Anckar, CFO, tel. +358 9 758 7261

MARIMEKKO CORPORATION
Corporate Communications

Anna Tuominen
Tel. +358 40 5846944
anna.tuominen@marimekko.com

DISTRIBUTION:
Nasdaq Helsinki Ltd
Key media

Marimekko is a Finnish lifestyle design company renowned for its original prints and colors. The company’s product portfolio includes high-quality clothing, bags and accessories as well as home décor items ranging from textiles to tableware. When Marimekko was founded in 1951, its unparalleled printed fabrics gave it a strong and unique identity. Marimekko products are sold in about 40 countries. In 2019, brand sales of the products worldwide amounted to EUR 251 million and the company's net sales were EUR 125 million. Roughly 150 Marimekko stores serve customers around the globe. The key markets are Northern Europe, North America and the Asia-Pacific region. The Group employs about 450 people. The company’s share is quoted on Nasdaq Helsinki Ltd. www.marimekko.com

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