Intimacy Stores Losing Money For Van de Velde

The Intimacy chain of lingerie stores lost money for its parent company for the first time in 2014, and as a result of continuing declines there, the publicly trade lingerie firm Van de Velde was forced to register an impairment charge of 31.4 million euros.

That Intimacy write down took a huge bite out of Van de Velde’s earnings for 2014. Net income was only 2.926 million euros on sales of 198.366 million euros in 2014 compared to earnings of 31.153 million euros on lower sales of 182.433 million euros in 2013. Conversely, operating profit for Van de Velde, before accounting for the impairment (as well as taxes and other expenses), was 49.541 million euros last year, compared to 39.384 million euros in 2013.

“Intimacy is a big, unexpected disappointment, which keeps both our feet on the ground,” Van de Velde declared in its recently released annual report for 2014. The Belgian company began to acquire the U.S. retailer, in stages, in 2007, and in the current annual report it revealed, “The turning point in like-for-like growth came in 2008 (which was a tough year in the United States), but Intimacy’s decline has gone on too long.”

Over the eight years that Van de Velde was expanding its ownership stake at Intimacy (which finally reached 100% in early 2015) it repeatedly predicted it would be able to turn things around at the retailer, only to admit at the end of each reporting period that it had not been able to do so. The new owner had hoped that as it dramatically increased the percentage of its own brands (PrimaDonna, Marie Jo and Andres Sarda) in the stores and was able to exert greater management control (as it increased its ownership share) things would get better. But that did not happen.

Now, with Intimacy actually losing money for the first time, management appears motivated to try something different. “Major challenges await in 2015. First and foremost, in the United States we will have to thoroughly evaluate our retail subsidiary Intimacy,” declared Lucas Laureys, chairman of the board, in a statement that opened the current annual report. Elsewhere in the report the company emphasized, “At Intimacy we cannot allow the cash drain experienced in 2014 to continue.”

Nowhere in the annual report, however, does the company explain what new remedies it will implement to stop the losses at Intimacy. Opening more stores may not be the solution. Currently there are 16 locations (one store was added during the past year), and in last year’s annual report Van de Velde had said it was planning to continue to open one new Intimacy store each year through 2017. That statement was not repeated in this year’s report.

“In the United States we have been unable to get Intimacy’s engine running. This is despite the same principles being applied as in other countries,” admitted the company in the annual report. “Marketing continues not to be strong enough in the United States and implementation on the shop floor could be better – despite the best efforts of local management.”

Elsewhere in the 2014 report, the company explained the steps it took to arrive at the 31.4 million euro write down for Intimacy, concluding, “As a consequence, the value of both goodwill and the brand with indefinite useful life is zero.” It continued, “The profitability of Intimacy continues to suffer from a further turnover decrease and the turnaround at Intimacy remained elusive in 2014. In addition to a significant loss on a stand-alone basis (Intimacy’s stores), Intimacy recorded negative consolidated REBITDA [ Recurring Earning Before Interest Taxes, Depreciation and Amortization ] (including the margin on Van de Velde brands sold through Intimacy) for the first time in 2014. The targets were not achieved and Intimacy’s performance also fell short of the targets set when the majority stake was acquired in 2010, which were used as a basis for the valuation in 2010 of the goodwill and the other intangibles in accordance with IFRS [ International Financial Reporting Standards ].

Despite the isolated problems at Intimacy, “2014 was another exceptional year with regard to turnover and profitability,” for Van de Velde as a whole, wrote chairman Laureys in his opening statement. “All wholesale brands performed very well and the introduction of PrimaDonna Swim was an outstanding success. Retail advanced in the right direction – as planned – in Europe in terms of turnover and income.”

In discussing its wholesale brands, Van de Velde, reported “PrimaDonna remains the strongest” of its brands “and our most important growth vector. Statistically, women’s cup sizes are getting bigger. So PrimaDonna’s potential is growing and it also gives independent specialty shops something they can rely on.” The report also claimed “These past two years Marie Jo has shown that a better collection drives growth. Subsidiary brand Marie Jo L’Aventure has also made progress. As of 2015 not only will the brand bring the new ‘Nicky’ briefs series to market, the campaign visual will also be changed. A new team took responsibility for this and they will also ensure the way the Marie Jo image is communicated and presented is further improved.”

In addition, “sales of Andres Sarda to the specialty retailers have posted growth for three consecutive seasons. The brand has been boosted by a combination of higher turnover, slightly better margins and lower costs in Barcelona (due to restructuring in 2013). That said, there is still a long way to go before Andres Sarda fulfills our ambitions.”

Unlike the U.S., retail operations in Europe and other parts of the world have been generally good for Van de Velde. In summarizing its annual results in February, the company reported a “20.3% rise in retail turnover in continental Europe, especially due to strong like-for-like growth in Germany (14.8%) and the Netherlands (14.3%).” It also pointed to “A rise in retail turnover at Rigby & Peller in the United Kingdom by 6.8% (1.6% on a like-for-like basis) in local currency.”

In the annual report, Van de Veld stated, “Our retail strategy is to build a brand in the fitting room channel. The decision was taken to make Rigby & Peller the vanguard brand internationally,” the company explained in its report for 2014. “Rigby & Peller shops are now open in the United Kingdom, Germany, Denmark, Hong Kong and China. The strong local brand Lincherie leads the way in the Netherlands,” it continued.

“In Germany our shops experienced growth of more than 14% (on a like-for-like basis). Two Rigby & Peller shops were opened in Copenhagen (Denmark), for the time being under our own management, although independent entrepreneurs with an interest in the concept are being sought. The aim is to set up relationships with independent retailers in Germany, too, on the basis of a franchise formula.” The reported explained that “In the Netherlands all former Donker shops were converted to Lincherie in 2013, which led to very strong growth in excess of 14% (on a like-for-like basis) in 2014. The franchise shops also grew by 10%, in an otherwise steady Dutch market.”

The company has not found success operating its own stores in France and Spain, but is doing better in the U.K. “In Spain we will restrict ourselves to running the Andres Sarda flagship stores (Madrid and Barcelona). The Marie Jo boutiques have already been closed in France. Rigby & Peller moved in the right direction in the United Kingdom. 2014 saw slight growth in turnover on a like-for-like basis and a substantial strengthening of EBITDA. We want to accelerate that growth in 2015.”

Turning to Asia, Van de Velde stated that “In Hong Kong our partners Getz were on track up to the end of August, but the ‘Occupy Central’ movement resulted in a decline in a number of shops. Furthermore, the shop portfolio has been adjusted on a couple of occasions due to the short-term contracts that apply there. Shanghai is the main focus in China.”

Commenting on internet sales, Van de Velde reported “new e-commerce websites were developed in both Germany and the Netherlands for our own shops and franchisees. Rigby & Peller’s e-commerce website in the United Kingdom was taken over by Schellebelle and is run from Wichelen, which is a much more efficient approach.”