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Clarks blames short-term focus for drop in profits

Clarks’ group operating profit fell 59% to £45.8m for the year to January 31, after a combination of “over-ambitious business plans” and an “excessive focus on short-term performance” led to a “significant” amount of excess inventory.

Clarks

Clarks

The footwear retailer, which has yet to appoint a new chief executive following the sudden departure of Melissa Potter last September, said group turnover edged up 2.6% to £1.53bn for the year.

However, Thomas O’Neill, interim chief executive and executive chairman at Clarks, said trading conditions had been “difficult” in several markets, leading to the fall in profits.

“Difficult trading environments in the UK, Europe and the Americas, a lengthy stabilisation period in our new distribution centre in Hanover in the US and changes of executive management in early September were all significant,” he added.

O’Neill said the firm needed to restructure and address a high cost base, as well as working through a “sizeable overstock position” in the US, UK and, to a lesser extent, in the Asia-Pacific region.

“The financial effect of this build-up of inventory is that borrowing levels and financial gearing at January 31 2016 at £183.3m and 28.2% respectively are substantially higher than is normal for the group.”

During the year the business moved to a channel-led operating model, divided by retail, wholesale, outlets and online, moving away from the previous structure focused on gender-specific product developed in each region.

In addition, the decision was taken to merge the EU, UK and Ireland teams, simplifying the global organisational structure.

As revealed by Drapers in February, the restructure of its UK business resulted in 170 people leaving the company.

Clarks said it is in the final stages of selecting a new CEO and hopes to make an offer in the next few months.

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