The last financial statement is okay, but auditors launch a new warning for Clarks

The last financial statement is okay, but auditors launch a new warning for Clarks

“Auditors launch a new warning over future of Clarks. It’s the title chosen by the Times for the article that photographs the current state of the British brand that has been under the ownership of Lion Rock Capital for the last two years. The financial statement closed on January 29th 2022, published just a few days ago, seems to cast a light over the darkness previously present. Sales increased by 19% and the company’s return to profitability certify the solid achievement of the approach implemented to reposition the brand. Yet, there is still a long way to go to make the company financially solid.

Auditors “launch warning”

EY, which acts as auditor for Clarks, warns that, given the current context during which consumers may reduce their purchases, the company may find it difficult to respect the agreements reached with banks. The comment is also tied to the re-financing agreement thanks to which the brand obtained a credit line of 250 million USD with a 5-year duration. Simply put, a reduction of sales could bring the group in the red, which would in term trigger the connected financial risks.

Profitable once again

All these considerations were made even with a solid financial statement for the fiscal year that ended last January 29th, which shows sales up 18.7% to 920.3 million UK pounds. The year closed with 55.4 million pounds of profits, compared to the 180.2 million loss of the previous fiscal year. Results that Clarks attributed to the group’s “recovery and repositioning period”.

Inventory challenges

Richard Hyman, analyst of the retail segment, explained to the Times that the footwear market is complicated, especially when it comes to managing leftover stock, which represent the largest cost for companies. Having the right amount of stock is a great challenge for all retailers. “Having too much stock is troublesome, as is having too little – he states -. At a time period during which consumption weakens, it’s easy to be vulnerable. Clarks has the advantage of scalability, but the disadvantage of having many physical stores”.

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