Helly Hansen is anticipating increased gains in sales and profits this year, after it restructured its product offering and cleaned up its distribution to target more specialist retailers. Orders for the Norwegian sailing and winter sports brand's autumn/winter range are up at a double-digit rate, led by stronger demand in the Nordics and other European countries.
Helly Hansen saw its turnover increase by 6.4 percent to 2,661 million Norwegian kroner (€280.8m-$313.7m) in 2016. This includes one-off revenues of NOK 206 million (€21.7m-$24.2m) from the sale of Japanese rights, as described further, but the company still reported organic growth of 4 percent. The rise was driven by skiing and sailing wear, along with base layers, and it was achieved in spite of a 25 percent reduction in the brand's product range.
Helly Hansen's gross profit margin amplified by 1.5 percentage point to 42.9 percent and its operational Ebitda jumped by 24 percent to NOK 204 million (€21.5m-$24.1m), with all countries reporting profit. The group's working capital was reduced to 27 percent of sales, compared with 31 percent in 2015 and 52 percent in 2014.
The cash flow from operations was doubled to NOK 235 million (€24.8m-$27.7m). The company released cash and capital to reduce interest-bearing debt, down to NOK 88 million (€9.3m-$10.4m) excluding shareholder loans, compared with NOK 222 million one year earlier. However, Helly Hansen's financial expenses reached NOK 395 million (€41.7m-$46.6m). They led to a net loss of NOK 138 million (€14.5m-$16.2m) for the year, which was a sizeable improvement compared with a negative result of NOK 302 million in the previous year.
The uptick comes after the appointment of Paul Stoneham as chief executive two years ago, which led to a raft of measures to sharpen Helly Hansen's product range and its distribution. The adjustments are to focus on Helly Hansen as a performance brand for mountain and water sports, chiefly targeting specialist retailers in Europe and North America. The company also set out to reduce costs and to become more efficient, with measures such as the repatriation of its sourcing operation.
The changes should have a stronger impact on sales from this year, because the focused approach has started to fully transpire in Helly Hansen's product range. The projected rise in sales should be the main driver for further increases in profits.
The Norwegian brand's managers have been particularly active in cleaning up distribution in North America, which has grown to make up about one-third of Helly Hansen's turnover. It pulled out of department stores and mass market retailers to work more closely with specialist accounts, while closing down seven of its eight outlets in the region. The moves have enabled Helly Hansen to become profitable in North America last year.
At the same time, Helly Hansen intends to pump resources into the North American market to open branded stores. It currently has just one of them in North America, in Annapolis, Maryland, near a naval base. However, the group is envisaging the opening of about twenty North American stores in the next four to five years, in urban areas as well as mountain and water areas. They should be a mixture of own and franchised stores.
Its focus on the European and North American markets has encouraged Helly Hansen to rearrange its distribution in several other markets, starting with the sales of its Japanese rights to Goldwin, its long-time licensee for the Japanese market. They were sold for the equivalent of NOK 223 million (€23.5m-$26.3m). The deal yielded a one-off Ebitda gain of NOK 206 million (€21.8m-$24.3m) after tax, which is not included in the operational Ebitda. The group studied the option to take back the rights, as it has done in several other cases in the last years, but settled on a sale that would support investments in other parts of the company.
Another market from which Helly Hansen stepped back is Australia. The group had a subsidiary in Sydney to cover the Australian and New Zealand markets, but it decided six months ago to transfer the distribution rights to Hullabaloo, its partner in South Africa. The idea was to bundle together distribution rights for sizeable markets in the southern hemisphere.
Another change was implemented around the end of last year in Russia, where Helly Hansen took full control of its joint venture with Igor Roganovic. He remains on board to drive the Russian business, which was turned around two years ago to deliver growing sales and return profits. The entity achieved strong double-digit growth last year, both in reported terms and in constant currencies. Helly Hansen has two outlets and 13 brand stores in Russia, all owned by the company and most of them in upscale shopping centers. The group opened four stores last year and estimates that the number could double in the next five to seven years.
As it anticipates accelerated sales in the next three years, Helly Hansen is building up its supply chain. The company opened a new North American distribution center and it launched a new online retailing platform. Helly Hansen also opened a sourcing office in Hong Kong late last year, employing some former staff of Li & Fung, its long-time sourcing agent, and several other managers.