Jack Wolfskin could reportedly face debt restructuring measures relating to debt of €365 million, as the German outdoor brand's performance is deteriorating and it may struggle to comply with the conditions set forth in agreements with lenders.
While Jack Wolfskin declines to comment on the situation, Reuters reports that the company has appointed advisers to restructure its debt as the group's earnings for next year are likely to reach about half the level that was anticipated.
Jack Wolfskin was acquired in 2011 by the Blackstone Group, the private equity firm, in a leveraged buy-out worth about €650 million. The brand was bought from Quadriga Capital and Barclays Private Equity, backed by debt of €485 million, but its sales came under pressure shortly thereafter. The most recent sales figure published by the company was €345 million in 2013.
After an internal review ordered by Blackstone, the creditors are expected to come forward with debt restructuring proposals in January. Several sources indicate that the group's earnings for next year are now expected to come in at €30 million. The rating of the company's loans has tumbled. Jack Wolfskin apparently faced financial issues already last year, since it was reported that Blackstone injected about €75 million into the company to help reduce the debt and improve its loan terms.
Jack Wolfskin makes a large share of its sales in Germany, where the expansion of the outdoor market has become more subdued and Jack Wolfskin has been hurt more than others due to what some sources have described as over-distribution. The group then strove to diversify in other markets, from China and Russia to the U.K., with mixed results.
The brand's partnership in China with Tristate Holdings proved most productive. It opened about 600 stores around the country and turned Jack Wolfskin into one of the five leading outdoor brands in China. Tristate Holding reported that Jack Wolfskin had sales of about HK 962 million (€117.3m-$124.0m) in 2013. But in 2014, the German company started negotiating an early termination of the agreement, which had a significant impact on the group's financial situation. It meant that the Chinese sales could be consolidated, then again Jack Wolfskin agreed to compensate Tristate with set fees until the end of 2017, at a time when the Chinese outdoor market no longer delivered rapid sales growth.
The group's investments in Russia started off well but were hit by the sudden collapse in the country's currency and the economic situation. Other improvements in Europe are unlikely to make up for the declining appetite for the brand in Germany, where Jack Wolfskin has been sliding down the rankings of preferred brands. That has reduced the profitability of some franchised stores, encouraging them to switch to another business when their agreement expires.
Melody Harris-Jensbach, the group's chief executive for the last two years, has apparently been striving to widen the target group for the brand, with fashionable ranges and marketing that focuses on lifestyle. The brand has also come up with a high-end fashion range. However, some sources suggest that this may have diluted the appeal of Jack Wolfskin as an outdoor brand and apparently failed to significantly improve sales.