The recently recapitalized Lafuma Group reported a net loss of €3.2 million for the first half of its financial year, through March 31, worse than its loss of €0.7 million in the same period of the previous year. However, operating charges and capital investments are being reduced as part of a debt rescheduling agreement with the banks that sets new conditions for profitability only for the financial years ending in September 2010 and September 2011.

In the first half of the current fiscal year, the group’s gross margin declined to 63.5 percent from 67.3 percent, but it would have reached 68.7 percent without a huge sale of inventories at Eider, the French outdoor company acquired in June 2008. Operating earnings before amortization and depreciation (Ebitda) fell to €1.8 million from €4.5 million in the first half of the previous financial year, but they are bound to improve.

Under the new bank covenants, the net financial debt, which reached €96.7 million as of last March 31, must reach a maximum of 4.5 times Ebitda next year, declining to 3.5 times Ebitda in the following one.

Excluding Eider, the group reduced its operating charges slightly in the first half, and the management says they will go down by more than €2 million in the second half.

Nevertheless, before extraordinary items such as the sale of the Millet brand in Korea, which brought in a gain of €4.8 million, the group suffered an operating loss (Ebit) of €3.1 million in the first half, compared with an operating profit of €0.7 million in the same period a year ago. After such extraordinary items, the group doubled its operating profit to €0.8 million.

The management assured financial analysts at a meeting last Friday that its margins would improve over the balance of the year, but it was unable to predict what will happen on the sales front, given the difficult economic situation. Orders for the coming fall/winter season are down by more than 5 percent. As previously reported, the group’s sales increased by 7.2 percent to €129.6 million in the half-year, thanks primarily to the acquisition of Eider in June 2008, but on a comparable basis they fell by 4.9 percent.

Operating results would have been €2.5 million better if sales had remained stable, said the company in explaining its poor financial performance. A loss of €0.6 million came from the integration of Eider, including the disposal of its excess inventories. The sale of close-outs under the other brands of the group caused a further loss of €2.3 million, and the process is not quite over yet. There were also restructuring and refinancing charges of €3.2 million.

Aside from these extraordinary elements, the underlying profitability improved, said the management, thanks especially to better purchasing, better production planning and higher industrial productivity rates. Further savings should be obtained through the concentration of the European logistics at only two sites in France – one for Oxbow, the group’s surf-related brand, and another one for all the other brands – and through a reduction of between 25 and 30 percent in the total number of product items by 2010.

Including extraordinary items, the “mountain division,” which comprises Millet and Eider, was the only one that made an operating profit in the first half of Lafuma’s financial year, amounting to €5.3 million after the sale of Millet’s rights in Korea. The acquisition of Eider boosted its sales by 78.0 percent to €36.8 million, but excluding Eider, which posted a loss of €0.6 million for the period, the division’s sales in local currencies declined by 4.9 percent.

The group is investing heavily on the development of Millet in Japan, where its sales are expected to grow by about 20 percent this year to about €17 million. Millet is also doing relatively well in Europe, where its orders for the fall/winter 2009-10 season are up by more than 3 percent.

Operating losses widened to €3.4 million for the “great outdoor” division of the group, which is represented mainly by the Lafuma brand, as its sales fell by 8.3 percent to €47.8 million, with declines of 3.8 percent for outdoor products and 16 percent for garden and camping furniture.

Le Chameau and other operations in the “country” division generated a slightly higher operating loss of €0.5 million on 6.5 percent lower sales of €12.9 million. However, part of the sales decline was due to the elimination of its revenues in the U.K., where the managers of a local joint venture have taken on a more important role. The division is expected to become globally profitable next year.

Oxbow suffered the biggest negative swing in its results because of its less technical and more lifestyle-oriented approach, which has made it more vulnerable to the economic crisis. The surf division of the group had a loss of €0.3 million, compared with a profit of €2.3 million in the year-ago period, while its revenues dropped by 6.5 percent to €34.8 million.

The group is trimming its investments in new stores in spite of a 20.6 percent jump in its retail sales to €18.5 million in the first half. It is testing out a couple of concessions in Go Sport stores.

As reported in the last issue, a €10.4 million capital increase launched on May 5 has resulted in a new institutional investor, CDC Entreprises, acquiring 14.6 percent of the group’s equity. The Comir Group fully exercised its right of first refusal, so it remains the largest shareholder of Lafuma with a stake of 20.3 percent. Instead the family of Philippe Joffard, president and chief executive of Lafuma, has seen its stake decline to 16.0 percent, but it will retain 22 percent of the voting rights, against 11 percent for CDC. The only other major shareholder is Fortis with a stake of 7.3 percent.