Adhoc News

Charles Vögele reduces expectations of operating profit margin:

In a hard-fought market, clothing retailer Charles Vögele Group increased net sales in the first half of 2008, reinforcing its market position. However, with difficult operating conditions affecting the entire clothing industry, sales growth was not high enough to compensate in full for the higher operating costs, which were caused in part by expansion activities. Consequently, the company has revised its margin forecast at the level of operating earnings before depreciation (EBITDA) to 8% – 11% for the 2008 financial year.

Results for the first half of 2008:
Economic conditions and weather dampen results
Charles Vögele Group increased net sales in the first half of this year by 1% – or 2% after adjusting for currency – to CHF 676 (previous year CHF 672 million). This sales growth was achieved despite the poor weather conditions that considerably hurt the whole clothing industry in March, April and the first half of June. In our most important markets, Germany, Switzerland and Austria, the overall clothing retail market shrank by between 2% and 4%. Despite the difficult environment, Charles Vögele Group consolidated or increased its market share in these key markets. At Group level, like-for-like sales fell by 1% after adjusting for currency.

Gross profit for the period under review fell from CHF 428 million a year ago to CHF 422 million. This resulted in a gross profit margin of 62.4% (previous year 63.6%). The lower gross profit can be explained by the shift in sales from full-margin months to months in which sale prices were offered, as well as by the discounting campaigns used to clear selected inventories. The cost of premises, personnel and logistics went up in all markets, partly because of expansion, meaning that total operating expenses in the first half of 2008 were 3.6% higher than in the same period last year. Excluding expansion markets, operating expenses rose by 1.7% due to the factors mentioned above. Overall operating earnings before depreciation (EBITDA) came in at CHF 49 million (previous year CHF 67 million), giving an EBITDA margin of 7% (previous year 10%). After deducting depreciation, which rose by more than 5%, operating earnings (EBIT) were CHF 18 million (previous year CHF 38 million). Net profit for the first half of 2008 was CHF 6 million (previous year 23 million). During the period under review, free cash flow went up to CHF 9 million (previous year CHF -15 million), while net debt fell to CHF 144 million (previous year CHF 179 million). Inventories at CHF 280 million were lower than both the year-back figure (CHF 293 million) and the figure at the end of 2007 (CHF 289 million).

Eastern European expansion on schedule
The Eastern European sales organizations – covering the expansion markets of Slovenia, Hungary and Poland, and the pilot market of Czech Republic – increased sales to CHF 29 million in the first half of 2008 (previous year CHF 15 million). These sales organizations are already generating 4% of group sales (previous year 2%). This increase is due partly to the six new stores opened in Hungary, and partly to the increase in sales on existing floorspace. There was another significant rise in like-for-like sales of more than 4% in Hungary, but due to difficult economic conditions in the country sales did not meet expectations. By contrast, sales growth in Poland, the Czech Republic and Slovenia was on target.

Operating loss at the EBITDA level came to CHF 2 million at the mid-point of 2008 (previous year CHF 0.3 million). This loss was caused mainly by the cost of building up organizational and staffing infrastructure for the Eastern Europe Sales Organization, as well as by costs incurred in the run-up to new store openings, and by the lower-than-expected sales growth in Hungary. As at 30 June 2008, Charles Vögele Group had a total of 37 branches in these markets (same time last year: 20 branches).

CEO Daniel Reinhard: «We are investing in the future»
«Expansion in our existing markets and into Eastern Europe continues to represent a crucial investment in our company's future. We will press ahead with these efforts as planned. Despite the difficult operating conditions and tough competition, we have been able to consolidate and expand our market position. This gives us a solid basis for Charles Vögele Group's further growth.»

Operational outlook for the second half of 2008
Given the current turmoil on the financial markets and the associated slowdown in economic growth, Charles Vögele Group believes that consumer sentiment in its markets will deteriorate in the second half of 2008. For the year as a whole, the company expects sales to develop in line with or better than the market as a whole. The company expects its margin at the level of operating earnings before depreciation (EBITDA) to be between 8% and 11% for the 2008 financial year. In the medium term the company is sticking to the margin range it originally announced, i.e. 11% –13%.

Charles Vögele Group's activities will concentrate on continued expansion in all its markets, with a particular emphasis on new store openings in Germany, Hungary and Poland. The branch portfolio will grow substantially in the second half of the year, with more than 30 new openings.

Detailed information on the first half of 2008 will be made public at the regular results press conference in Zurich on 26 August 2008.

Charles Vögele Holding AG
Charles Vögele Holding AG is a leading independent European clothing retailer with 834 sales outlets in Switzerland, Germany, Austria, Belgium, the Netherlands, Slovenia, Hungary, Poland and the Czech Republic. In the first half of 2008 it employed a total of 7,715 people. Charles Vögele Holding AG’s shares are quoted on the SWX Swiss Exchange (ticker: VCH; Bloomberg VCH SW; Reuters VCHZ.S).

Pfäffikon, 8 August 2008

For further information, please contact:

Renzo Radice
Head Corporate Communications & Investor Relations
Charles Vögele Trading AG
Gwattstrasse 15
8808 Pfäffikon
Tel.: +41 55 416 71 11
Fax: +41 55 410 12 82
Email: renzo.radice@charles-voegele.com