Hela Apparel Holdings sees top line growth in 3Q; profit down

Hela Apparel Holdings PLC said this week it navigated an exceptionally challenging global operating environment during the third quarter of FY 2022/23. 

While the Group’s quarterly revenue of Rs. 21.8 billion represented a 44.8% increase compared to the same period of the previous year, this primarily reflected the impact of the rupee’s depreciation during this interval. In US Dollar terms, the Hela Group reported a decline in revenue of 19.7% year-on-year, as a result of the marked downturn in consumer demand in its key export markets and elevated inventory levels among major global apparel brands.

The adverse operating conditions in the Group’s major export markets in Europe and North America also weighed heavily on profit margins, despite proactive cost reduction measures being taken during the quarter. The significant drop in export sales contributed to a 370 basis point year-on-year contraction in the Group’s gross profit margin to 10%, as capacity utilisation rates decreased across its global network of manufacturing facilities. A rise in finance costs as a result of increased interest rates, as well as the hike in corporate tax rates, were also significant drags on profitability. As a result, the Hela Group recorded a post-tax loss of Rs. 1.7 billion in the third quarter. 

Despite the challenging circumstances, the Group’s balance sheet remained in a robust position at the close of the third quarter. The Net-Debt-to-Equity ratio stood at 1.8 at the end of December 2022, compared to 3.8 during the same period of the previous year.

In a statement accompanying the financial results, the Company identified tentative signs of stabilisation in the economic outlook for its key markets. It cited the declines in inflation rates recorded in recent months across Europe and North America, as well as the ongoing strength of labour markets in these economies, as indicators of a more resilient outlook for consumer spending. Nonetheless, it struck a cautious tone and emphasised the need to remain agile in the evolving operating environment to ensure a return to profitability in the short term. It also highlighted the management team’s confidence in the strength of the company’s value proposition, underpinned by its competitive global manufacturing footprint and strategic customer relationships, as positioning it well to take advantage of a future recovery in demand.