Apparel manufacturer and seller UnderCoverWear, has confirmed a net loss of $16.1 million for the 2011 financial year, following lacklustre full year guidance released in July.
The FY11 figure includes a $14.6 million write off of all remaining goodwill. Pre-impairment, the loss would have been $1.5 million, compared to a $531,000 profit in FY10.
Sales for the year ended June 30, 2011 also suffered, dropping 28 per cent from 2010 figures, to $17,049, 933. According to the company these results were driven by a large decline in consultants from 1,392 down to 917.
However, UnderCoverWear executive director Richard Lowry said the company has now identified the underlying factors affecting the business, including the drop out in consultant numbers, and has taken several measures in response.
The correction strategy includes a 25 per cent reduction in head-office staff and plans to outsource 95 per cent of production offshore, as well as plans to develop a digital sales model.
“This has been a poor year by any measure. [However,] we now have a depth of understanding of our inventory requirements and the make-up of our current inventory. We are engaged in the task of liquidating some 137,000 items of discontinued products, the proceeds of which will be used to further reduce our debt level,” Lowry said.
“This level of clearance is a distraction to the new business, however, we have built a clearance website and this will become a very valuable asset for UnderCoverWear as we build our database. This is the embryo of a new digital strategy for UnderCoverWear.”
Lowry also revealed that UnderCoverWear has recruited “a top quality designer”, along with a procurement manager “who is building offshore relationships with a focus on appropriate cost of goods, quality control and required quantities”.
The company said it will also move the business progressively back to more balanced ranges between lingerie and outerwear in an effort to reinforce the company's commitment top quality, fit and fashionability and bring the business back to strength.
“The steps taken will stabilize the company and generate a small profit over the next 12 months as we rebuild our consultant base,” Lowry said.
“The upside for the future is to build a strong digital model around, and for, our consultant base with the party plan model in addition to direct sales linked to a streamlined supply chain built on direct sourcing.”
As reported in Ragtrader.com.au, UnderCoverWear expected to suffer a loss of $2.4 million according to its initial FY11 guidance on July 26, 2011. At the time, the company also revealed that the new management team, comprising Rick Lowry,Laurie Fitzgerald and Angela Catford, were conducting an extensive review of all aspects of the business.