Mango fashion made a loss, sacrificing profits for future growth

Mango Fashion

Mango did something unusual in 2016. It made a loss. The Spanish fashion retail giant said its 2016 net profit was actually a loss, with earnings dropping to -€61m after making a small profit in 2015. Gross operating profit on an ebitda basis fell to €77m from €170m a year ago.

The company’s profits have been falling for several years but this was the first-ever loss in its history. And the reason? Well, sales fell 2.9% ro €2.26bn with the first half of the year particularly tough. Plus the impact of exchange rates was felt, not just the US dollar, but the Turkish and Russian currencies too. But much of the loss is also down to the firm sacrificing short-term profits to achieve long-term growth. 

The company is investing heavily in a turnaround which understandably dented profits. And on the plus side, it expects to be back in profit for 2017 with ebitda topping €150m. Phew. 

Mango said that its sales recovery actually began in Q4 last year and has continued into 2017 with the first half of this year having exceeded sales and operating targets. In fact, ebitda has grown by over €30m so far in 2017.

This has been helped by Mango having invested heavily for growth with a spend during 2016 of €138m to open new, larger stores while closing smaller, less profitable locations. The retailer said those larger stores have been a big contributor to the profits rise so far this year. 

And its spend is also dedicated to boosting its fast fashion model with quicker launches of on-trend clothing. Those launches need to be supported, of course, and it has opened a state-of-the-art logistics centre of Lliçà d’Amunt in Barcelona.

And what else happened last year? Some 79% of the firm’s turnover came from outside of Spain while the rest was from its domestic market. The Man, Kids and Violeta lines now make up 17.6% of turnover, compared to 14.7% a year ago.

Additionally, online sales surged 25.6% to €294m and now make up 13% of total sales. The company has ambitious targets for e-tail with it wanting the channel to make up 20% of total sales by 2020.

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