Seraphine, a leading maternity wear specialist, has recently issued a profit warning, despite experiencing impressive sales growth in the second half of its financial year. Sales in the 17-week period leading up to the end of January saw a significant increase of 45% based on constant currency. In North America, sales spiked even more, reaching a remarkable 69%. However, the company faced challenges in February, with a slowdown seen across all markets and channels, and the retail store trading environment remaining exceptionally difficult.

Although Seraphine expects a recovery in e-commerce demand in the upcoming months, traditionally a stronger period due to the launch of new spring and summer collections, it now anticipates full-year revenue to be slightly below current expectations. The impact on profit, however, is projected to be more significant. The company has identified several margin and cost challenges that will affect its Adjusted EBITDA for FY22, with a forecast of approximately £4.5 million, significantly below current expectations.

So, what were these challenges exactly? Firstly, weaker demand in February led to higher customer acquisition costs. Additionally, underestimation of sales tax and duties on outbound and returned goods in new markets like Canada and Switzerland had an adverse impact. The company also faced higher-than-anticipated promotional activity in December and January to clear increased seasonal products resulting from delayed stock issues in the summer, which affected the gross margin. Furthermore, inflation in warehousing and transport costs since the beginning of the year played a role in these challenges.

To tackle these issues, Seraphine’s management has implemented a series of actions. These include eliminating duty charges on customer returns from non-EU markets through bonded warehousing, registering for and collecting sales taxes at checkout in Canada (as already done in the US), and negotiating a new long-term agreement with its third-party logistics supplier. Additionally, the company has closed its Madison Avenue retail store and changed the lease of its Soho, New York store to a turnover-based rent. These measures are expected to have a positive impact during the current financial year (FY23), with the company anticipating sales growth of 25%-30% and a gradual rebuild of EBITDA margins.

Despite the profit warning, Seraphine remains confident in its long-term prospects. The company is committed to expanding its digital presence and adapting to the evolving retail landscape. With a strong brand reputation and a loyal customer base, Seraphine is in a favorable position to overcome the current challenges and drive future growth in the maternity wear market.

Useful Links:
1. Seraphine Official Website
2. BBC News (for latest industry updates)