Birks Group back in black
Birks Group Inc. announced Tuesday that it has climbed out of a four-year funk, reaching profitability for the first time since 2012.
“All our stores now are profitable and their contribution to the company is positive,” said Jean-Christophe Bédos, president and chief executive officer of Birks Group Inc., in an interview with the Star.
The company reported net income for the fiscal year ended March 26 of $5.4 million (U.S.), or 30 cents per share, up from a net loss of $8.6 million, or 48 cents per share, the previous year.
The company operates 46 stores, including 26 under the Birks brand in most major cities in Canada and 17 stores in Florida and Georgia under the Mayors brand.
Six unprofitable stores have been closed over the past two years, including stores in Halifax and Saint John, N.B.
Comparable store sales increased 3 per cent in fiscal 2016, reflecting a 6-per-cent comparable store sale increase in Canada and a 1-per-cent comparable store sales increase in the U.S. market, which was adversely affected by a decline in tourism and the strong U.S. dollar.
Selling, general and administrative costs fell to $91.1 million, or 31.9 per cent of net sales, for fiscal 2016, compared to $103.7 million, or 34.4 per cent of net sales, in fiscal 2015.
The company off-loaded its corporate sales division — a business-to-business operation that supplies gifts and awards to corporations for employees — for $4.3 million.
However, gross profit was slightly down, to $109.4 million, or 38.3 per cent of net sales for fiscal 2016, compared to $117.8 million, or 39.1 per cent of net sales for fiscal 2015, due mainly to deeper promotional activity and the impact of foreign exchange, Bédos said.
Bédos joined the company in fiscal 2012 and set a course for modernizing and improving stores and the brand.
“The status quo was not a solution,” Bédos said on Tuesday.
While initial plans included expanding into China via Beijing to take advantage of the growing consumer market there, Bédos decided to put that initiative on indefinite hold after early results with a partnership proved less auspicious than forecasted.
“We don’t regret that decision to be honest with you, because it was too early,” Bédosm said, adding that, in light of the subsequent slowdown in the Chinese economy, the move was either good luck or good intuition.
“Long-term, we still remain interested in that market,” he added.
Bédos said jewelry sales in Canada were also driven by expanding the array of items at entry-level price points, at under $200. The idea is to make it possible for customers to buy jewelry as an accessory item, instead of regarding Birks as the store for a once-in-a-lifetime purchase.
Sales were also driven by the adoption of an interest-free payment plan offered to customers with terms as long as 30 months.
Moving forward, Birks is looking at a wholesale strategy that would include opening small jewelry stores within other jewelry retailers, especially in markets where stores have been closed.
“We can see there is a strong interest in having Birks in the communities where we used to have a retail store,” Bédos said.
Anew concept store in Burlington’s Mapleview Mall, launched in 2013, has been extremely successful, Bédos added, as have renovated stores at Sherway Gardens and Square One.
The flagship Birks store at Bay and Bloor Sts. will be renovated beginning in early 2017, Bédos said, and more renovations are planned.
Bédos said he does not believe that the current retail downturn is cyclical but is structural, and retailers have to reinvent themselves to be successful.
As part of its restructuring, Birks got out of the porcelain, china and crystal business to focus on jewelry and watches.
It’s trading on its heritage by emphasizing the provenance of its diamonds mined in Canada. And it’s targeting higher-end consumers with offerings such as as Van Cleef & Arpels shops inside Birks stores.
Jewelry design and prototyping has been brought in-house, resulting in a range of trademarked lines including the Birks Rock and Pearl collection, in sterling silver, endorsed by Canadian pop singer Kiesza and starting at under $200 to appeal to younger generations of consumers.
Bédos said that the lower end of the market and the highest end of the market remain strong and that is where Birks has positioned itself. Antony Karabus, CEO of HRC Advisory, said Bédos has connected the brand, which has a heritage reputation of trust, with new consumers.
“I think he’s creating an opening price point to get people into the brand, so when they’re ready to buy their engagement ring, they’ll have had positive experience with the brand,” Karabus said.
Calgary aside, the luxury retail market in Canada remains positive, said Daniel Baer, Ernst & Young’s leader for retail and consumer practice.
“The employment situation is relatively positive and disposable income is rising,” Baer said. “If there were a lot of layoffs on Bay Street, you might see a cutback in luxury. But all the key industries where there are higher-wage earners have been relatively strong.”