Douglas: All securities are now in the 90s. Should par investors sell or extend maturities?
- Jovan
- Jan 23, 2021
- 18 min read
Updated: Mar 28, 2021
Recommendation
Off the back of better than expected Q4 19/20 and Q1 20/21 Xmas trading due to their rapidly growing online channel, Douglas' debt facilities all rose into the 90s. While most hedge funds may have already existed their positions due to lower remaining upside, par lenders (still primarily constituting CLOs) who continue to hold the comparatively high yielding CCC-rated securities are now faced with the decision to either hold or sell the debt. We recommend that all securities are held - with maturities extended for at least 18 months - due to the comparatively high yield of the securities as well as their increased probability of a future par refinancing. The latter assertion is based on the following:
The demonstrated trading resilience of the business (adjusted EBITDA declined only by 16.7% during FY19/20) in spite of the lockdown due to its growing online channel;
The prospect of a rebound of in-store revenue per POS (and therefore EBITDA) as vaccine rollouts spur a return to the stores as well as a rebound of makeup segment revenues (down 20% during the pandemic) ;
The potential for EBITDA growth from €120m in cost-outs by FY22/23 as a result of their planned Store Optimization Program ("SOP") and Forward Organization ("FO") initiative (included in our Upside case).
The company has adequate cash (€460m as at Dec 31, 2020) and, according to our base case, cash generation ability/RCF availability (limit increased in Q1 20/21 to €275m) to fund operations, capex and interest until the proposed Q1 23/24 maturity extension date. Note our base case projections assume lockdown restrictions persist during FY 20/21, exclude SOP/FO outflows/savings and revert to historical levels of CAPEX.
The shareholders are committed: CVC invested €938m of its cash upon acquisition (current total equity investment is €1,150), stands to gain from the equity upside and has a strong track record in retail so we expect the fund to continue to support the name with additional cash if required.
The current equity capital markets (especially in London) have shown tremendous appetite for primary offerings by names that have structurally benefitted from the shift to ecommerce and have gained market share during the pandemic. There is also therefore significant potential for multiple expansion in the group's valuation. Proceeds of a primary raise could also be used to partially de-lever the Company in addition to providing liquidity for shareholders
Risks
There remain some risks which may prejudice par repayment of the SUNs, which would require adjusted EBITDA to increase by at least another €48m above the FY19/20 figure of €292m in a distressed sale (i.e. 6.5x multiple), assuming the RCF balance does not increase. These risks include:
The risk that existing vaccines will not have sufficient efficacy against new mutant COVID-19 strains leading to muted in-store revenue growth due to prolonged shorter store hours and mask usage
There is execution risk in the SOP/FO initiatives in the recapture of lost revenue from closed stores by other stores/channels as well as liquidity risk around the costs required for the lease exit, store decommissioning and staff redundancy
A lesser concern is that we are yet to see the resilience of Douglas' online channel growth once competitors launch their respective strategic response
Timing
Given the currently depressed EBITDA and resultant increased leverage (7.6x as at FY19/20) as well as lingering COVID uncertainty, a par refinancing prior to the August 2022 maturity of the SSNs/TLB is unlikely. We therefore view an amend and extend of all facilities as the best short term option for all stakeholders in spite of the increased pricing and fees required for lender consent. Specifically, according to our base case projections, leverage falls to 6.5x by Q1 23/24, a level at which a par refinancing may be more palatable to investors. The group recently engaged advisors to weigh capital structure options with Lazard, Freshfield and Goldman Sachs as financial, legal and capital markets advisors, respectively. Management and sponsor have also repeatedly signalled an intent to exit via IPO in 2022 which, albeit challenging given the upcoming maturities, may be possible based on current equity market appetite for COVID-19 'winners'.
Summary
SSN/TLB - We recommend a HOLD due to the projected full recovery in a distressed sale and projected base case deleveraging to a level which permits refinancing. From a portfolio allocation perspective, the YTM of the SSNs is currently 7.8% which is higher than recent CCC new issuance which averaged around 5.6%.
SUNs - Regardless of increased upside remaining (YTM is currently 12.3%), we also only recommend a HOLD due to its second priority status (behind a max of €2,245m of 1st lien debt), risk introduced by the Group's Store Optimization program as well as performance uncertainty due to COVID / online competitor responses.
We will revisit these recommendations once trading and SOP performance over the next quarter is observed.
Background
Reasons for Distress:
Reduced EBITDA due to store closures/ reduced demand for some product segments resulting from COVID measures.
Resultant increased leverage and ongoing COVID uncertainty has led to refinancing risk for upcoming 2022/2023 debt maturities
Note, the RCF leverage covenant is still not breached as at FY19/20: Only €74.3m of the €165.0m, which corresponds to a utilization of less than 40%, was drawn as revolving credit. The remaining RCF utilization of €91.2m is in the form of Ancillary Facilities and collateral in the form of rental guarantees which do not factor into the covenant maintenance calculation.
Company Overview:
Douglas is a leading European specialist retailer of selective beauty and personal care products which generates the vast majority of its sales in the selective beauty distribution channel, i.e. require the formal approval by a supplier to distribute a selective product, as opposed to the mass market channel. As of September 30, 2020 Douglas operated in 26 countries with 21,517 employees (average headcount FY 2019/20) from 2,232 own stores, 140 franchise stores and various rapidly growing online sites.
Primary Focus: premium and masstige branded skincare, colour cosmetics and fragrance products.
Sales contribution (FY19/20): Germany (40%); France (21%); South Western Europe (28% ); and Eastern Europe (11%)
EBITDA (adjusted) contribution: Germany (24%); France (39%); South Western Europe (22% ); and Eastern Europe (16%)
Strategic Positioning: 20% share of Europe's premium market segment, catering primarily to middle-class and aspirational female customers.
Competitive Positioning: Below Marionnaud and Sephora but distinctly premium to mass market retailers such as The Perfume Shop
Competitive Advantage: Leading omni-channel offering (test in store, buy online/buy in store, ship to home etc.)
Suppliers: Purchases internationally. Own brand manufacturing by third party
Logistics: Combination of in-house and third party contractors
Key Value Drivers:
Revenue growth: Online channel, offline LfL sales growth, .
Price: Brand mix, range and premiumisation, gross margins
Volume: Consumer demand and customer power, Investments/Capex on IT/stores
Cost base: Use of flexible labour, store network (rent/utilities) rationalization, market development funds to offset marketing costs
Key Risks:
Increased competition from online or discounted channels
Change in the established supplier distribution model
Execution risk around SOP
Refinancing risk of senior secured facilities and SUN notes should EBITDA not improve
SSNs have lower guarantee coverage than RCF/TLB and SUNs are subordinated to first lien facilities
Projected Performance
The base case projections for Kirk Beauty One GmbH are summarized below. Please see Appendix for a summary of base, upside and down case assumptions and a discussion of historical performance
Discussion
As suggested by the Q1 19/20 earnings call, Q1 20/21 revenue is expected to decline at the same level as FY19/20 with the revenue for the next three quarters conservatively projected at 90% of the corresponding FY18/19 levels. Revenue is projected to grow at the respective quarterly FY18/19 LFL rates thereafter. GPM is projected to decrease to 40.8% in Q1 20/21 as the Group defends market position over the Xmas then revert to corresponding FY 19/20 levels thereafter.
Personnel expenses in Q1-Q2 20/21 are projected to mirror pre-lockdown Q1-Q2 FY 19/20 levels and then revert in Q3-Q4 20/21 to the FY18/19 levels as lockdown restrictions ease. Rent is projected at FY18/19 levels as no subsidies/operational restructuring is projected in the base case. Other expenses as a % sales are projected to grow at the FY18/19 level. A 25 bps fee on the total committed debt incurred in Q3 20/21 as incentive for the A&E.
Adjusted EBITDA is projected to return to pre-lockdown levels by FY23/24 primarily due to revenue and margin normalization. After an outlier FY19/20 performance due to working capital management and rent/VAT deferrals, operating cash conversion is conservatively projected to revert to pre-pandemic levels due to increased working capital requirements as sales increase. CAPEX as a % of sales in FY20/21 is projected at FY18/19 levels then at 90% of FY18/19 levels thereafter. Sufficient headroom is provided by the RCF for debt servicing until cash generation improves in FY23/24. Interest expense increases from Q3 20/21 onwards as a 0.5% margin/coupon bump on all facilities is projected as incentive for the A&E. The FY19/20 RCF closing balance of €165.0m is not projected to be swept until Q1 21/22 when lockdown restrictions should be minimal.
Net leverage reduces to 6.5x by Q1 23/24, indicating a refinancing is within reach. The RCF is however projected to surpass the €80m threshold to trigger a leverage covenant in Q3 21/22, so a waiver may be required.
As per the waterfall below, should maturities be extended by at least 18 months (i.e. Q1 23/24 in the case of the TLB/SSNs), LTM Adjusted EBITDA will be €331.5, which provides an EV of apprx. €2,650m. The waterfall below shows that in a sale, all debt facilities are refinanced, with a residual equity cushion of apprx. €330m.
Market Overview and Structure:
The European beauty and personal care market was worth €37bn in 2018 and grew by 1.9% p.a. between 2014 and 2018. It is a highly seasonal business reliant on sales during Xmas and other holiday periods with significant markdowns thereafter. Luxury/prestige accounts for 36% of the market with the remaining 64% in the mass market. Key market categories include skin & body care (~59%), fragrances (~22%), and colour cosmetics i.e. makeup (~19%). Of all Europe, France boasts the highest share of disposable income spent on apparel and beauty products in Europe (12% of household income), ahead of the UK (10%) and Italy (9%). A long term trend away from apparel and towards beauty products however continues to benefit the beauty products sector.
Selective Beauty
Douglas operates primarily in the selective beauty segment, with 85% of their exposure in the faster growing €13.2bn premium market segment (2014-2018 CAGR - 2.3%). The selective beauty market benefits from strong industry economics (GPM in high 40s), based on the legal framework provided by applicable EU legislation. Therefore, this market is more attractive than the larger mass retailing market which is characterized by higher competition and lower margins. Douglas has a top 1 or strong top 2 in position in all of their 6 core markets, Germany, France, Spain, Italy, The Netherlands and Poland, representing a combined 20% market share. Their next largest competitor, Sephora holds 10%. The segment benefits from suppliers market development funds provided by brand manufacturers to help sell their products and create local brand awareness. These funds are significant and offset marketing costs.
Competitive dynamics
Competitor Types: Other specialist retailers with stores or e-commerce activities, including perfumery chains, independent perfumeries, perfume departments of selected (typically high-end) department stores, retailers selling products under their own labels, duty-free shops, pharmacies and para-pharmacies (which increasingly focus on skin care and natural cosmetics) as well as drugstores and hypermarkets and pure online retailers or online beauty selling platforms .
Key competitors: Sephora, Marionnaud, Muller, Amazon, Galeria Karstadt, El Cortes Ingles, Druni, Notino and Flaconi.
Industry Analysis
Trends/Outlook
COVID-19 Resilience
The selective beauty market segment in many of the European countries has demonstrated resilience during the COVID-19 pandemic and European financial crisis. Beauty products are often perceived as affordable high-value gifts and personal rewards, which have contributed to a stable demand for such products even during periods of extended economic downturns. Germany, the Netherlands, and Poland continue to be in lockdown, affecting sales. Italy, although not in lockdown has opening hour restrictions and weekend closures)
E-commerce
As with other retail segments, beauty retailer sales from the online channel grew significantly in 2020 boosted by the closure of non-essential stores.
Trading
Men’s skin care products is a growing segment and this trend is expected to continue in the future. During the pandemic relative sales of skincare and haircare has increased relative to makeup due to the additional time at home and closure of hair/dressers and spas. European makeup sales are estimated to have has declined by 30% in the market due to mask use and less time in public.
Business Overview
Douglas' main product categories are fragrances, color cosmetics and skin care for premium, masstige and mass market brands. Their offering also includes numerous color cosmetic products from their “Douglas Nocibé Collection” own brand.
Fragrances continue to be their largest product category in the financial year 2019/20, albeit with decreasing contribution due to higher growth in skincare. Sales are typically driven by female fragrance products including (eau de cologne, eau de toilettes and eau de perfume).
Their colour cosmetics portfolio comprises a comprehensive range of cosmetic products for lips (lip sticks and lip glosses), nail products (nail polish and nail care products), eyes cosmetics, ( mascaras, eye shadows and eyeliners) etc.
The Company offers a full range of skin care products, including day creams, night creams, serums, masks, tonics, firming and slimming products and auxiliary products such as cleansers and sun protection.
Management
Management appears to be strong and have the confidence of the shareholders and other stakeholders. Please see the Appendix for an overview of executive management.
Recent Developments
SOP/FO
The store Optimization Program, which is expected to begin in Q2 20/21, involves the closure of 500 underperforming stores primarily in South Western Europe, which has been more heavily affected by the effects of the coronavirus pandemic and in which there is a very dense, partially overlapping branch network due to previous acquisitions. The downsizing of the branch network goes alongside investments in flagship stores in top locations, product innovations and the consistent expansion of digital retail throughout Europe. As a result of the above-mentioned measures, the Group expect one-time expenses of €174m and sustainable positive effects of €110-120m (but the impact is not likely to be felt until FY 21/22 This initiative is being led by Dr. Michael Keppel, the new CRO.
Logistics Consolidation
The future supply chain is based on five large warehouses in Europe serving all channel. These five sites will replace their fragmented logistics network of over 20 facilities and enable marketplace partner fulfillment in the future.
Trading Trends
The makeup category declined by roughly 20%, outperforming the the broader market which declined by 30%. Douglas accomplished this by introducing new lower cost makeup brands thus taking market share from their competitors. They are focusing on current growth areas such as hair cosmetics and pharma beauty.
Acquisitions
In July 2019 the Douglas-Group acquired a majority stake of Niche-Beauty.com GmbH, (“Niche Beauty”), an emerging online portal for luxury niche and trend brands, strengthening their assortment at the premium and niche cosmetics end. This is considered a smaller transaction.
Channels
Douglas' revenue is earned from stores (40.6 % of FY19/20 sales), online (25.4% of FY19/20 net sales) and franchises.
Physical Stores - located in a vast number of European cities, primarily in urban locations and have nationwide coverage in their key markets of Germany and France—the largest selective beauty markets in Europe. In France, their presence is channeled through their Nocibé branded stores and is concentrated in the North and East of France. The average size of the selling surface of their stores is 220 m2.
Online - In accordance with their overall strategy, e-commerce has seen particular strong growth in recent years boosting like-for-like growth. This development was underpinned by strong underlying growth of the online selective beauty market, as well as recent improvements to their e-commerce platform . Although the COVID-19 pandemic has further accelerated this process, the Company expects this channel to continue to grow post-pandemic.
Franchises - operated primarily in France under the “Nocibé” brand, but also in other countries such as the Netherlands,. The level of control over franchisees is limited with franchisees typically managing their own contracts with suppliers and inbound logistics. Typical contract length is five years with an option to renew.
Cost Structure
Fixed costs, which include rent and utilities, represent a major share of their cost base leading to operational leverage as sales increase. Most of their lease agreements provide for fixed monthly lease payments, however some of the lease agreements a turnover component, subject to a minimum lease floor. In certain jurisdictions such as France or contractually agreed index-based rents automatically increase annually pursuant to applicable law. Personnel expenses have a fixed and semi-variable component due to the hiring of temporary workers during the peak selling periods and variable KPI-based compensation schemes. Variable marketing and advertising costs are significant but offset with market development funds.
Suppliers/Geographic Exposure
Douglas sources their selective products from virtually all major national and international suppliers of beauty products, with which they have established close and long-standing relationships. Concentration is low with none of their suppliers amounted to more than 20% of total purchasing. With respect to selective products, Douglas enters into three different types of supplier contracts: selective distribution contracts, international framework and local supply trading agreements.
Selective distribution contracts (or authorized retail agreements) are authorized, on a country-by-country basis, by suppliers to distribute products belonging to a particular brand both in stores and online provided that certain quality standards and other criteria are met. Yearly international framework trading agreements, which are held with their top suppliers, contain the basic commercial agreement setting forth general terms of sale such as invoice conditions, bonus payment terms, promotional activities and marketing development allowances granted to Douglas, general logistic conditions, and conditions for returning goods. Annual local trading agreements transpose the basic commercial agreement contained in the international framework trading agreements for each country or specific countries according to the individual market situation in each country, setting forth the specific terms of sale, details of marketing efforts and bonuses/discounts, merchandising (e.g., additional payments for a prominent placement of a product in one or more stores etc
FX/COGS/Hedging
Douglas' sales and purchases are primarily in Euros and to a limited extent in currencies such as the Polish zloty and the Swiss franc. Due to the expansion of their regional footprint, they however expect the share of sales and costs in non-Euro currencies to increase. There currently is therefore no currency hedging. The Group has entered into interest rate hedging agreements to hedge against an increase in EURIBOR to a maximum of 1.0% for €1.1bn of financial liabilities. These caps reduce the risk percent. These agreements expire September 30, 2021.
Logistics
Since August 2018 Douglas has been operating a new 25,000 m² central warehouse site near Wroclaw in Poland, uniting all their own brand and exclusive brand warehouses under one roof. This is in addition to over 20 other existing facilities. . Douglas operates some inbound and outbound logistic processes in-house, dealing with logistics from their warehouses to their stores, and also co-operates with logistic partners who run their e-commerce distribution center in Germany, cross-docking centers in foreign countries, and ship products to their stores.
Indenture/Security Overview
Usage of Funds:
Funds were initially used to partially fund CVC's secondary LBO from Advent
Security
Issuers are in main cascade of holding companies however they generate no/limited revenue. Restructuring, if required, therefore possibly at Holdco level
All facilities are pari passu in order of payment according to the ICA
SSCF and SSN are pari passu in priority of security
Intercreditor Agreement and Senior Secured Credit Facilities Agreement governed by English law.
Security documents governed by English, German, Dutch or Polish law, as applicable.
Security agents acts on Instructing Group comprised of >50% of senior secured creditors
Senior Secured Credit Facilities (RCF/TLB1/TLB2)
First-priority pledge over all issued capital stock, bank accounts and intercompany loan receivables of the SS Issuer
First-priority pledge over the Issuer's subsidiaries (including French subsidiaries which will only secure the Senior Secured Credit Facilities)
Guarantors coverage requirement: 80% of consolidated EBITDA
Springing senior secured net leverage covenant set at 7.5x, arises when at least 40% or €80m (threshold) of the RCF drawn in the form of revolving credit facilities (as opposed to ancillary facilities)
Current redemption price: 101%
SSN
First-priority pledge over all issued capital stock, bank accounts and intercompany loan receivables of the SS Issuer
First-priority pledge over the issuer's subsidiaries , other than France subsidiaries.
Governed by New York law
Current redemption price: 100%; CoC: 101%
SUN
A first-priority pledge over all issued capital stock of the Senior Notes Issuer and any intercompany receivables owed by the Senior Notes Issuer to TopCo
a second-priority pledge over all issued capital stock of the Senior Secured Notes Issuer and any intercompany receivables owed by the Senior Secured Notes Issuer to the Senior Notes Issuer.
Governed by New York law
Current redemption price: 101%; CoC: 101%
Baskets:
Under ratio debt, the Issuer and any restricted subsidiary can incur debt pursuant to an FCCR of 2.0x and if senior secured, the Consolidated Senior Secured Net Leverage Ratio is 4.5x or less.
Non-guarantor restricted subsidiaries can incur debt up to the greater of €100.0m and 35% Consolidated EBITDA.
Aggregate capped Permitted Debt baskets under the Indenture is €1,525.0m.
Factoring up to €20.0m
Stakeholder Analysis
Appendices
Historical Financial Performance
Trading
In spite of a strong growth (5% y-o-y increase) in the first five months of FY19/20, FY19/20 sales decreased by €220.8m or 6.4% (6.6% LFL) as a result of store closures due to COVID-19 lockdowns. Increased online sales (higher basket and conversion rates) however partially offset the reduced store revenue, amounting to 25.4% of total sales (prior year: 16.9%). On a segment level, German sales decreased by only 1.5%, reflecting the high e-commerce share in this segment. France and South Western Europe were however hard hit with 10.3% and 11.6% decreases respectively. Despite the lock down and other COVID-19 related restrictions, Eastern Europe decreased by only 0.4% reflecting the growth opportunity in the segment. Gross profit margin decreased from 45.5% to 44.5%, primarily due to increased discounting in some geographic segments as the Company successfully defended market share in a highly competitive market environment.
In the financial year 2019/20, personnel expenses decreased by 9.6%. As a percentage of total sales the personnel expenses decreased to 18.0% from 18.6% the previous year as a hiring freeze was implemented which extended to seasonal short-term labor. There were also restructuring costs and severance payments amounting to €35.0m. Other operating expenses as a percentage of total sales increased to 28.7% of total sales compared to 27.3% in the financial year 2018/19 in spite of lower marketing costs partially offset by higher goods handling costs. The continued growth of their e-commerce-platform has been accompanied by an increase of these and other variable costs.
Adjusted EBITDA decreased by €58.7m, or 16.7%, to €292.3m during FY 19/20. As a percentage of sales, adjusted EBITDA margin decreased by 1.1% to 9.0%. Total adjustments increased by €45.3mto €113.7 during the financial year 2019/20 compared to €68.4m during the financial year ended FY 18/19, mainly resulting from COVID-19-related adjustments of €61.6m. The reduced adjusted EBITDA was mainly attributable to the lower sales and changing product mix as a result of COVID-19 and the relatively high fixed cost structure.
OCF/Liquidity
OCF in FY19/20 was €245.0m (84% conversion) representing an increase of €46.8 m (23.6%) over FY18/19. This was primarily driven by reduced working capital due to increased payables of €16.5m due to increased payment terms, an decreases in inventories and receivables by €5.8m and €8.2m respectively. Additionally there were higher VAT and rent liabilities in connection with shifted payments. After Capex of €108m, €140m of FCF was available for debt servicing. The company advised on their Q4 19/20 earnings call that they held closing Q1 20/21 closing cash of €460m.
Debt/Leverage/Ratios
The Group ended FY19/20 with net debt of €2,213.7m. During Q1 20/21, the Group negotiated an increased RCF amount of €75m, brining the limit to €275m. Based on LTM Adjusted EBITDA of €292.3m, net leverage was 7.6x. As described above, the RCF leverage covenant was not breached based on the construction of covenant maintenance calculation.
Forecast Projections/Assumptions
Base Case:
Revenue:
Q1 20/21 growth: equivalent to FY19/20 decline (i.e Germany (-2.1%) France (-10.7%) SWE (-11.3%) Eastern Europe (0.1% )
Q2 - Q4 20/21 Revenue: 90% of Q2 - Q4 18/19 Revenue
FY 21/22 growth onwards: FY18/19 level
GPM:
Q1 20/21:40.8% (2.0% below Q1 19/20 level) to reflect usual Xmas discounting and declining FY19/20 GPM trend as Company has reduced pricing to defend market share
Q2 - Q4 20/21: Corresponding Q2 - Q4 19/20 level
Q1 - Q4 21/22 onwards: Corresponding Q1 - Q4 19/20 level
Personnel Expenses:
Q1- Q2 20/21: Q1 - Q2 19/20 level
Q3-Q4 20/21: Q3-Q4 18/19 level
FY21/22 onwards: respective quarterly FY18/19 level
Rent and utilities:
Q1 20/21 onwards: Respective quarterly FY18/19 level
Other Expenses as a % of sales:
Q1 20/21 onwards: Respective quarterly FY18/19 level
Interest Expense and A&E costs:
Q3 20/21 onwards: Margin/coupon on all facilities increased by 0.5%
Q3 20/21: A&E fee of 25 bps on total committed facility amount incurred
WC as % of Sales:
Q1-Q4 20/21 onwards: Projected at corresponding quarterly 19/20 level
CAPEX as % Sales:
Projected at FY19/20 level (as per Q4 19/20 earnings call)
Upside Case:
Same as Base Base except:
FY20/21 Revenue: incremental quarterly net reduction of sales from store closures of €8.75m per quarter over 7 quarters commencing Q2 20/21 to maximum of €61.25m (€ 245 annually) by Q4 FY 21/22
GPM between Q2 20/21 and Q4 21/22 reduced to account for inventory liquidated from stores rationalized as part of SOP initiative
Expenses Costs (annual) reduced from Q2 20/21 onwards to reflect savings from SOP/FO as follows: Store closures (rent and utilities) (SOP) €43.0; Personnel Expenses (SOP) €35.0; Personnel Expenses (FO) €20.0; Rent reduction €22.0
€174.0 of extraordinary Costs (spread €24.9m quarterly) between Q2 20/21 and Q4 21/22 as a result of one-time expenses incurred due to SOP/FO: Store severance - €14.0m; Group severance - €25.0m; Consulting/legal fees - 15.0m; Lease Surrender/deconstruction - 120.0m
S.W.O.T. Analysis
Strengths:
Leading omnichannel retailer with strong brand and social media/marketing presence offering over 100k brands including high margin private label offerings
High GPM (mid 40s) regulated industry
Prime store locations and franchise footprint providing friendly customized service providing superior customer experience
Strong own brand product driving customer loyalty
Scale leads to purchasing power over wide supplier base and period of exclusivity with brands
Partner platform allows revenue from deepened assortment without increasing working capital requirements
Market development funds from third party suppliers significantly offset marketing costs
Douglas data hub - which collects and exchanges data from and with the marketplace, app, website and CRM program (with 44m card holders) allowing the Company to optimize marketing efforts.
Curation/personalization through app and data
Weaknesses:
B2C exposure - success dependent on consumer trends an ability to adapt
Highly competitive market with significant discounting from lower cost competitors in some markets
Seasonal sales/working capital profile
Relatively slow inventory turnover and potential for inventory impairment
Margins reliant on supplier market development funds which may be withdrawn
Susceptible to wider economic performance which could affect product mix, profitability and liquidity (through reduced/increased supplier/customer terms)
Opportunities:
Reduction of fixed costs through store rationalizations
Expansion of ship from store offering
Supply chain optimization through warehouse consolidation
Fulfilment service for marketplace partners
Threats:
Smaller competitors (eg drugstores) may expand selection to compete more broadly
Increased competition from consolidation of competitors or market diversification of established names into their key markets
Cheaper imitations of original fragrances or directed at younger age groups
Lower cost grey market products
Management
The following section summarizes the biographies of the Executive Board members:
Tina Müller
CEO of Douglas GmbH since November 2017
Previously, she was Chief Marketing Officer and a member of the Board at Adam Opel AG/Opel Group GmbH for four years.
Prior to Opel, Tina Müller had been with Henkel as Chief Marketing Officer and Corporate Senior Vice President in leading international marketing and sales positions for 17 years.
She studied business administration and economics in Germany and France (Diplom-Kauffrau / Maîtrise Science Économique).
Matthias Born
CFO of Douglas GmbH since August 2019
Previously, he was CFO and COO of CBR Fashion Group for seven years.
As Group Senior Finance Director he worked for the Eurofins Scientific Group for four years. Previous responsibilities were with HörGut GmbH and, in various leadership positions, with ADVA Optical Networking.
Matthias Born studied business administration at WHU Koblenz, Germany
Vanessa Stützle
Chief Digital Officer of Douglas GmbH since May 2020
EVP Ecommerce &CRM at Douglas GmbH from January 2018 - April 2020
As Chief Digital Officer of the s.Oliver Group she has previously been responsible for the e-commerce business and loyalty programs of all the Group’s brands.
Due to further positions at ESPRIT and SBK Consulting Team GmbH, Vanessa Stützle looks back on a total of 16 years of experience in the field of digitalization in retail.
Vanessa Stützle studied business administration at the University of Cologne, Germany.
Dr. Michael Keppel
Chief Restructuring Officer (CRO) of Douglas GmbH since July 2020
Since the founding of Keppel Management Partners GmbH in Frankfurt in 2011, he has worked as an independent management consultant and manager in restructuring situations.
In this capacity, and as a partner at his earlier employers Alvarez & Marsal and Alix Partners, he frequently supports companies as CRO. He has over 25 years of experience in restructuring, especially in the retail industry and comes from a family business in wholesale and retail.
Michael Keppel studied economics at Albert-Ludwigs-University in Freiburg and business administration at the University of Cologne, Germany, and attended an Advanced Management Program at IESE Business School, Barcelona, Spain.
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