“Demand will return to pre – Corona levels – and perhaps even beyond” – the capital market

The fashion chain


Castro
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Reported today to the stock exchange that it plans to open home design stores, with over the next six months it plans to open about 10-20 stores of this type, and over the next five years to reach a deployment of 50-80 stores. The company will invest NIS 30-20 million in the project and will also compete in this field in chains such as


golf
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,


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And Zara.

Castro recorded a streak of weak quarters and a negative return and there was a sense that the corona crisis would finally overwhelm Castro, but the second quarter of 2020 changed the picture, and finally came the recovery the company so longed for; In the second quarter of 2020, the fashion chain reported a 190% jump in net profit, the improvement came following the shutdown of operations that began in mid-March, but a significant improvement in the operational level, while removing employees and receiving discounts on rent and property taxes led to a nearly 3-fold increase in profit. It also continued in the third quarter of 2020, in which the company reached a net profit of NIS 41 million, compared with a loss of NIS 31 million in the third quarter of 2019.

“I think if you look back eight years, when we launched the children’s brand the same questions came up, we entered the market when these players were already in it. And today, eight years later we are with over a hundred children’s stores and one of the leading brands in the field, I think we know how to enter the field Where we are confident in our ability to add value. ”

These things I say Ron Rotter, CEO of the Castro – Hoodies Group in an interview with BizPortal, After the announcement of the brand’s expansion into the field of homewear, and a week and a half before the publication of the company’s financial statements (the reports will be published on March 24).

You announced that you are entering the field of home styling, where competition awaits you with old companies in the field such as Fox and Golf – what made you want to enter the field?

“I think we are going to bring a range of fashion and trendiness alongside quality, and of course alongside competitive prices – it will be similar to what we did in the children’s world. The field of home wear is a field that touches on the field of fashion clothing, a large part of which is textile-based. “The homewear category can sit alongside our existing categories in the field of apparel, so it will be a brand that we can see within our existing stores, and also as a brand that will break out independently, in dedicated stores.”

During the Corona period, you made operational efforts to become more efficient, which were successful and brought you a net profit of NIS 33 million as of the third quarter of 2020. What steps will you take to continue the streamlining trend?

“The streamlining has mostly focused on reducing operational complexity, we have streamlined logistics, store operating costs, and marketing and sales expenses. The streamlining strategy will continue with us going forward. The main change that has allowed us to go through this period in profit is focusing on improving our product in fashion. “I think the last few quarters and in 2021 we come to the market both when we are much more efficient, and with a much better product, and the combination of both should allow us to grow and improve profitability rates.”

Do you think there will be an increase in the revenue of the physical stores? Or will people continue to purchase online?

“In the Corona period people bought online as a result of not having a choice, we have been active online for many, many years. I think it is welcome, at the same time it is impossible to ignore the fact that people want to go shopping and physical stores, and shop in physical stores. Buy online, and finish it in the physical store, and vice versa – people come to the stores and complete the purchase on the site. You have to combine the online stores and the physical stores, and that’s where we go. A large part of the customers are hybrids, of course there are customers who buy only “Only online and also those we serve. Our goal is to give the best product, the sales channel is secondary, we are where the customer wants us to be.”

“We are adapting the purchasing channel to demand – and this is also what we have done in recent years, where we have seen demand fall as a result of the rise of online stores. We have closed the stores, and instead opened large stores in the strong centers. I think that the companies that will succeed in overcoming the crisis and will be able to show growth in the coming years are the same companies that will succeed in maintaining dynamism and will constantly adapt to demand. ”

Have all the front stores opened? What are the expectations regarding the revenue cycle for the post-Corona era?

“Yes all the stores have opened, we hope the cycles will return to pre-Corona levels, and I hope there will be growth here. Overall there is vigilant demand and I hope it continues with us. I think it can be assumed with a reasonable level of confidence that demand will return to pre-Corona levels, and there are even reasons to believe “That they will go up – I think people have not spent money for a long time, people want to go out and spend time, and make up for all the time they were locked in houses so I very much hope we see it.”

Are there any workers who prefer to stay at home and continue to receive unemployment? Is this something you got hooked on?

Yes. First, it is important for me to note that the Knesset was an excellent solution for the closure period and gave a safety net to those workers who really could not work because the economy closed, and it served the companies and allowed them to save expenses during this period. I think the government should address this and make sure that there is no abuse of this tool, and that really those who get the KHL are the same workers who cannot go back to work, because their workplace is closed, or because there are such and such restrictions. “Right now I can tell you that across the trade industry there is a very large shortage of workers, we are in the Castro group with an order of magnitude of 500 open jobs, I very much hope the government makes a change so that no one comes back to work.”

In its reports for the third quarter of 2020, the company reported that its revenues decreased by 17.4% from 428 million to 353 million. Revenue cost decreased from 195 million to 154 million, a decrease of 21%. But what really matters to the Castro clothing company is the fact that online sales were stable in the third quarter and the company’s employees – whose stores are mostly located in malls – are definitely in the bottom line, rising from minus NIS 32 million in the corresponding quarter, to a profit of NIS 41 million – a jump of 228% – Thanks to a one-time transaction from the sale of a property.

The decrease in advertising cake budgets, which decreased horizontally during the Corona period for most retailers, also had a positive effect, with sales and marketing expenses decreasing from NIS 233 million to NIS 200 million. A decrease of just over 14%. Administrative and general expenses also decreased, from 24 million to 17 million. A decrease of 29%.

However, when the income on the property that the company sold in Bat Yam, which brought the company NIS 40 million in the last quarter, is neutralized, the company’s bottom line is a little over NIS 1 million. A significant improvement from a loss of NIS 32 million in the corresponding quarter, mainly due to savings in salaries of most of the company’s employees in the IDF.

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