8 things I learned from the 2019 Padini AGM

8 things I learned from the 2019 Padini AGM

Listed in 1998, Padini Holdings is a fashion company that is largely based in Malaysia with a business presence across Asia. Padini owns a number of well-known brands including Brands Outlet, Padini, and Vincci. Its multi-brand Padini Concept Stores are quite well-received by consumers given that a small family can shop for a father’s shirt, a mother’s dress, and the kids’ tees under one roof at affordable prices.

I attended the company’s latest annual general meeting to find out more about its past year’s performance and its outlook for the year ahead. Here are eight things I learned from the 2019 Padini AGM:

1. Revenue increased 6.2% year-on-year to RM1.8 billion in 2019. Domestic operations in Malaysia and overseas business account for 95.5% and 4.5% of 2019 revenue respectively. Since 2015, the portion of revenue from consignment stores has decreased from 7.5% to below 1% in 2019. Same-store sales growth also improved by 4% year-on-year in 2019.

OperationsRevenue Contribution in 2019
Domestic95.5%
Overseas company-owned stores2.4%
Overseas franchise stores2.1%

2. Padini doesn’t own any manufacturing factories and sources most of its products from China. Its purchase cost will increase if ringgit depreciates. Executive director Benjamin Yong shared that Padini also balances its sourcing by purchasing products from Bangladesh, Indonesia, India, and Vietnam. However, China has the infrastructure to manufacture garments with specific accessories at the most competitive pricing.

3. Overall, Padini believes in long-term value creation for customers through product enhancement. Managing director Yong Pang Chaun  thinks Padini needs to adapt to market changes and create products that exceed customer expectations before it focuses on its bottom-line, as opposed to what the majority of investors ask for. According to Benjamin Yong, Padini’s in-house design team conducts research on global fashion trends — particularly in Europe where well-known brands such as fast fashion Zara are from. However, Padini does not blindly follow the latest global fashion trends, but adapts them locally in order to create value for Malaysian customers.

4. The number of local stores in Malaysia decreased from 143 in 2018 to 141 in 2019 but gross floor area increased from 1.46 million square feet to 1.48 million square feet over the same period. Revenue per square foot in Malaysia increased RM1,088 to RM1,107. In Cambodia, revenue per square foot improved tremendously from RM281 in 2018 to RM1,000 in 2019 due to the recognition of full-year operation results.

5. Some shareholders were interested to know about Padini’s foray into online retail. The board said that Padini has launched its own online portal partnering with e-commerce sites like Zalora and Lazada. The revenue contribution from the online business was insignificant in 2019. It will continue to maintain its brick-and-mortar stores to cater to consumers with varying needs.

6. A shareholder wanted to know more about the nature of Padini’s trade receivables. CFO Sharon Sung Fong Fui explained that Padini’s trade receivables are of a small amount and mainly comes from franchisees in the Middle East who buy inventory from Padini. Another shareholder pointed out that Padini’s gross profit margin decreased from 41.0% in 2018 to 39.1% in 2019. The CFO replied that Padini is doing alright as long as the gross profit margin stays within the range of 38% to 42%.

7. A shareholder asked if the board learned anything from the bankruptcy filings of Forever 21 and Topshop. Benjamin Yong pointed out that a combination of factors including lack of customer value creation and mismanagement led to the demise of these brands. Despite the tough environment, Padini will continue to improve its products and customer shopping experience while creating new engaging products such as the collaboration with Disney. It will also strive to maintain its competitive selling price without sacrificing quality by working with the right suppliers.

8. In general, Padini would like to grow its business overseas step by step. It will only scale its business once it has secured a foundation including the right finance, people, and mindset. Padini has partnered with FJ Benjamin to expand its business footprint in Indonesia, while Padini currently operates in Cambodia and Thailand on its own. Padini is also looking to launch its own dry-fit sports clothing and thermal inner wear in the future.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Chee Hoi is an investor and research analyst at The Fifth Person. He was previously involved in wildlife conservation work with a non-governmental organisation as well as sustainability consultancy work. He personally believes in impacting society and the environment for the greater good.

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