The Canadian jeweler, Birks Group (AMEX: $BGI) has weathered the toll of time under the lockdowns and is now well-positioned to ride the anticipated wave of spending.
Birks Group (AMEX: $BGI) is a designer, manufacturer, and retailer of jewelry, timepieces, silverware, and miscellaneous gifts in Canada and the United States. Originally Henry Birks and Sons Ltd, founded in 1879, is headquartered in Montreal, Canada.
This year, it all came to an end.
The industry reported slashed revenues caused by COVID-19 closures. The Luxury Goods business, that Birks Group is operating in, is particularly sensitive to reductions in discretionary spending, and their future performance is closely correlated with the economic recovery.
So when the first wave of COVID-19 hit, the company was severely impacted.
As a result, the Birks Group experienced significant declines in sales, down 73% for the period from March 18, 2020 to June 13, 2020.
With no other option, the company had to make some tough decisions in order to conserve cash to finance its ongoing operations. They had to:
- temporarily lay-off approximately 80% of its employees without pay,
- implement temporary base salary reductions of 20% for its executive officers,
- reduce its workweek by 20% for the remaining active employees,
- temporarily reduce Board of Directors compensation by 20%,
- reduce operating costs across all areas, including marketing expenses,
- postpone any capital expenditures to the first quarter of 2021, and
- reduce future inventory purchases, and negotiate costs with suppliers.
This adversely impacted the Birks Group’s operations. Luckily the company’s e-commerce business, as well as its concierge telephone service, weren’t significantly impacted and powered through as the only sources of revenue during the lockdown period.
With uncalled luck, the company had renovated their retail stores, to provide better customer experience and product offerings, prior to the pandemic. At the same time, it increased their investment expenditure, which now will take even longer to recover.
This move had also taken a toll on the company’s balance sheet. The table below, from the company’s annual report, provides an explanation of why the Birks Group is particularly focused on delicately managing its operational capital.
It is important for the company to manage its operational cash flow as their credit covenant requires Birks to maintain “minimum excess availability of not less than $8.5 million at all times“, and any minor miss could provoke a whole chain of dire events.
To secure its working capital Birks Group negotiated a favorable loan, in July, with Investissement Québec (“IQ”) for CAD$10 million at a 3.14% interest p.a. payable from July 2021 with a requirement to have a minimum working capital ratio of 1.01.
Those news shot the stock up 94%.
This loan helped $BGI run their operations, ensure enough liquidity, support their working capital needs, and full store re-opening.
“Company revenues are expected to increase with the expected availability of a COVID-19 vaccine in the Q1 of 2021 and ending of lockdowns worldwide.”
With the holiday season approaching, Christmas and New Year’s sales could prove vital for the Birks Group to catch up on some of the lost retail sales through their online channels.
Birks Group is doubling down on its digital business and on the COVID after-effect of slower international travel, by aiming to penetrate the domestic Canadian market, as locals will begin to discover luxury retail in Canada.
“We believe there is a very strong opportunity for jewelry to replace experiential luxury because people need to consume. They need to please themselves. They need to please someone. They need to gift. They need to show their love, their appreciation.”
– Jean-Christophe Bedos, CEO.
When COVID-19 is done and over and the pent-up demand starts to pick up since consumers have more money in their hands this time around, Birks’ revenues will see a boost and so will the stock.
We see that the company is in a good position to wether the pandemic and to be well-positioned to ride the anticipated wave of spending.