Castro-Hoodies fashion group moved to a surprising profit of NIS 33 million in the second quarter

The Castro-Hoodies fashion group, controlled by the Rotter family, moved to a surprising profit of NIS 33 million in the second quarter of 2020, after losing NIS 87 million in the first quarter. Compared to the corresponding quarter in 2019, net profit increased by about 200%.
The shift to profit in the second quarter occurred as a result of a dramatic decrease in operating expenses, mainly a reduction in rent payments in the quarter, which allowed the company to move to profitability, despite a deep 40% drop in sales. In response to the results, the stock jumps by 30%. Since the beginning of the year, Castro's share has lost about 50%, and the group is traded at a value of about NIS 240 million.
Despite the shift to bottom-line profit, the effects of the crisis are well evident in Castro's results. The group's sales fell in the second quarter to NIS 281 million, compared with NIS 455 million in the corresponding quarter in 2019 - a fall of about 40%. Gross profit decreased to NIS 168 million (59.7% of sales), compared with NIS 276 million (60% of sales) in the corresponding quarter in 2019 - a decrease of about 39%.
In order to examine the sales data in identical stores (SSS), Castro neutralized the period when the stores were closed, and calculated the sales between May 7 and June 30. According to the calculation, sales in identical stores - that is, stores that operated in the second quarter of 2020 and 2019 - recorded an increase due to the delay in demand. In the apparel sector, sales in same-store stores rose by about 7%; In the fashion accessories sector in Israel, sales in stores jumped by about 23%, and in the cosmetics sector - by about 50%.
Most of the improvement in the financial results was achieved following an efficiency plan, along with a freeze on rent payments, management fees, maintenance expenses and a decrease in wage payments. Following the measures, Castro's sales and marketing expenses fell by 55% in the quarter to NIS 101 million, compared with NIS 224 million in the corresponding quarter in 2019. Management expenses and general expenses were also cut by almost 50%, to NIS 12 million, compared with NIS 23 million in the corresponding quarter.
The massive cut in expenses allowed Castro to increase operating profit to NIS 58 million in the second quarter, compared with about NIS 30 million in the corresponding quarter in 2019 - an increase of 93%. The net profit, about 33 million as stated, embodies an exceptional profitability rate of 12% compared to about 2.5% in the corresponding quarter in 2019.