Gino Rossi's Simple step

Three months after its bourse debut, Gino Rossi announced the takeover of Simple Creative Products, a women's clothing company established and managed by two sisters, Marzena Palma and Lidia Kalita. The value of the transaction, which will be finalized in November, amounts to zł.32 million (zł.23.5 million in cash, the rest in Gino Rossi shares). Simple will become part of the Gino Rossi capital group, but products will continue to be sold under the current brand.

Maciej Fedorowicz, CEO of Gino Rossi, lists many advantages of the merger: "There's room for cost synergies. We'll expand our distribution network. Together we can effectively develop abroad. The first market we would like to target is Germany," he says.

A capital idea

The idea of creating a Gino Rossi capital group had been bounced around for a while, and Fedorowicz finally announced its formation on the occasion of the company's IPO. He stressed that the company's main shareholder, Gerardo Ianelli, formerly a member of the Prada label's supervisory board, is very keen on developing the Gino Rossi group after the example of other big fashion labels such as LVHM or Hugo Boss.

"These capital groups develop steadily and their value is growing. With a good idea and a tried business model, this concept can be followed and used to the maximum," Fedorowicz explains.

"This strategy is an aggressive and ambitious one, but it can be implemented successfully. Gino Rossi has recently raised money from its bourse debut an now has got a high credit capacity," comments Remigiusz Sopel, an analyst at IDMSA.

But BM BGŻ's Jarosław Parczewski is rather skeptical: "When it comes to the idea of building a Gino Rossi label - a Prada-type fashion house, it's more of a marketing strategy than anything else. [It's] a good one, but they can't really compare themselves with Hugo Boss, can they?"

Future trends

After the merger, the company has three brands in its portfolio - Gino Rossi, the Vanita shoes label and Simple clothing. It is also the exclusive distributor of Geox shoes in Poland. But Fedorowicz is already eyeing the market for further acquisitions.

"We're also thinking of complementing the offer with men's clothing in the future or other products but, of course, they all have to be from the same segment - products for demanding customers that value a brand," he told a press conference. Among the potential targets, analysts point to Sunset Suits.

Simple strategy

Established in 1993 and built from scratch by the Kalita sisters, who design the clothes and manage the company, Simple is a recognizable brand of quality women's apparel. When the rumors of the merger hit the market, the price of Gino Rossi's shares skyrocketed to an all-time high of zł.20.5. Analysts agree it was a good investment.

"Investors value companies whose strategy is based on a strong brand, and Gino Rossi's image is strong enough to spread it to more products. The group may now increase its profitability thanks to synergies and the effects of scale," Sopel told WBJ.

Jarosław Parczewski concurs: "They bought a strong company with good financial results. Actually, Simple earned more in H1 than Gino Rossi. With the takeover, the company really hit the bull's eye."

Simple will now widen its offer with shoes produced in Gino Rossi's factories but sold under the Simple label. The new owners also plan to enlarge Simple's distribution network. Currently there are 12 of Simple's own stores, 16 franchised outlets and the brand is sold in  six Royal Collection stores. Paweł Kapłon, the new CEO of Simple and former CFO of Gino Rossi, announced six new Simple stores will be opened in H1 2007.

"Simple is developing at a fast pace and has got an excellent net profitability, mainly thanks to the strong brand. It has zero debts, so we might even take on a little debt," Kapłon says.

In H1 2006 Simple's revenues amounted to zł.13.2 million, with a net profit of zł.2.8 million. Gino Rossi's H1 2006 revenues reached zł.49.8 million, with a net profit of zł.1.9 million.

Optimistic outlook

Before the merger details were announced, Gino Rossi's management suggested its financial prognosis might be increased, but now Kapłon is more careful.

"We will prepare new prognoses after the transaction is finalized," he says. The current estimates say that the company's 2006 revenues should reach zł.112.3 million and net profit should come to zł.6.5 million.

BM BGŻ's Parczewski says the first prognosis was very optimistic and sees little room for improvement. "I'm rather skeptical as to the possibility of increasing their financial results," he says. "This year Gino Rossi only posted good results in Q2 and their annual prognosis of over zł.6 million in net profit is rather ambitious. So I doubt they can meet the target on their own. The takeover of Simple may actually help them to meet the first target. Still, because of the seasonality of the sector, the best results are usually expected in Q4," he adds.

Stepping forward

Before the takeover of Simple, Gino Rossi had 77 stores in Poland and 19 abroad - in Germany, the Czech Republic, Russia and Lithuania. Its recently-launched top-market brand of shoes, Vanita, is sold in separate outlets. Some two- thirds of the company's shoes are produced in Poland, in Gino Rossi's own factory located in Słupsk. The rest are imported from Italy. Since 2005, the company also imports shoes from China and sells them under the G&R brand.

With the money raised from the floor, the company is now building a logistics center in Słupsk worth some zł.4 million. It should be ready in January next year and from there its shoes will be transported to retail outlets starting from the Spring-Summer 2007 season.

Gino Rossi was established in 1992 with Polish and Italian shareholders. The name Gino Rossi comes from one of the company's founding fathers.