- DG Americas could be sold
- Bankruptcies amongst retail customers
- Net cash position
Gift wrap, crafting and greeting cards specialist IG Design’s (IGR:AIM) turnaround efforts have been hindered by a tough US retail environment which has seen a number of customers go to the wall.
And now the US Administration’s trade tariffs have compounded the pain across the pond, with the company considering the sale of its DG Americas division.
After initially sinking on the downbeat tone of today’s trading update, IG Design’s shares rallied 6% to 52.5p as investors warmed to the idea of an exit from the problematic US market.
PROFITS EVAPORATE
A series of profit warnings have pummelled shares in IG Design, which are languishing around a 10-year low.
And the need for a turnaround lies in two poorly-timed US acquisitions, 2018’s purchase of Impact Innovations, for an all-in cost of just under £100 million, and 2020’s swoop for CSS Industries for £90 million, including debt, which form the core of DG Americas.
While both deals broadened IG Design’s geographic reach, customer base and product range, they also brought debt, an increased reliance on seasonal business and greater exposure to a US retail sector in flux.
At a time of inflation and rising freight and input costs, IG Design was left as the meat in the sandwich between sub-suppliers on one side and price and margin-conscious retail buyers on the other.
In today’s bleak trading update, IG Design confirmed sales for the year ended 31 March 2025 will be down 9% due to challenges in the US market in particular, while the company expects to report a plunge in adjusted pre-tax profit from $25.9 million (£19.4 million) to roughly $1 million.
US PARTY IS OVER
‘DG Americas saw a 12% revenue decline and was loss making, primarily driven by a very competitive US retail environment,’ explained the partyware-to-picture frames supplier.
‘The division is facing into softer consumer demand which has resulted in our customers reducing order volumes. As previously disclosed, this was further compounded by bankruptcies amongst our retail customer base, particularly of the division’s 4th largest customer.’
OVERTAKEN BY EVENTS
IG Design said its strategic review of DG Americas has been largely overtaken by recent developments in trade tariffs and management has widened the range of options for the division to include an outright sale.
Generating roughly 60% of its sales from the US market, more than half of DG Americas’ products are sourced from China, and the current situation is ‘both complex and dynamic given the geographic span of the group’s importing activities and the evolving nature of the tariff regime’, explained IG Design.
The group is ‘beginning to see reductions in customer commitments, and a general reluctance by retailers to accept in full the additional tariff costs. The nature and extent of the impact of tariffs therefore remains difficult to predict.’
Trump’s tariffs have ‘the potential to have a significant adverse effect on the DG Americas performance going forward’ and as result, the company expects to recognise a ‘very material’, albeit non-cash, write-down of its investment in the business.
Elsewhere within the group, trading in DG International remained solid, with sales down a more modest 3%, although profitability in this division declined due to disruption within a major customer’s supply chain, weaker demand in some markets and categories and high freight rates.
CASH CUSHION
There was also relief as IG Design finished the year with a better-than-expected net cash position of $84 million in the coffers, some $20 million more than what Panmure Liberum expected.
Stewart Gilliland, chair at IG Design, stressed that the strategic actions being contemplated for DG Americas ‘will fortify our overall business model. Our businesses beyond the US remain robust, and we are committed to growing them through our established customer relationships and through exploring other investment opportunities to accelerate growth.’
Panmure Liberum has pulled its recommendation and price target until there is greater clarity on IG Design’s the future direction. ‘In what has to be extreme challenges, the RNS exemplifies a balanced and pragmatic approach to some very difficult situations,’ commented the broker.
‘The exposure to tariffs and the consequential impact to the group is significant. For this reason, it is near impossible to come to an indicative valuation but exiting the DG Americas business is now very much on the cards. It is unclear what this would involve and how much cash would have to stay in that business and then remain in the group.’
