STG Cigars International and Pipes and Cigars Screw Up Affecting Bottom Line

[pylorns]

http://halfwheel.com/cigars-international-woes-force-stg-downgrade-guidance/150601/amp
Scandinavian Tobacco Group A/S (STG), the parent company of General Cigar Co. and Cigars International, has issued a revised guidance for investors revealing that 2017 will likely be worse than expected.
For the second time this year, the company has indicated that a new IT infrastructure at Cigars International, the world’s largest retailer of cigars, is causing problems for the bottom line. The guidance issued today shows that STG believed the issues would be resolved by now, but it now expects them to last into the second quarter and “normalisation” to not occur until the third quarter.
“As earlier communicated, the implementation of a new IT infrastructure in Cigars International has impacted our online and catalogue retailer’s ability to process orders and to run campaigns and promotions to customers,” read the guidance.”
In February, Cigars International upgraded its IT infrastructure system, the immediate results of which were disastrous.
Cigars International processes thousands of orders per day and the company has said that the new system prevented them from not only seeing orders, but also seeing customer emails complaining about the orders. As such, many customers experienced lengthy delays in orders while Cigars International was unable to address and respond to complaints. These issues persisted for weeks, sometimes months and according to the guidance, are at least in some capacity still affecting the company’s business today.
“Our goal was to provide an even higher level of customer service for you,” said Craig Reynolds, president of Cigars International/evp of global handmade cigar businesses, in a video on April 3. “We replaced our legacy system with two state of the art systems: a new (enterprise resource planning) and (warehouse management system). Unfortunately when we launched there was some significant bugs in those systems and we did not catch it in time and it quickly snowballed and created the kind of delays that you are experiencing.”
As for the specifics, net sales for STG in the quarter were 1.379 billion DKK ($206.77 million), an organic growth of negative 9.5 percent. EBITA, earnings before interest, taxes, and amortization, was 201 million DKK ($30.14 million).
The company’s new guidance suggests that there will be negative sales growth and a negative EBITDA of 4-8 percent compared to a previous estimate of flat sales growth and a positive EBITDA of 1-3 percent.
“As previously guided, we delivered negative net sales and EBITDA growth in the first quarter due to the implementation of the new IT infrastructure in Cigars International and current total market development in machine-made cigars,” said Niels Frederiksen, ceo of STG, in a statement. “We work diligently to resolve our issues in Cigars International that are of a temporary nature. Despite this set-back we remain confident in our business model and we continue to focus on cost optimisation and investing in our brands and future growth opportunities.”
In a separate announcement, Franklin Templeton acquired 5.01 percent of the company’s shares.
STG is traded on the NASDAQ Copenhagen. It closed at 124 DKK ($18.59) about two hours before the guidance was issued.

 

[ashdigger]

Were they able to get the Revised Guidance out on time?

 

[jguss]

ERP migrations are notoriously problematic and routinely subject to time and cost overruns; so routine as to be the norm. Gartner estimates that up to 75% of ERP implementations fail. If you cruise the internet any number of ERP s/w vendors and implementers will have a laundry list of root causes; conveniently most of them lay the responsibility at the customer's door.
My perspective is different. I think ERP failure is a feature not a bug, certainly for implementers. Their entire business model is to cajole the customer into the taxi, start the meter, and keep it running come what may. Pre-conversion estimates are worth less than the paper they're written on, or the carbon dioxide that flows out along with whatever verbal promises are made.
If I sound cynical, it's because I am. Much of the ERP industry makes its money by knowingly overpromising and underdelivering.
That's not to say the blame is entirely theirs. Companies frequently plan poorly and fail to manage the process, both internally and externally. If you go up to a raccoon you know is rabid and get bitten some of the responsibility is yours too. Without knowing the details of what happened at CI I can't say for sure, but if history is any guide a fair amount of responsibility is theirs as well as their vendors'.

 

[condorlover1]

It certainly has effected Standard Tobacco's sales in a revenue negative manner but what can we do as we are dependent on them for distribution. At least their computer problems were not the result of the NASA famous $50 screwdriver type cost overruns. Hopefully it will pan out as it has played merry hell with War Horse distribution since these guys ration stuff to the B&M's so they can glum the lion share of profits on tins they would have to discount to independents which constricts our market expansion but boosts their bottom line.

 

[jmill208]

206 million dollars in Q-1? How .......... paltry?

 

[fnord]

"In a separate announcement, Franklin Templeton acquired 5.01 percent of the company’s shares."
That impresses me greatly. FT's international team is made up of successful wizards and alchemists and they're pretty damned salty. If they bought a 5% stake in STG it might not be a bad idea to find a broker who can deal in foreign securities and make an investment.
IT problems are costly in the short run, and it can take several more just as costly quarters to make things right with the consumers and win them back. But it's very, very doable. If it wasn't there's no way an astute investor like FT would've bought in.
STG will do well in the long run.
Fnord

 

[deathmetal]

Interesting data. Looks like tobacco is a rising concern. Now if social media will just collapse, it can start to take its rightful place at the head of American industry...

 

[papipeguy]

For those interested here's STG's 2017 Q1 financial statement. Some interesting information. For ease of conversion to $US the Danish Krone is about US$0.15.
http://hugin.info/171738/R/2105725/799263.pdf

 

[mso489]

It goes without saying that the computer science foundation of businesses has long-since become paramount. A company can't afford to have it fail, and they can't afford to have a back-up paper system for doing business.

 

[cally454]

Well our bitching amongst ourselves was just that. Now they got the attention of shareholders shits gonna get fixed or ...

 

[mso489]

Maybe I'm not a sophisticated marketing man, but "our bitching amongst ourselves" seems like a significant ongoing focus group of high-intensity interest. I don't know how much PC pays Kevin for sponsorship with ads and exposure, but I'd be astonished if someone on staff doesn't monitor Forums on an ongoing basis, related to business. A good staffer would skim past 80% of what we post, but in there among the rest is monitoring gold. We're not the total general pipe smoking community (mostly aro smokers exclusively), but this is the kind of inside discussion that would otherwise require tens of thousands of bucks to organize, digest and analyze. If I were running the show, someone on staff would take a look regularly. How the hell do you know what a cross section of your customers are thinking? ....Bingo.

 

[deathmetal]

The people who write on forums are 1% of the audience at most. Food for thought.

 

[papipeguy]

The sponsors watch the forums for comments. They not add to the dialogue but they comb through them. How they react is a whole 'nother issue.

 

[mso489]

deathmetal, you're right, Forums member are a tiny sample, but perhaps a pretty good one. Manufacturers of products with far larger customer bases than pipes and pipe tobacco -- food, softdrinks, autos, appliances, you name it -- spend a lot of money on focus groups which are not large, even collectively when they bring in groups day after day. They try to get a selection in their sample that represents regular customers or potential customers. Often these are less than 1% of the total customer base, but if correctly selected, are useful in making marketing decisions. There are many success stories with this approach, and some total train wrecks like the New Coke, a miserable disaster. Like polls, sometimes focus groups are insightful and other times they are totally and completely misleading.

 

[deathmetal]

Sort of like surveys? Interesting. I see two dimensions to this:
1. There is no reason that the majority is reflected by the actors (the smaller group that posts most of the content).

2. However, the actors influence the majority.
A complex issue perhaps....