Laura Ashley profits dive, stays committed to fashion business, hails India deal
First of all, don’t believe everything you read about Laura Ashley today. Early headlines saying its profits plunged over 70% last year are misleading as the latest 52-week results are compared with a much longer74-week period in the year before.
Not that the 52-week results were good, but they certainly weren’t the wipeout some are reporting.
Laura Ashley had already flagged earlier this month that its full-year results would not make happy reading and the fashion-to-furnishings retailer could not be accused of being too pessimistic when it said that profits would be “materially below market expectations”.
On Wednesday we learned the full extent of its woes when it said the 52 weeks to June 30 saw sales and profits dropping as it closed stores, as its international business still made up only a small percentage of turnover and as e-tail grew, but not as fast as some industry peers.
Yet there’s definitely hope for the future and, importantly, the company remains committed to its fashion business. Despite the category on which the firm was founded now accounting for only 15% of its total sales, Laura Ashley said it remains committed to its plan to “stabilise and grow” it.
So let’s look closely at the year’s numbers. Pre-tax, pre-exceptional items profit plunged to £8.4 million from £24.7 million last time. But remember, the previous period was a 74-week one. Given that the latest financial ‘year’ was 42% shorter than the prior year, but the profits were down by around two-thirds, the profitability gap is clear to see but not as large as some headline are suggesting.
Statutory pre-tax profit fell to £6.3 million from £22.8 million, but sales didn’t fall anywhere near as much, which makes it plain that the firm holding up on the sale front but isn’t getting the profit it should from every sale it makes. In fact, sales in the 52 weeks were £277 million, compared to £400.9 million in the previous 74 weeks, while comparable sales (taking the latest 52 weeks and comparing them to the previous 52 weeks) were down only 3.1%.
There was a bit of good news. Online revenue was down on an absolute basis, to £57.3 million from £73.5 million due to that 74-week year, but on a 52-week straight comparison, it rose 5.6%. That’s not the double-digit increase that many brands are turning in at present, but at least it shows that there’s one key area of the business that’s growing.
Chairman Tan Sri Dr Khoo Kay Peng said trading conditions have been “challenging”, a word used by more than one retail peer in recent months. He said the impact of weak sterling has also contributed to the overall fall in profit.
And what’s being done to counteract this? He said: “We are focused on addressing the challenges which our business has encountered over the past year and are confident that we are well-positioned to overcome them. Our online performance continues to be strong. Customer responses to the improvements we have made to our multi-channel offer have been positive and we are committed to its ongoing enhancement and development.”
INTERNATIONAL GROWTH AHEAD?
An expanding international presence is at the core of its strategy. It signed a new license partner in India earlier this year and opens its first Indian stores next month. It launched its Chinese website in November and said it’s “making good progress and enhancing our presence” there.
The retailer also feels it can maximise the appeal of its brand as it grows internationally by trading on its heritage profile with 33% of its product still made in the UK.
That international focus makes sense, especially given the firm’s loss of retail selling space in the UK over the past year. The company closed 25 stores in the past financial year and opened none. All but three of those closures were due to the Homebase chain, where it had longstanding concessions, being sold by Sainsbury’s to Australia’s Wesfarmers and its concession deal being terminated. That led to a total reduction in selling space of 6.5% and meant UK sales last year fell to £252 million from £363.2 million in the previous 74-week period.
The current financial year will see a not-quite-so-devastating closure programme with three less profitable locations being axed and two new sites set to open.
But it’s clear that the big growth potential lies abroad. The international Franchise and Licensing channels may be “an important and strategic part of our business” but they currently account for only 7.4% of total group revenue, even though it had 243 franchised stores in 29 territories at year-end.
Franchise and Licensing revenue of £20.6m was lower than the £30.7 million in the previous 74 weeks but the comparable performance was only down 1.1% and given that the firm operated fewer stores than the prior year, that’s a respectable number.
The upcoming Indian debut (in a deal with Future Group) should make those figures much easier reading in a year’s time and the company’s talks with other potential partners in Asia, if they result in deals, should help too.
The UK business is split into four main categories with Home Accessories at 33%, Furniture at 30%, Decorating at 22% and Fashion, as mentioned, at 15%.
Fashion sales in the latest year fell a “disappointing” 12.2% with comp sales down 10.4%. But the company has restructured its fashion team and appointed a new Head of Fashion, who joined in July. As a result, it’s “confident that the building blocks are now in place” for future expansion.
The Home Accessories product category includes lighting, gifts, bed linen, rugs, throws, cushions and children's accessories. Sales rose 1.3% with comp sales up 3.7%. So a little bit of good news there.
However Furniture, which includes upholstered and cabinet furniture, beds and mirrors fell 7.2% with comp sales down 5.3%. Furniture is its most price-sensitive category and it’s “reviewing the end-to-end supply chain to ensure that good value, as well as our rich and diverse depth of choice, enables the furniture business to flourish.” New products have been added to what was already a large range.
In Decorating, which includes fabric, curtains, wallpaper, paint and decorative accessories. Sales fell 5.9% with comps down 4% and while the performance of decorating has been “below expectation”, it remains “confident that, our combination of heritage and contemporary classic designs, have broad and enduring appeal to both our existing and new customers.”
The company also has a Hotel business that supplies products to the hotel industry and sales were down to £2.5 million from £3.5 million in the previous 74 weeks. Comp sales were flat. The business may be small, but it has growth potential and Laura Ashley moved into a new area this June. It opened its first Tea Room, in the Regency Hotel, Solihull. The company said “it has met with both customer and media acclaim [and] further Tea Rooms may be opened as we refine and develop the model.”
So, clearly last year was a tough one and the company has a big task ahead to turn around its performance. But as we said at the start of this piece, if you read a headline about a 70% profits plunge, don't take it at face value.
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