Jan 7, 2020
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Space NK sales rise but profits fall, predicts improving profitability ahead

Jan 7, 2020

Space NK delivered turnover of £108.9 million in the year to March 30, 2019, a 5.9% increase year-on-year with the company saying the sales growth was driven by strong retail and online sales. Gross profit rose slightly to £56.1 million from £55.4 million.

Space NK

The company’s sales growth meant it outperformed the overall UK health & beauty sector, which expanded by just 1.8% last year. And its market share rose 0.1ppts to 0.5%, helped by physical store expansion.

But the figures for profitability were less impressive. The operating margin (before exceptional items) declined from 6.3% to 4.7%, largely due to differences in foreign exchange rates. And profits were impacted by £1.8 million in exceptional items (the exceptional item figure had been just £94,000 in the previous year). That said, operating profit was lower even before exceptional items, dropping to £5.1 million from £6.4 million. And after those exceptional items were taken into account, operating profit dropped to £3.2 million.

Group EBITDA during the period fell to £7.5 million from £10.9 million a year earlier. And the net profit figure in the period was £2.3 million, down from £4.9 million in the previous 12 months. 

The company is investing in its US operations and said that its outlook for 2020 is for continued sales improvement and also rising group profitability.

So what did analysts think? GlobalData’s Chloe Collins was impressed by the firm’s ability to “fulfil the desire among young shoppers for unique premium brands, and take advantage of the shift in consumer focus towards self-care and wellness”.

She called the results “robust” and also liked the fact that it reported strong digital growth for the period. But operating successfully online doesn’t mean it has the field to itself. “It faces growing competition from online pureplays such as Feelunique and Cult Beauty, which continue to gain traction in the market,” she said. “To ensure its proposition is competitive, online fulfilment options should be enhanced by providing free delivery for its N.Dulge Deluxe loyalty scheme members, a later cut-off time for next day delivery, and third-party pick-up options". 

As its same-day delivery option within central London acts as a point of difference, Collins believes it should “extend this service to other major cities and promote it more heavily on social media to raise awareness”.

But while she feels it needs to address what the competition is doing, she wouldn’t like to see it resorting to the rampant discounting that’s also a feature of online pureplay sites. 

This would “dampen the retailer’s premium image,” she explained. Instead, to “protect itself from price comparison and boost unique appeal, it should seek more exclusive brand partnerships, following its UK launch of Drunk Elephant in 2018,” she added.

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