Tough times for New Look on sales and profits but Q3 kicks off turnaround

By

Sandra Halliday

Published
Feb 7, 2017

Challenging market conditions were what characterised New Look’s performance in Q3 and in the 39 weeks to December 24. But after a tough start to the year, Q3 does at least appear to have been an improvement.

In the latest quarter, sales rose 0.8% to £422.6m. That was much better than the 39-week performance as for the year-to-date, it saw a 2.9% sales drop to £1.14bn. The improvement could be seen in like-for-like sales too, although Q3 was hardly a triumph. Q3 LFL sales fell 4.6% compared to a 7% drop for the year-to-date. And UK LFLs dropped 4.7% in Q3 and 7.3% in the year.

As expected, e-commerce was stronger. The year-to-date rise of 12.9% got even better in Q3 as e-tail soared 18.2%. And third party e-commerce sales rose 36.8% in the year and 73% in Q3.

But that wasn’t enough to drive profits upwards. New Look made plenty of profit but clearly not as much as it would have liked. Adjusted earnings before interest, tax, depreciation and amortisation (ebitda) in Q3 was down 19.7% to £66.9m, underlying operating profit was down 26.1% to £52.2m and profit before tax plunged 37.6% to £30.1m.

So what exactly went wrong? CEO Anders Kristiansen had an explanation: “The UK market has continued to be extremely challenging, with reduced footfall and a highly promotional environment on the high street, resulting in a disappointing like-for-like sales performance.”

But he added that the slight rise for Q3 was down to strong performances outside the UK, online and in menswear, proving that its strategy of diversification “is the right one for our business.” He said the firm will continue to diversify its offer and to invest in its priority international markets, adding that the company has already passed the milestone of 100 stores in China.

As well as investing in stores, New Look is also speeding up its supply chain. Kristiansen said: “Globally, fast fashion is getting faster. The consumer mindset is shifting, driven by social media, to a ‘buy now, wear now’ mentality. We have responded accordingly by improving our buying processes, working to achieve a faster supply chain, tightening our stock control and strengthening our Buying and Design teams to deliver a stronger product proposition.

“We are clear on the actions needed to capture customer spend, but these will take time to implement. While we expect 2017 to be tough and are setting our plans accordingly, we strongly believe in our ability to continue to execute our strategy.”

Is that confidence justified? Probably. The retailer’s menswear ops continue to impress and it is rolling out more standalone menswear stores with 19 currently in operation. The Chinese strategy also seems to be on track.

And e-tail is a particularly bright spot for the business. It said Tuesday that it saw record Black Friday online sales and that those strong third party e-commerce sales benefitted from its diversification into growing international markets.

It also said it has seen a “positive customer response to [its] enhanced Beauty offer launched in November.”

But it cannot get away from the tough retail backdrop in its core UK market and said its expects UK trading conditions to remain challenging through Q4 FY17 and into FY18.

“We are well hedged for FY18, remain highly cash generative and will continue to focus on improving our business performance and delivering our diversification strategy. We are well positioned and will continue to invest in our key strategic initiatives,” it said.