Laura Ashley issues profit warning, stays upbeat as it signs India deal
Was the fiscal first half kind to Laura Ashley? Not really. The UK-focused fashion-to-interiors retailer said like-for-like retail sales fell 3.5% in the 26 weeks to December 31 and total group sales dipped to £146m from £149.8m. UK retail sales fell to £133.4m from £136.7m.
Even online sales, which are usually a bright spot for fashion and lifestyle retailers, rose only marginally with a lift to £25.6m from £25m, although like-for-like e-sales grew 2.1%. And hotel revenue managed to rise too, albeit by a whisker, with an increase to £1.4m from £1.3m.
What this all meant for profits was a big fall. Pre-tax profit dropped to £7.8m from £11m a year ago.
Chairman Tan Sri Dr Khoo Kay Peng was clearly disappointed and highlighted how trading conditions were “demanding” in H1 and appear to be staying that way. The result? A profit warning. “Given the continued market challenges, [the board] feels that net pre-tax profit for the year will fall below market expectations,” the chairman said.
But the company’s result statement also insisted that despite the well-documented pressures in the broader commercial environment, “there have been a number of positives in the first half and the business is well placed to respond to the challenges ahead.”
Its response to those challenges will include ongoing investment to enhance the online experience and hopefully boost those e-sales.
The company is also continuing to “grow and develop [its] international presence and explore new partnership opportunities” and has “made good progress in the half.” That progress included signing a new licence partner for the Indian market with The Future Group, “which strongly positions the brand for advancing in a major country” And it also now has a presence in China, having launched a website in November.
But that is the future. What many will want to know is what exactly went wrong in the half-year just finished.
Laura Ashley said margins were impacted as it had to contend with the combined effect of adverse foreign currency rates and underlying cost increases due to the rise in the UK’s ‘national living wage’. This meant an increase in operating expenses in the period to £52.3m from £49.5m.
The company was obviously also affected by the closure of two stores in the period with no openings to counteract the sales lost from those locations. And with 22 concessions in Homebase due to shutter by June, there could be more bad news ahead, although the firm said “actions are being taken to minimise the impact to profit of the closure of these concessions.”
Some of those actions will include the aforementioned efforts to boost e-commerce, of course. The company already delivers to eight European countries, and recently added delivery to the Czech Republic and Hungary. New payment solutions are to be added to the online platforms in Germany, Benelux and France over the coming months and that Chinese e-tail launch “will continue to be developed during the current year.”
So how has it been faring in its individual product categories? In the UK its sales split was Home Accessories 34%, Furniture 30%, Decorating 20% and Fashion 16%.
Home Accessories sales rose by a tiny 0.3% but like-for-like sales rose 2.5%. The category continues to expand and complement its decorating products. Its seasonal ranges were the most successful element of the first half and these will be enhanced and grown over the coming seasons.
Furniture sales fell 9.3% with like-for-likes down 8%, although Q2 was stronger than Q1 and new launches have been well received so it expects an improvement in H2.
Decorating sales fell by 7.7% with like-for-likes down 6.4%. Again, the reaction to new products is giving the company some reason to be cheerful, it said.
Fashion sales, which have been falling in importance for the firm, fell 5% with like-for-likes down 3.2%. The company gave no further comment on this category.
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