Retailer hit by rising costs
Quiz issues second profits warning as sales growth slips
Profits falling at Quiz
Quiz, the Scotland-based fashion retailer, has issued its second profit warning in three months following lower than expected sales over Christmas.
The Glasgow company, which floated on the stock market last year, previously said its financial results for the year would be “largely dependent” on Christmas trading.
Group revenue increased by 8.4% in the six-week period from 25 November 2018 to 5 January against the comparable period last year, but the firm heavily discounted and costs have eroded margins.
It said: “As has been widely reported, the retail trading environment has been challenging over recent months, particularly in November.
“Whilst the group’s sales patterns improved as the Christmas trading period progressed, overall sales for the period were below expectations.
“Given the continued uncertainty with regards to consumer demand and associated spend, we believe it is prudent to revise our revenue forecasts for the remainder of the year to reflect recent trading patterns.
“Consequently, the board now anticipates that revenues for FY 2019 will be lower than current market expectations at approximately £133m (FY 2018: £116.4m).
“In addition, the lower than anticipated revenues resulted in a higher than anticipated level of discounting to clear inventory. This is expected to reduce gross margins in the six months to 31 March 2019 to approximately 60.5% (six months to 30 September 2018: 62.0%).”
The company also said that because of lower sales it has had to offer higher discounts on clothing to clear inventory.
In the past year the group has invested in additional resources and staff which has contributed to significant increases in employee, marketing and depreciation costs.
“Whilst it is disappointing that the growth in revenues has been insufficient to support these additional costs in the current financial year, we are confident that this investment will support the long-term growth of the business.
As a result of these factors, the board now anticipates that the Group’s EBITDA (excluding the previously announced write-off of £0.4m debt arising from the administration of House of Fraser) will be in the region of £8.2m for FY 2019.
Tarak Ramzan, chief executive, said: “Against the backdrop of challenging trading conditions over recent months, Quiz has delivered further revenue growth over the Christmas period driven by the performance of our own websites.
“However, the growth and the margin achieved have been below our initial expectations and, consequently, the board considers it appropriate to revise its sales and profit expectations for the current year.
“We remain confident about Quiz’s long-term potential as an omni-channel fashion brand with a clear customer focus. Management’s utmost priority remains achieving further growth for the business and improving profitability in the future.”
John Moore, Senior Investment Manager at Brewin Dolphin Scotland, said: “While Quiz’s sales grew year-on-year, there are some red flags in this latest set of results.
“Anticipated revenues have been revised down, while investment in marketing and personnel, as well as discounting, has eaten into margins.
“It is undoubtedly a tough trading environment for retailers, as we’ve seen with some other company’s results this week. But, the City’s main concerns about Quiz are over its ability to generate enough cash to be self-sufficient and handle shocks from the wider sector, and today’s results will do little to allay them.”