'Onerous rents' blamed

Quiz warns of more store closures over ‘onerous rents’

Quiz girl

Fashion stakes: stores are under review

Scottish fashion chain Quiz Clothing warned that more shops will close after taking a £7m exceptional charges on high rents and restructuring of its portfolio.

The company said “store impairments and onerous leases” meant some stores would close if rents could not be renegotiated to make them profitable.

Underlying operating profit fell 85% to £600,000 and underlying EBITDA by 54% to £2.7m, while there was a bottom line loss of £6.8m.

The Glasgow-based company said a continued reduction in footfall across its standalone stores and concessions have resulted in a “sustained and weaker than initially anticipated negative like for like performance”.

Sales in the group’s UK standalone stores and concessions decreased by 11% to £31.3m.

In a statement the company said the average lease length on its stores remains relatively low at 26 months and it continues to appraise the economics of each store as leases come up for renewal.

“Whilst we have made an exceptional charge against losses that may arise from existing lease arrangements, we anticipate that we will continue to operate a number of these stores after the expiry of their existing lease terms further to renegotiating lower lease costs.

“In the current year where leases have expired, we have negotiated sufficient rent reductions to allow each store to trade profitably. We will, however, close stores where we are unable to secure terms that enable long-term store profitability going forward.

“The challenges affecting the store estate are also impacting the performance of QUIZ’s concessions. However, for QUIZ, the concession model remains very flexible with limited capital expenditure required and short notice periods to exit unprofitable concessions.

“We have previously indicated our expectation that approximately 20 concessions would be closed during the current year. To date, seven concessions have been closed and a number of other closures will be undertaken post-Christmas. We continue to review the performance of our concessions and will look to renegotiate terms to ensure their profitability or exit any that remain loss making.”

At the end of the period, QUIZ had 73 stores and 171 concessions in the UK (30 September 2018: 70 stores and 160 concessions). During the period the company opened two standalone stores in Arndale and Romford as well nine concessions with existing partners during the period. Since the period end, stores have opened in Eastbourne and Exeter.

There are no current plans to open further stores and future openings will only be considered if the terms of the lease and the associated property costs ensure that the store can be expected to trade profitably.

“We were pleased with sales across the recent Black Friday week and look forward to building upon this in the weeks to come.

“The board remains confident that the QUIZ brand remains in good health as is demonstrated by the growing customer base and continued sales growth online.

“Whilst the group’s full year results will, as always, be in part dependent on trading during the key Christmas period, the Board believes the group is taking the necessary actions to ensure that it can deliver long-term profitable growth.”

No dividend was declared in order to preserve cash.

Market reaction

Emma-Lou Montgomery, associate director from Fidelity Personal Investing’s share dealing service said:QUIZ shareholders will probably be left scratching their heads after today’s results. There are certainly more questions than answers raised; not least by the 85% fall in underlying pre-tax profits. This is predominantly an online business, yet the group’s underlying stores and concession seem to be providing the biggest drag on profits. So why not ditch them?

“It looks like up to half may close, as it attempts to renegotiate or terminate leases over the next two years. In the meantime they will just be an additional cost that the group could do without.

“The all-important Christmas trading period is underway and investors and management alike will be hoping QUIZ has what it takes to stand out in the fiercely competitive fast-fashion retail marketplace it’s currently looking a little bit lost in.”

John Moore, senior investment manager at Brewin Dolphin, said: “These results are a bit of a nightmare before Christmas for Quiz. Revenue decreases at its bricks and mortar offering is not a particular shock; however, flat online revenue to mitigate that loss is a shock and disappointment.

“The City has been worried about Quiz for some time now and today’s figures will do little to ease those concerns. The implementation of its root and branch review will be absolutely critical to Quiz’s future prospects – there is a significant amount of work to be done to make the brand distinct, self-sufficient and capable of handling the wider challenges in retail.”

Julie Palmer, partner at Begbies Traynor, says: “With losses announced by Quiz and high rents partially blamed for those losses here is yet another retailer that is floating the idea of rent renegotiations to create a leaner, more resilient business.

“While Quiz isn’t wandering into the formality of a CVA situation landlords must be aware that there could be tough negotiations ahead as caving to the demands of one retailer could set a precedent for others to follow. Empty shops on the high street are bad, but for landlords, chains tied into loss making contracts would be unsustainable. If those negotiations happen the knock on effects will be more important than the immediate discussions.

“Despite Black Friday providing some welcome cheer for the sector, the results from Quiz reflect the growing sense of distress in the UK retail sector with our Red Flag Alert finding that 28% more retailers are now in significant distress since Britain voted to leave the EU.”

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