House of Fraser’s dismal set of results today came as a shock, even for those expecting bad news.
The embattled retailer recorded an adjusted EBITDA loss of £8.6m in the 26 weeks to July 29, in comparison with a £900,000 loss for the same period last year.
Meanwhile, like-for-like sales slumped 5.2% and online sales dropped 9.8%.
One spot of good news is that money has finally started flowing from its owner, Chinese conglomerate Sanpower – funds that most thought would never materialise.
At £15m, it’s not a big number, but as chief financial officer Colin Elliot says: “The important message is that Sanpower is not unwilling. We have a supportive parent above us.”
House of Fraser’s explanation for both the sales and profit fall was its transformation plan. The dramatic slump in EBITDA was attributed to its IT replatforming and its brand restructure, with both responsible for around half of the loss.
House of Fraser made the decision to discount its stock from outgoing brands, with both residual stock from previous seasons and current season stock being sold off.
Meanwhile, its IT restructure is said to have significantly impacted the bottom and top line as House of Fraser dropped off Google’s search recommendations due to engineering work.
The retailer insisted today that the “heavy lifting” of the transformation programme was over and that it was ready for the golden quarter.
“We are now back on a level playing field,” Elliot told Retail Week today. “Over the last three to four weeks our store portfolio as a whole is in like-for-like growth.
“Womenswear is up year-on-year at the moment – I haven’t been able to say that for over 18 months.”
A terrific position
His optimism was echoed by chief executive Alex Williamson, who arrived at the business at the end of July from Goodwood Group, home of famous events including Glorious Goodwood and Festival of Speed.
“In my first seven weeks my reflections have been that this business has been investing hard over 24 months to position itself well for the future, and that gives me great reassurance that we are in a terrific position,” Williamson said.
“What I have seen is a business that has a fabulous brand, a very solid shareholder and a customer who still considers us to be super relevant in their lives.”
Whatever your thoughts on what seems a rather optimistic conclusion, you can’t argue with current trading figures.
But House of Fraser is far from out of the woods.
Even if this update has taken the worst of the transformation costs, House of Fraser’s “level playing field” is still stacked against it in an incredibly tough market for department stores.
Market leader John Lewis has just reported falling profits despite rising sales while Debenhams – with retail veteran Sir Ian Cheshire guiding its every step – is re-engineering its entire strategy and internal structure.
Set against that, the action that House of Fraser has taken to transform the business will need to show results pretty soon or it risks falling behind once again.
Digital transformation slow to materialise
Having talked up the positive impact that its new website would have when it launched in April, House of Fraser will have been frustrated to fess up to a near 10% slump in online sales over the six months to July.
While it had expected online sales to recover by the end of the summer, the retailer says things will only be back on track by the beginning of the golden quarter.
It is fairly imperative that results improve by then as the online business has been the one bright spot for the beleaguered business over the last couple of years.
The launch of the new site, which chief information officer Julian Burnett told Retail Week Prospect would create a platform for the retailer to “drive a real experiential experience” with its customers, has been a contentious affair.
It had been due to launch in the second half of 2016, but was pushed into this year so as not to interfere with peak trading.
Developed at a cost of £25m, this was less than half the £55m the original team had planned to invest. No surprise then that the digital department has borne the brunt of the slew of senior departures across the business.
Retail Week Prospect senior analyst Wendy Massey
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