Eve Sleep crashes as it warns on profit after sales fall short

Eve Sleep crashed on Monday after warning on profits as first-half sales fell short of its expectations and the company announced that chief executive officer Jas Bagniewski will be leaving the business with immediate effect by "mutual consent".

In a trading update for the six months to 30 June, Eve said sales have missed its expectations, up by around 61% to £18.6m, with the UK & Ireland up 62% and international sales 60% higher. The group said this revenue shortfall is not expected to be recovered in the traditionally stronger second half, meaning the impact of lower growth for the year will delay UK profitability from the fourth quarter, although the full impact on earnings will be partially offset by targeted cost savings.

Eve said trading patterns in the first six months of the year experienced greater volatility than originally expected, while key growth initiatives launched at the latter end of the half have yet to generate a meaningful financial contribution.

"In addition, management has made some strategic missteps, underestimating what is required to develop a meaningful footprint across Continental Europe, while losing focus on creating an aspirational sleep brand in its core markets," it said.

In response to the first half trading performance and the "challenging" retail environment, Eve has decided to refocus its strategy, from scaling across multiple new countries to prioritising greater penetration in its core growth markets. The group is currently evaluating each of its existing European markets to determine those that are core and will update the market on its findings with the interim results in September.

The company said the search for a new CEO to replace Bagniewski will begin immediately, with both internal and external candidates being considered. In the interim, Abid Ismail will assume the responsibility of acting CEO in addition to his duties as chief financial officer.

Also on Monday, Eve announced a new partnership with bed specialist Dreams, which will see its mattresses sold nationwide in 193 Dreams stores and through its website.

Chairman Paul Pindar said: "We have fallen short of our own and the market's high expectations and as a result have taken the tough decision to make management change. Jas has, as one of the founders, been a driving force for this business and has much to be proud of. He leaves with the board's best wishes for the future. In tandem with the search for a new CEO we will with immediate effect be refocusing all of our efforts on strengthening the eve brand in our core markets.

"While we do not anticipate a near term improvement in the external environment, we have a healthy net cash position, our trading continues to far outstrip that of the market and should be underpinned by company growth initiatives including the Dreams partnership that we expect to benefit the traditionally stronger second half. We remain convinced that the sleep market will continue to transition online, that the opportunity to build a new brand of size and strength is significant and that eve is well placed to achieve this."

At 0940 BST, the shares were down 56% to 30.25p.

Paul Hickman, analyst at Edison Investment Research, said: "It isn’t stated explicitly in the reports, but we would expect that the withdrawal from a number of markets is itself likely to bring a significant one-off cash cost."