Laura Ashley warns on full year as interim profit drops

Laura Ashley warned on Thursday that full-year profit will come in below market expectations amid challenging conditions, as it posted a drop in interim profit and sales, lumping the blame on a weaker pound.

In results for the 26 weeks to 31 December 2017, the company said pre-tax profit fell to £4.3m from £7.8m the year before, with total group sales down 7.7% to £134.7m as it closed 25 stores in the second half of last year. Total like-for-like retail sales declined 0.5% and margins were under pressure, mostly due sterling weakness versus the dollar. Gross margin dropped to 38.5% from 41.4% the year before.

In the UK, total retail sales fell to £122.9m from £133.4m, while on a like-for-like basis, they were down 0.5%.

Franchise and licensing revenue came in at £9.9m, down from £10.2m, a drop the company attributed to the performance of the franchise business reflecting sluggish trading conditions in some of its franchised territories.

Online was a bright spot, however, with revenue of £26.9m, up from £25.6m in the corresponding period a year ago, while the Laura Ashley hotel recorded sales of £1.2m over the period, reflecting the steady performance of recent years.

Laura Ashley said it was not recommending an interim dividend.

Chairman Tan Sri Dr Khoo Kay Peng said: "Trading conditions have continued to be challenging during the first six months of the year to 31 December 2017. The impact felt due to the weakening of sterling, year on year, was the most significant single factor in the fall of profit before tax.

"The board have reviewed the first half results and forecasts for the remainder of the year to 30th June 2018 and, given the continued market challenges, considers that net pre-tax profit for the year will fall below market expectations.

"Despite these challenges, our online performance remains strong, achieving growth of 5.1% and we look forward to the implementation of a new digital platform during the second half. We expect that this will help us to deliver further growth with its enhanced functionality."

Neil Wilson, senior market analyst at ETX Capital, said: "First of all and most glaringly, how can management get away with blaming the weak pound last year? The statement says profits and margins were primarily affected by sterling weakness against other currencies, principally the US dollar. We are no doubt not alone in pointing out that sterling was broadly higher in 2017 and enjoyed a 10% gain versus the US dollar."

Wilson pointed out that while the group said weaker sterling was the "most significant single factor" in the drop in pre-tax profit, GBPUSD rose 10% over the year and the 2016 period for comparison saw sterling at its weakest.

He added: "Clearly this is a challenging market and there have been a number of furniture and home retailers suffering as a result. Laura Ashley is not alone on that front.

"E-commerce sales were up but just by 5% and ought to be tracking higher than that. Like M&S, the ecommerce offering is not just up to standard yet. A new platform is going live in the second half but it’s got a lot of catching up to do. Compare with Next - online sales in 2017 up circa 10% while in-store sales are down 7%. Turning this into a positive, at under a fifth of group sales, the ecommerce element has a lot of room to grow.

"So can we find bright spots? The Laura Ashley Hotel concept may deliver a marginal boost to earnings but it won’t fix the core brand’s decline. Asia should hold great growth opportunities but here too it’s all rather disappointing. Franchise and licensing revenue of £9.9m, down from £10.2m a year ago, and was down to ‘sluggish trading conditions’. Bringing the master licence back in-house may help as the company can rebuild the brand at once but there is so much work to be done in the UK that this is really a secondary concern."

At 1005 GMT, the shares were down 4.3% to 5.84p.