New House of Fraser owner reveals shock loss at chain

By

Sandra Halliday

Published
May 10, 2018

Department store chain House of Fraser’s new majority owner has a major challenge ahead as it battles to bring the retailer back to health with Thursday seeing HoF posting a shock almost-£44 million loss for 2017.

C. Banner, the Chinese retailer that also owns toy store Hamleys and a raft of labels in its domestic market, said HoF’s sales fell 6.3% to £787.8 million last year. Meanwhile its profit figure moved from an uninspiring £1.5 million a year earlier to a massive pre-tax loss of £43.9 million for the latest 12-month period.

The company cited a number of reasons for the reverse, including Brexit, London terror attacks and online competition. Although while these have all affected the wider industry, they seem to have hurt HoF much more than other chains. 

Last month rival Debenhams reported a more-than-30% drop in group Ebitda for the first half, but it remained in profit (£103.5 million). In March, John Lewis said profit before partnership bonus, tax and exceptional items plummeted by 21.9% to £289.2 million. In November, Fenwick said its operating profit for the latest year had dropped 8% to £17.9 million. That was a month after Selfridges reported a record £180 million in annual operating profit, up 18% on the previous year.

The numbers revealed on Thursday include the start-up and operating costs of the firm’s still-small House of Fraser China operations, but don’t include the licence fee payable from the Chinese business to House of Fraser UK for the use of its name in that market. The figures also exclude the £25 million sale of the own-brands announced in January by the department store chain.

But these numbers will be reflected in the yet-to-be-released results for HoF UK and Ireland covering the year to January 2018.

Regardless of these exclusions, it’s clear that HoF has suffered disproportionately from the headwinds battering the retail sector while other department store chains of varying sizes have fared better.

C. Banner is taking a 51% stake in HoF by acquiring shares in previous majority owner, Sanpower affiliate Nanjing Cenbest, and subscribing to new shares. The sales and profit figures it released Thursday came in a Hong Kong Stock Exchange filing detailing the acquisition of the stake. Figures from the HKSE release suggest it’s spending around £141 million to complete the stake buy.

"The Brexit referendum and the UK's resultant decision to leave the European Union and the terrorist attack in London, combined with a rapidly evolving retail market, produced a period of uncertainty and volatility that resulted in a difficult trading environment for the whole retail industry in the UK,” the new owner said.

But it added that the chain would become “more stable” after completing its restructuring plan and would “take advantage of its well-known brand to capture growth potential.”

The new owner also said that it expects the takeover to lead to cost savings in its own fashion footwear and toy retail operations as it takes advantage of scale to negotiate better deals with suppliers. C. Banner also thinks the acquisition could lead to opportunities to buy other brands and forge more strategic links with other retailers.