House of Fraser has weak H1 but H2 starts well on womenswear own-label rebuild

By

Sandra Halliday

Published
Sep 20, 2017

House of Fraser updated first-half trading on Wednesday morning and it didn’t make happy reading. But the UK department stores giant stayed upbeat, talking up the changes that are happening with its Transformation Programme. And despite larger losses, falling comp sales and higher costs, it said there was “much to be optimistic about”.

Was that assessment justified? Well, there are undeniably some encouraging areas for the business even though the overall H1 performance was poor.

Just take a look at the figures: gross transaction volume (GTV) for the 26 weeks to July 29 was £545.8 million after £573.5 million a year ago, with comparable sales down 5.2%. Sales were hurt by “web disruption” as it moved to a new platform (which sent e-tail sales down 9.8%) and the clear-out of legacy womenswear house brand inventory.

The adjusted Ebitda loss widened sharply to £8.6 million from £0.9 million, again, directly attributed to its web re-platforming and the womenswear transformation. Gross profit fell from £207.2 million a year ago to £196.9 million due to the same factors.

REASONS TO BE CHEERFUL

But HoF’s reasons for optimism were undeniable. The company said that the benefits of its Transformation Programme are already beginning to come through in the first seven weeks of H2, “with better sales and margin performance.”
 
That clear-out of its legacy womenswear house brand stock has now been completed and “a much stronger house brand performance is anticipated for the remainder of the year.” The company also expects a full recovery in e-commerce sales, originally expected to be complete by the end of the summer, but now set to take a further four-to-six weeks.
 
The company said “underlying trading going forward will [now] reflect the general market conditions experienced by the wider retail Industry,” although given that the wider sector is under a lot of pressure at the moment, it’s hard to work out just how upbeat that statement is.

That said, HoF insisted on Wednesday that it’s “optimistic that it can deliver growth over the key trading final quarter of the year.”

 
There was good news too on the fact that its controlling shareholder, China’s Sanpower, has this month provided £15 million of support in addition to the £10 million it invested in a distribution centre.

CEO Alex Williamson, who hasn’t been long in the job, said: “House of Fraser has many wonderful qualities and I have high expectations for the business. My observations after a few weeks are that since Sanpower acquired the business in 2014 the primary focus has been on stabilising an enterprise that had been starved of investment for many years.”
But he said with investment of over £100m in capital expenditure since the acquisition and “a root and branch upgrade of the executive team,” much has already been done “to prepare us for significant transformation.”

TRANSFORMATION ON TRACK

He said the company has a lot to be optimistic about and that’s where the company’s Transformation Programme comes in.

The new own label women’s collections have been launched (including the acquired Issa label) and customers’ response to date has been “very encouraging” with initial sales exceeding expectations.

Its £25 million new web platform “greatly improves our customers’ experience and online margins,” it said, even though it caused significant disruption in H1. The company said “good progress has been made in recovering sale volumes [and] the group expects to be trading normally by the beginning of the important final quarter of the year.”

Meanwhile, its £18 million investment in the distribution centre “will deliver cost savings through improved operational efficiencies” and its recently-opened store at Rushden lakes is “trading strongly”.

With all that happening it will be interesting to see how the next set of interim results turn out. Let’s hope they won’t be another story of lower sales and wider losses.