Quiz sales up over 8% but markdowns will dent profits

By

Sandra Halliday

Published
Jan 11, 2019

It’s always encouraging these days when a retailer reports sales up in the high single-digits over the Christmas period as Quiz Clothing did on Friday. 

But it wasn’t quite the good news that it seemed on the surface as the news also came with a mild profit warning and talk of heavy discounting.

And its rise didn’t come close to some of the rises it’s reported in previous periods, although at least it was firmly in positive territory.

The company, which had reported an almost-32% sales surge this time last year, said its turnover rose a more modest 8.4% in the six weeks to January 5 this time.

Within that, there were clear pockets of uber-strength - its online revenue soared 34.1% and through its own websites, e-sales were up an impressive 50.8%.

But where does that leave its stores? UK standalone and concession revenue rose only 1.6%, which isn’t great but at least it’s not the fall that a raft of its retail peers have reported. 

And the company said that it has opened three new standalone stores and relocated two stores into larger refurbished units in the financial year and is “pleased with the initial performance from these.”

It added that the balance sheet “remains strong with net cash of £12.3 million [and] inventory continues to be carefully managed with current levels similar to the previous year.”

But what about that profit warning? Quiz had previously indicated that its financial results for the year to 31 March would be largely dependent on Christmas trading. The retail trading environment “has been challenging over recent months, particularly in November,” it said Friday, and while “the group's sales patterns improved as the Christmas trading period progressed, overall sales were below expectations.”

So given the “continued uncertainty with regards to consumer demand and associated spend,” it’s revising its forecasts “to reflect recent trading patterns.” The company now expects revenues for FY 2019 will be lower than current market expectations at approximately £133 million. That’s still higher than the £116.4 million of a year earlier but a disappointment nonetheless.

It said the lower than anticipated revenues resulted in a higher than expected level of discounting to clear inventory. This should reduce gross margins in the six months to March 31 to around 60.5% from 62% in the period to the end of September. And Ebitda for the year should be around £8.2 million.

But the bad news didn’t come with any announcement of costs cuts or other drastic action. In fact, the company said that it “has invested in additional resources and personnel to facilitate its growth which has contributed to significant increases in employee, marketing and depreciation costs. Whilst it is disappointing that the growth in revenues has been insufficient to support these additional costs in the current financial year, we are confident that this investment will support the long-term growth of the business.”