Value upholstered furniture-to-floorings purveyor ScS (SCS) is defying the retail sector doom and gloom. Shares in the Sunderland-headquartered home improvement retailer rallied 6.5% to 212p after the company reported better-than-expected full year results.
Sales and margins are both up, profits are ahead of expectations and current trading is surprisingly positive. It is surprising news and it has led analysts to upgrade profit forecasts for the current 12 month period to 31 July 2019.
SHOWING RESILIENCE
The self-styled ‘Sofa Carpet Specialist’s’ results for the year ended 28 July 2018 reveal a £2.8m gross sales improvement to £352.3m, 10.5% growth in profit before tax to a forecast-busting £13.2m and like-for-like orders up 0.2%.
Annual orders finished in positive territory despite the pressure on ‘big ticket’ spending and a second half blighted by the 'Beast from the East', then a summer heatwave and the distraction of the World Cup.
Unfettered by debt, the increasingly resilient leather chairs-to-laminates seller also ups the full year dividend 10.2% to 16.2p.
Encouragingly, and despite a tough prior year comparative, like-for-like sales order intake is up 2.1% for the first 9 weeks of the new financial year.
AGGRESSIVE AROUND ADVERTISING
‘2018 has been another strong year,’ comments CEO David Knight. ‘Despite a prolonged period of economic uncertainty and challenging trading conditions, we have continued to grow the business. I believe this is due to our continued focus on what we do best - ensuring that we offer an excellent customer experience with outstanding value, quality and choice.
'The downturn in sales in our House of Fraser concessions has been more than offset by growth in our core ScS business. This has been aided by record results from our online channel, which has seen a 22.6% increase in gross sales.’
‘We’ve continued to be aggressive around advertising and we’re bringing the customer great value,’ Knight informs Shares.
He also stresses House of Fraser concessions spoke for a modest 7.1% of last year’s sales and ScS is working with new owner Sports Direct (SPD) to arrest their poor performance. ‘We’ve never talked about it as a profit centre. We’ve talked about it as an opportunity,’ clarifies Knight.
House of Fraser was recently bought out of administration by Mike Ashley’s sporting goods powerhouse and ScS continues to trade from all 27 concessions.
‘We remain in discussions with the new owners in an attempt to agree new terms of trade, mindful of the 124 employees who work in these concessions, but also of the need to protect and enhance shareholder value,’ says Knight.
In a note headed ‘A first class retail outperformer’, house broker Shore Capital comments: ‘ScS is trading its estate very well, all credit to CEO David Knight and his team, whilst the financial constitution goes from strength-to-strength with net cash at the year excluding company deposits amounting to £36m.'
Shore says ‘it comes as no surprise to us that the group’s concessions in House of Fraser reported a decline in sales of 9.4%. With the adverse press that the department store has encountered with its financial difficulties that has ultimately resulted in a change of ownership post going into administration.
'House of Fraser’s plans going forward still appear unclear but we note ScS management is in discussion with the new owners to attempt to agree new terms of trade. It is worth highlighting that the former management of House of Fraser were dismissed by the new owners, Sports Direct’, as referenced in a characteristically blunt stock market announcement yesterday.
