Already unloved, shares in the Fulham-based small cap slump 9.7% to 5.51p on yet another profit warning, one twinned with poor interim results hurt by the impact of sterling weakness versus the US dollar.
Chairman Tan Sri Dr Khoo Kay Peng reports downbeat results for the six months to 31 December, pre-tax profit plummeting to £4.3m (2016: £7.8m) on reduced sales of £134.7m (2016: £146m). Top line retrenchment was mainly due to the shuttering of 25 stores during last year’s second half, although total retail like-for-like sales were also down 0.5%.
STERLING WEAKNESS STINGS
‘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.’
Margins were affected by the weakness of sterling against the US dollar, and the additional impact of rising costs in the UK.
Laura Ashley’s chairman says 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.’
CONSUMER CAUTION ABOUNDS
In a tough half which saw increasingly cautious UK shoppers reining in spending on big ticket items, Laura Ashley’s like-for-like sales grew in the Fashion and Home Accessories categories, but declined in Furniture and Decorating.
Sales in the latter category were hit by the closure of 22 Homebase stores where Laura Ashley concessions had become ‘a decorating destination for many of our customers’.
In a further blow for shareholders, struggling Laura Ashley is shelving the interim dividend, which amounted to 0.5p last year.
Long-suffering shareholders can at least cling to Laura Ashley’s encouraging online performance, with total e-commerce sales rising from £25.6m to £26.9m.
‘Progress on re-platforming our website is going well and it is expected to go live during the second half. We continue to serve ten European countries through our UK website and, separately, our Chinese digital platforms have recorded very promising sales growth,’ says the company.
During the half, Laura Ashley signed a new licence partner for Thailand to help develop the brand in South East Asian. Earlier this month, the £44.4m cap said it was taking back the brand licensing rights to Japan, another market with a voracious appetite for British heritage brands, from Aeon.
Interestingly, The Laura Ashley hotel recorded sales of £1.2m over the period, reflecting the steady performance of recent years. ‘Building on the success of our licensed hotels and interest from within the sector,’ says Laura Ashley, ‘the company has decided to expand Laura Ashley Hotels by licensing the concept both domestically and internationally.'
Cantor Fitzgerald Europe’s retail analyst Mark Photiades downgrades this year’s profit before tax forecast from £9m to £5m, slashing his estimate for 2019 from £11m to £8m, though he continues to forecast a 0.5p dividend in each year.
‘We maintain our buy recommendation but lower our target price to 9p from 12p to reflect the earnings downgrades,’ writes Photiades, of the view that ‘the brand has potential for further international expansion, coupled with additional online development as it consolidates the owned-store retail offer and focuses more on licensing.'