House of Fraser- Half Year Update

20 September 2017

 

House of Fraser (UK & Ireland) Limited, the UK and Ireland’s premium department store group, launched a Transformation Programme at the beginning of Fiscal Year 2018 based on three key pillars: Product; Customer; and Infrastructure, within an overarching objective of transforming its interaction with its customers from a simple transactional nature into an experiential lifestyle-led relationship. The Group today updates the market on its progress and its performance for the 26 weeks to 29 July 2017.

Transformation Programme highlights:

 The Group launched the £25 million re-platforming of its ecommerce business in April 2017. The new system, which leverages a range of world class cloud based technologies, is working well and delivering the expected benefits to operational performance. As anticipated, immediately after the launch web sales were significantly disrupted as the new platform stabilised which impacted sales and profitability in the first half. Good progress has been made in recovering sale volumes; the Group expects to be trading normally by the beginning of the important final quarter of the year;

 The launch of the new Womenswear House Brand range has been completed: five of the existing House Brands were terminated; the remaining four were re-launched with new and exciting collections for Autumn/Winter 2017; and the Group’s new House Brand Issa was successfully launched. These new collections have been well received with initial revenues exceeding expectations. In preparation for the launch of the new womenswear range, House of Fraser engaged in significant discounting activity to clear legacy House Brand stock impacting the Group’s Gross Profit and Adjusted EBITDA during the period;

 The Group embarked on a £18 million investment in its distribution centre, of which £10 million will be provided by the Group’s majority shareholder, to increase capacity, drive operational efficiencies and improve profitability. This project is progressing well and is expected to deliver £5 million of efficiency savings in the second half of the year, rising to a run rate benefit of £15 million of efficiency savings by the time the project completes in mid-2018;

 House of Fraser opened a new store for the first time in nine years in Rushden Lakes on 24 August 2017. The Rushden Lakes store is trading strongly and will be a valuable addition to the Group’s portfolio. In July 2017, the Group closed the loss-making Leicester store and surrendered the lease to the landlord, and also announced in August 2017 the decision to exit the Aylesbury store; and

 The Group continued the strengthening of the leadership team with the appointment of Alex Williamson as the new Chief Executive Officer and Michelle Maynard as the new Chief People Officer.

Financial Highlights:

 Total GTV for the period was £545.8 million; like-for-like sales, which declined by 5.2% against last year, were impacted by the web disruption and the clear out of legacy Womenswear House Brand stock;

 As a consequence of the disruption to the ecommerce business, online sales were down 9.8% for the period;

 Adjusted EBITDA loss of £8.6 million (H1 2016/17: £0.9 million) due to the web re-platforming and the Womenswear House Brand transformation; and

 Gross Profit of £196.9 million, down on the prior year (H1 2016/17: £207.2 million), was similarly impacted by the web disruption and the clear out of legacy Womenswear House Brand stock.

Current trading and Outlook:

The benefits of the Transformation Programme are already beginning to come through in the first seven weeks of H2, with better sales and margin performance. The clear out of the 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 Group expects the full recovery in ecommerce sales, originally envisaged to be complete by the end of the summer, to take a further four to six weeks.

With the impact of the ecommerce re-platforming and legacy Womenswear House Brand clear out now largely complete, underlying trading going forward will reflect the general market conditions experienced by the wider Retail Industry. Looking ahead, the Group is optimistic that it can deliver growth over the key trading final quarter of the year.

Finally, and in recognition of the impact of the Transformation Programme on short term financial performance, the majority shareholder provided £15 million of support to the Group in September 2017. This is in addition to the £10 million contribution to the investment in the distribution centre to be provided by the majority shareholder.

Alex Williamson, CEO of House of Fraser 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. Whether it be refinancing the business, the investment of over £100M in capital expenditure since the acquisition or a root and branch upgrade of the executive team, much has already been done to prepare us for significant transformation.

"And House of Fraser has much to be optimistic about. Our new House Brand Womenswear collections for Autumn/Winter have been launched and our customers’ response to date has been very encouraging. Our new web platform greatly improves our customers’ experience and online margins whilst our investment in the distribution centre will deliver cost savings through improved operational efficiencies. And this is just the start of our journey with several other projects designed to provide additional sales and costs savings as part of the overall Transformation Programme due to commence shortly.

"I am excited about what lies ahead for the business and I am optimistic for the future. With the support of Sanpower, we are building the right foundations that position us well to deliver on our ambitions for sustainable profit growth."

 

About House of Fraser:

House of Fraser is a department store group with 59 enviable locations across the UK and Ireland. As one of the best known names on the high street, House of Fraser has presented customers with an unrivalled nationwide department store for over 168 years. The Group has annual sales of £1.5bn and employs 5,000 House of Fraser employees and 12,500 concession staff through over 4 million sqft of selling space. Customers can shop at House of Fraser from http://www.houseoffraser.co.uk.

House of Fraser (UK & Ireland) Limited is the parent company of the House of Fraser business in the UK and Ireland. It is 89% owned by House of Fraser Group Limited, which is also the parent company of House of Fraser’s operations in China (the remaining 11% interest in House of Fraser (UK & Ireland) Limited is owned by West Coast Capital (HOF CO) Limited). Nanjing Cenbest, a listed company in China is the Group’s ultimate parent company, following the acquisition on 2 September 2014.

CONTACTS

Newgate Communications +44 (0) 207 680 6550
Clotilde Gros / Eloise Cazalet / Lydia Thompson / Sophie O’Donoghue
hof@newgatecomms.com


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