HoF – from the sublime to the ridiculous
HoF teetering on the brink, mixed half-year trading figures from Next, Wickes and Greggs.
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- Decent figures from Next. For the 12 weeks to 28 July, full-price sales increased 2.8%, ahead of full-year guidance of around 1%.However, the business was typically conservative in its guidance, warning that sales had only been brought forward from August on account of the weather and it did not upgrade its full-year profit target. Including markdowns (Next launched its end-of-season sale a week earlier, but with 20% less stock) total first half sales were up 3.9% year-on-year.
- A disappointing first half at Wickes. Parent company Travis Perkins reported a 5.8% decline in operating profit to £179m for the six months to 30 June, despite a 4.4% uplift in revenue and 4.2% increase in like-for-like sales. Wickes’ sales declined by 5.8% in the first half of the year, or 7.7% on a comparable basis. To put this performance into context, the ONS shows that retail sales at the DIY specialists increased by 5.9% over this period, despite a very soft March and April.
- Greggs reported a 24% increase in pre-tax profits to £24.1m in the first half of the year. In company-managed stores, like-for-like sales increased by 1.5%, while total sales grew by 5.2% to £476m. A total of 59 stores (including 19 franchises) were opened over the period, against 25 closures, increasing the estate to 1,888 at the half year-end.
Stephen Springham, Head of Retail Research:
The saga goes on at House of Fraser. Having secured (grudging) approval for its CVA, potential new owner C.Banner has pulled out of its proposed takeover deal.
With this goes its pledge of £70m of new investment. To make matters worse, credit ratings agency Moody’s also deemed HoF to be in “limited default”. Rescue talks are reportedly ongoing with other parties, but the business could conceivably be facing imminent collapse.
The legal challenge mounted by a number landlords (represented by Begbies Traynor and JLL) of alleged “unfair prejudice against certain creditors [and] material irregularities in the implementation of the CVA” has been more than a fly in the ointment. Whether it was the sole reason for C.Banner walking away is a moot point.
The fact that they did at seemingly the earliest opportunity goes a long way to proving what many (myself included) suspected anyway, namely that their interest was flaky, flighty and fanciful. It was unlikely to provide long-term salvation for HoF and events of the last week may actually be a blessing (although it probably doesn’t feel like that at the moment).
The official line from HoF is that it is “in discussions with alternative investors and is exploring options to obtain the required investment on the same timetable”.
Media speculation has thus far centred on three third parties: turnaround specialist Alteri Investors, Mike Ashley (of Sports Direct, Newcastle United etc) and Philip Day (of EWM, which includes Peacocks, Jane Norman, Jaeger and Austin Reed).
I have previously suggested to a number of journalists that Mike Ashley is the best hope HoF has for survival. Most laughed in my face, their prejudice against him personally overriding his unquestionable track record as a very shrewd retail operator. He has a history of successfully building and running retail businesses and has the financial clout to prove it. As, for that matter, does Philip Day.
In very broad terms, HoF needs four things to ensure its survival. 1. Stable and committed ownership. 2. Major short- and longer-term cash injection. 3. A visionary management team. 4. A long term strategy that completely re-engineers the business and focusses on growing the top line, rather than just cuts costs. At the moment, it has none of these things. Mike Ashley or Philip Day could bring at least two, plus facilitate the others that they themselves may lack.
Either would be a more hands-on and committed owner than Sanpower. Both have the cash and would understand the capital requirements of making the business viable (although, in fairness, would only invest if the numbers stacked up). Whether they would be best-placed to actually run the business themselves is open to question.
For many, Mike Ashley is synonymous with ‘pile it high, sell it cheap’ value-based retailing that is the central plank of Sports Direct’s strategy and many would assume that the same principles would be applied to HoF (as happened, for example, to Lillywhite’s).
Few people make the association that he also owns the upmarket Flannels chain, which, like HoF, is very orientated around major upscale fashion brands.
My personal feeling is that while Messrs Ashley or Day would make good owners of HoF, if they were to appoint a new management team, they could do a lot worse to take a punt on one of the younger breed, particularly those that have made such a success of pure-play fashion retailers such as boohoo or ASOS (to name but two).
Younger, more visionary and definitely more aligned to understanding current customer aspirations, they would bring the necessary vigour that HoF would need to succeed.
Cash may be the immediate concern for keeping the business afloat, but longer term becoming a more customer-centric business rather than a cost-cutting machine will determine its longevity.
There is clearly a great deal of negotiation currently going on behind closed doors and we can but speculate as to the outcome. A White Knight deal may materialise now, or the business may collapse.
And one of the suitors may then make their move, presumably at lower price than if they were to strike now? Who will it be? Mike Ashley, Philip Day, Alteri Investors, or an unlikely combination of any of these three? Or indeed, none of the above.
Whatever transpires, the fact remains that the stable ownership is just one of the four things that HoF needs to survive. But it is a crucial starting point.