Peel Hunt downgrades Quiz as profit warning sends shares into freefall

Peel Hunt downgraded its stance on fashion brand Quiz to 'sell' from 'hold' on Thursday after it issued its second profit warning this year, cutting the price target to 12p from 25p.

Quiz said earlier that group EBITDA for 2019 is now expected to come in at £4.5m versus a previous forecast of £8.2m, while revenue will be £129m, down from its £133m estimate in January and 2018's £116.4m, following a disappointing start to the year.

The broker noted that while online sales have held up, in-store sales have been "beyond poor". Quiz said revenue in the period from 1 January 2019 to 28 February fell 1.7%, with a 16.2% jump in online revenue offset by an 11.1% drop in revenue from the group's UK standalone stores and concessions.

Peel said the travails at Debenhams and House of Fraser won’t have helped, but there is a fundamental problem here that the ranges are just not resonating with customers.

It said Quiz has always been close to its customers and engagement on social media is high but the latest ranges have not drawn people into the stores.

"That online sales are robust (although growing much slower than they were) is at least some solace but at a time when we think the general UK consumer is on a more even keel than it was before Christmas, this without doubt is a Quiz-specific problem."

The broker noted that occasionwear has been especially weak and said the business is now in day-to-day losses.

"With little strategic inspiration emerging with this profit warning, we can only assume that it will be a very long road to recovery.

"EBITDA may be positive next year but pre-tax losses are assured, and there seems very little reason to hold the shares, even at the lowly levels they will plumb today."

At 1140 GMT, the shares were down a whopping 54% to 14.66p.