Frasers Group sees higher 2021 earnings as FY profits fall 20%
Frasers Group forecast a 10-30% improvement in underlying core earnings next year as 2020 profits fell by a fifth due to the Covid-19 pandemic and warned of more store closures at the department store chain.
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Reported profit before tax fell to £143.5m from £179.2m as the company formerly known as Sports Direct and run by controversial chief executive Mike Ashley scrapped a final dividend. It also earmarked £100m for its "digital elevation" strategy".
The company said it expected more closures at House Of Fraser as it felt the impact of already weak retail sales further battered by the coronavirus lockdown, "the number of which will depend on the outcome of lease negotiation".
Since buying the chain in 2018, Frasers has earmarked a number of outlets for closure, with five of its 53-strong estate shut down in the last year.
For the year to April 26, Frasers made underlying earnings before interest, tax, depreciation and amortisation of £302.1m, up from £287.8 m a year earlier.
Group revenue increased by 6.9% to £3.9bn, driven by rises in its UK and European retail and premium lifestyle divisions, which offset falls in the rest of the world and wholesale & licensing units. Excluding acquisitions revenues fell 12.6%.
Sales at its premium lifestyle shops increased 35%, driven by the acquisition of Jack Wills and Sofa.com. Margins fell to 42% from 42.8% after the acquisition of video games retail chain Game.
Apart from its Sports Direct chain, the company also owns House of Fraser, GAME, Flannels, and USC, and has taken a stake luxury handbag maker Mulberry.
"With digital transformation now at the forefront, the successful reopening of our stores after the Covid-19 lockdown and continuing strong web performance, we are confident in achieving between a 10% and 30% improvement in underlying EBITDA during 2021," the company said on Thursday.
Ashley warned landlords that he wanted to move towards turnover-based rents across all his stores globally.
"Long term leases will be signed with collaborative landlords and those willing to co-invest in the elevated store model. However, it is possible further store closures will occur over the coming year where such terms cannot be agreed," he said.
There was also room for a scathing attack on the handling of department store Debenhams.
Ashley saw the value of Frasers’ shareholding, initially £150m, wiped out when the chain collapsed into administration in April last year.
Chairman David Daly said it was "scandalous that this business has now been in administration twice. To date and to our knowledge, there seems to be a lack of political or regulatory interest in investigating the impact on shareholders in the initial administration, and now in the second administration we expect that further stakeholders will suffer”.
Hargreaves Lansdown analyst Sophie Lund-Yates said the results were "better than might have been feared".
"There are a few reasons for this, the biggest is likely to be the simple fact the group sells sports gear, which we know was popular with those doing home workouts during lockdown. After all we were a lot more likely to grab a new pair of sports leggings online than we were a new outfit for the office," she said.
"Looking ahead, Mike Ashley’s game plan is a little confusing though. Having acquired an eclectic mix of high street names including GAME, House of Fraser and Jack Wills, the group’s future spoils rest on the successful execution of its so called elevation strategy."