HoF – taking the CVA option
House of Fraser’s proposed CVA, full year results from Sainsbury’s, Holland & Barrett and Yours Clothing.
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- Completely overshadowed by the Asda announcement, Sainsbury’s also brought forward its annual results announcement this week. The group reported a 9% increase in sales to £31.7bn for the year ended 10 Mar. Group like-for-likes rose by 1.3%, while underlying profit before tax grew by 1.4% to £589m, driven by a strong H2 performance of 11%. Grocery sales grew by 2.3%, clothing by 3.8%, but general merchandise slipped by by 0.8%.
- Health food specialist Holland & Barrett has reported a 7.1% increase in revenue to £656m for the year ended 30 Sep 2017. Like-for-likes were up 4.5% and online sales rose by 23.6%. H&B said that it was continuing to expand its portfolio “where strategically appropriate”. Profits fell by 37.4% to £72m, which it attributed to exceptional costs and higher financial expenses.
- Decent results from plus size fashion retailer Yours Clothing. For the year ended 28 Jan revenue increased by 22% to £88.3m. Online sales rose by 26% to represent 41% of total sales, while in-store sales climbed by 20%. The business operates 135 shops across the country, having opened a further five stores since the year-end.
Stephen Springham, Head of Retail Research:
The CVA debate rumbles on and, if anything, is intensifying. There is a growing feeling – justified in my mind – that we are drifting away from the premise upon which CVAs were originally conceived. A highly distressed operator with an otherwise sustainable business model staving off administration or liquidation by renegotiating its liabilities. However, rather than the last resort, it seems increasingly to be a strategic option, almost a “lifestyle choice” rather than an absolute necessity with no alternative.
House of Fraser is the latest retailer to launch a CVA. This has been on the cards for a while – we first heard rumours back in November. HoF’s CVA comes with something of a twist. C.banner (the Chinese business which also owns Hamleys) is set to buy a 51% stake in HoF from Nanjing Cenbest, who will remain a minority shareholder in the company. C.banner has also agreed to pay a further £70m for new shares leading to a “significant capital injection” in the retailer. This takeover, and cash injection, is subject to the retailer closing some of its 59 stores and renegotiating rents with landlords through a CVA, expected to be launched in June. So, effectively the CVA is a stipulation of the deal.
Although only 59 stores, HoF’s portfolio is a very mixed bag indeed, as you would expect from a business that has been built up by a string of acquisitions over the best part of a century. Stores vary massively in every conceivable way – age, pitch, size, configuration and this invariably feeds through to huge differences in trading performance. Rents are likewise all over the place (peppercorn through to ca. £15/sq ft).
As with all retailers, the business has an “ugly tail” of unprofitable stores it no longer wants. Quantifying how many stores will be offloaded is difficult, but my perception has always been thus: there has been a solid core of ca. 15 very profitable stores – think Guildford, Reading and the regional malls such as Bluewater, Meadowhall etc. Then there is an “acceptable” band of a further ca. 15 stores (the likes of Maidstone, Leamington Spa etc). At the other end, I would say the “ugly tail” comprises ca. 15 – 20 stores and I would tentatively venture that this will be the scale of closures. A number of the former Beatties stores definitely fall into this bracket e.g. Wolverhampton, Aylesbury, Birkenhead.
But the fact remains that the store portfolio is just one of the many issues facing HoF. Others are much more fundamental, such as the product offer itself. Amongst other issues, it lacks an own brand that is sufficiently strong to enable it to strike a point of difference with the competition. Question marks still remain as to the business’ management, there having been so many changes in recent years. Anecdotal rumours (which may or may not be true) of botched customer data migrations smack of poor basic retailing disciplines that should not happen in this day and age.
Does HoF have a future? If it can reduce its store portfolio to a more stable and profitable base, if its new owners make the huge necessary investment in restructuring the business, if it adopts strong retail skills under visionary leadership and if it develops is stores, private label and overall multi-channel proposition accordingly, then yes. But that’s a lot of ‘ifs’.