Missguided thinks too big, too fast, plunges into red, but says it's back on track
today Jan 7, 2019
Missguided has faced some challenging times in recent periods and the company’s latest set of annual results, for the 53 weeks to April last year, have fully reflected that. The company admitted that it had made mistakes with oversized physical stores that are expensive to maintain, over-ambitious expansion of the management team, and some product areas that aren’t popular enough. But it also said it’s getting to grips with all of this and expects to be back on track during its current financial year.
So what happened to the bottom line in fiscal 2018? The fast fashion e-tailer-turned-physical-retailer reported overall turnover up to £215.9 million in FY 18 from £205.8 million in the prior year. But it also faced a net loss of almost £46.7 million, much wider than the almost £1.4 million loss of a year earlier. Its operating loss (before just over £7 million of exceptional items) was almost £37.7 million, much worse that the year earlier’s profit of £580,000. Gross profit this time was £94.4 million, down from nearly £107 million and as a percentage of sales it fell to 43.7% from 51.9%.
The profit figure was heavily dented by “significant investment in gross margin to exit poorly selected product with a c.8% points reduction versus the prior year, and a 60% year-on-year increase in central support costs.” That meant an underlying trading loss before depreciation and interest of £26.4 million.
It was “also necessary to address the cost base to ensure that it was in line with future growth expectations” and that meant reorganisation and redundancy costs of almost £1.3 million.
CHALLENGES AND STRENGTHS
The company said the “year has been an extremely challenging one” but added that the brand has emerged “stronger and with a management team that has developed a sharper clarity on the key drivers of value within the business.”
But the company admitted that it had made some mis-steps in its senior team. “In order to support and enable future growth, a fresh tier of management was introduced to the business,” it said. “We now believe that this development was premature, materially increasing the cost base and diluting the influence of our founder, particularly in the critical areas of product selection and inventory management.”
That meant a “significant reversal to the growth trajectory recorded in previous years,” even though “e-commerce revenue remained broadly flat year-on-year,” which it said was evidence of the “equity within the Missguided brand.”
Its overall revenue rise was down to “new channels” including “a further strong performance in our wholesale channel and a full year of [physical] retail store operations, together with the first year of the Mennace menswear brand.”
The company currently has two physical stores, one in the Westfield Stratford mall and one in Bluewater (both of them very big), while it also has two regional concessions in Selfridges store in Birmingham and Manchester.
And while it said that its retail stores have been “well received by our customers, with strong absolute levels of revenue,” this has been “insufficient to cover their operating costs, primarily due to the stores being significantly too large.”
So what does that mean for the future? We assume the company will be seeking to downsize its physical locations’ floor space, but it seems to be committed to having a physical presence.
And it remains generally upbeat. It said that “post-year-end, we have made significant progress in delivering against our strategic roadmap. Whilst trading has materially improved, the current financial year will be a year of transition as we clear the remaining low quality stock and focus on returning the core e-commerce channel to growth.”
It expects to return to “historic levels of profitability” in the current year.
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