Poor sales see profits at New Look wiped out

The group revealed a “disappointing” slump in sales and admitted it had allowed its pricing to become uncompetitive.

New Look, famed for its cheap high fashion, said it had bought too much stock at the higher end of its price range.

The company said like-for-like sales at its 600 UK stores slumped by 7.1 per cent in the year to March, marking a drastic reversal from the five per cent rise in the previous year.

Operating profits fell to £98m from £1.63bn a year earlier.

Executive chairman Alistair McGeorge, the former boss of budget chain Matalan who was brought in following the abrupt exit of the previous chairman and chief executive in March, said he would focus on buying more lower-priced products and controlling stock more tightly to reduce markdowns.

He predicted a tough year ahead, with shoppers hit by rising prices and austerity measures, and retailers facing increased costs of raw materials like cotton.

“I don’t see it getting any easier this year. I think it’s going to be a very, very difficult year for the retail sector,” he said, adding that while April was a better month, business got tough again in May.

Mr McGeorge is undertaking a strategic review of the business.

Previous chief executive Carl McPhail stepped down in March and founder Tom Singh, who still owns a 22.4 per cent stake in the company, took over while a permanent replacement was found.

Mr McGeorge said the results reflected the tough economic climate and “internal disruption” at the company.

New Look had allowed its prices to “drift upwards” which undermined its competitiveness and relative value positioning in the marketplace, he added.

The group said it had not done a good enough job of listening to what its customers want.

Mr McGeorge is guiding the company through a transition in order to ensure it delivers better-value products for shoppers.

New Look, which has twice tried and failed to return to the stock market in recent years, said profit was wiped out at the pre-tax level after interest payments on the group’s £1bn of net debt. It made a profit of £36m the year before.

Underlying operating profits dropped 40 per cent to £98m in the year to March 26.

Like-for-like UK sales were down 9.7 per cent in the second half, following a 4.5 per cent decline in the first, leading to the overall 7.1 per cent decline for the year.

Finance director Alastair Miller estimated the group lost £15m of sales due to heavy snow in the run-up to Christmas, and this had a knock-on effect on profits as stock that might have been sold at full price was cleared at discounted levels in the January sales.

The group also suffered disruption from the relocation of its buying, merchandise and design teams, he said.

New Look, with 1,051 stores across 15 countries, said like-for-like sales at international stores rose 0.5 per cent over the full year.

Mr Miller said the group had no pressing debt maturities and did not need to refinance its borrowings.

New Look was taken private in 2004 by private equity firms Apax and Permira along with founder Tom Singh.

It most recently tried to return to the stock market in February 2010, when its plans were scuppered by market turbulence and questions over its proposed valuation.

The company has promised more items that appeal to the middle market, but these will take time to hit the shelves and it will not be until next spring that its ranges are fully overhauled.

Mr McGeorge said: “We need to refocus and deliver great product and remind people of what makes us truly different.

“I don’t see it getting any easier this year for the sector, but there’s a lot we can do as a company to reposition ourselves with a view to being the New Look that everyone knows and loves.”

Analysts at Singer Capital Markets said New Look’s results are the conclusion of a very tough year. “Following a series of management changes, including at the senior level, a strategic review is underway to restore product and value architecture, some of which was visible at the recent Autumn/Winter preview last month.

“We believe trading so far in the first quarter has been considerably better than that experienced in the second half.”

Hit by cost of commodities

Budget retailers like New Look, Primark and Hennes & Mauritz have been particularly hard hit by the soaring cost of commodities such as cotton because raw materials make up a higher proportion of the price of their products.

New Look put up its prices by about four per cent in the second half of the year in response to the rising cost of commodities such as cotton, but Mr McGeorge said New Look’s price rises had not been as great as some of its competitors.

New Look said moving its buying team from its head office in Weymouth to London was partly responsible for some of the disruption in the business and had caused it to lose some of its talent.