Shop Direct CEO Henry Birch has hailed the potential of the online fashion retailer as it announced full-year results he said show a good underlying performance in a competitive external market, thanks, in the main, to its Very brand.
The retailer, which also operates the Littlewoods digital department stores, said operating profit before exceptional items grew 9.5% for the 52 weeks ended 30 June to GBP224.6m (US$296.2m). This compares to GBP205.2m last year.
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Group EBITDA increased 11% to GBP262.3m while gross margin declined 0.9 percentage points to 39.9% from 40.8% last year. Shop Direct said the fall was due to the higher proportion of electrical sales, the mix effect of the continued decline of Littlewoods and the challenging external environment.
Meanwhile, revenue growth slowed in the period with group sales edging up 1.5% to GBP1.96bn from GBP1.93bn in the year-ago period, despite what the company called a “challenging external environment”. The sales growth was driven, in the main, by Very revenue which climbed 9.9% to GBP1.4bn.
Very customers increased 8.5% to 2.82m in the period, boosting total group customers by 2.2% to 4.02m.
During the year, sales via mobile devices were up 5 percentage points to 74% of total online sales, compared to 69% last year. Orders from the Very smartphone app increased 39.5% year-on-year to represent 25.4% of total orders across all devices, up from 19.5% in 2017. On average, app customers visit the site twice as frequently as other customers and the app has a 10% better conversion rate compared with other sales channels.
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By GlobalDataVisits to the Very website, meanwhile, grew 11.6% to 374.4m, helping to increase total visits to the group’s websites by 5.8% to 520.8m.
“Four months into my role as CEO, I’m hugely excited by the potential of Shop Direct. Today we’re announcing results that show a good underlying performance in a competitive external market,” said CEO Henry Birch.
“Impressive growth in Very, and increases in group revenue and EBITDA show the resilience of our business, which is mobile-first, multi-category, and both a retailer and a credit provider.
“We’re trading in line with our expectations and preparing for the important peak season. It’s a changing and competitive market but our growth trajectory and differentiated customer offer gives us confidence for the year ahead.”
Product evolution required
Sofie Willmott, senior retail analyst at GlobalData, notes although revenue growth has slowed at Shop Direct, hindered by the continual decline of Littlewoods.com, Very.co.uk ensured FY2017/18 finished in positive territory.
However, close competitor Next is hot on the heels of Very, introducing more third-party brands with the crossover in product range becoming more evident and key names including Nike, Superdry and Ted Baker sold by both players.
“The retailer’s growing branded offer along with its Next Pay credit account, Next Unlimited delivery saver scheme and its broad customer base, puts Very.co.uk under pressure particularly as Next’s proposition clearly resonates with consumers – its H1 online sales (for the 26 weeks to 28 July 2018) rose 15.5% on the previous year,” she warns.
In addition, with the UK online clothing and footwear market growing by 13.5% in 2017 and forecast to rise by 10.8% in 2018, Shop Direct far underperformed in this sector, Wilmott says, adding clothing and footwear retail sales were up by just 0.2% and womenswear sales declined.
“As many online pureplays, namely Asos and the Boohoo group continue to outperform their multichannel competitors, Shop Direct is being dragged down by Littlewoods.com and must evolve its product proposition to drive future growth.
“Given the shake-up among Shop Direct’s management team this year with CEO Henry Birch joining in May, and the planned investment in a new fulfilment centre and the closing of three current warehouses, it is clearly a period of considerable change for the retailer. The newly formed leadership team must reinvigorate the retailer by improving the proposition and demonstrating a clear point of difference to fend offcompetitors vying for Shop Direct’s market share.”
