New Look said that its move to prioritise profitable sales over sales growth had dented its online sales in the first half of its financial year – but that its store sales were more stable as a result.
The update on New Look’s turnaround strategy came as the fast fashion retailer, ranked Leading in IRUK Top500 research, this week unveiled plans to reduce the amount of debt on its balance sheet through a debt-for-equity swap.
New Look said that sales continued to fall in the first half of its current financial year, but pointed to an improving overall trend. Total UK like-for-like (LFL) sales fell by 4.2% in the first quarter of its financial year, but improved to a fall of 2.3% in the second quarter. Within that, said New Look, retail store LFL sales stayed flat but ecommerce sales fell as the company moved to focus “on profitable sales rather than absolute sales growth.” The figures, it said, also reflected the impact of an upgrade to its online platform in September. In the third quarter, it said, LFL sales had improved again (+0.9%).
Sales were ahead of last year in October (+4.8%) and November (+8.9%) but down in December (-5.7%) as a result of wider trends including falling in-store footfall and an industry-wide move towards discounting. Total UK sales were also hit as stores closed as a result of its CVA (company voluntary agreement) to restructure its store estate. Now, however, says the company, it is better placed than competitors to flex its business between stores and online.
It expects short-term profits to be lower than expected. Its focus is now on improving the business through a multichannel model that’s focused on driving footfall from online in to the store, while it looks for savings elsewhere and invests in the people in its business. Its click and collect sales mix increased to 41% in the first half of the year, bringing more people into stores.
The debt for equity swap is set to reduce long-term debt to £350m from £1.35m and to raise £150m in new capital through new money bonds. It is likely to be completed by the first quarter of its 2020 financial year.
Alistair McGeorge, executive chairman, said: “It has been clear for some time that the group’s existing level of indebtedness has been constraining our ability to accelerate our turnaround plans and would continue to limit our growth in the future.
“Therefore, today marks an important milestone for the business, our colleagues, our suppliers and all our other stakeholders. A materially delevered balance sheet and a more flexible capital structure will allow us to better navigate the challenging market environment and create a stable operating platform so that we can achieve further progress against our turnaround plans.
“Upon completion of the restructuring, our focus will be to enhance profitability by continuing to provide fantastic product for our customers, building brand equity and grasping new market opportunities.”
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